AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STAT HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
3842
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
DELAWARE 76-0496236
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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)
COPIES TO:
CARMELO M. GORDIAN, ESQ. J. VAUGHAN CURTIS, ESQ.
RONALD G. SKLOSS, ESQ. JEFFREY A. ALLRED, ESQ.
BROBECK, PHLEGER & HARRISON LLP L. SCOTT ASKINS, ESQ.
301 CONGRESS AVENUE, SUITE 1200 ALSTON & BIRD
AUSTIN, TEXAS 78701 ONE ATLANTIC CENTER
TELEPHONE: (512) 477-5495 1201 WEST PEACHTREE STREET, 42ND FLOOR
FACSIMILE: (512) 477-5813 ATLANTA, GEORGIA 30309-3424
TELEPHONE: (404) 881-7000
FACSIMILE: (404) 881-4777
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable 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. [ ]
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value........ 3,795,000 shares $6.03125 $22,888,594 $7,893
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</TABLE>
(1) Includes 495,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) based upon the average of the high and low sales
prices for the Common Stock as reported by the Nasdaq National Market for
August 26, 1996.
------------------------
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. *
*******************************************************************************
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996
3,300,000 SHARES
[LOGO FOR STAT HEALTHCARE]
STAT HEALTHCARE, INC.
COMMON STOCK
---------------------------------------------------
Of the 3,300,000 shares of Common Stock offered hereby, 3,000,000 shares are
being sold by STAT Healthcare, Inc. ("STAT" or the "Company"), and 300,000
shares are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
the shares being sold by the Selling Stockholders. The Common Stock is quoted on
the Nasdaq National Market under the symbol "STHC." On August 28, 1996, the
closing sale price of the Common Stock on the Nasdaq National Market was $6 3/16
per share. See "Price Range of Common Stock."
Upon completion of this offering, the current directors and executive officers
of the Company will beneficially own approximately 55% of the outstanding Common
Stock of the Company. See "Risk Factors -- Voting Control by Management."
---------------------------------------------------
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.
<TABLE>
<CAPTION>
=====================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days from the date of this Prospectus, to purchase up to 495,000 additional
shares solely to cover over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
---------------------------------------------------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, withdrawal, cancellation or modification of the offer without notice,
delivery to and acceptance by the Underwriters, and certain other conditions. It
is expected that delivery of the shares of Common Stock offered hereby will be
made in San Francisco, California, on or about , 1996.
---------------------------------------------------
PACIFIC GROWTH EQUITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
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. Through its affiliated physician groups, STAT also currently
provides physician practice management services to 20 hospital emergency
departments, 17 of which are in the Houston greater metropolitan area, and has
entered into a contract to provide physician practice management services to
three additional hospital emergency departments commencing in October 1996.
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 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, 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.
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 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.
3
THE OFFERING
Common Stock offered by the
Company............................ 3,000,000 shares
Common Stock offered by the Selling
Stockholders....................... 300,000 shares
Common Stock to be outstanding after
the offering....................... 17,974,412 shares(1)
Use of Proceeds...................... For reduction of indebtedness and general
corporate purposes, including working
capital and potential acquisitions.
Nasdaq National Market symbol........ STHC
- ------------------------------
(1) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan and (ii) 787,226 shares of Common
Stock issuable upon the exercise of warrants outstanding at August 23, 1996.
See "Management -- 1996 Stock Incentive Plan," "Description of Capital Stock
-- Class A Warrants" and "-- Other Warrants" and "Underwriting."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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>
JUNE 30, 1996
---------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $ 4,189 $ 21,238
Total assets......................... 13,759 29,558
Long-term debt and capital lease
obligations, less current
portion............................ 2,282 2,282
Total liabilities.................... 7,099 5,849
Stockholders' equity................. 6,660 23,709
- ------------------------------
(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.
(4) Gives effect to the sale of 3,000,000 shares of Common Stock by the Company
in the offering at an assumed offering price of $6 3/16 per share, after
deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company. See "Use of Proceeds."
UNLESS OTHERWISE INDICATED HEREIN, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. 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
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 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 the 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 for payment of 80% of the composite rate determined by
HCFA for dialysis treatments and a secondary
5
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 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.
6
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 management's 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, 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
7
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 or 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 law also prohibits physicians from splitting fees with
non-physicians and prohibits 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.
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
8
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 group's contracts with hospitals generally require the affiliated
physician group to indemnify such other parties for losses resulting from a
contracted physician's 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. Upon completion of the offering, the current
executive officers and directors of the Company will in the aggregate
beneficially own approximately 55% of the outstanding Common Stock
(approximately 53% if the Underwriters' over-allotment option is exercised in
full). As a result, management will have 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 and Selling 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 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
9
that can be acted upon at stockholders meetings. See "Description of Capital
Stock -- Certain Anti-Takeover, Limited Liability and Indemnification
Provisions."
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 "Price Range of Common Stock."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial
number of shares of Common Stock after the offering 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. Upon completion of the offering,
the Company will have outstanding 17,974,412 shares of Common Stock (18,469,412
shares if the Underwriters' over-allotment option is exercised in full),
assuming no exercise of outstanding options and warrants after August 23, 1996.
Of these shares, (i) 5,359,958 shares, including the 3,300,000 shares offered
hereby (5,854,958 shares if the Underwriters' over-allotment option is exercised
in full), will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (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) 2,866,416 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) 9,251,515 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) 496,523
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 Rule 144. An additional
837,226 shares of Common Stock are issuable upon the exercise of currently
exercisable options and warrants. Substantially all shares issued following the
exercise of such options and warrants 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. The Company has agreed to release such lock-up agreements as they
relate to the shares offered by the Selling Stockholders in this offering. In
connection with this offering, the Company, and certain of its stockholders
holding in the aggregate shares of Common Stock have agreed that they will not
offer, sell, or otherwise dispose of any Common Stock for a period of 180 days
after effectiveness of the Registration Statement of which this Prospectus is a
part without the prior written consent of Pacific Growth Equities, Inc., as the
representative of the several underwriters (other than, in the case of the
Company, the issuance of securities in connection with acquisitions and pursuant
to employee benefit plans existing on the date hereof). In addition, the Company
has agreed not to redeem its outstanding Class A redeemable common stock
purchase warrants for a period of 180 days after the date of this Prospectus
without the prior written consent of Pacific Growth Equities, Inc. See "Shares
Eligible for Future Sale" and "Underwriting."
DISCRETIONARY USE OF PROCEEDS. The estimated net proceeds from the offering of
$17.0 million (after deducting estimated underwriting discounts and commissions
and offering expenses payable by the
10
Company) will, following consummation of the offering, be used to repay debt
outstanding under the Company's revolving line of credit with a bank, which
totaled $1.3 million at June 30, 1996. The balance of the net proceeds
(approximately $15.7 million) will be used to fund working capital and for other
general corporate purposes. The Company has not identified any specific use of
such proceeds and will retain broad discretion to use such proceeds as it deems
appropriate to expand the Company's business. See "Use of Proceeds."
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."
THE COMPANY
STAT provides a continuum of disease management services primarily to patients
with chronic kidney failure and also provides 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.
Through its affiliated physician groups, STAT also currently provides physician
practice management services to 20 hospital emergency departments, 17 of which
are in the Houston greater metropolitan area, and has entered into a contract to
provide physician practice management services to three additional hospital
emergency departments commencing in October 1996.
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.
11
RECENT DEVELOPMENTS
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, 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. Chapman's 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 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."
12
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 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
Based on an assumed offering price of $6 3/16 per share, the Company will
receive approximately $17.0 million from the sale of shares of Common Stock to
be sold by the Company in the offering (approximately $19.9 million if the
Underwriters' over-allotment option is exercised in full) after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company. The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholders.
The Company will use a portion of the net proceeds from the offering to repay
all outstanding indebtedness under the Company's revolving line of credit with a
commercial bank. At June 30, 1996, $1.3 million was outstanding under the credit
agreement at a weighted average interest rate of 7.18% per annum and maturing in
April 1997.
The balance of such net proceeds 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. The Company may also
apply a portion of the net proceeds of the offering to acquire businesses that
are complementary to those of the Company. Although the Company has not
identified any specific businesses that it may acquire, nor are there any
current agreements with respect to any such transactions, the Company from time
to time evaluates and enters into negotiations regarding such opportunities.
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 revolving line of credit
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.
13
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market (under the symbol
"STHC") since August 23, 1996, and 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. The following table sets forth the high and low
sales prices for the Common Stock as reported by the Nasdaq National Market and
the Nasdaq SmallCap Market for the periods indicated:
HIGH LOW
----- -----
1995:
Second Quarter (beginning April 21).. $3 13/16 $2 1/8
Third Quarter........................ 3 7/8 2 3/8
Fourth Quarter....................... 5 2 3/4
1996:
First Quarter........................ 6 3/4 3 5/8
Second Quarter....................... 9 5/8 5 1/2
Third Quarter (through August 28).... 8 3/8 5 3/4
On May 6, 1996, there were approximately 1,100 beneficial holders of Common
Stock. On August 28, 1996, the closing sale price of the Common Stock as
reported by the Nasdaq National Market was $6 3/16 per share.
14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June 30,
1996, and such capitalization as adjusted to reflect the sale by the Company of
3,000,000 shares of Common Stock in this offering at an assumed offering price
of $6 3/16 per share and the application of the estimated net proceeds therefrom
as described in "Use of Proceeds." 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.
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
Current portion of long-term debt.... $ 1,486 $ 236
Current portion of capital lease
obligations........................ 72 72
Long-term debt....................... 289 289
Long-term capital lease
obligations........................ 1,993 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; and
17,902,472 shares issued and
outstanding, as adjusted(1).... 149 179
Capital in excess of par
value.......................... 4,563 21,582
Retained earnings............... 1,948 1,948
------- -----------
Total stockholders'
equity.................. 6,660 23,709
------- -----------
Total
capitalization..... $10,500 $26,299
======= ===========
- ------------------------------
(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 warrants outstanding at June 30, 1996.
Subsequent to June 30, 1996, 71,940 shares of Common Stock were issued upon
the exercise of warrants. See "Management -- 1996 Stock Incentive Plan,"
"Description of Capital Stock -- Class A Warrants" and "-- Other Warrants"
and "Underwriting."
15
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
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 was 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 facilties 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
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 management 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 include: (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) supply 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 related entirely to the Exchange and consist of legal,
accounting and other transactional costs.
18
INCOME TAXES AND PRO FORMA INCOME TAXES. Combined income taxes and pro forma
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 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 centers were open
throughout 1994 and 1995, one center was open for seven months of 1994 and
throughout 1995 and the fourth center 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 is 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
and approximately $0.3 million is 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 was 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 is 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 is 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
QUARTERLY FINANCIAL RESULTS
The following tables set forth unaudited 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 financial statements that, in the
opinion of management, have been prepared on a basis consistent with the
Company's Consolidated Financial Statements contained 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
--------- --------- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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>
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
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 $1.5 million revolving line of credit with a commercial
bank, of which $1.3 million was outstanding at June 30, 1996. The revolving line
of credit bears interest at the prime rate, matures in April 1997 and is secured
by the Company's accounts receivable.
To posture the Company for future growth, the Company has obtained a commitment
letter for 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 will have a borrowing limit of up to $3.0 million, based upon qualified
accounts receivable, will bear 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 will mature in
August 1997. The term portion of the facility will have a borrowing limit equal
to the lesser of $3.5 million or 75% of new equipment purchases, will bear
interest at the prime rate, and will mature in August 1999. Accrued interest
will be payable monthly. All borrowings under the term facility must be made
prior to August 1997. Until August 1997, outstanding principal under the term
facility will be 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 will be 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 will also contain customary restrictive covenants, prohibit the payment
of dividends, require the Company to maintain certain financial ratios and be
guaranteed by all of the Company's subsidiaries and affiliated physician groups.
Available capacity under the Revolving and Term Credit Facility will be used to
repay the amounts outstanding under the Company's existing revolving line of
credit and $0.5 million outstanding under a term note. 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, the net proceeds from this
offering 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
22
can be no assurance that the Company's capital resources will be sufficient 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.
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 management's 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
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 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. Through its
affiliated physician groups, STAT also currently provides physician practice
management services to 20 hospital-based emergency departments, 17 of which are
in the Houston greater metropolitan area, and has entered into a contract to
provide physician practice management services to three additional hospital
emergency departments commencing in October 1996.
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 of 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 administration of erythropoietin ("EPO") and
general nutrition analysis. Management believes that the
24
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,
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.
BUSINESS STRATEGY
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 as follows:
o EXPAND INTEGRATED DISEASE MANAGEMENT SERVICES. The Company is focused
on offering a continuum of healthcare services to persons with chronic
kidney failure and its associated medical conditions. For example, the
Company may expand its disease management services by contracting with
hospital networks to provide inpatient dialysis and other ESRD-related
services. STAT believes its integrated approach to kidney disease
management is cost-effective and attractive to managed care companies
and other third-party payors.
o LEVERAGE EXISTING RELATIONSHIPS WITH HOSPITAL NETWORKS. Through its
affiliated physician groups, the Company has contracted to provide
physician practice management services for the emergency departments at
20 hospitals owned by Columbia. STAT believes it can expand its
relationship with Columbia into other hospitals owned or operated by
Columbia in market areas not currently served by the Company. The
Company intends to continue to focus on strategic relationships and
outsourcing opportunities with hospital networks, such as Columbia,
rather than management contracts with individual hospitals. In
addition, the Company believes its existing base of emergency
department management contracts provides opportunities for internal
growth through the cross-selling of services to other hospital-based
physician practices, such as radiology, pathology and anesthesiology.
o EXPAND INTO NEW GEOGRAPHIC MARKETS. STAT currently operates primarily
in the Rio Grande Valley of south Texas and the Houston greater
metropolitan area. The Company intends to expand into other
geographical markets by developing new dialysis facilities, acquiring
existing dialysis facilities, managing additional hospital-based HBO
therapy facilities and entering into additional emergency department
management contracts.
o ATTRACT MANAGED CARE CONTRACTS. The Company believes that HMOs and
other managed care companies will increasingly seek specialty
healthcare companies that offer better delivery systems to patients
than the managed care companies can offer themselves. STAT's disease
management services provide a continuum of care for patients with
chronic kidney failure. In addition, STAT's emergency physician
practice management services emphasize standard treatment protocols and
reduced clinical variation. The Company believes that these factors
enable it to deliver high-quality care and reduce overall healthcare
costs, thereby giving it a competitive advantage in attracting managed
care contracts.
25
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 patient's 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 patient's 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.
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 LOCATION 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.
26
The 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 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.
27
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:
<TABLE>
<CAPTION>
NO. OF
INSTALLED CHAMBER EXPIRATION OF INITIAL
FACILITY LOCATION CHAMBERS(1) CAPACITY(2) CONTRACT TERM
- ------------------------------------- ----------- ------------ ---------------------
<S> <C> <C> <C>
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
== ==
</TABLE>
- ------------------------------
(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 have 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 patient's 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 physician's prescription. EPO is a bio-engineered
protein which stimulates the production of red blood cells and is used in
connection with all 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
28
deterioration; (iv) electrocardiograms; (v) nerve conduction studies to test for
deterioration of a patient's nerves; (vi) doppler flow testing to test the
effectiveness of a patient's 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 physician's
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.
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
29
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 EPOs 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 patient's 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.
30
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 20 hospitals primarily in the
Houston greater metropolitan area, with services at three additional hospitals
in the Rio Grande Valley of south Texas expected to commence in the fourth
quarter of 1996.
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 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.
31
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
- ------------------------------
(1) Except as otherwise noted, all hospitals are owned by Columbia.
(2) Owned by The Methodist Healthcare Network.
(3) Owned by Tenet Health System.
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 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
32
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 physician's 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 facility's 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 satisfaction and identify areas for improvement. The non-clinical system
includes a patient questionnaire
33
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 hospital's 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 as
a dialysis provider conducts or may conduct business, 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 nephrologists who
provide patient care services do so as independent professionals. Each dialysis
unit does have a medical director, who is paid for specific administrative and
management services under contracts that meet the accrediting requirements for
such centers. These agreements also reserve to the physicians exclusive
authority to make all decisions regarding medical care. Based on current
interpretations of state law in Texas where the Company now operates, the
arrangement does not appear to violate the prohibition 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 operations of the Company as a dialysis
provider. 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 its affiliated physician groups.
34
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 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 physician's immediate family and the Company or an
ownership interest in the Company held by a physician or a member of the
physician's 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. The Company has a number of other financial relationships with
referring physicians. A determination that the Company provides designated
health services and any such financial relationship 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
performs 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
35
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 the financial relationship
between the Company and any of its referring physicians fails to comply with an
exception to the Stark Law would 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.
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 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"). 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 applicability of these provisions to
36
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 or 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.
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. Except for its dialysis services, the Company is not a provider or
supplier of services or items reimbursed by Medicare or state healthcare
programs. The Company believes its contractual arrangements with physicians are
in compliance with the Anti-Kickback Laws, and the Company has no intent to
compensate any party for the referral of any patients. No assurance can be made,
however, that a court or regulatory or enforcement agency would view these
arrangements in a similar manner, and an adverse finding would likely have a
material adverse effect on the Company's business, financial condition and
results of operations.
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.
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 influencing referrals of patients 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.
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
37
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 or
other claims 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 The 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.
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.
38
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 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
39
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."
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.
40
EMPLOYEES AND INDEPENDENT CONTRACTOR PHYSICIANS
At June 30, 1996, the Company had 232 full-time employees, of whom 11 were in
general executive positions, 44 were in administration and 177 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 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.
41
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:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
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)
- ------------------------------
</TABLE>
(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 Fort 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
42
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 $3.00 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. Prior to the consummation of the offering, the
Company will enter 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 Committee's functions include recommending to the Board the engagement
of the Company's independent auditors, reviewing with such
43
auditors the plans for and the results and scope of their auditing engagement
and certain other matters, 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.
44
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 four equal annual installments over
the optionee's 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.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUES OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
- ---------------------------------------- --------------------- ---------------------
<S> <C> <C>
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
</TABLE>
- ------------------------------
(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.
45
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 Administrator's 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 and Automatic 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 provide 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 vest,
except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to
46
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 individual's 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 optionee's 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 optionee's 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 optionee's 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
optionee's period of Board service. Each additional 20,000-share grant will vest
upon the optionee's completion of one year of Board service measured from the
grant date. However, each outstanding option will immediately
47
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.
48
CERTAIN TRANSACTIONS
In June 1996, upon consummation of the Exchange, Messrs. R. Perez, Schneider and
D. Perez were issued 3,868,915, 2,811,922 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 Physicians.
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.
49
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of Common Stock as of August 23, 1996, and as
adjusted to reflect the sale of shares offered hereby, 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, (iii) all current executive officers and
directors as a group, and (iv) each of the Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING(1) NUMBER OWNED AFTER OFFERING(1)
------------------------- OF SHARES -------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Ruben A. Perez(2).................... 3,868,915 25.8% -- 3,868,915 21.5%
Russell D. Schneider(3).............. 2,826,922(4) 18.9 -- 2,826,922(4) 15.7
Daniel A. Perez(5)................... 1,509,231 10.1 -- 1,509,231 8.4
William Restrepo, M.D.(6)............ 1,043,018 7.0 108,840 934,178 5.2
M.K. Razdan, M.D.(7)................. 1,026,038 6.9 107,070 918,968 5.1
William H. Rice, M.D.(3)............. 783,756(8) 5.2 -- 783,756(8) 4.4
Victor M. Miranda, M.D.(3)........... 805,677(9) 5.4 84,090 721,587(9) 4.0
Ned E. Chapman(3).................... 90,136(10) * -- 90,136(10) *
David C. Colby....................... 20,000(11) * -- 20,000(11) *
Ann N. James, Ph.D................... 20,000(11) * -- 20,000(11) *
All officers and directors as a group
(Eight persons).................... 9,924,637(12) 65.9% 84,090 9,840,547(12) 54.5%
</TABLE>
- ------------------------------
* 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 following
September 30, 1996, which is the assumed effective date of the offering,
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.
The Company will bear all expenses of the offering other than underwriting
discounts and commissions relating to shares sold by the Selling Stockholders,
which will be borne by the Selling Stockholders.
50
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 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, 14,974,412 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 August 23, 1996, the Company had outstanding 599,726 Class A redeemable
common stock purchase warrants (the "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.
51
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 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 Securities and Exchange 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 $.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. STAT has agreed not to redeem
the Class A Warrants for a period of 180 days after the date of this Prospectus
without the prior written consent of Pacific Growth Equities, Inc.
OTHER WARRANTS
The Company has outstanding an additional 62,500 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, until April 2000. The terms of such warrants grant to the holders
thereof certain piggyback registration rights until April 2002 and demand
registration rights until April 2000 with respect to the registration under the
Securities Act of the securities directly and indirectly issuable upon exercise
of such warrants.
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.
52
CLASSIFIED BOARD OF DIRECTORS. The Charter and Bylaws provide for a classified
Board of Directors pursuant to which the Companys 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 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. Prior to the consummation of the offering, the Company will enter 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.
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 August 23, 1996.
Upon completion of the offering, the Company will have outstanding 17,974,412
shares of Common Stock (18,469,412 shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of outstanding options and
warrants after August 23, 1996. Of these shares, (i) 5,359,958 shares, including
the 3,300,000 shares offered hereby (or 5,854,958 shares if the Underwriters'
over-allotment option is exercised
53
in full), 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) 2,866,416 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) 9,251,515 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) 496,523 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
837,226 shares of Common Stock are issuable upon the exercise of currently
exercisable options and warrants. Substantially all shares issued following the
exercise of such options and warrants 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. The Company has agreed to release such lock-up agreements as they
relate to the shares offered by the Selling Stockholders in this offering. In
connection with this offering, the Company and certain of its stockholders
holding in the aggregate approximately shares of Common Stock have agreed that
they will not offer, sell, or otherwise dispose of any Common Stock for a period
of 180 days after effectiveness of the Registration Statement of which this
Prospectus is a part without the prior written consent of Pacific Growth
Equities, Inc. (other than, in the case of the Company, the issuance of
securities in connection with acquisitions, pursuant to employee benefit plans
existing on the date hereof and to the Underwriters in this offering and, in the
case of the Selling Stockholders, to the Underwriters in this offering). In
addition, STAT has agreed not to redeem the Class A Warrants for a period of 180
days after the date of this Prospectus without the prior written consent of
Pacific Growth Equities, Inc.
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 179,000 shares immediately after the offering,
or approximately 184,000 shares if the Underwriters' over-allotment option is
exercised in full), 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 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 intends to file 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."
54
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Pacific Growth
Equities, Inc. is acting as representative (the "Representative"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock indicated below opposite its
name at the public offering price less underwriting discounts and commissions
set forth on the cover page of this Prospectus. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters are committed to purchase all of
the shares if they purchase any.
NUMBER OF
NAME SHARES
- ---------------------------------------- ---------
Pacific Growth Equities, Inc............
---------
Total......................... 3,300,000
=========
The Representative has advised the Company and the Selling Stockholders that the
Underwriters propose to offer the shares of Common Stock to the public on the
terms set forth on the cover page of this Prospectus. The Underwriters may allow
to selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. The offering price and other
selling terms may be changed by the Representative. The Common Stock is offered
by the Underwriters when, as and if delivered to and accepted by them and
subject to various prior conditions, including its right to reject orders in
whole or in part. The Representative has advised the Company that it intends to
make a market in the Common Stock after the effective date of this offering.
The Company has granted an option to the Underwriters, exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum of
495,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchase by
it shown in the above table bears to the total shares of Common Stock listed in
such table, and the Company will be obligated, pursuant to such option, to sell
such shares to the Underwriters. The Underwriters may purchase such shares to
cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company and certain of its stockholders holding in the aggregate shares of
Common Stock have agreed that they will not offer, sell, or otherwise dispose of
any Common Stock for a period of 180 days after effectiveness of the
Registration Statement of which this Prospectus is a part without the prior
written consent of the Representative (other than, in the case of the Company,
the issuance of securities in connection with acquisitions, pursuant to employee
benefit plans existing on the date hereof and to the Underwriters in this
offering and, in the case of the Selling Stockholders, to the Underwriters in
this offering). In addition, STAT has agreed not to redeem the Class A Warrants
for a period of 180 days after the date of this Prospectus without the prior
written consent of Pacific Growth Equities, Inc. See "Shares Eligible for Future
Sale."
The Common Stock is quoted and trades on the Nasdaq National Market under the
symbol "STHC."
55
LEGAL MATTERS
The validity of the Common Stock offered hereby will be 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. Certain legal matters in connection with the offering will be passed upon
for the Underwriters by Alston & Bird, Atlanta, Georgia.
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 health
care 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 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 Securities
Exchange Act of 1934, as amended (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 Commission's 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 on Form S-1 (Reg. No. 333- ) (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.
56
INDEX TO 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
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 applicable.
KPMG PEAT MARWICK LLP
Houston, Texas
August 9, 1996
F-2
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
McAllen, Texas
February 22, 1995
F-3
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
McAllen, Texas
August 9, 1996
F-4
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
1993 1994 1995
------------ ------------ --------------
ASSETS
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
============ ============ ==============
See accompanying notes to consolidated financial statements.
F-5
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
------------------------------
1993 1994 1995
------------ ------------ -------------
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
============ ============ =============
See accompanying notes to consolidated financial statements.
F-6
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
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
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
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
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
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
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:
1993 1994 1995
------------ ------------ --------------
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
============ ============ ==============
(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
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:
1993 1994 1995
------------ -------------- --------------
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
============ ============== ==============
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
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
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
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
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
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
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:
1993 1994 1995
------------ ------------ --------------
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
============ ============ ==============
F-20
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
================================================================================
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, THE SELLING STOCKHOLDERS OR THE
UNDERWRITERS. 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...................... 3
Risk Factors............................ 5
The Company............................. 11
Recent Developments..................... 12
Use of Proceeds......................... 13
Dividend Policy......................... 13
Price Range of Common Stock............. 14
Capitalization.......................... 15
Selected Consolidated Financial Data.... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 17
Business................................ 24
Management.............................. 42
Certain Transactions.................... 49
Principal and Selling Stockholders...... 50
Description of Capital Stock............ 51
Shares Eligible for Future Sale......... 53
Underwriting............................ 55
Legal Matters........................... 56
Experts................................. 56
Additional Information.................. 56
Index to Financial Statements........... F-1
================================================================================
3,300,000 SHARES
[LOGO FOR STAT HEALTHCARE, INC.]
COMMON STOCK
PROSPECTUS
PACIFIC GROWTH EQUITIES, INC.
, 1996
================================================================================
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.......... $ 7,893
NASD filing fee...................... 2,789
Printing expenses.................... 50,000
Legal fees and expenses.............. 200,000
Accounting fees and expenses......... 100,000
Blue sky fees and expenses........... 10,000
Transfer agent fees.................. 1,000
Miscellaneous........................ 28,318
----------
Total........................... $ 400,000
==========
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
II-1
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 director, officer,
employee or agent and shall inure to the benefit of such persons 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."
Prior to the consummation of the offering, the Company will enter 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.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
hereto, indemnifying officers and directors of the registrant against certain
liabilities.
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
II-2
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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following exhibits are filed as part of this Registration Statement unless
otherwise indicated:
1.1* Form of Underwriting Agreement.
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 registrant's 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 24, 1996
3.1 Certificate of Incorporation, as amended
3.2# Bylaws (filed as Exhibit 3.2 to the registrant's
Registration Statement on Form S-4 (Reg. No. 333-2486 (the
"Form S-4"))
4.1# Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Form S-4)
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.
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
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.
10.2 Form of Employment Agreement between the registrant and
Victor M. Miranda, M.D.
10.3 Form of Employment Agreement between the registrant and
Ned E. Chapman
10.4 Form of Employment Agreement between the registrant and
Ruben A. Perez
10.5 Form of Employment Agreement between the registrant and
Russell D. Schneider
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 10.7.1 to the
Form S-4)
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)
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 South Texas Acute Trauma Physicians,
P.A. (filed as Exhibit 10.13 to the Form S-4)
II-3
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. (filed as Exhibit 10.15 to the Form
S-4)
10.16# Facility Lease dated as of September 10, 1995 by and
between Mission Medical Properties Joint Venture and
Brownsville Kidney Center, Ltd. (filed as Exhibit 10.16 to
the Form S-4)
10.17# Facility Lease dated as of April 22, 1993 by and between
Enterprise Real Estate and Starr Dialysis Center, Ltd.
(filed as Exhibit 10.17 to the Form S-4)
10.18# Facility Lease dated as of January 9, 1995 by and between
Mission Medical Properties Joint Venture and Mission
Kidney Center, Ltd. (filed as Exhibit 10.18 to the Form
S-4)
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 (filed
as Exhibit 10.20 to the Form S-4)
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 April 10, 1995 between Old
STAT and Southwest Bank of Texas, N.A. ("SWBT"), as
amended by that certain Amendment to Credit Agreement
dated effective as of July 3, 1995, and as further amended
by that certain Second Amendment to Credit Agreement dated
effective as of April 10, 1996 (filed as Exhibit 10.22 to
the Form S-4)
10.23# Security Agreement between Old STAT and SWBT made as of
April 10, 1995, as amended by that certain First Amendment
to Security Agreement made as of April 10, 1996 (filed as
Exhibit 10.23 to the Form S-4)
10.24 Management Services Agreement, dated as of February 1,
1996, between Old STAT and STAT Physicians, P.A.
10.25 Form of Indemnification Agreement between the registrant
and each of its directors and executive officers
21.1 List of Subsidiaries
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 (included on the
signature page in Part II hereof)
- ------------------------------
* To be filed by amendment.
# Incorporated herein by reference to the indicated filing.
II-4
(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.
ITEM 17. UNDERTAKINGS.
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-5
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 29th day of August, 1996.
STAT HEALTHCARE, INC.
By: /s/ RUSSELL D. SCHNEIDER
Russell D. Schneider
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Russell D. Schneider, William H. Rice, M.D. and
Ned E. Chapman, and each of them, his or her true and lawful attorneys-in-fact
and agents, with full power of substitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his, her or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
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
- ------------------------------------ --------------------------------------- ----------------
<C> <S> <C>
/s/RUSSELL D. SCHNEIDER Chairman of the Board and Chief August 29, 1996
RUSSELL D. SCHNEIDER Executive Officer (Principal
executive officer)
/s/WILLIAM H. RICE, M.D. Vice Chairman of the Board August 29, 1996
WILLIAM H. RICE, M.D.
/s/VICTOR M. MIRANDA, M.D. President -- Emergency Physicians and August 29, 1996
VICTOR M. MIRANDA, M.D. Director
/s/RUBEN A. PEREZ President -- Healthcare Management, August 29, 1996
RUBEN A. PEREZ Treasurer and Director
/s/NED E. CHAPMAN Chief Financial Officer and Secretary August 29, 1996
NED E. CHAPMAN (Principal financial and accounting officer)
/s/ANN N. JAMES, PH.D. Director August 29, 1996
ANN N. JAMES, PH.D.
/s/DAVID C. COLBY Director August 29, 1996
DAVID C. COLBY
</TABLE>
II-6
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
August 29, 1996
S-1
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
McAllen, Texas
August 29, 1996
S-2
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 2.1.1
FIRST AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT (the "Amendment") is made and entered into as of the
13th 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 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 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) All references to the "Closing Date" shall be amended to refer
to on or about June 25, 1996.
(B) All references to May 27, 1996 in Sections 8.1 (b), (c) and
(d) and Section 8.3 (c) shall be amended to read June 30,
1996.
(C) All references to May 28, 1996 in Section 8.3(c) shall be
amended to read June 30, 1996.
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.
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
Title: Chief Financial Officer Title: Chief Financial Officer
STAT ACQUISITION CORP. AMHEALTH CORPORATION
By: /s/ Ned E. Chapman By: /s/ Ruben A. Perez
Title: Chief Financial Officer Title: President
AMHEALTH ENTERPRISES OF THE AMHEALTH AMBULATORY
VALLEY, INC. SERVICES, INC.
By: /s/ Ruben A. Perez By: /s/ Ruben A. Perez
Title: President Title: 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
Its: President Its: President
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
Its: President Its: 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
Its: President Its: 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
Its: President Its: President
AMHEALTH MEDICAL MANAGEMENT, LTD.
By: AmHealth Ambulatory
Services, Inc.,
Its General Partner
By: /s/ Ruben A. Perez
Its: President
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NEW STAT HEALTHCARE, INC.
The name of the corporation is New STAT Healthcare, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and
the name of the registered agent of the corporation in the State of Delaware at
such address is The Corporation Trust Company.
III.
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
IV.
The name and mailing address of the incorporator of the corporation is:
N. E. Chapman
12450 Greenspoint Dr., Suite 1200
Houston, Texas 77060
V.
A. The corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Forty-five Million
(45,000,000) shares of which Forty Million (40,000,000) shares shall be Common
Stock and Five Million (5,000,000) shares shall be Preferred Stock, each such
share with a par value of one cent ($0.01).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
pursuant to the Delaware General Corporation Law, to fix or alter from time to
time the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations and restrictions thereof,
including without limitation, the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and the liquidation preferences of any
wholly unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series and the designation thereof,
or any of them (a "Preferred Stock Designation"); and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status of authorized but unissued and undesignated Preferred Stock. If at any
time subsequent to the issuance of shares of a particular series, there are no
shares of such series remaining outstanding, such series thereupon shall
constitute a wholly unissued series and may be altered (including without
limitation the elimination of such series) to the full extent as hereinabove
provided. The foregoing authority of the corporation's Board of Directors
expressly includes the authority to designate series of Preferred Stock with
designations, powers, preferences, rights, qualifications, limitations and
restrictions senior to, junior to, or on parity with, the designations, powers,
preferences, rights, qualifications, limitations and restrictions of the Common
Stock or any series of outstanding Preferred Stock.
C. The Common Stock shall be subject to the prior and superior rights of
the Preferred Stock and any series thereof. Each share of Common Stock shall be
equal to every other share of Common Stock. The holders of shares of Common
Stock shall be entitled to one vote for each share of such stock upon all
matters presented to the stockholders.
VI.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed in the manner
provided in the Bylaws.
B. The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws; provided, however, that the stockholders may change or repeal
any Bylaw adopted by the Board of Directors by the affirmative vote of the
holders of a majority of the voting power of all of the then outstanding shares
of the capital stock of the corporation (considered for this purpose as one
class), and, provided further, that no amendment or supplement to the Bylaws
adopted by the Board of Directors shall vary or conflict with any amendment or
supplement thus adopted by the stockholders.
C. The directors of the corporation need not be elected by written ballot
unless the Bylaws so provide. At each annual meeting of stockholders, directors
of the corporation shall be elected to hold office until the expiration of the
term for which they are elected, and until their successors have been duly
elected and qualified; except that if any such election shall not be so held,
such election shall take place at a stockholders' meeting called and held in
accordance with the Delaware General Corporation Law. Effective upon the
consummation of the transactions contemplated by that certain Amended and
Restated Agreement and Plan of Reorganization, dated March 15, 1996, as amended,
among the corporation, STAT Healthcare, Inc., the corporations listed on
Schedule A thereof and the partnerships listed on Schedule B thereof, the
directors of the corporation shall classify its members into three classes as
nearly equal in size as is practicable, which shall be hereby designated Class
I, Class II and Class III. The term of office of the initial Class I directors
shall expire at the 1997 annual meeting of stockholders, the term of office of
the initial Class II directors shall expire at the 1998 annual meeting of
stockholders and the term of office of the initial Class III directors shall
expire at the 1999 annual meeting of stockholders. For the purposes hereof, the
initial Class I, Class II and Class III directors are those directors who were
so nominated and elected at the first annual meeting of stockholders. At each
annual meeting of stockholders thereafter, directors to replace those of a class
whose terms expire at such annual meeting shall be elected to hold office until
the third succeeding annual meeting and until their respective successors shall
have been duly elected and qualified. If the number of directors is hereafter
changed, any newly created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as is practicable.
The number of directors which constitute the whole Board of Directors of
the corporation shall be designated in the bylaws of the corporation or by
resolution adopted by the Board of Directors. Vacancies occurring on the Board
of Directors for any reason may be filled by vote of a majority of the remaining
members of the Board of Directors, although less than a quorum, at any meeting
of the Board of Directors. A person so elected by the Board of Directors to fill
a vacancy shall hold office until the next succeeding annual meeting of
stockholders of the corporation and until his or her successor shall have been
duly elected and qualified.
D. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VII.
In addition to any requirements of law and any other provisions of this
Certificate of Incorporation or the terms of any series of Preferred Stock or
any other securities of the corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, this Certificate of Incorporation or
any such terms), the affirmative vote of the holders of a majority in interest
of the combined voting power of the then outstanding shares of capital stock of
the corporation entitled to vote generally in an annual election (the "Voting
Stock"), voting together as a single class, shall be required to:
A. Remove a director without cause (for the purposes of this Article VII
"cause shall mean the willful and continuous failure of a director to
substantially perform such director's duties to the corporation, other than any
such failure resulting from incapacity due to physical or mental illness, or the
willful engaging by a director in misconduct injurious to the corporation);
B. Amend, alter or repeal or adopt any provision inconsistent with Article
VI or this Article VII; and
C. Amend, alter or repeal or adopt any provisions inconsistent with any
provision, other than Article VI or this Article VII contained in this
Certificate of Incorporation, unless otherwise approved by a majority of the
entire Board of Directors.
VIII.
Effective upon the consummation of the transactions contemplated by that
certain Amended and Restated Agreement and Plan of Reorganization, dated March
15, 1996, as amended, among the corporation, STAT Healthcare, Inc., the
corporations listed on Schedule A thereof and the partnerships listed on
Schedule B thereof, the stockholders of the corporation may not take action by
written consent without a meeting and must take any actions at a duly called
annual or special meeting. Meetings of stockholders may be held within or
without the State of Delaware as the Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the corporation.
IX.
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.
X.
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.
Any repeal or modification of the foregoing provisions of this Article X
by the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
XI.
The corporation is to have perpetual existence.
XII.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware and in pursuance of the General Corporation Law of Delaware,
does make and file this Certificate, hereby declaring and certifying that the
facts herein stated are true, and accordingly has hereunto set his hand this
15th day of March, 1996.
\s\ NED E. CHAPMAN
N.E. Chapman
Incorporator
CERTIFICATE OF MERGER
OF
AMHEALTH CORPORATION,
AMHEALTH ENTERPRISES OF THE VALLEY, INC., AND
AMHEALTH AMBULATORY SERVICES, INC.
INTO
NEW STAT HEALTHCARE, INC.
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
STATE OF
NAME INCORPORATION
AmHealth Corporation, Inc. ("AmHealth") Texas
AmHealth Enterprises of the Valley, Inc. ("AEV") Texas
AmHealth Ambulatory Services, Inc. ("AAS") Texas
New STAT Healthcare, Inc. ("New STAT") Delaware
SECOND: That an Amended and Restated Agreement and Plan of Reorganization
("Reorganization Agreement") between AmHealth, AEV, AAS, the AmHealth
Partnerships named therein, New STAT, STAT Healthcare, Inc., a Delaware
corporation, and STAT Acquisition Corp., a Delaware corporation, has been
approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of section 252 of
the General Corporation Law of Delaware.
THIRD: That the name of the surviving corporation of the merger is New
STAT Healthcare, Inc. ("STAT"), a Delaware corporation, which shall change its
name to be STAT Healthcare, Inc.
FOURTH: That the Certificate of Incorporation of New STAT, a Delaware
corporation which is surviving the merger, shall be the Certificate of
Incorporation of the surviving corporation, except that Article First shall be
amended to read as follows:
"The name of the corporation shall be STAT Healthcare, Inc."
FIFTH: That the executed Reorganization Agreement is on file at the
principal place of business of the surviving corporation, the address of which
is 12450 Greenspoint Drive, Suite 1200, Houston, Texas 77060.
SIXTH: That a copy of the Reorganization Agreement will be furnished by
the surviving corporation, on request and without cost, to any stockholder of
any constituent corporation.
SEVENTH: The authorized capital stock of each foreign corporation which is
a party to the merger is as follows:
PAR VALUE
CORPORATION CLASS NUMBER OF SHARES PER SHARE
----------- ----- ---------------- ---------
AmHealth Common Stock 1,000 $1.00
AEV Common Stock 1,000 1.00
AAS Common Stock 1,000 1.00
IN WITNESS WHEREOF, the undersigned corporation has caused this
Certificate of Merger to be executed in its corporate name this 24th of June,
1996.
NEW STAT HEALTHCARE, INC.
By: \s\ NED E. CHAPMAN
N.E. Chapman
Chief Financial Officer
EXHIBIT 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of June 24, 1996, by and among STAT HEALTHCARE, INC.,
a Delaware corporation formerly named "New STAT Healthcare, Inc." (the
"Company"), AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York corporation, as
Warrant Agent (the "Warrant Agent") and NETWORK 1 FINANCIAL SECURITIES, INC., a
Texas corporation ("Network 1" or the "Underwriter").
W I T N E S S E T H
WHEREAS, in connection with a public offering pursuant to a registration
statement on Form SB-2 declared effective by the Securities and Exchange
Commission on April 20, 1995, relating to units ("Old STAT Units") consisting of
(i) two (2) shares of common stock, par value $0.01 per share (the "Old STAT
Common Stock") of Old STAT, Inc., a Delaware corporation wholly owned by the
Company and formerly named "STAT Healthcare, Inc." ("Old STAT"), and (ii) one
(1) Class A Redeemable Common Stock Purchase Warrant of Old STAT (the "Old STAT
Warrants"), pursuant to an underwriting agreement (the "Underwriting Agreement")
dated April 20, 1995 between Old STAT and the Underwriter, (A) Old STAT issued
an aggregate of 671,666 Old STAT Warrants and (B) Old STAT issued to the
Underwriter or their designees warrants (the "Old STAT Underwriter's Warrants")
to purchase up to 62,500 additional Old STAT Units pursuant to which Old STAT
may be required to issue up to 125,000 shares of Old STAT Common Stock and
62,500 additional Old STAT Warrants; and
WHEREAS, the Company and Old STAT are parties to a certain Amended and
Restated Agreement and Plan of Reorganization, dated as of March 15, 1996, as
amended (the "Reorganization Agreement"), pursuant to which (a) AmHealth
Corporation, AmHealth Enterprises of the Valley, Inc. and AmHealth Ambulatory
Services, Inc., each a Texas corporation (collectively, the "AmHealth
Corporations"), were merged with and into the Company, with the Company as the
surviving corporation, (b) all the general partners and all the limited partners
(excluding limited partners representing a 25% interest in Brownsville Kidney
Center, Ltd.) (the "AmHealth Partners") of AmHealth Kidney Centers of the
Valley, Ltd., Weslaco Kidney Center, Ltd., Starr Dialysis Center, 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 of which is a
Texas limited partnership (collectively, the "AmHealth Partnerships") received
shares of the Company's common stock, par value $0.01 per share (the "Common
Stock"), in exchange for the outstanding general and limited partner interests
in the AmHealth Partnerships held by such partners, and (c) Old STAT was merged
with STAT Acquisition Corp., a Delaware corporation wholly owned by the Company,
with Old STAT as the surviving corporation (such transactions being collectively
referred to as the "Exchange"); and
WHEREAS, pursuant to the Exchange, (i) the shareholders of the AmHealth
Corporations (the "AmHealth Shareholders") and the AmHealth Partners
collectively received a total of 11,200,000 shares of Common Stock, (ii) each
issued and outstanding share of Old STAT Common Stock was converted into one
share of Common Stock, (iii) each outstanding Old STAT Warrant was converted
into a Class A Redeemable Common Stock Purchase Warrant of the Company (the
"Warrants") exercisable for shares of Common Stock under substantially the same
terms and conditions as the Old STAT Warrants and (iv) each outstanding Old STAT
Underwriter's Warrant was converted into an Underwriter's Warrant of the Company
(the "Underwriter's Warrants") exercisable for units (the "Units") consisting of
two (2) shares of Common Stock and one (1) Warrant under substantially the same
terms and conditions as the Old STAT Underwriter's Warrants; and
WHEREAS, in connection with the Reorganization Agreement and the Exchange,
the Company filed a registration statement (the "Registration Statement") on
Form S-4 declared effective by the Securities and Exchange Commission on May 22,
1996, registering under the Securities Act of 1933 all shares of Common Stock,
Warrants and Underwriter's Warrants (including all underlying Common Stock and
Warrants) issuable in the Exchange; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof.
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the authorized stock of the Company of
any class, whether now or hereafter authorized, which has the right to
participate in the distribution of earnings and assets of the Company without
limit as to amount or percentage, which at the date hereof consists of
40,000,000 shares of Common Stock, $0.01 par value per share.
(b) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located on the date hereof at 40 Wall Street,
New York, New York 10005.
(c) "Exchange Agent" shall mean American Stock Transfer & Trust
Company, in its capacity as Exchange Agent under that certain Exchange Agent
Agreement, of even date hereof, among American Stock Transfer & Trust Company,
the Company and Old STAT.
(d) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Warrant Agent, of an amount in lawful money of the United States of America
equal to the applicable Purchase Price.
(e) "Initial Warrant Exercise Date" shall mean, as to each Warrant,
June 25, 1996.
(f) "Purchase Price" shall mean the price to be paid upon exercise
of each Warrant in accordance with the terms hereof, which price shall be $4.50,
subject to adjustment from time to time pursuant to the provisions of Section 9,
and subject to the Company's right to reduce the Purchase Price upon notice to
all Warrant Holders.
(g) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $0.05 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9.
(h) "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained by
the Warrant Agent pursuant to Section 6.
(i) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(j) "Warrant Expiration Date" shall mean, with respect to each
Warrant, 5:00 p.m. (New York, New York time) on April 19, 1998, or the
Redemption Date as defined in Section 8, whichever is earlier; provided that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (New York, New York time) on the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized to close. Upon notice to all Warrant Holders, the Company
shall have the right to extend the Warrant Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one (1) share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) Pursuant to that certain Exchange Agent Agreement, of even date
hereof, among the Exchange Agent, the Company and Old STAT, the Exchange Agent
has agreed to issue an aggregate of 671,666 Warrants from time to time hereafter
to the holders of Old STAT Warrants in exchange for the Old STAT Warrants.
(c) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 734,166 shares of Common Stock,
subject to adjustment as described herein, upon the exercise of Warrants in
accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Underwriter's Warrants;
and (vi) at the option of the Company, in such form as may be approved by its
Board of Directors, to reflect any adjustment or change in the Purchase Price,
the number of shares of Common Stock purchasable upon exercise of the Warrants
or the Redemption Price therefor made pursuant to Section 9.
(e) Pursuant to the terms of the Underwriter's Warrants, the Underwriter
and their designees may purchase up to an aggregate of 62,500 Units, which
include up to 62,500 Warrants.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be such officer of the Company before the date of issuance of the
Warrant Certificates or before countersignature by the Warrant Agent and issue
and delivery thereof, such Warrant Certificates may nevertheless be
countersigned by the Warrant Agent, issued and delivered with the same force and
effect as though the person who signed such Warrant Certificates had not ceased
to be such officer of the Company. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4(a).
SECTION 4. EXERCISE
(a) Each Warrant may be exercised by the Registered Holder thereof at any
time on or after the Initial Warrant Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder upon exercise thereof as of the
close of business on the Exercise Date. As soon as practicable on or after the
Exercise Date, the Warrant Agent shall deposit the proceeds received from the
exercise of a Warrant and shall notify the Company in writing of the exercise of
the Warrants. Promptly following, and in any event within five (5) days after
the date of such notice from the Warrant Agent, the Warrant Agent, on behalf of
the Company, shall cause to be issued and delivered by the Transfer Agent, to
the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise (plus a Warrant
Certificate for any remaining unexercised Warrants of the Registered Holder)
unless prior to the date of issuance of such certificates the Company shall
instruct the Warrant Agent to refrain from causing such issuance of certificates
pending clearance of checks received in payment of the Purchase Price pursuant
to such Warrants. Notwithstanding the foregoing, in the case of payment made in
the form of a check drawn on an account of Network 1 or such other investment
banks and brokerage houses as the Company shall approve in writing to the
Warrant Agent, certificates shall immediately be issued without prior notice to
the Company or any delay. Upon the exercise of any Warrant and clearance of the
funds received, the Warrant Agent shall promptly remit the payment received for
the Warrant to the Company or as the Company may direct in writing.
(b) If, at the Exercise Date in respect of the exercise of any Warrant at
any time on or after the first anniversary of the date hereof (i) the market
price of the Company's Common Stock is greater than the then Purchase Price of
the Warrant, (ii) the exercise of the Warrant was solicited by a member of the
National Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant was
not held in a discretionary account, (iv) disclosure of compensation
arrangements was made both at the time of the original offering and at the time
of exercise; and (v) the solicitation of the exercise of the Warrant was not in
violation of Rule 10b-6 (as such rule or any successor rule as may be in effect
as of such time of exercise) promulgated under the Securities Exchange Act of
1934, as amended, then the Warrant Agent, simultaneously with the distribution
of proceeds to the Company received upon exercise of the Warrant(s) so exercised
shall, on behalf of the Company, pay from the proceeds received upon exercise of
the Warrant (s), a fee of four (4%) percent of the Purchase Price to the
Underwriter (of which a percentage may be reallowed to the dealer who solicited
the exercise, which dealer may also be Network 1). Within five days after the
exercise the Warrant Agent shall send to the Underwriter a copy of the reverse
side of each Warrant exercised. The Underwriter shall reimburse the Warrant
Agent, upon request, for its reasonable expenses relating to compliance with
this Section 4(b). In addition, the Underwriter and the Company may at any time
during business hours, examine the records of the Warrant Agent, including its
ledger of original Warrant certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this paragraph may not be modified,
amended or deleted without the prior written consent of the Underwriter and the
Company.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange, if any, on which the other shares of outstanding Common
Stock of the Company are then listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable effort
to obtain appropriate approvals or registrations under state "blue sky"
securities laws with respect to any such securities. However, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requiring the same has paid to the Warrant Agent
the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Common Stock required upon exercise of the Warrants, and the Company will
authorize the Transfer Agent to comply with all such proper requisitions. The
Company will file with the Warrant Agent a statement setting forth the name and
address of the Transfer Agent of the Company for shares of Common Stock issuable
upon exercise of the Warrants, unless the Warrant Agent and the Transfer Agent
are the same entity.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of all the terms and provisions hereof, the Company shall execute and the
Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants of the same
class.
(c) With respect to all Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any exchange
or registration of transfer of Warrant Certificates. In addition, the Company
may require payment by such holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly canceled by the Warrant
Agent and thereafter retained by the Warrant Agent until termination of this
Agreement or resignation as Warrant Agent, or, with the prior written consent of
the Underwriter, disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants will be immediately transferable separately from the
Common Stock.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a BONA FIDE
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. REDEMPTION
(a) Commencing on the date hereof, on not less than thirty (30) days'
prior written notice, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $0.05 per Warrant, provided the closing bid
price of the Old STAT Common Stock or the Company's Common Stock on The Nasdaq
Stock Market as reported by the National Quotation Bureau, Incorporated exceeds
$5.50 for at least 20 consecutive trading days ending on the third business day
prior to the date of the notice of redemption. All Warrants must be redeemed if
any of the Warrants are redeemed.
(b) In case the Company shall desire to exercise its right to so redeem
the Warrants, it shall request the Warrant Agent or the Underwriter to mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth (30th) day
before the date fixed for redemption (the "Redemption Date"), at their last
address as shall appear on the records of the Warrant Agent. Any notice mailed
in the manner provided herein shall be conclusively presumed to have been duly
given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the date fixed for redemption, (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid, (iv) that Network 1 will
assist each Registered Holder of a Warrant in connection with the exercise
thereof (if Network 1 has conducted, or caused to be conducted, the mailing) and
(v) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New
York, New York time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of Network 1 or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be PRIMA FACIE evidence of the facts stated
therein.
(d) Any right to exercise a Warrant that has been called for redemption
shall terminate at 5:00 p.m. (New York, New York time) on the business day
immediately preceding the Redemption Date. On and after the Redemption Date,
Holders of the redeemed Warrants shall have no further rights except to receive,
upon surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrants
to be redeemed, deliver or cause to be delivered to or upon the written order of
such Holder a sum in cash equal to the redemption price of each such Warrant.
From and after Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the redemption
price, shall cease.
SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON
STOCK OR WARRANTS.
(a) Subject to the exceptions referred to in Section 9(g), in the event
the Company shall, at any time or from time to time after the date hereof, sell
any shares of Common Stock for a consideration per share less than the then
current Purchase Price or issue any shares of Common Stock as a stock dividend
to the holders of Common Stock, or subdivide or combine the outstanding shares
of Common Stock into a greater or lesser number of shares (any such sale,
issuance, subdivision or combination being herein called a "Change of Shares"),
then, and thereafter upon each further Change of Shares, the applicable Purchase
Price in effect immediately prior to such Change of Shares shall be changed to a
price (including any applicable fraction of a cent) determined by multiplying
the Purchase Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of (a) the total number of shares of Common
Stock outstanding immediately prior to such Change of Shares and (b) the number
of shares of Common Stock which the aggregate consideration received by the
Company upon such sale, issuance, subdivision or combination (determined in
accordance with subsection (f)(vi) below) could have purchased at the then
current Purchase Price, and the denominator of which shall be the total number
of shares of Common Stock outstanding immediately after such Change of Shares.
Upon each adjustment of applicable Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b)) be such number of shares (calculated to the nearest tenth) purchasable at
the applicable Purchase Price immediately prior to such adjustment multiplied by
a fraction, the numerator of which shall be the applicable Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the applicable Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the applicable Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of
adjusting the number of shares of Common Stock purchasable upon the exercise of
each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the applicable Purchase Price in effect immediately prior to such
adjustment and the denominator of which shall be the applicable Purchase Price
in effect immediately after such adjustment. Upon each such adjustment of the
number of Warrants, the Redemption Price in effect immediately prior to such
adjustment also shall be adjusted by multiplying such Redemption Price by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately after such adjustment and the denominator of which shall be the
Purchase Price in effect immediately prior to such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9, the Company
shall, as promptly as practicable, cause to be distributed to each Registered
Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10, the number of additional
Warrants, if any, to which such Holder shall be entitled as a result of such
adjustment or, at the option of the Company, cause to be distributed to such
Holder in substitution and replacement for the Warrant Certificates held by him
prior to the date of adjustment (and upon surrender thereof, if required by the
Company) new Warrant Certificates evidencing the number of warrants to which
such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock) , or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such warrant, immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant Certificates theretofor and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Section 2(f), continue to express the applicable Purchase Price per share, the
number of shares purchasable thereunder and the Redemption Price therefor as the
Purchase Price per share, the number of shares purchasable thereunder and the
Redemption Price therefor as were expressed in the Warrant Certificates when the
same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this Section
9, the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the applicable Purchase
Price as so adjusted, (ii) the number of shares of Common Stock purchasable upon
exercise of each Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Warrants, the number of Warrants to which the
registered holder of each Warrant shall then be entitled, and the adjustment in
Redemption Price resulting therefrom, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to the Underwriter and to each Registered Holder of Warrants at
his last address as it shall appear on the registry books of the Warrant Agent.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be PRIMA FACIE evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following provisions
(i) to (vi) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any given
time shall include shares of Common Stock owned or held by or for the account of
the Company and the sale or issuance of such treasury shares or the distribution
of any such treasury shares shall not be considered a Change of Shares for
purposes of said sections.
(ii) No Adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $0.05 in such
price; provided that any adjustments which by reason of this clause (ii) are not
required to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $0.05 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company solely for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants or options shall consist
solely of cash, whether or not such rights, warrants or options, or the right to
convert or exchange such Convertible Securities, are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the then current Purchase Price
immediately prior to the date of the issuance or sale of such rights, warrants
or options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed
to have been sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company solely for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the then Purchase Price
immediately prior to the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) If the exercise or purchase price provided for in any right,
warrant or option referred to in clause (iii) above, or the rate at which any
Convertible Securities referred to in clause (iii) or (iv) above are convertible
into or exchangeable for Common Stock, shall change at any time (other than
under or by reason of provisions designed to protect against dilution), the
Purchase Price then in effect hereunder shall forthwith be readjusted to such
Purchase Price as would have been obtained (1) had the adjustments made upon the
issuance or sale of such rights, warrants, options or Convertible Securities
been made upon the basis of the issuance of only the number of shares of Common
Stock theretofor actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities, (2) had adjustments been
made on the basis of the Purchase Price as adjusted under clause (1) for all
transactions (which would have affected such adjusted Purchase Price) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities, and (3) had any such rights, warrants, options or Convertible
Securities then still outstanding, been originally issued or sold at the time of
such change. On the expiration of any such right, warrant or option or the
termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofor actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(vi) In case of the sale for cash of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefore shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price or to the number of shares of
Common Stock purchasable upon the exercise of each Warrant will be made,
however:
(i) upon the grant or exercise of any other options which have
heretofor been or may hereafter be granted or exercised under any employee
benefit plan of Old STAT or the Company as described in the Registration
Statement; or
(ii) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants underlying the
Underwriter's Warrants; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, outstanding on the date hereof;
(iv) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities outstanding on the date hereof, whether
or not any adjustment in the Purchase Price was made or required to be made upon
the issuance or sale of such Convertible Securities;
(v) upon any amendment to or change in the terms of any rights or
warrants to subscribe for or purchase, or options for the purchase of, Common
Stock or Convertible Securities or in the terms of any Convertible Securities,
including, but not limited to, any extension of any expiration date of any such
right, warrant or option, any change in any exercise or purchase price provided
for in any such right, warrant or option, any extension of any date through
which any Convertible Securities are convertible into or exchangeable for Common
Stock or any change in the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than rights, warrants,
options or Convertible Securities issued or sold after the close of business on
the date of the original issuance of the Old STAT Units (i) for which an
adjustment in the Purchase Price then in effect was theretofor made or required
to be made, upon the issuance or sale thereof, or (ii) for which such an
adjustment would have been required had the exercise or purchase price of such
rights, warrants or options at the time of the issuance or sale thereof or the
rate of conversion or exchange of such Convertible Securities, at the time of
the sale of such Convertible Securities, or the issuance or sale of rights or
warrants to subscribe for or purchase, or options for the purchase of, such
Convertible Securities, been the price or rate as changed, in which case the
provisions of Section 9(f)(v) hereof shall be applicable if, but only if, the
exercise or purchase price thereof, as changed, or the rate of conversion or
exchange thereof, as changed, consists solely of cash or requires the payment of
additional consideration, if any, consisting solely of cash or requires the
payment of additional consideration, if any, consisting solely of cash and the
Company did not receive any consideration other than cash, if any, in connection
with such change); or
(vi) upon the issuance of Common Stock to the Old STAT stockholders,
the AmHealth Shareholders and the AmHealth Partners pursuant to the
Reorganization Agreement and the Exchange.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date hereof and shall also
include any capital stock of any class of the Company thereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution or winding up of the Company;
provided, however, that the shares issuable upon exercise of the Warrants shall
include only shares of such class designated in the Company's Certificate of
Incorporation as Common Stock on the date hereof or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section, or (ii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 9, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Warrants
and the Company if made in good faith by the Board of Directors of the Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each of the then
Registered Holders of the Warrants all of such rights, warrants or options to
which each such holder would have been entitled if, on the date of determination
of stockholders entitled to the rights, warrants or options being granted by the
Company, such holder were the holder of record of the number of whole shares of
Common Stock then issuable upon exercise (assuming, for purposes of this Section
9 (j) , that exercise of Warrants is permissible during periods prior to the
Initial Warrant Exercise Date) of his Warrants. Such grant by the Company to the
holders of the Warrants shall be in lieu of any adjustment which otherwise might
be called for pursuant to this Section 9.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is adjusted
pursuant to Section 9 hereof, the Company shall nevertheless not be required to
issue fractions of shares, upon exercise of the Warrants or otherwise, or to
distribute certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a National Securities Exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of the Warrant, or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of the Warrant; or
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificates and
this Agreement.
SECTION 13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel
Warrant Certificates following exercise of any or all of the Warrants
represented thereby or delivered to it for transfer, split-up, combination or
exchange.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make many representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company or for the Underwriter) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct.
In the event of a dispute under this Agreement between the Company and the
Underwriter regarding proceeds received by the Warrant Agent from the exercise
of the Warrants, the Warrant Agent shall have the right, but not the obligation,
to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or willful misconduct), after giving 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court shall be a bank or trust company having a capital
and surplus as shown by its last published report to its stockholders, of not
less than Ten Million ($10,000,000.00) Dollars, or a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. MODIFICATION OF AGREEMENT. Subject to the provisions of
Section 4(b), the Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; or (ii) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders of Warrant Certificates
representing not less than 50% of the Warrants then outstanding; and PROVIDED,
FURTHER, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed.
SECTION 17. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 12450 Greenspoint Drive, Suite 1200, Houston, Texas
77060, Attention: Chief Financial Officer, or at such other address as may have
been furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at 40 Wall Street, New York, New York 10005; and, if to Network 1, at
Network 1 Financial Securities, Inc., Galleria Building 2, Penthouse Suite, 2
Bridge Avenue, Red Bank, New Jersey 07701, Attention:
William Hunt.
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company, the Warrant Agent and the Underwriter, and their
respective successors and assigns, and the holders from time to time of the
Warrant Certificates. Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim, in equity
or at law, or to impose upon any other person any duty, liability or obligation.
SECTION 20. TERMINATION.This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
SECTION 21. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
SECTION 22. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement, including the exhibits attached hereto, by and among the Company, the
Warrant Agent and the Underwriter, and shall supercede that certain Warrant
Agreement by and among the parties hereto, dated April 20, 1995.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed as of the date first above written.
STAT HEALTHCARE, INC. (formerly New STAT
Healthcare, Inc.)
By: /s/ NED E. CHAPMAN
Authorized Officer
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: /s/ HERBERT R. LEMMER, VICE PRESIDENT
Authorized Officer
NETWORK 1 FINANCIAL SECURITIES, INC.
By: /s/ WILLIAM R. HUNT
Authorized Officer
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. SW_____________ __________________ (______) Warrants
VOID AFTER April 19, 1998
CLASS A REDEEMABLE COMMON STOCK WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
NEW STAT HEALTHCARE, INC.
This certifies that FOR VALUE RECEIVED ___________________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants (the "Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $0.01 par value, of STAT Healthcare, Inc., a Delaware
corporation formerly named "New STAT Healthcare, Inc." (the "Company"), at any
time between June 24, 1996 and the Expiration Date (as hereinafter defined),
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $4.50 per share (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of June 24,
1996, by and among the Company, the Warrant Agent and Network 1 Financial
Securities, Inc.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date," shall mean, with respect to each Warrant, 5:00
p.m. (New York, New York time) on April 19, 1998, or the Redemption Date as
defined in Section 8, whichever is earlier; provided that if such date shall in
the State of New York be a holiday or a day on which banks are authorized to
close, then 5:00 p.m. (New York, New York time) on the next following day which
in the State of New York is not a holiday or a day on which banks are authorized
to close. Upon notice to all Warrant Holders, the Company shall have the right
to extend the Expiration Date.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitations the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing June 24, 1996, this Warrant may be redeemed at the option of
the Company, at a redemption price of $0.05 per Warrant, provided the closing
bid price of the Common Stock of the Company or the common stock of the
Company's wholly owned subsidiary, Old STAT, Inc. (formerly named "STAT
Healthcare, Inc."), on The Nasdaq Stock Market as reported by the National
Quotation Bureau, Incorporated exceeds $5.50 for at least 20 consecutive trading
days ending on the third business day prior to the date of the notice of
redemption. Notice of redemption shall be given not later than the thirtieth
(30th) day before the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to this Warrant except to receive the $0.05
per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of four (4%) percent of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:
STAT HEALTHCARE, INC. (formerly New STAT
Healthcare, Inc.)
By:
Chairman
By:
Secretary
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
Authorized officer
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________ (__________) Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
and be delivered to
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by Network 1
Financial Securities, Inc.
Name of NASD Member if other than Network 1
Financial Securities, Inc.
Dated:
Signature
Street Address
City, State and Zip Code
Taxpayer ID Number
Signature Guaranteed:
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
_________________________________________________ (__________________) of the
Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated:
Signature Guaranteed:
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
EXHIBIT 4.4
RW- ___ N
REPRESENTATIVES' WARRANT
Dated: June 24, 1996
THIS CERTIFIES THAT ______________________________ (the "Holder") is
entitled to purchase from STAT HEALTHCARE, INC., a Delaware corporation (the
"Company") formerly named "New STAT Healthcare, Inc.", ________ units (the
"Units") at a purchase price of $10.875 per Unit (the "Exercise Price"), subject
to adjustment as provided in paragraph 8 hereof, at any time commencing on the
date hereof and ending on April 19, 2000. Each Unit consists of two (2) shares
of the Company's common stock, par value $0.01 per share (the "Common Stock"),
and one (1) redeemable common stock purchase warrant to purchase one share of
Common Stock (the "Redeemable Warrants") at an initial exercise price of $4.50
per share (the "Redeemable Warrant Exercise Price"). This Representatives'
Warrant (the "Representatives' Warrant") is one of a series of Representatives'
Warrants to purchase, in the aggregate, up to 62,500 Units and issued in
exchange for certain warrants, dated April 20, 1995 (the "Old STAT Warrants"),
issued by Old STAT, Inc., a Delaware corporation ("Old STAT") wholly owned by
the Company and formerly named as "STAT Healthcare, Inc." On June 24, 1996,
pursuant to an Amended and Restated Agreement and Plan of Reorganization, dated
March 15, 1996, as amended (the "Reorganization Agreement"), among other things,
(i) Old STAT was merged with STAT Acquisition Corp., a wholly owned subsidiary
of the Company, (ii) each issued and outstanding share of Old STAT's common
stock, par value $0.01 per share (the "Old STAT Common Stock"), was converted
into one share of Common Stock and (iii) each outstanding warrant and option to
purchase Old STAT Common Stock was converted into a right to purchase Common
Stock. This Representatives' Warrant is issued in exchange for a similar warrant
of Old STAT (the "Old STAT Representatives' Warrant") pursuant to the
Reorganization Agreement and paragraph 8(a) of the Old STAT Representatives'
Warrant. The Old STAT Representatives' Warrants were issued pursuant to an
Underwriting Agreement, dated April 20, 1995, among Old STAT, Network 1
Financial Securities, Inc. ("Network 1") and Rothschild Global Investments, Inc.
("RGI" and, collectively with Network 1, the "Representatives") as
representatives of the several underwriters (the "Underwriters"), in connection
with a public offering, through the Underwriters, of 625,000 units of Old STAT
(the "Old STAT Units") as therein described and in consideration of $10.00
received by Old STAT for the Old STAT Representatives' Warrants. Each Old STAT
Unit consisted of two shares of Old STAT Common Stock and a redeemable common
stock purchase warrant to purchase one share of Old STAT Common Stock (the "Old
STAT Public Warrants"). Except as specifically otherwise provided herein, the
shares of Common Stock and Redeemable Warrants included in the Units issuable
pursuant to the Representatives' Warrants shall have the same terms and
conditions as the Common Stock and the Redeemable Warrants, respectively, as
described under the caption "Description of Securities of New STAT" in the
Company's Registration Statement on Form S-4 (Reg. No. 333-2486) (the
"Registration Statement").
1. The rights represented by this Representatives' Warrant shall be
exercised at the price, subject to adjustment in accordance with paragraph 8
hereof, and during the periods as follows:
(a) During the period from the date hereof to April 19, 2000 (the
"Expiration Date") inclusive, the Holder shall have the option to
purchase Units hereunder at a price of $10.875 per Unit (145% of the
initial public offering price of the Old STAT Units), subject to
adjustment as provided in paragraph 8 hereof.
(b) After the Expiration Date, the Holder shall have no right to purchase
any Units hereunder.
2. (a) The rights represented by this Representatives' Warrant may be
exercised at any time within the period above specified, in whole or in part, by
(i) the surrender of the Representatives' Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the Company of a
duly executed agreement signed by the person(s) designated in the purchase form
to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 hereof. The
Representatives' Warrant shall be deemed to have been exercised, in whole or in
part to the extent specified, immediately prior to the close of business on the
date the Representatives' Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this paragraph 2, and the person or
persons in whose name or names the certificates for shares of Common Stock and
Redeemable Warrants shall be issuable upon such exercise shall become the holder
or holders of record of such Common Stock and Redeemable Warrants at that time
and date. Certificates representing the Common Stock and Redeemable Warrants so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) days, after the rights represented by this Warrant shall have
been so exercised.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) of paragraph 2, the Holder may elect to exercise this
Representatives' Warrant in whole or in part by receiving Units equal to the
value (as determined below) of this Representatives' Warrant at the principal
office of the Company together with notice of such election in which event the
Company shall issue to the Holder a number of Units computed using the following
formula:
X = Y(A-B)
------
A
Where: X = the number of Units to be issued to the
Holder;
Y = the number of Units to be exercised under
this Representatives' Warrant;
A = the current fair market value of one Unit
(calculated as described below); and
B = the Exercise Price.
As used herein, the current fair market value of one Unit shall mean (I)
two X the greater of (x) the average of the closing prices per share of the
Company's Common Stock or the Old STAT Common Stock sold on all securities
exchanges on which the Common Stock or the Old STAT Common Stock may at the
time be listed and the NASDAQ National Market, or, if there have been no sales
on any such exchange or the NASDAQ National Market on such day, the average of
the highest bid and lowest asked price per share on such day on The Nasdaq Stock
Market or otherwise in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization
(the "Market Price"), on the trading day immediately preceding the date notice
of exercise of this Representatives' Warrant is given or (y) the average of the
Market Price per share of Common Stock or the Old STAT Common Stock for the five
trading days immediately preceding the date notice of exercise of this
Representatives' Warrant is given PLUS (II) the greater of (x) the average of
the closing prices per warrant of the Redeemable Warrants or the Old STAT Public
Warrants sold on all securities exchanges on which the Redeemable Warrants or
the Old STAT Public Warrants may at the time be listed and the NASDAQ National
Market, or, if there have been no sales on any such exchange or the NASDAQ
National Market on such day, the average of the highest bid and lowest asked
price per share on such day on The Nasdaq Stock Market or otherwise in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization (the "Market Price"), on the
trading day immediately preceding the date notice of exercise of this
Representatives' Warrant is given or (y) the average of the Market Price per
warrant of the Redeemable Warrants or the Old STAT Public Warrants for the five
trading days immediately preceding the date notice of exercise of this
Representatives' Warrant is given. If on any date for which the Market Price per
share of Common Stock or Old STAT Common Stock or per Redeemable Warrant or Old
STAT Public Warrant is to be determined, the Common Stock, the Old STAT Common
Stock, the Redeemable Warrants or the Old STAT Public Warrants, as the case may
be, are not listed on any securities exchange or quoted on the NASDAQ National
Market or on The Nasdaq Stock Market or otherwise in the over-the-counter
market, the Market Price per share of Common Stock or Old STAT Common Stock or
per Redeemable Warrant or Old STAT Public Warrant shall be the highest price per
share or per warrant, as the case may be, which the Company could then obtain
from a willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company from authorized but unissued shares or for Redeemable
Warrants, as determined in good faith by the Board of Directors of the Company,
unless prior to such date the Company has become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the Market Price per share of Common Stock or
Redeemable Warrant shall be deemed to be the value received by the holders of
the Company's Common Stock and the Redeemable Warrants for each share or
warrant, as the case may be, pursuant to the Company's acquisition.
3. The Representatives' Warrant shall not be transferred, sold, assigned,
or hypothecated during the period prior to October 19, 1996 (the "Initial
Period") except that it may be transferred to successors of the Holder, and may
be assigned in whole or in part to any person who is an officer of the Holder or
to any Underwriter or member of the selling group and/or the officers or
partners thereof during such period. Any such assignment shall be effected by
the Holder by (i) executing the form of assignment at the end hereof and (ii)
surrendering the Representatives' Warrant for cancellation at the office or
agency of the Company referred to in paragraph 2 hereof, accompanied by a
certificate (signed by an officer of the Holder if the Holder is a corporation),
stating that each transferee is a permitted transferee under this paragraph 3;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Representatives' Warrant or Warrants of like tenor
and representing in the aggregate rights to purchase the same number of Units
(consisting of the same number of shares of Common Stock and Redeemable
Warrants) as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be purchased hereunder or upon exercise of the Redeemable Warrants will,
upon issuance against payment of the purchase price therefor, be duly and
validly issued, fully paid and nonassessable, and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which the Representatives' Warrant may be exercised,
the Company will at all times have authorized and reserved a sufficient number
of shares of its Common Stock to provide for the exercise of the
Representatives' Warrant and the Redeemable Warrants.
5. The Representatives' Warrant shall not entitle the Holder to any voting
rights or other rights as stockholders of the Company.
6. (a)(i)The Company shall advise the Holder or its transferees, whether
the Holder holds the Representatives' Warrant or has exercised the
Representatives' Warrant and hold shares of Common Stock and/or Redeemable
Warrants by written notice at least four weeks prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Securities
Act of 1933, as amended (the "Act"), covering any securities of the Company, for
its own account or for the account of others, except for any registration
statement filed on Form S-4 or S-8, and will, for a period of seven years from
April 20, 1995, upon the request of the Holder, and subject to subparagraph (a)
(ii) of this paragraph 6, include in any such post-effective amendment to the
Registration Statement or in any new registration statement such information as
may be required to permit a public offering of the Representatives' Warrant, the
Common Stock issuable upon the exercise thereof or upon exercise of the
Redeemable Warrants or the Redeemable Warrants (collectively, the "Registrable
Securities"). The Company shall supply prospectuses and such other document as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as the Holder designates and do any and all other acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Securities, all at no expense to the Holder
or the Representatives, and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7.
(ii) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to subparagraph
(a)(i) of this paragraph 6. If the managing underwriter determines that a
limitation of the number of shares to be underwritten is required, the
underwriter may exclude some or all Registrable Securities from such
registration (the "Excluded Registrable Securities"); provided, however, that no
other security-holder may include any such securities in such registration
statement if any of the Registrable Securities have been excluded from such
registration; and further provided that the Company will file a new registration
statement covering the Excluded Registrable Securities, at the Company's
expense, within six months after the completion of such underwritten offering.
(b) If any 50% Holder (as defined below) shall give notice to the
Company at any time to the effect that such Holder desires to register under the
Act any or all of the Registrable Securities under such circumstances that a
public distribution (within the meaning of the Act) of any such securities will
be involved, then the Company will promptly, but no later than four weeks after
receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act, so
that such designated Registrable Securities may be publicly sold under the Act
as promptly as practicable thereafter and the Company will use its best efforts
to cause such registration to become and remain effective (including the taking
of such steps as are necessary to obtain the removal of any stop order) within
90 days after the receipt of such notice, provided, that such Holder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request in writing. The 50% Holder may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act on two occasions during
the four-year period beginning April 20, 1996. The 50% Holder may, at its
option, request the registration of the Representatives' Warrants and/or any of
the securities underlying the Representatives' Warrants in a registration
statement made by the Company as contemplated by subparagraph (a) of this
paragraph 6 or in connection with a request made pursuant to this subparagraph
(b) of paragraph 6 prior to acquisition of the shares of Common Stock and
Redeemable Warrants issuable upon exercise of the Representatives' Warrants. The
50% Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the
Representatives' Warrants, or separately as to the Common Stock and Redeemable
Warrants issuable upon the exercise of the Representatives' Warrants, and such
registration rights may be exercised by the 50% Holder prior to or subsequent to
the exercise of the Representatives' Warrants. Within ten days after receiving
any such notice pursuant to this subparagraph (b) of paragraph 6, the Company
shall give notice to any other Holder of the Representatives' Warrants, advising
that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
that part of the Representatives' Warrants held by the other Holders, provided
that they shall furnish the Company with such appropriate information (relating
to the intentions of such Holders) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the first
post-effective amendment or new registration statement shall be borne by the
Company, except that the Holder(s) shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the securities
sold by them. All costs and expenses of the second such post-effective amendment
or new registration statement shall be borne by the Holder(s). The Company will
maintain such registration statement or post-effective amendment current under
the Act for a period of at least six months (and for up to an additional three
months if requested by the Holder(s)) from the effective date thereof. The
Company shall provide prospectuses, and such other documents as the Holder(s)
may request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder(s) designate and
furnish indemnification in the manner provided in paragraph 7 hereof.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Representatives' Warrants and/or the Common
Stock underlying the Representatives' Warrants and the Redeemable Warrants and
shall include any owner or combination of owners of such securities, which
ownership shall be calculated by determining the number of shares of Common
Stock held by such owner or owners as well as the number of shares then issuable
upon exercise of the Representatives' Warrants and the Redeemable Warrants.
(d) If at any time prior to the effectiveness of the registration
statement filed in connection with an offering pursuant to this paragraph 6 the
50% Holder shall determine not to proceed with the registration, upon notice to
the Company and the payment to the Company by the 50% Holder of the Company's
expenses, if any, theretofore incurred in connection with the registration
statement, the 50% Holder may terminate its participation in the offering, and
the registration statement previously filed shall not be counted against the
number of demand registrations permitted under this paragraph 6. The 50% Holder
need not pay to the Company its expenses incurred in connection with the
registration statement, however, if such 50% Holder shall have determined not to
proceed because of material adverse developments on the part of the Company of
which such 50% Holder obtained knowledge subsequent to the giving to the Company
of the written request to register Registrable Securities pursuant to this
paragraph 6.
(e) Notwithstanding the foregoing, if the Company shall furnish to
such 50% Holder a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future containing the disclosure of material information
required to be included therein by reason of the federal securities laws, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period during which such disclosure would be
seriously detrimental, provided that this period will not exceed 30 days and
provided further, that the Company shall not defer its obligation in this matter
more than once in any 12-month period.
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to the Representatives' Warrants or any Common Stock issued or issuable upon the
exercise of the Representatives' Warrants or the Redeemable Warrants, or any
Redeemable Warrants is filed under the Act, amended or supplemented, the Company
will indemnify and hold harmless each Holder of the securities covered by such
registration statement, amendment or supplement (such Holder being hereinafter
called the "Distributing Holder"), and each person, if any, who controls (within
the meaning of the Act) the Distributing Holder, and each underwriter (within
the meaning of the Act) of such securities and each person, if any, who controls
(within the meaning of the Act) any such underwriter, against any losses,
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and will reimburse the Distributing Holder or
such controlling person or underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final prospectus
or said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arises cut of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notified an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of each Warrant shall be subject to
adjustment from time to time upon the happening of certain events hereinafter
described; provided, however, that no adjustment shall be required in respect of
the Redeemable Warrants.
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, or (iv) the outstanding
shares of Common Stock of the Company are at any time changed into or exchanged
for a different number or kind of shares or other security of the Company or of
another corporation through reorganization, merger, consolidation, liquidation
or recapitalization, then appropriate adjustments in the number and kind of such
securities subject to this Warrant shall be made and the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization shall be
proportionately adjusted so that the Holder of this Warrant exercised after such
date shall be entitled to receive the aggregate number and kind of securities
which, if this Warrant had been exercised by such Holder immediately prior to
such date, they would have owned upon such exercise and been entitled to receive
upon such dividend, distribution, subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization. For
example, if the Company declares a 2 for 1 stock distribution and the Exercise
Price immediately prior to such event was $10.875 per Unit and the number of
Units purchasable upon exercise of this Warrant was 1,000, the adjusted Exercise
Price immediately after such event would be $5.4375 per Unit and the adjusted
number of Units purchasable upon exercise of this Warrant would be 2,000. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall hereafter distribute without
consideration to all holders of its Common Stock evidence of its indebtedness or
assets (excluding cash dividends or distributions and dividends or distributions
referred to in subparagraph (a) of this paragraph 8, or subscription rights or
warrants, then in each such case the Exercise Price in effect thereafter shall
be determined by multiplying the number of Units issuable upon exercise of the
Representatives' Warrant by the Exercise Price in effect immediately prior
thereto, multiplied by a fraction, the numerator of which shall be the total
number of shares of Common Stock then outstanding multiplied by the current
Exercise Price, less the fair market value (as determined by the Company's Board
of Directors) of said assets, or evidence of indebtedness so distributed or of
such rights or warrants, and the denominator of which shall be the total number
of shares of Common Stock outstanding multiplied by the current Exercise Price.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(c) In case the Company shall issue shares of its Common Stock
excluding shares issued (i) in any of the transactions described in
subparagraphs (a) or (b) of this paragraph 8; (ii) upon conversion or exchange
of securities convertible into or exchangeable for Common Stock, (iii) upon
exercise of options granted under the Company's 1996 Stock Incentive Plan, as
amended to date, if such shares would otherwise be included in this subsection
(c), (iv) upon exercise of the Representatives' Warrants or the Redeemable
Warrants or the Units, (v) upon exercise of rights or warrants issued to the
holders of the Common Stock, but only if no adjustment is required pursuant to
this paragraph 8 (without regard to subsection (g) of this paragraph 8) with
respect to the transaction giving rise to such rights or (vi) to the Old STAT
stockholders, AmHealth Shareholders or AmHealth Partners pursuant to the
Reorganization Agreement) for a consideration per share less than the current
Redeemable Warrant Exercise Price on the date the Company fixes the offering
price of such additional shares, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the total number of shares of Common
Stock outstanding immediately prior to the issuance of such additional shares
plus the number of shares of Common Stock which the aggregate consideration
received (determined as provided in subparagraph (f) of this paragraph 8) for
the issuance of such additional shares would purchase at the current Redeemable
Warrant Exercise Price, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
(d) In case the Company shall issue any securities convertible into
or exchangeable for its Common Stock (excluding securities issued in
transactions described in subparagraph (b) of paragraph 8) for a consideration
per share of Common Stock initially deliverable upon conversion or exchange of
such securities (determined as provided in subparagraph (f) of paragraph 8) less
than the current Redeemable Warrant Exercise Price in effect immediately prior
to the issuance of such securities, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities plus the number
of shares of Common Stock which the aggregate consideration received (determined
as provided in subparagraph (f) of paragraph 8) for such securities would
purchase at the current Redeemable Warrant Exercise Price, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the maximum number of shares of Common
stock of the Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate. Such adjustment
shall be made successively whenever such an issuance is made.
(e) Whenever the Exercise Price payable upon exercise of the
Representatives' Warrants is adjusted pursuant to subparagraphs (a), (b), (c) or
(d) of paragraph 8, the number of shares of Common Stock purchasable upon
exercise of this Representatives' Warrant shall simultaneously be adjusted by
multiplying the number of shares of Common Stock issuable upon exercise of this
Representatives' Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(f) For purposes of any computation respecting consideration received
pursuant to subparagraphs (c) and (d) of paragraph 8, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board
of Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive;
and
(iii) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange
thereof (the consideration in each case to be determined in
the same manner as provided in clauses (i) and (ii) of this
subparagraph (f) of paragraph 8).
(g) No adjustment in the Exercise Price shall be required (i) in the event
of the sale of the Company's securities in a future bona fide underwritten
public offering; or (ii) unless such adjustment would require an increase or
decrease of a east five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this subparagraph (g) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this paragraph 8 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. Anything in this Section 8 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section 8, as it shall
determine, in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not result in
any federal income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including the Redeemable Warrants issuable upon
exercise of the Representatives' Warrant).
(h) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of shares of Common Stock or other securities purchasable
upon exercise of the Representatives' Warrant to be mailed to the Holder, at the
addresses listed on the books of the Company, and shall cause a certified copy
thereof to be mailed to the Company's transfer agent, if any. The Company may
retain a firm of independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by the Company) to
make any computation required by this paragraph 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
(i) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this paragraph 8, the Holder of the
Representatives' Warrant thereafter shall become entitled to receive any
securities of the Company, other than Common Stock and the Redeemable Warrants
included in the Units, thereafter the number of such other securities so
receivable upon exercise of the Representatives' Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (a) to (g), inclusive of this paragraph 8.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, STAT HEALTHCARE, INC. has caused this Representatives'
Warrant to be signed by its duly authorized officers, and this Representatives'
Warrant to be dated June 24, 1996.
STAT HEALTHCARE, INC.
By:
Name: Ned E. Chapman
Title: Chief Financial Officer
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Representatives' Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, _____________ Units of STAT HEALTHCARE,
INC., each Unit consisting of two (2) shares of Common Stock, par value $0.01
per share, and one (1) Class A Redeemable Common Stock Purchase Warrant to
purchase one (1) share of Common Stock, and herewith makes payment of
$______________ therefor (or hereby surrenders and delivers that portion of the
Representatives' Warrant having equivalent value (as determined in accordance
with the provisions of subparagraph (b) of paragraph 2 of the Representatives'
Warrant)), and requests that the certificates for shares of Common Stock and
Redeemable Warrants be issued in the name(s) of, and delivered to the
undersigned, whose address(es) is (are):
________________________________________
________________________________________
(Address)
Dated:______________, 199_
Signature
(Print name under signature)
(Signature must conform in all
respects to the name of the holder
specified on the face of the
Representatives' Warrant)
(Insert Social Security or Other
Identifying Number of Holder)
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant)
FOR VALUE RECEIVED ___________________________________________________
______________________________ hereby sells, assigns and transfers unto_____
____________________________________________________________________________
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _____________________ Attorney, to
transfer the within Warrant on the books of STAT HEALTHCARE, INC., with full
power of substitution.
Dated:
Signature
(Print name under signature) (Signature must
conform in all respects to the name of
holder as specified on the face of the
Representatives' Warrant).
(Insert Social Security or other Identifying
Number of Holder)
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
WILLIAM H. RICE, M.D.
This Employment Agreement (hereinafter referred to as the "Agreement") is
made and entered into this 24th day of June, 1996 (the "Effective Date") by and
between New STAT Healthcare, Inc., a Delaware corporation, (hereinafter referred
to as "Employer") and William H. Rice, M.D. (hereinafter referred to as
"Employee").
WHEREAS, Employer is engaged in healthcare services businesses and has,
pursuant to an Amended and Restated Agreement and Plan of Reorganization dated
as of March 15, 1996, acquired all of the outstanding stock of STAT Healthcare,
Inc. ("Old STAT");
WHEREAS, Employee has previously been employed by Old STAT;
WHEREAS, subject to the terms and conditions hereinafter provided,
Employer desires to employ Employee and Employee desires to be employed by
Employer; and
NOW, THEREFORE, in consideration of the employment of Employee and the
compensation to be paid by Employer to Employee, the Employee hereby accepts
employment hereunder subject to the terms and conditions stated below including
the agreement of Employee not to enter into certain competitive activities with
the Employer, as follows:
1. TERM. This Agreement shall commence on the Effective Date and shall
continue for a period of three years or until terminated in accordance with the
provisions set forth herein.
2. DUTIES. The Employee shall perform the following duties pursuant to
this Agreement:
a. Employee shall be employed at Employer's office in Houston, Texas,
or at such other location(s) as may be determined by the Board of
Directors.
b. Employee shall be actively involved in Employer's day-to-day
activities and will have the duties assigned to Employee from time
to time by the Employer.
c. Employee shall be available to assist the Employer and its
subsidiaries and related entities in any way deemed appropriate,
commensurate with the duties of a corporate executive.
d. Employee acknowledges that Employer is an equal opportunity
employer, and that it is Employer's established policy not to
discriminate on the basis of age, marital status, race, color, sex,
religion or national origin, or to violate any federal or state
anti-discrimination law. Employee shall be responsible for carrying
out and implementing the foregoing policy throughout the operations
and activities of Employer.
3. COMPENSATION PACKAGE. For all services provided, Employee shall be
compensated as follows:
a. ANNUAL SALARY. Effective as of the Effective Date, Employer shall
pay Employee an annual salary of $200,000, payable in equal monthly
installments on the last day of each month.
b. INCENTIVE COMPENSATION. Employee shall be entitled to receive a
bonus, the amount of which shall be determined by the compensation
committee of the Board of Directors of the Employer.
4. STOCK OPTION. The Employee shall be entitled to participate in the 1996
Incentive Stock Option Plan of Employer and upon the approval of the Board of
Directors and in accordance with the terms of the Plan shall be granted stock
options in the discretion of the Board.
5. SOLE EMPLOYMENT. During the term of this Agreement, the Employee shall
devote his entire time, attention and best efforts to advancing the business and
good reputation of Employer, and shall not during the term of his employment
provide personal services for compensation , whether received directly or
indirectly, to any other business or commercial enterprise, either alone, or as
a member of a partnership, or an officer, director, shareholder or employee of
any other corporation or business, or as a consultant or independent contractor.
This Section shall not prevent Employee from making passive investments, so long
as such investments do not require Employee to perform any services which
interfere with the performance of Employee's duties under this Agreement.
6. CONFIDENTIALITY, NON-DISCLOSURE AND OWNERSHIP OF CONFIDENTIAL
INFORMATION. The Employee acknowledges that during his employment, he will gain
access to, or possession or knowledge of, numerous trade secrets, confidential
information and other valuable properties, including, but not limited to,
hospital and healthcare facility client lists, client files and records, lists
of potential clients, prospects or targets, and/or other market and marketing
data and plans, price books, promotional devices and methods, business methods,
manuals and plans, business and sales techniques and research and development
(hereinafter referred to collectively as "Confidential Information").
Confidential Information shall not include information in the public domain or
attainable from information generally available to the public. Employee
acknowledges that such Confidential Information is unique and a valuable asset
which is owned solely by Employer and is to be used only for Employer's benefit.
Employee shall not, during or after the term of employment, disclose, divulge,
reveal, transfer, reproduce, sell, capitalize upon or take advantage of such
Confidential Information and in addition, Employee shall exercise all reasonable
efforts and precautions to protect such Confidential Information from
misappropriation, misuse, disclosure, breach of confidentiality, or other
conduct or action inconsistent with Employer's rights. Upon termination,
Employee shall return immediately to Employer all Employer's property
(including, without limitation, Confidential Information) in Employee's
possession or control.
7. CONFIDENTIAL INFORMATION; COVENANT NOT TO COMPETE.
a. Employer acknowledges that Employee has previously been involved in
an executive capacity for a long period of time in the healthcare
services business and that Employee has acquired substantial
knowledge concerning that business as a result of such experience.
Employee acknowledges that his contact with physicians and medical
institutions as a result of his employment by Employer will result
in a personal relationship being established between Employee and
such physicians and/or the administration of such medical
institutions whereby Employee could influence the future actions of
such medical institutions and/or physicians relative to the renewal
or cancellation of contractual relationships between Employer, its
subsidiaries and/or affiliates and such medical institutions and/or
physicians. Furthermore, Employee acknowledges and agrees that
Employee's employment by Employer will result in the acquisition by
Employee of confidential information concerning the method of
operation and administration of Employer and its subsidiaries and
affiliates and of medical institutions and physicians with whom
Employer and its subsidiaries and affiliates transact business,
including, but not limited to, fee schedules, formulas and special
client requirements. Employee acknowledges and agrees that such
confidential information would create an unfair advantage in the
event Employee were to attempt to solicit or provide services of a
similar nature to a medical client of Employer and its subsidiaries
and/or affiliates.
Accordingly, Employee agrees not to disclose Confidential
Information and agrees not to interfere with the contractual
relationship between Employer, its subsidiaries, and/or affiliates
and any medical institution and/or physician for a period of two (2)
years after termination of employment.
b. Employee agrees, during the term hereof, and for a period of two (2)
years following the termination of employment hereunder, that he
will not, directly or indirectly, by himself, or as a shareholder,
employee, director, officer, partner, contractor or agent of
another, enter into any business or activity anywhere within the
State of Texas during the term hereof in competition with Employer
or its subsidiaries that would involve the following: (i) the
solicitation of hospitals or other healthcare facilities to provide
emergency department, kidney dialysis, or healthcare management
services or other contract physician services similar to or in
competition with such services provided by Employer or any of its
subsidiaries or affiliates providing similar services; or (ii) the
solicitation of hospitals or other healthcare facilities that are
clients or prospective clients (potential clients as to which a
marketing presentation has been made within six (6) months of the
date of termination of this Agreement) of Employer to provide any
physician staffing, recruitment or management services similar to or
in competition with services provided by Employer or its
subsidiaries and with which Employee was associated. Notwithstanding
the foregoing, Employee may own up to 5% of the outstanding equity
or debt securities of any publicly traded entity which engages in
such activities without a breach of this Agreement.
c. Employee acknowledges that Employer is a party to that certain
Professional Services Agreement with Columbia/HCA Healthcare
Corporation ("Columbia") dated as of February 1, 1996 (the "Columbia
Agreement") whereby Employer provides services to certain Columbia
facilities ("Facilities"). Employee agrees that, for a period of two
(2) years following termination of the Columbia Agreement, he will
not, without prior written approval of Columbia, either individually
or as an employee, agent, officer or director of a third party,
directly or indirectly (i) render any professional, administrative,
advisory or consulting services to or for any physician clinic,
independent physician organization or similar physician organization
within a ten mile radius of any hospital or similar facility to
which Employer is provided services under the Columbia Agreement, or
(ii) solicit, raid, entice or induce any person who is (or was at
any time within the one year period immediately preceding such
termination) an employee or independent contractor of any Facility
to (y) terminate his employment or contract with the Facility, or
(z) become employed by or contract with any other person, firm, or
corporation, and Employee will not approach any such employee or
independent contractor for such purpose or authorize or knowingly
approve the taking of such actions by any other persons.
8. SOLICITATION OF OTHER EMPLOYEES. Employee shall not, until two (2)
years subsequent to the termination of employment, solicit or seek to influence,
either directly or indirectly, any employee or any physician or healthcare
provider under contract with Employer or any of its subsidiaries or affiliates,
to enter into any employment agreements, independent contractor arrangement, or
any other contractual arrangement whereby such individual would perform services
for compensation, either directly or indirectly, for any person, firm,
corporation or other entity or business that provides products or services in
competition with the Employer or any of its subsidiaries or affiliates.
9. BREACH AND REMEDIES. Employee acknowledges that the breach or
threatened breach of any of the covenants set forth in this Agreement will
result in immediate and irreparable injury to Employer. Accordingly, Employee
agrees that in addition to any rights or remedies available to Employer for a
breach or threatened breach by Employee of any of the provisions set forth
above, Employer shall be entitled to injunctive relief to enforce the
obligations of Employee contained therein. Nothing herein shall be construed as
prohibiting Employer from pursuing any other legal or equitable remedies that
may be available to it for any such breach or threatened breach, including the
recovery of damages from Employee. In the event that any of the provisions of
this Agreement are found to be unenforceable or void (either in whole or in
part), then the offending portion shall be construed as valid and enforceable
only to the extent permitted by law and the balance of this Agreement shall
remain in full force and effect.
10. BENEFITS. Employee shall be eligible to participate in all corporate
benefit programs provided by Employer for its employees of comparable status in
accordance with the personnel policies of Employer as such are in effect from
time to time.
11. TERMINATION. This Agreement may be terminated as follows:
a. VOLUNTARY TERMINATION. Either party may terminate this Agreement
without cause at any time upon sixty (60) days prior written notice
to the other; provided, however, the agreement has been in place for
three (3) complete years commencing on the Effective Date.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by Employer
at any time for cause upon written notice to Employee, which notice
shall specify the reason for termination. For purposes of this
Section, cause shall include the following: fraud; substantial and
continuous non-performance of assigned duties and unlawful
activities for which Employee is convicted in a jurisdiction of the
United States; and material breach of an express term of this
Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall terminate
upon the death or permanent disability of Employee. Employee shall
be deemed to be disabled if he qualifies as such for purposes of
receiving long term or permanent disability payments under the group
disability insurance program of Employer or in the event that he is
unable to regularly and consistently perform his normal duties as
contemplated hereunder for a continuous period of twelve (12)
months.
12. CONFIDENTIALITY. Employee agrees to keep this Agreement and its terms
confidential except to the extent that disclosure is required by a lawfully
constituted judicial or governmental authority or to the extent that such
disclosure is authorized by the prior written consent of Employer and/or
Employee.
13. ENTIRE AGREEMENT. This Agreement supersedes and cancels any employment
agreement previously executed by the Employee and STAT Healthcare, Inc. This
Agreement contains the entire understanding between the parties hereto and
supersedes and cancels any prior oral or written understanding and/or agreements
between them respecting any subject matter of this Agreement. This Agreement may
be amended or modified only in writing signed by both parties hereto.
14. SEVERABILITY. If any provision, term, condition or clause of this
Agreement or the application thereof shall be invalid or unenforceable to any
extent, the remainder of this Agreement shall not be affected thereby and shall
be enforced to the greatest extent permitted by law.
15. GOVERNING LAW. THIS AGREEMENT IS MADE AND ENTERED INTO IN THE STATE OF
TEXAS AND IS TO BE CONSTRUED IN ACCORDANCE WITH AND TAKE EFFECT UNDER THE LAWS
OF THE STATE OF TEXAS.
16. ASSIGNMENT. No party shall have any right to assign, mortgage, pledge,
hypothecate or encumber this Agreement, in whole or in part, or any benefit or
any rights accruing hereunder, without in any such case first obtaining the
prior written consent of the other party hereto, except that Employer may assign
this Agreement to a subsidiary of Employer, provided that in the event of such
an assignment, Employer shall remain responsible for its obligations hereunder.
All rights hereunder are personal to the Employee and shall cease upon the
termination of this Agreement.
17. NOTICE. Any notice, or other written communication to be given
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage prepaid, return receipt requested, three (3) days after
the date of mailing, addressed to the below parties as follows:
TO: New STAT Healthcare, Inc.
12450 Greenspoint Drive
Suite 1200
Houston, Texas 77060
TO: William H. Rice, M.D.
78 Pascal Lane
Austin, Texas 78746
18. MISCELLANEOUS. Any protection, benefits, rights or other provisions
given to Employer in this Agreement shall also be deemed to apply to, protect
and inure to the benefit of any subsidiary, affiliate or other business or
person related or connected to Employer. All rights of the Employer expressed in
this Agreement are in addition to any rights available under the common law or
other legal principles. Section or paragraph titles or captions contained in
this Agreement are inserted only as matter of convenience and for reference and
in no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of person or persons, firm or firms, corporation or corporations, and
as context may require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
NEW STAT HEALTHCARE, INC.
By: /s/ NED E. CHAPMAN
Title:Chief Financial Officer
/s/ WILLIAM H. RICE
WILLIAM H. RICE, M.D.
7
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
VICTOR M. MIRANDA, M.D.
This Employment Agreement (hereinafter referred to as the "Agreement") is
made and entered into this 24th day of June, 1996 (the "Effective Date") by and
between New STAT Healthcare, Inc., a Delaware corporation, (hereinafter referred
to as "Employer") and Victor M.
Miranda, M.D. (hereinafter referred to as "Employee").
WHEREAS, Employer is engaged in healthcare services businesses and has,
pursuant to an Amended and Restated Agreement and Plan of Reorganization dated
as of March 15, 1996, acquired all of the outstanding stock of STAT Healthcare,
Inc. ("Old STAT");
WHEREAS, Employee has previously been employed by Old STAT;
WHEREAS, subject to the terms and conditions hereinafter provided,
Employer desires to employ Employee and Employee desires to be employed by
Employer; and
NOW, THEREFORE, in consideration of the employment of Employee and the
compensation to be paid by Employer to Employee, the Employee hereby accepts
employment hereunder subject to the terms and conditions stated below including
the agreement of Employee not to enter into certain competitive activities with
the Employer, as follows:
1. TERM. This Agreement shall commence on the Effective Date and shall
continue for a period of three years or until terminated in accordance with the
provisions set forth herein.
2. DUTIES. The Employee shall perform the following duties pursuant to
this Agreement:
a. Employee shall be employed at Employer's office in Houston, Texas,
or at such other location(s) as may be determined by the Board of
Directors.
b. Employee shall be actively involved in Employer's day-to-day
activities and will have the duties assigned to Employee from time
to time by the Employer.
c. Employee shall be available to assist the Employer and its
subsidiaries and related entities in any way deemed appropriate,
commensurate with the duties of a corporate executive.
d. Employee acknowledges that Employer is an equal opportunity
employer, and that it is Employer's established policy not to
discriminate on the basis of age, marital status, race, color, sex,
religion or national origin, or to violate any federal or state
anti-discrimination law. Employee shall be responsible for carrying
out and implementing the foregoing policy throughout the operations
and activities of Employer.
3. COMPENSATION PACKAGE. For all services provided, Employee shall be
compensated as follows:
a. ANNUAL SALARY. Effective as of the Effective Date, Employer shall
pay Employee an annual salary of $200,000, payable in equal monthly
installments on the last day of each month.
b. INCENTIVE COMPENSATION. Employee shall be entitled to receive a
bonus, the amount of which shall be determined by the compensation
committee of the Board of Directors of the Employer.
4. STOCK OPTION. The Employee shall be entitled to participate in the 1996
Incentive Stock Option Plan of Employer and upon the approval of the Board of
Directors and in accordance with the terms of the Plan shall be granted stock
options in the discretion of the Board.
5. SOLE EMPLOYMENT. During the term of this Agreement, the Employee shall
devote his entire time, attention and best efforts to advancing the business and
good reputation of Employer, and shall not during the term of his employment
provide personal services for compensation , whether received directly or
indirectly, to any other business or commercial enterprise, either alone, or as
a member of a partnership, or an officer, director, shareholder or employee of
any other corporation or business, or as a consultant or independent contractor.
This Section shall not prevent Employee from making passive investments, so long
as such investments do not require Employee to perform any services which
interfere with the performance of Employee's duties under this Agreement.
6. CONFIDENTIALITY, NON-DISCLOSURE AND OWNERSHIP OF CONFIDENTIAL
INFORMATION. The Employee acknowledges that during his employment, he will gain
access to, or possession or knowledge of, numerous trade secrets, confidential
information and other valuable properties, including, but not limited to,
hospital and healthcare facility client lists, client files and records, lists
of potential clients, prospects or targets, and/or other market and marketing
data and plans, price books, promotional devices and methods, business methods,
manuals and plans, business and sales techniques and research and development
(hereinafter referred to collectively as "Confidential Information").
Confidential Information shall not include information in the public domain or
attainable from information generally available to the public. Employee
acknowledges that such Confidential Information is unique and a valuable asset
which is owned solely by Employer and is to be used only for Employer's benefit.
Employee shall not, during or after the term of employment, disclose, divulge,
reveal, transfer, reproduce, sell, capitalize upon or take advantage of such
Confidential Information and in addition, Employee shall exercise all reasonable
efforts and precautions to protect such Confidential Information from
misappropriation, misuse, disclosure, breach of confidentiality, or other
conduct or action inconsistent with Employer's rights. Upon termination,
Employee shall return immediately to Employer all Employer's property
(including, without limitation, Confidential Information) in Employee's
possession or control.
7. CONFIDENTIAL INFORMATION; COVENANT NOT TO COMPETE.
a. Employer acknowledges that Employee has previously been involved in
an executive capacity for a long period of time in the healthcare
services business and that Employee has acquired substantial
knowledge concerning that business as a result of such experience.
Employee acknowledges that his contact with physicians and medical
institutions as a result of his employment by Employer will result
in a personal relationship being established between Employee and
such physicians and/or the administration of such medical
institutions whereby Employee could influence the future actions of
such medical institutions and/or physicians relative to the renewal
or cancellation of contractual relationships between Employer, its
subsidiaries and/or affiliates and such medical institutions and/or
physicians. Furthermore, Employee acknowledges and agrees that
Employee's employment by Employer will result in the acquisition by
Employee of confidential information concerning the method of
operation and administration of Employer and its subsidiaries and
affiliates and of medical institutions and physicians with whom
Employer and its subsidiaries and affiliates transact business,
including, but not limited to, fee schedules, formulas and special
client requirements. Employee acknowledges and agrees that such
confidential information would create an unfair advantage in the
event Employee were to attempt to solicit or provide services of a
similar nature to a medical client of Employer and its subsidiaries
and/or affiliates.
Accordingly, Employee agrees not to disclose Confidential
Information and agrees not to interfere with the contractual
relationship between Employer, its subsidiaries, and/or affiliates
and any medical institution and/or physician for a period of two (2)
years after termination of employment.
b. Employee agrees, during the term hereof, and for a period of two (2)
years following the termination of employment hereunder, that he
will not, directly or indirectly, by himself, or as a shareholder,
employee, director, officer, partner, contractor or agent of
another, enter into any business or activity anywhere within the
State of Texas during the term hereof in competition with Employer
or its subsidiaries that would involve the following: (i) the
solicitation of hospitals or other healthcare facilities to provide
emergency department, kidney dialysis or healthcare management
services or other contract physician services similar to or in
competition with such services provided by Employer or any of its
subsidiaries or affiliates providing similar services; or (ii) the
solicitation of hospitals or other healthcare facilities that are
clients or prospective clients (potential clients as to which a
marketing presentation has been made within six (6) months of the
date of termination of this Agreement) of Employer to provide any
physician staffing, recruitment or management services similar to or
in competition with services provided by Employer or its
subsidiaries and with which Employee was associated. Notwithstanding
the foregoing, Employee may own up to 5% of the outstanding equity
or debt securities of any publicly traded entity which engages in
such activities without a breach of this Agreement.
c. Employee acknowledges that Employer is a party to that certain
Professional Services Agreement with Columbia/HCA Healthcare
Corporation ("Columbia") dated as of February 1, 1996 (the "Columbia
Agreement") whereby Employer provides services to certain Columbia
facilities ("Facilities"). Employee agrees that, for a period of two
(2) years following termination of the Columbia Agreement, he will
not, without prior written approval of Columbia, either individually
or as an employee, agent, officer or director of a third party,
directly or indirectly (i) render any professional, administrative,
advisory or consulting services to or for any physician clinic,
independent physician organization or similar physician organization
within a ten mile radius of any hospital or similar facility to
which Employer is provided services under the Columbia Agreement, or
(ii) solicit, raid, entice or induce any person who is (or was at
any time within the one year period immediately preceding such
termination) an employee or independent contractor of any Facility
to (y) terminate his employment or contract with the Facility, or
(z) become employed by or contract with any other person, firm, or
corporation, and Employee will not approach any such employee or
independent contractor for such purpose or authorize or knowingly
approve the taking of such actions by any other persons.
8. SOLICITATION OF OTHER EMPLOYEES. Employee shall not, until two (2)
years subsequent to the termination of employment, solicit or seek to influence,
either directly or indirectly, any employee or any physician or healthcare
provider under contract with Employer or any of its subsidiaries or affiliates,
to enter into any employment agreements, independent contractor arrangement, or
any other contractual arrangement whereby such individual would perform services
for compensation, either directly or indirectly, for any person, firm,
corporation or other entity or business that provides products or services in
competition with the Employer or any of its subsidiaries or affiliates.
9. BREACH AND REMEDIES. Employee acknowledges that the breach or
threatened breach of any of the covenants set forth in this Agreement will
result in immediate and irreparable injury to Employer. Accordingly, Employee
agrees that in addition to any rights or remedies available to Employer for a
breach or threatened breach by Employee of any of the provisions set forth
above, Employer shall be entitled to injunctive relief to enforce the
obligations of Employee contained therein. Nothing herein shall be construed as
prohibiting Employer from pursuing any other legal or equitable remedies that
may be available to it for any such breach or threatened breach, including the
recovery of damages from Employee. In the event that any of the provisions of
this Agreement are found to be unenforceable or void (either in whole or in
part), then the offending portion shall be construed as valid and enforceable
only to the extent permitted by law and the balance of this Agreement shall
remain in full force and effect.
10. BENEFITS. Employee shall be eligible to participate in all corporate
benefit programs provided by Employer for its employees of comparable status in
accordance with the personnel policies of Employer as such are in effect from
time to time.
11. TERMINATION.This Agreement may be terminated as follows:
a. VOLUNTARY TERMINATION. Either party may terminate this Agreement
without cause at any time upon sixty (60) days prior written notice
to the other; provided, however, the agreement has been in place for
three (3) complete years commencing on the Effective Date.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by Employer
at any time for cause upon written notice to Employee, which notice
shall specify the reason for termination. For purposes of this
Section, cause shall include the following: fraud; substantial and
continuous non-performance of assigned duties and unlawful
activities for which Employee is convicted in a jurisdiction of the
United States; and material breach of an express term of this
Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall terminate
upon the death or permanent disability of Employee. Employee shall
be deemed to be disabled if he qualifies as such for purposes of
receiving long term or permanent disability payments under the group
disability insurance program of Employer or in the event that he is
unable to regularly and consistently perform his normal duties as
contemplated hereunder for a continuous period of twelve (12)
months.
12. CONFIDENTIALITY. Employee agrees to keep this Agreement and its terms
confidential except to the extent that disclosure is required by a lawfully
constituted judicial or governmental authority or to the extent that such
disclosure is authorized by the prior written consent of Employer and/or
Employee.
13. ENTIRE AGREEMENT. This Agreement supersedes and cancels any employment
agreement previously executed by the Employee and STAT Healthcare, Inc. This
Agreement contains the entire understanding between the parties hereto and
supersedes and cancels any prior oral or written understanding and/or agreements
between them respecting any subject matter of this Agreement. This Agreement may
be amended or modified only in writing signed by both parties hereto.
14. SEVERABILITY. If any provision, term, condition or clause of this
Agreement or the application thereof shall be invalid or unenforceable to any
extent, the remainder of this Agreement shall not be affected thereby and shall
be enforced to the greatest extent permitted by law.
15. GOVERNING LAW. THIS AGREEMENT IS MADE AND ENTERED INTO IN THE STATE OF
TEXAS AND IS TO BE CONSTRUED IN ACCORDANCE WITH AND TAKE EFFECT UNDER THE LAWS
OF THE STATE OF TEXAS.
16. ASSIGNMENT. No party shall have any right to assign, mortgage, pledge,
hypothecate or encumber this Agreement, in whole or in part, or any benefit or
any rights accruing hereunder, without in any such case first obtaining the
prior written consent of the other party hereto, except that Employer may assign
this Agreement to a subsidiary of Employer, provided that in the event of such
an assignment, Employer shall remain responsible for its obligations hereunder.
All rights hereunder are personal to the Employee and shall cease upon the
termination of this Agreement.
17. NOTICE. Any notice, or other written communication to be given
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage prepaid, return receipt requested, three (3) days after
the date of mailing, addressed to the below parties as follows:
TO: New STAT Healthcare, Inc.
12450 Greenspoint Drive
Suite 1200
Houston, Texas 77060
TO: Victor M. Miranda, M.D.
11807 Taylor Crest
Houston, Texas 77024
18. MISCELLANEOUS. Any protection, benefits, rights or other provisions
given to Employer in this Agreement shall also be deemed to apply to, protect
and inure to the benefit of any subsidiary, affiliate or other business or
person related or connected to Employer. All rights of the Employer expressed in
this Agreement are in addition to any rights available under the common law or
other legal principles. Section or paragraph titles or captions contained in
this Agreement are inserted only as matter of convenience and for reference and
in no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of person or persons, firm or firms, corporation or corporations, and
as context may require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
NEW STAT HEALTHCARE, INC.
By: /s/ NED E. CHAPMAN
Title: Chief Financial Officer
/s/ VICTOR M. MIRANDA
VICTOR M. MIRANDA, M.D.
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
NED E. CHAPMAN
This Employment Agreement (hereinafter referred to as the "Agreement")
is made and entered into this 24th day of June, 1996 (the "Effective Date") by
and between New STAT Healthcare, Inc., a Delaware corporation, (hereinafter
referred to as "Employer") and Ned E. Chapman (hereinafter referred to as
"Employee").
WHEREAS, Employer is engaged in healthcare services businesses and has,
pursuant to an Amended and Restated Agreement and Plan of Reorganization dated
as of March 15, 1996, acquired all of the outstanding stock of STAT Healthcare,
Inc. ("Old STAT");
WHEREAS, Employee has previously been employed by Old STAT;
WHEREAS, subject to the terms and conditions hereinafter provided,
Employer desires to employ Employee and Employee desires to be employed by
Employer; and
NOW, THEREFORE, in consideration of the employment of Employee and the
compensation to be paid by Employer to Employee, the Employee hereby accepts
employment hereunder subject to the terms and conditions stated below including
the agreement of Employee not to enter into certain competitive activities with
the Employer, as follows:
1. TERM. This Agreement shall commence on the Effective Date and shall
continue for a period of three years or until terminated in accordance with the
provisions set forth herein.
2. DUTIES. The Employee shall perform the following duties pursuant to
this Agreement:
a. Employee shall be employed at Employer's office in Houston,
Texas, or at such other location(s) as may be determined by the
Board of Directors.
b. Employee shall be actively involved in Employer's day-to-day
activities and will have the duties assigned to Employee from
time to time by the Employer.
c. Employee shall be available to assist the Employer and its
subsidiaries and related entities in any way deemed appropriate,
commensurate with the duties of a corporate executive.
d. Employee acknowledges that Employer is an equal opportunity
employer, and that it is Employer's established policy not to
discriminate on the basis of age, marital status, race, color,
sex, religion or national origin, or to violate any federal or
state anti-discrimination law. Employee shall be responsible for
carrying out and implementing the foregoing policy throughout
the operations and activities of Employer.
3. COMPENSATION PACKAGE. For all services provided, Employee shall be
compensated as follows:
a. ANNUAL SALARY.Effective as of the Effective Date, Employer shall
pay Employee an annual salary of $114,320, payable in equal
monthly installments on the last day of each month.
b. INCENTIVE COMPENSATION. Employee shall be entitled to receive a
bonus, the amount of which shall be determined by the
compensation committee of the Board of Directors of the
Employer.
4. STOCK OPTION. The Employee shall be entitled to participate in the
1996 Incentive Stock Option Plan of Employer and upon the approval of the Board
of Directors and in accordance with the terms of the Plan shall be granted stock
options in the discretion of the Board.
5. SOLE EMPLOYMENT. During the term of this Agreement, the Employee
shall devote his entire time, attention and best efforts to advancing the
business and good reputation of Employer, and shall not during the term of his
employment provide personal services for compensation , whether received
directly or indirectly, to any other business or commercial enterprise, either
alone, or as a member of a partnership, or an officer, director, shareholder or
employee of any other corporation or business, or as a consultant or independent
contractor. This Section shall not prevent Employee from making passive
investments, so long as such investments do not require Employee to perform any
services which interfere with the performance of Employee's duties under this
Agreement.
6. CONFIDENTIALITY, NON-DISCLOSURE AND OWNERSHIP OF CONFIDENTIAL
INFORMATION. The Employee acknowledges that during his employment, he will gain
access to, or possession or knowledge of, numerous trade secrets, confidential
information and other valuable properties, including, but not limited to,
hospital and healthcare facility client lists, client files and records, lists
of potential clients, prospects or targets, and/or other market and marketing
data and plans, price books, promotional devices and methods, business methods,
manuals and plans, business and sales techniques and research and development
(hereinafter referred to collectively as "Confidential Information").
Confidential Information shall not include information in the public domain or
attainable from information generally available to the public. Employee
acknowledges that such Confidential Information is unique and a valuable asset
which is owned solely by Employer and is to be used only for Employer's benefit.
Employee shall not, during or after the term of employment, disclose, divulge,
reveal, transfer, reproduce, sell, capitalize upon or take advantage of such
Confidential Information and in addition, Employee shall exercise all reasonable
efforts and precautions to protect such Confidential Information from
misappropriation, misuse, disclosure, breach of confidentiality, or other
conduct or action inconsistent with Employer's rights. Upon termination,
Employee shall return immediately to Employer all Employer's property
(including, without limitation, Confidential Information) in Employee's
possession or control.
7. CONFIDENTIAL INFORMATION; COVENANT NOT TO COMPETE.
a. Employer acknowledges that Employee has previously been involved
in an executive capacity for a long period of time in the
healthcare services business and that Employee has acquired
substantial knowledge concerning that business as a result of
such experience. Employee acknowledges that his contact with
physicians and medical institutions as a result of his
employment by Employer will result in a personal relationship
being established between Employee and such physicians and/or
the administration of such medical institutions whereby Employee
could influence the future actions of such medical institutions
and/or physicians relative to the renewal or cancellation of
contractual relationships between Employer, its subsidiaries
and/or affiliates and such medical institutions and/or
physicians. Furthermore, Employee acknowledges and agrees that
Employee's employment by Employer will result in the acquisition
by Employee of confidential information concerning the method of
operation and administration of Employer and its subsidiaries
and affiliates and of medical institutions and physicians with
whom Employer and its subsidiaries and affiliates transact
business, including, but not limited to, fee schedules, formulas
and special client requirements. Employee acknowledges and
agrees that such confidential information would create an unfair
advantage in the event Employee were to attempt to solicit or
provide services of a similar nature to a medical client of
Employer and its subsidiaries and/or affiliates.
Accordingly, Employee agrees not to disclose Confidential
Information and agrees not to interfere with the contractual
relationship between Employer, its subsidiaries, and/or
affiliates and any medical institution and/or physician for a
period of two (2) years after termination of employment.
b. Employee agrees, during the term hereof, and for a period of two
(2) years following the termination of employment hereunder,
that he will not, directly or indirectly, by himself, or as a
shareholder, employee, director, officer, partner, contractor or
agent of another, enter into any business or activity anywhere
within the State of Texas during the term hereof in competition
with Employer or its subsidiaries that would involve the
following: (i) the solicitation of hospitals or other healthcare
facilities to provide emergency department, kidney dialysis or
healthcare management services or other contract physician
services similar to or in competition with such services
provided by Employer or any of its subsidiaries or affiliates
providing similar services; or (ii) the solicitation of
hospitals or other healthcare facilities that are clients or
prospective clients (potential clients as to which a marketing
presentation has been made within six (6) months of the date of
termination of this Agreement) of Employer to provide any
physician staffing, recruitment or management services similar
to or in competition with services provided by Employer or its
subsidiaries and with which Employee was associated.
Notwithstanding the foregoing, Employee may own up to 5% of the
outstanding equity or debt securities of any publicly traded
entity which engages in such activities without a breach of this
Agreement.
c. Employee acknowledges that Employer is a party to that certain
Professional Services Agreement with Columbia/HCA Healthcare
Corporation ("Columbia") dated as of February 1, 1996 (the
"Columbia Agreement") whereby Employer provides services to
certain Columbia facilities ("Facilities"). Employee agrees
that, for a period of two (2) years following termination of the
Columbia Agreement, he will not, without prior written approval
of Columbia, either individually or as an employee, agent,
officer or director of a third party, directly or indirectly (i)
render any professional, administrative, advisory or consulting
services to or for any physician clinic, independent physician
organization or similar physician organization within a ten mile
radius of any hospital or similar facility to which Employer is
provided services under the Columbia Agreement, or (ii) solicit,
raid, entice or induce any person who is (or was at any time
within the one year period immediately preceding such
termination) an employee or independent contractor of any
Facility to (y) terminate his employment or contract with the
Facility, or (z) become employed by or contract with any other
person, firm, or corporation, and Employee will not approach any
such employee or independent contractor for such purpose or
authorize or knowingly approve the taking of such actions by any
other persons.
8. SOLICITATION OF OTHER EMPLOYEES. Employee shall not, until two (2)
years subsequent to the termination of employment, solicit or seek to influence,
either directly or indirectly, any employee or any physician or healthcare
provider under contract with Employer or any of its subsidiaries or affiliates,
to enter into any employment agreements, independent contractor arrangement, or
any other contractual arrangement whereby such individual would perform services
for compensation, either directly or indirectly, for any person, firm,
corporation or other entity or business that provides products or services in
competition with the Employer or any of its subsidiaries or affiliates.
9. BREACH AND REMEDIES. Employee acknowledges that the breach or
threatened breach of any of the covenants set forth in this Agreement will
result in immediate and irreparable injury to Employer. Accordingly, Employee
agrees that in addition to any rights or remedies available to Employer for a
breach or threatened breach by Employee of any of the provisions set forth
above, Employer shall be entitled to injunctive relief to enforce the
obligations of Employee contained therein. Nothing herein shall be construed as
prohibiting Employer from pursuing any other legal or equitable remedies that
may be available to it for any such breach or threatened breach, including the
recovery of damages from Employee. In the event that any of the provisions of
this Agreement are found to be unenforceable or void (either in whole or in
part), then the offending portion shall be construed as valid and enforceable
only to the extent permitted by law and the balance of this Agreement shall
remain in full force and effect.
10. BENEFITS. Employee shall be eligible to participate in all corporate
benefit programs provided by Employer for its employees of comparable status in
accordance with the personnel policies of Employer as such are in effect from
time to time.
11. TERMINATION. This Agreement may be terminated as follows:
a. VOLUNTARY TERMINATION. Either party may terminate this Agreement
without cause at any time upon sixty (60) days prior written
notice to the other; provided, however, the agreement has been
in place for three (3) complete years commencing on the
Effective Date.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by
Employer at any time for cause upon written notice to Employee,
which notice shall specify the reason for termination. For
purposes of this Section, cause shall include the following:
fraud; substantial and continuous non-performance of assigned
duties and unlawful activities for which Employee is convicted
in a jurisdiction of the United States; and material breach of
an express term of this Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
terminate upon the death or permanent disability of Employee.
Employee shall be deemed to be disabled if he qualifies as such
for purposes of receiving long term or permanent disability
payments under the group disability insurance program of
Employer or in the event that he is unable to regularly and
consistently perform his normal duties as contemplated hereunder
for a continuous period of twelve (12) months.
12. CONFIDENTIALITY. Employee agrees to keep this Agreement and its
terms confidential except to the extent that disclosure is required by a
lawfully constituted judicial or governmental authority or to the extent that
such disclosure is authorized by the prior written consent of Employer and/or
Employee.
13. ENTIRE AGREEMENT. This Agreement supersedes and cancels any
employment agreement previously executed by the Employee and STAT Healthcare,
Inc. This Agreement contains the entire understanding between the parties hereto
and supersedes and cancels any prior oral or written understanding and/or
agreements between them respecting any subject matter of this Agreement. This
Agreement may be amended or modified only in writing signed by both parties
hereto.
14. SEVERABILITY. If any provision, term, condition or clause of this
Agreement or the application thereof shall be invalid or unenforceable to any
extent, the remainder of this Agreement shall not be affected thereby and shall
be enforced to the greatest extent permitted by law.
15. GOVERNING LAW. THIS AGREEMENT IS MADE AND ENTERED INTO IN THE STATE
OF TEXAS AND IS TO BE CONSTRUED IN ACCORDANCE WITH AND TAKE EFFECT UNDER THE
LAWS OF THE STATE OF TEXAS.
16. ASSIGNMENT. No party shall have any right to assign, mortgage,
pledge, hypothecate or encumber this Agreement, in whole or in part, or any
benefit or any rights accruing hereunder, without in any such case first
obtaining the prior written consent of the other party hereto, except that
Employer may assign this Agreement to a subsidiary of Employer, provided that in
the event of such an assignment, Employer shall remain responsible for its
obligations hereunder. All rights hereunder are personal to the Employee and
shall cease upon the termination of this Agreement.
17. NOTICE.Any notice, or other written communication to be given
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage prepaid, return receipt requested, three (3) days after
the date of mailing, addressed to the below parties as follows:
TO: New STAT Healthcare, Inc.
12450 Greenspoint Drive
Suite 1200
Houston, Texas 77060
TO: Ned E. Chapman
1902 Windy Park Drive
Kingwood, Texas 77339
18. MISCELLANEOUS.Any protection, benefits, rights or other provisions
given to Employer in this Agreement shall also be deemed to apply to, protect
and inure to the benefit of any subsidiary, affiliate or other business or
person related or connected to Employer. All rights of the Employer expressed in
this Agreement are in addition to any rights available under the common law or
other legal principles. Section or paragraph titles or captions contained in
this Agreement are inserted only as matter of convenience and for reference and
in no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of person or persons, firm or firms, corporation or corporations, and
as context may require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
NEW STAT HEALTHCARE, INC.
By: /s/ WILLIAM H. RICE
Title: Chairman
/s/ NED E. CHAPMAN
NED E. CHAPMAN
EXHIBIT 10.4
EMPLOYMENT AND NON-COMPETITION AGREEMENT
OF
RUBEN A. PEREZ
This Employment and Non-Competition Agreement (hereinafter referred to as
the "Agreement") is made and entered into this 24th day of June, 1996 (the
"Effective Date") by and between New STAT Healthcare, Inc., a Delaware
corporation (hereinafter referred to as "Employer") and Ruben A. Perez
(hereinafter referred to as "Employee").
WHEREAS, Employer is engaged in healthcare services businesses and has,
pursuant to an Amended and Restated Agreement and Plan of Reorganization dated
as of March 15, 1996, engaged in a statutory merger and stock exchange with
AmHealth Corporation and its related entities (collectively, "AmHealth");
WHEREAS, Employee has previously been employed by AmHealth; and
WHEREAS, subject to the terms and conditions hereinafter provided,
Employer desires to employ Employee and Employee desires to be employed by
Employer.
NOW, THEREFORE, in consideration of the employment of Employee and the
compensation to be paid by Employer to Employee, Employee hereby accepts
employment hereunder subject to the terms and conditions stated below including
the agreement of Employee not to enter into certain competitive activities with
Employer, as follows:
1. TERM. This Agreement shall commence on the Effective Date and shall
continue for a period of three years or until terminated in accordance with the
provisions set forth herein.
2. DUTIES. Employee shall perform the following duties pursuant to this
Agreement:
a. Employee shall be employed at Employer's office in San Antonio,
Texas, or at such other location(s) as may be determined by the
Board of Directors.
b. Employee shall be actively involved in Employer's day-to-day
activities and will have the duties assigned to Employee from time
to time by Employer.
c. Employee shall be available to assist Employer and its subsidiaries
and related entities in any way deemed appropriate, commensurate
with the duties of a corporate executive.
d. Employee acknowledges that Employer is an equal opportunity
employer, and that it is Employer's established policy not to
discriminate on the basis of age, marital status, race, color, sex,
religion or national origin, or to violate any federal or state
anti-discrimination law. Employee shall be responsible for carrying
out and implementing the foregoing policy throughout the operations
and activities of Employer.
3. COMPENSATION PACKAGE. For all services provided by Employee, Employee
shall be compensated as follows:
a. ANNUAL SALARY. Effective as of the Effective Date, Employer shall
pay Employee an annual salary of $120,000, payable in equal monthly
installments on the last day of each month.
b. INCENTIVE COMPENSATION. Employee shall be entitled to receive a
bonus, the amount of which shall be determined by the compensation
committee of the Board of Directors of Employer.
4. STOCK OPTION. Employee shall be entitled to participate in the 1996
Incentive Stock Option Plan of Employer and upon the approval of the Board of
Directors and in accordance with the terms of the Plan shall be granted stock
options at the discretion of the Board.
5. PART-TIME EMPLOYMENT. During the term of this Agreement, Employee shall
devote an average of ten hours per week to advancing the business and good
reputation of Employer. Employer recognizes that Employee may undertake other
business ventures contemporaneously with Employee's employment with Employer,
and, subject to the provisions of paragraphs 6 and 7 of this Agreement, Employer
waives any right to asset that Employee's activities on behalf of himself or
others constitutes a conflict of interest under the terms of this Agreement.
6. CONFIDENTIALITY, NON-DISCLOSURE AND OWNERSHIP OF CONFIDENTIAL
INFORMATION. Employee acknowledges that during his employment, he will gain
access to, or possession or knowledge of, numerous trade secrets, confidential
information and other valuable properties, including, but not limited to,
hospital and healthcare facility client lists, client files and records, lists
of potential clients, prospects or targets, and/or other market and marketing
data and plans, price books, promotional devices and methods, business methods,
manuals and plans, business and sales techniques and research and development
(hereinafter referred to collectively as "Confidential Information").
Confidential Information shall not include information in the public domain or
attainable from information generally available to the public. Employee
acknowledges that such Confidential Information is unique and a valuable asset
which is owned solely by Employer and is to be used only for Employer's benefit.
Employee shall not, during or after the term of employment, disclose, divulge,
reveal, transfer, reproduce, sell, capitalize upon or take advantage of such
Confidential Information and in addition, Employee shall exercise all reasonable
efforts and precautions to protect such Confidential Information from
misappropriation, misuse, disclosure, breach of confidentiality, or other
conduct or action inconsistent with Employer's rights. Upon termination,
Employee shall return immediately to Employer all Employer's property
(including, without limitation, Confidential Information) in Employee's
possession or control.
7. CONFIDENTIAL INFORMATION; COVENANT NOT TO COMPETE. Upon Employee's
termination of employment, Employee shall not disclose Confidential Information
or compete with Employer's business pursuant to the following terms:
a. Employer acknowledges that Employee has previously been involved in
an executive capacity for a long period of time in the healthcare
services business and that Employee has acquired substantial
knowledge concerning that business as a result of such experience.
Employee acknowledges that his contact with physicians and medical
institutions as a result of his employment by Employer will result
in a personal relationship being established between Employee and
such physicians and/or the administration of such medical
institutions whereby Employee could influence the future actions of
such medical institutions and/or physicians relative to the renewal
or cancellation of contractual relationships between Employer, its
subsidiaries and/or affiliates and such medical institutions and/or
physicians. Furthermore, Employee acknowledges and agrees that
Employee's employment by Employer will result in the acquisition by
Employee of Confidential Information concerning the method of
operation and administration of Employer and its subsidiaries and
affiliates and of medical institutions and physicians with whom
Employer and its subsidiaries and affiliates transact business,
including, but not limited to, fee schedules, formulas and special
client requirements. Employee acknowledges and agrees that such
Confidential Information would create an unfair advantage in the
event Employee were to attempt to solicit or provide services of a
similar nature to a medical client of Employer and its subsidiaries
and/or affiliates.
Accordingly, Employee agrees not to disclose Confidential
Information and agrees not to interfere with the contractual
relationship between Employer, its subsidiaries, and/or affiliates
and any medical institution and/or physician for a period of two (2)
years after termination of employment.
b. Employee agrees, during the term hereof, and for a period of two (2)
years following the termination of employment hereunder, that he
will not, directly or indirectly, by himself, or as an employee,
director, officer, contractor or agent of another, enter into any
business or activity anywhere within the State of Texas during the
term hereof in competition with Employer, its subsidiaries and/or
affiliates that would involve the following: (i) the solicitation of
hospitals or other healthcare facilities to provide emergency
department, kidney dialysis or healthcare management services or
other contract physician services similar to or in competition with
such services provided by Employer or any of its subsidiaries or
affiliates providing similar services; or (ii) the solicitation of
hospitals or other healthcare facilities that are clients or
prospective clients (potential clients as to which a marketing
presentation has been made within six (6) months of the date of
termination of this Agreement) of Employer to provide any physician
staffing, recruitment or management services similar to or in
competition with services provided by Employer, its subsidiaries
and/or affiliates and with which Employee was associated.
Notwithstanding the foregoing, Employee may own up to 5% of the
outstanding equity or debt securities of any publicly traded entity
which engages in such activities without a breach of this Agreement.
8. SOLICITATION OF OTHER EMPLOYEES. Employee shall not, until two (2)
years subsequent to the termination of employment, solicit or seek to influence,
either directly or indirectly, any employee or any physician or healthcare
provider under contract with Employer or any of its subsidiaries or affiliates,
to enter into any employment agreements, independent contractor arrangement, or
any other contractual arrangement whereby such individual would perform services
for compensation, either directly or indirectly, for any person, firm,
corporation or other entity or business that provides products or services in
competition with the Employer or any of its subsidiaries or affiliates.
9. BREACH AND REMEDIES. Employee acknowledges that the breach or
threatened breach of any of the covenants set forth in this Agreement will
result in immediate and irreparable injury to Employer. Accordingly, Employee
agrees that in addition to any rights or remedies available to Employer for a
breach or threatened breach by Employee of any of the provisions set forth
above, Employer shall be entitled to injunctive relief to enforce the
obligations of Employee contained therein. Nothing herein shall be construed as
prohibiting Employer from pursuing any other legal or equitable remedies that
may be available to it for any such breach or threatened breach, including the
recovery of damages from Employee. In the event that any of the provisions of
this Agreement are found to be unenforceable or void (either in whole or in
part), then the offending portion shall be construed as valid and enforceable
only to the extent permitted by law and the balance of this Agreement shall
remain in full force and effect.
10. BENEFITS. Employee shall be eligible to participate in all corporate
benefit programs provided by Employer for its employees of comparable status in
accordance with the personnel policies of Employer as such are in effect from
time to time.
11. TERMINATION. This Agreement may be terminated as follows:
a. VOLUNTARY TERMINATION. Either party may terminate this Agreement
without cause at any time upon sixty (60) days prior written notice
to the other; provided, however, the Agreement has been in place for
three (3) complete years commencing on the Effective Date.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by Employer
at any time for cause upon written notice to Employee, which notice
shall specify the reason for termination. For purposes of this
Section, cause shall include the following: fraud; substantial and
continuous non-performance of assigned duties and unlawful
activities for which Employee is convicted in a jurisdiction of the
United States; and material breach of an express term of this
Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall terminate
upon the death or permanent disability of Employee. Employee shall
be deemed to be disabled if he qualifies as such for purposes of
receiving long-term or permanent disability payments under the group
disability insurance program of Employer or in the event that he is
unable to regularly and consistently perform his normal duties as
contemplated hereunder for a continuous period of twelve (12)
months.
12. CONFIDENTIALITY. Employee agrees to keep this Agreement and its terms
confidential except to the extent that disclosure is required by a lawfully
constituted judicial or governmental authority or to the extent that such
disclosure is authorized by the prior written consent of Employer and/or
Employee.
13. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties and supersedes and cancels any prior oral or written
understanding and/or agreements between them respecting any subject matter of
this Agreement. This Agreement may be amended or modified only in writing signed
by both parties.
14. SEVERABILITY. If any provision, term, condition or clause of this
Agreement or the application thereof shall be invalid or unenforceable to any
extent, the remainder of this Agreement shall not be affected thereby and shall
be enforced to the greatest extent permitted by law.
15. GOVERNING LAW. THIS AGREEMENT IS MADE AND ENTERED INTO IN THE STATE OF
TEXAS AND IS TO BE CONSTRUED IN ACCORDANCE WITH AND TAKE EFFECT UNDER THE LAWS
OF THE STATE OF TEXAS.
16. ASSIGNMENT. No party shall have any right to assign, mortgage, pledge,
hypothecate or encumber this Agreement, in whole or in part, or any benefit or
any rights accruing hereunder, without in any such case first obtaining the
prior written consent of the other party hereto, except that Employer may assign
this Agreement to a subsidiary of Employer, provided that in the event of such
an assignment, Employer shall remain responsible for its obligations hereunder.
All rights hereunder are personal to Employee and shall cease upon the
termination of this Agreement.
17. NOTICE. Any notice, or other written communication to be given
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage prepaid, return receipt requested, three (3) days after
the date of mailing, addressed to the parties below as follows:
TO: New STAT Healthcare, Inc.
12450 Greenspoint Drive, Suite 1200
Houston, Texas 77060
TO: Ruben A. Perez
7734 Battle Intense
Fair Oaks Ranch, Texas 78006
18. MISCELLANEOUS. Any protection, benefits, rights or other provisions
given to Employer in this Agreement shall also be deemed to apply to, protect
and inure to the benefit of any subsidiary, affiliate or other business or
person related or connected to Employer. All rights of Employer expressed in
this Agreement are in addition to any rights available under the common law or
other legal principles. Section or paragraph titles or captions contained in
this Agreement are inserted only as matter of convenience and for reference and
in no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of person or persons, firm or firms, corporation or corporations, and
as context may require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
NEW STAT HEALTHCARE, INC.
By: /S/ NED E. CHAPMAN
Title: Chief Financial Officer
/s/RUBEN A. PEREZ
RUBEN A. PEREZ
EXHIBIT 10.5
EMPLOYMENT AND NON-COMPETITION AGREEMENT
OF
RUSSELL D. SCHNEIDER
This Employment Agreement (hereinafter referred to as the "Agreement") is
made and entered into this 24th day of June, 1996 (the "Effective Date") by and
between New STAT Healthcare, Inc., a Delaware corporation (hereinafter referred
to as "Employer") and Russell D. Schneider (hereinafter referred to as
"Employee").
WHEREAS, Employer is engaged in healthcare services businesses and has,
pursuant to an Amended and Restated Agreement and Plan of Reorganization dated
as of March 15, 1996, engaged in statutory merger and stock exchange with
AmHealth Corporation and its related entities (collectively, "AmHealth"); and
WHEREAS, subject to the terms and conditions hereinafter provided,
Employer desires to employ Employee and Employee desires to be employed by
Employer.
NOW, THEREFORE, in consideration of the employment of Employee and the
compensation to be paid by Employer to Employee, Employee hereby accepts
employment hereunder subject to the terms and conditions stated below including
the agreement of Employee not to enter into certain competitive activities with
Employer, as follows:
1. TERM. This Agreement shall commence on the Effective Date and shall
continue for a period of three years or until terminated in accordance with the
provisions set forth herein.
2. DUTIES. Employee shall perform the following duties pursuant to this
Agreement:
a. Employee shall be employed at Employer's office in Houston, Texas,
or at such other location(s) as may be determined by the Board of
Directors.
b. Employee shall be actively involved in Employer's day-to-day
activities and will have the duties assigned to Employee from time
to time by Employer.
c. Employee shall be available to assist Employer and its subsidiaries
and related entities in any way deemed appropriate, commensurate
with the duties of a corporate executive.
d. Employee acknowledges that Employer is an equal opportunity
employer, and that it is Employer's established policy not to
discriminate on the basis of age, marital status, race, color, sex,
religion or national origin, or to violate any federal or state
anti-discrimination law. Employee shall be responsible for carrying
out and implementing the foregoing policy throughout the operations
and activities of Employer.
3. COMPENSATION PACKAGE. For all services provided, Employee shall be
compensated as follows:
a. ANNUAL SALARY. Effective as of the Effective Date, Employer shall
pay Employee an annual salary of $120,000, payable in equal monthly
installments on the last day of each month.
b. INCENTIVE COMPENSATION. Employee shall be entitled to receive a
bonus, the amount of which shall be determined by the compensation
committee of the Board of Directors of Employer.
4. STOCK OPTION. Employee shall be entitled to participate in the 1996
Incentive Stock Option Plan of Employer and upon the approval of the Board of
Directors and in accordance with the terms of the Plan shall be granted stock
options at the discretion of the Board.
5. PART TIME EMPLOYMENT. During the term of this Agreement, Employee shall
devote an average of ten hours per week to advancing the business and good
reputation of Employer. Employer recognizes that Employee may undertake other
business ventures contemporaneously with Employee's employment with Employer,
and, subject to the provisions of paragraph 6 and 7 of this Agreement, Employer
waives any right to assert that Employee's activities on behalf of himself or
others constitutes a conflict of interest under the terms of this Agreement.
6. CONFIDENTIALITY, NON-DISCLOSURE AND OWNERSHIP OF CONFIDENTIAL
INFORMATION. Employee acknowledges that during his employment, he will gain
access to, or possession or knowledge of, numerous trade secrets, confidential
information and other valuable properties, including, but not limited to,
hospital and healthcare facility client lists, client files and records, lists
of potential clients, prospects or targets, and/or other market and marketing
data and plans, price books, promotional devices and methods, business methods,
manuals and plans, business and sales techniques and research and development
(hereinafter referred to collectively as "Confidential Information").
Confidential Information shall not include information in the public domain or
attainable from information generally available to the public. Employee
acknowledges that such Confidential Information is unique and a valuable asset
which is owned solely by Employer and is to be used only for Employer's benefit.
Employee shall not, during or after the term of employment, disclose, divulge,
reveal, transfer, reproduce, sell, capitalize upon or take advantage of such
Confidential Information and in addition, Employee shall exercise all reasonable
efforts and precautions to protect such Confidential Information from
misappropriation, misuse, disclosure, breach of confidentiality, or other
conduct or action inconsistent with Employer's rights. Upon termination,
Employee shall return immediately to Employer all Employer's property
(including, without limitation, Confidential Information) in Employee's
possession or control.
7. CONFIDENTIAL INFORMATION; COVENANT NOT TO COMPETE. Upon Employee's
termination of employment, Employee shall not disclose Confidential Information
or compete with Employer's business pursuant to the following terms:
a. Employer acknowledges that Employee has previously been involved in
an executive capacity for a long period of time in the healthcare
services business and that Employee has acquired substantial
knowledge concerning that business as a result of such experience.
Employee acknowledges that his contact with physicians and medical
institutions as a result of his employment by Employer will result
in a personal relationship being established between Employee and
such physicians and/or the administration of such medical
institutions whereby Employee could influence the future actions of
such medical institutions and/or physicians relative to the renewal
or cancellation of contractual relationships between Employer, its
subsidiaries and/or affiliates and such medical institutions and/or
physicians. Furthermore, Employee acknowledges and agrees that
Employee's employment by Employer will result in the acquisition by
Employee of Confidential Information concerning the method of
operation and administration of Employer and its subsidiaries and
affiliates and of medical institutions and physicians with whom
Employer and its subsidiaries and affiliates transact business,
including, but not limited to, fee schedules, formulas and special
client requirements. Employee acknowledges and agrees that such
Confidential Information would create an unfair advantage in the
event Employee were to attempt to solicit or provide services of a
similar nature to a medical client of Employer and its subsidiaries
and/or affiliates.
Accordingly, Employee agrees not to disclose Confidential
Information and agrees not to interfere with the contractual
relationship between Employer, its subsidiaries, and/or affiliates
and any medical institution and/or physician for a period of two (2)
years after termination of employment.
b. Employee agrees, during the term hereof, and for a period of two (2)
years following the termination of employment hereunder, that he
will not, directly or indirectly, by himself, or as an employee,
director, officer, contractor or agent of another, enter into any
business or activity anywhere within the State of Texas during the
term hereof in competition with Employer, its subsidiaries and/or
affiliates that would involve the following: (i) the solicitation of
hospitals or other healthcare facilities to provide emergency
department, kidney dialysis or healthcare management services or
other contract physician services similar to or in competition with
such services provided by Employer or any of its subsidiaries or
affiliates providing similar services; or (ii) the solicitation of
hospitals or other healthcare facilities that are clients or
prospective clients (potential clients as to which a marketing
presentation has been made within six (6) months of the date of
termination of this Agreement) of Employer to provide any physician
staffing, recruitment or management services similar to or in
competition with services provided by Employer, its subsidiaries
and/or affiliates and with which Employee was associated.
Notwithstanding the foregoing, Employee may own up to 5% of the
outstanding equity or debt securities of any publicly traded entity
which engages in such activities without a breach of this Agreement.
c. Employee acknowledges that Employer is a party to that certain
Professional Services Agreement with Columbia/HCA Healthcare
Corporation ("Columbia") dated as of February 1, 1996 (the "Columbia
Agreement") whereby Employer provides services to certain Columbia
facilities ("Facilities"). Employee agrees that, for a period of two
(2) years following termination of the Columbia Agreement, he will
not, without prior written approval of Columbia, either individually
or as an employee, agent, officer or director of a third party,
directly or indirectly (i) render any professional, administrative,
advisory or consulting services to or for any physician clinic,
independent physician organization or similar physician organization
within a ten mile radius of any hospital or similar facility to
which Employer is provided services under the Columbia Agreement, or
(ii) solicit, raid, entice or induce any person who is (or was at
any time within the one year period immediately preceding such
termination) an employee or independent contractor of any Facility
to (y) terminate his employment or contract with the Facility, or
(z) become employed by or contract with any other person, firm, or
corporation, and Employee will not approach any such employee or
independent contractor for such purpose or authorize or knowingly
approve the taking of such actions by any other persons.
8. SOLICITATION OF OTHER EMPLOYEES. Employee shall not, until two (2)
years subsequent to the termination of employment, solicit or seek to influence,
either directly or indirectly, any employee or any physician or healthcare
provider under contract with Employer or any of its subsidiaries or affiliates,
to enter into any employment agreements, independent contractor arrangement, or
any other contractual arrangement whereby such individual would perform services
for compensation, either directly or indirectly, for any person, firm,
corporation or other entity or business that provides products or services in
competition with the Employer or any of its subsidiaries or affiliates.
9. BREACH AND REMEDIES. Employee acknowledges that the breach or
threatened breach of any of the covenants set forth in this Agreement will
result in immediate and irreparable injury to Employer. Accordingly, Employee
agrees that in addition to any rights or remedies available to Employer for a
breach or threatened breach by Employee of any of the provisions set forth
above, Employer shall be entitled to injunctive relief to enforce the
obligations of Employee contained therein. Nothing herein shall be construed as
prohibiting Employer from pursuing any other legal or equitable remedies that
may be available to it for any such breach or threatened breach, including the
recovery of damages from Employee. In the event that any of the provisions of
this Agreement are found to be unenforceable or void (either in whole or in
part), then the offending portion shall be construed as valid and enforceable
only to the extent permitted by law and the balance of this Agreement shall
remain in full force and effect.
10. BENEFITS. Employee shall be eligible to participate in all corporate
benefit programs provided by Employer for its employees of comparable status in
accordance with the personnel policies of Employer as such are in effect from
time to time.
11. TERMINATION.This Agreement may be terminated as follows:
a. VOLUNTARY TERMINATION. Either party may terminate this Agreement
without cause at any time upon sixty (60) days prior written notice
to the other; provided, however, the Agreement has been in place for
three (3) complete years commencing on the Effective Date.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by Employer
at any time for cause upon written notice to Employee, which notice
shall specify the reason for termination. For purposes of this
Section, cause shall include the following: fraud; substantial and
continuous non-performance of assigned duties and unlawful
activities for which Employee is convicted in a jurisdiction of the
United States; and material breach of an express term of this
Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall terminate
upon the death or permanent disability of Employee. Employee shall
be deemed to be disabled if he qualifies as such for purposes of
receiving long-term or permanent disability payments under the group
disability insurance program of Employer or in the event that he is
unable to regularly and consistently perform his normal duties as
contemplated hereunder for a continuous period of twelve (12)
months.
12. CONFIDENTIALITY. Employee agrees to keep this Agreement and its terms
confidential except to the extent that disclosure is required by a lawfully
constituted judicial or governmental authority or to the extent that such
disclosure is authorized by the prior written consent of Employer and/or
Employee.
13. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties and supersedes and cancels any prior oral or written
understanding and/or agreements between them respecting any subject matter of
this Agreement. This Agreement may be amended or modified only in writing signed
by both parties.
14. SEVERABILITY. If any provision, term, condition or clause of this
Agreement or the application thereof shall be invalid or unenforceable to any
extent, the remainder of this Agreement shall not be affected thereby and shall
be enforced to the greatest extent permitted by law.
15. GOVERNING LAW. THIS AGREEMENT IS MADE AND ENTERED INTO IN THE STATE OF
TEXAS AND IS TO BE CONSTRUED IN ACCORDANCE WITH AND TAKE EFFECT UNDER THE LAWS
OF THE STATE OF TEXAS.
16. ASSIGNMENT. No party shall have any right to assign, mortgage, pledge,
hypothecate or encumber this Agreement, in whole or in part, or any benefit or
any rights accruing hereunder, without in any such case first obtaining the
prior written consent of the other party hereto, except that Employer may assign
this Agreement to a subsidiary of Employer, provided that in the event of such
an assignment, Employer shall remain responsible for its obligations hereunder.
All rights hereunder are personal to Employee and shall cease upon the
termination of this Agreement.
17. NOTICE. Any notice, or other written communication to be given
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage prepaid, return receipt requested, three (3) days after
the date of mailing, addressed to the parties below as follows:
TO: New STAT Healthcare, Inc.
12450 Greenspoint Drive, Suite 1200
Houston, Texas 77060
TO: Russell D. Schneider
3 Pastoral Pond Circle
The Woodlands, Texas 77380
18. MISCELLANEOUS. Any protection, benefits, rights or other provisions
given to Employer in this Agreement shall also be deemed to apply to, protect
and inure to the benefit of any subsidiary, affiliate or other business or
person related or connected to Employer. All rights of Employer expressed in
this Agreement are in addition to any rights available under the common law or
other legal principles. Section or paragraph titles or captions contained in
this Agreement are inserted only as matter of convenience and for reference and
in no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of person or persons, firm or firms, corporation or corporations, and
as context may require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
NEW STAT HEALTHCARE, INC.
By: /s/ NED E. CHAPMAN
Title:Chief Financial Officer
/s/ RUSSELL D. SCHNEIDER
RUSSELL D. SCHNEIDER
EXHIBIT 10.24
MANAGEMENT SERVICES AGREEMENT
BETWEEN
STAT HEALTHCARE, INC.
AND
STAT PHYSICIANS, P.A.
<PAGE>
TABLE OF CONTENTS
Page
I. RESPONSIBILITIES OF PROFESSIONAL ASSOCIATION......................... 2
1.1 Sole Responsibility for All Medical and Professional Matters... 2
1.2 Contracted Providers........................................... 2
1.3 Fees, Charges and Payor Agreements............................. 2
1.4 Compliance with Law............................................ 3
1.5 Practice Sites; Availability................................... 3
1.6 Quality Assurance.............................................. 3
1.7 Patient Referrals.............................................. 3
1.8 Professional Dues and Education Expenses....................... 3
1.9 Professional Insurance Eligibility............................. 3
1.10 Fees for Professional Services................................. 4
II. RESPONSIBILITIES OF MANAGEMENT COMPANY............................... 4
2.1 General Responsibility......................................... 4
2.2 Responsibilities with Regard to Selected Patient-Related
Matters....................................................... 4
(a) Patient Relations........................................ 4
(b) Quality Assurance........................................ 4
2.3 Responsibilities with Regard to Selected Financial Matters..... 5
(a) Billing.................................................. 5
(b) Cash Management.......................................... 6
(c) Accounting............................................... 6
(d) Reporting................................................ 6
2.4 Responsibilities for Financial Planning and Goals.............. 7
(a) Preparation of Budget.................................... 7
(b) Expansion of the Practice................................ 8
(c) Development of New Services.............................. 9
(d) Capital Investment and Support........................... 9
2.5 Data Processing................................................ 9
2.6 Other Responsibilities......................................... 9
(a) Marketing................................................ 9
(b) Insurance................................................ 10
(i) Professional Errors and Omissions Coverage......... 10
(ii) Premium Amounts.................................... 10
(iii) Malpractice Insurance.............................. 10
(iv) Copies of Insurance Policies....................... 10
(c) Personnel................................................ 10
(d) Managed Care Agreements.................................. 11
III. FINANCIAL ARRANGEMENTS............................................... 11
3.1 Management Company's Compensation.............................. 11
(a) Calculation.............................................. 11
(b) Payment.................................................. 13
3.2 Definitions.................................................... 14
3.3 Accounts Receivable............................................ 14
IV. COVENANTS............................................................ 15
4.1 Covenants and Warranties of Professional Association........... 15
4.2 Covenants and Warranties of Management Company................. 16
V. TERM AND TERMINATION................................................. 16
5.1 Term........................................................... 16
5.2 Events of Default.............................................. 16
5.3 Termination.................................................... 17
5.4 Duties upon Termination or Expiration of This Agreement........ 17
VI. RESTRICTIVE COVENANTS................................................ 17
6.1 Covenant Regarding Proprietary Information..................... 17
6.2 Covenants Not to Compete During the Term....................... 18
(a) Restrictive Covenants by Professional Association........ 18
(b) Restrictive Covenants by Contracted Physicians........... 19
6.3 Covenant Not to Compete Following Termination.................. 19
6.4 Covenant Not to Solicit........................................ 19
VII. INFORMATION AND RECORDS.............................................. 20
7.1 Ownership of Records........................................... 20
7.2 Professional Association's Business and Financial Records...... 20
7.3 Access to Records.............................................. 20
7.4 Confidentiality of Records..................................... 20
7.5 Limitations on Use of Management Information System............ 20
VIII. MISCELLANEOUS........................................................ 21
8.1 Independent Contractor Status of Parties....................... 21
8.2 No Waiver...................................................... 21
8.3 Notices........................................................ 21
8.4 Assignment..................................................... 22
8.5 Successors and Assigns......................................... 22
8.6 Severability................................................... 22
8.7 Third Parties.................................................. 22
8.8 Headings....................................................... 22
8.9 Time of the Essence............................................ 22
8.10 Governing Law.................................................. 22
8.11 Confidentiality................................................ 22
8.12 Contract Modifications for Prospective Legal Events............ 23
8.13 Language Construction.......................................... 23
8.14 Communications................................................. 23
8.15 Indemnification................................................ 23
8.16 Entire Agreement............................................... 24
8.17 Incorporation by Reference..................................... 24
8.18 Amendments only in Writing..................................... 24
8.19 Counterparts................................................... 24
8.20 Commercial Impracticability.................................... 24
8.21 Election of Remedies........................................... 24
8.22 Attorneys' Fees and Expenses................................... 24
8.23 Survival....................................................... 25
Schedules
1.2 List of Contracted Providers and Physician Assistant Employees
1.3(a) Fee Schedule
1.3(b) Payor Schedule
1.5 Practice Sites
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement") is entered into as of
February 1, 1996 ("Effective Date") by and between STAT Healthcare, Inc., a
Delaware corporation ("Management Company"), and STAT Physicians, P.A., a Texas
professional association ("Professional Association").
RECITALS
A. Professional Association is a Texas professional association that
engages in the business of providing or arranging for the provision of emergency
department medical services ("Emergency Services").
B. Professional Association contracts with physicians to provide
professional medical care at the emergency department of various hospitals and
healthcare facilities pursuant to written agreements ("Practice Sites"). A
listing of the Practice Sites is set forth at SCHEDULE 1.5, attached hereto and
incorporated herein by reference.
C. Professional Association has entered into independent contractor
agreements with various physicians and other health care professionals licensed
to practice in the State of Texas ("Contracted Providers") to assist
Professional Association in providing or arranging for the provision of health
care services to patients of Professional Association ("Patients"), and may
enter into employment agreements with physician assistants licensed to practice
with the State of Texas to perform services for Patients ("Physician
Assistants").
D. Management Company engages in the business of providing certain
administrative and support services to emergency physician practices.
E. Professional Association desires to secure certain administrative
services from Management Company in connection with its operation of the
Practice.
F. Professional Association and Management Company desire to enter
into a written agreement for the provision by Management Company, on an
exclusive basis, of administrative services to Professional Association with
respect to the Practice, so as to permit Professional Association to devote its
efforts on a concentrated and continuous basis to the rendering of medical
services to its patients.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the parties agree as follows:
I. RESPONSIBILITIES OF PROFESSIONAL
ASSOCIATION
1.1 SOLE RESPONSIBILITY FOR ALL MEDICAL AND PROFESSIONAL MATTERS. All
medical and professional matters relating to the operations of the Practice and
the performance of services for Patients of Professional Association shall be
the sole responsibility of Professional Association. Professional Association
expressly acknowledges that the emergency physician or practices conducted at
these facilities shall be conducted solely by physicians associated with
Professional Association as Contracted Providers.
1.2 CONTRACTED PROVIDERS. Professional Association shall have complete
control of and responsibility for the hiring, engagement, compensation,
supervision, evaluation, and termination of all Contracted Providers who will
provide patient care services, although at the request of Professional
Association, Management Company shall consult with Professional Association
respecting such matters. With respect to physicians, Professional Association
shall only contract with licensed physicians meeting applicable credentialling
guidelines established by Professional Association. Professional Association may
enter into employment agreements with Physician Assistants licensed to practice
in the State of Texas to perform services for Patients. Professional Association
shall be responsible for the payment of salaries and wages, compensation,
payroll taxes, employee benefits, and all other taxes and charges now or
hereafter applicable to Contracted Providers and Physician Assistant employees,
all of which shall be in conformity with the applicable Professional Association
Budget described in Section 2.4(a). A list of all Contracted Providers and
Physician Assistant employees is set forth at SCHEDULE 1.2, attached hereto and
incorporated herein by reference. Prior to making any changes to the list of
Contracted Providers, or licensed or health care professional employees set
forth at SCHEDULE 1.2, Professional Association shall consult with Management
Company. Professional Association shall also consult with Management Company
with regard to the terms of contracts entered into between Professional
Association and Contracted Providers, or licensed Physician Assistant employees,
and the terms and conditions of their employment or engagement as independent
contractors, as applicable.
1.3 FEES, CHARGES AND PAYOR AGREEMENTS. Professional Association
shall, after consultation with Management Company, determine the fees, charges,
premiums, or other amounts due in connection with its delivery of Emergency
Services to Patients. Such fees, charges, premiums, or other amounts -
regardless of whether determined on a fee-for-service, capitated, prepaid, or
other basis - shall be reasonable and consistent with the fees, charges,
premiums, and other amounts due to health care providers for similar services
within the community under the type of reimbursement program involved.
Professional Association shall deliver to Management Company a schedule of fees
for all of Professional Association's charges ("Fee Schedule") at the Effective
Date, a copy of which is set forth at SCHEDULE 1.3(A), attached hereto and
incorporated herein by reference, along with a schedule of all agreements
between Professional Association and Payors or their agents for the provision
of health care services ("Payor Schedule"), a copy of which is set forth at
SCHEDULE 1.3(B), attached hereto and incorporated herein by this reference.
Professional Association shall, after consultation with Management Company, give
Management Company at least thirty (30) days' prior written notice of any
changes in the Fee Schedule or Payor Schedule, or of any changes in the
agreements with Payors identified in the Payor Schedule. For the purposes of
this Agreement, the term "Payor" shall mean insurers, Health Maintenance
Organizations, and other third party payors.
1.4 COMPLIANCE WITH LAW. Professional Association shall require in its
contractual relationships with all of its Contracted Providers that they comply
with all laws, regulations, and ethical and professional standards applicable to
the practice of medicine. Physicians providing medical services shall at all
times be licensed to practice medicine in the State of Texas.
1.5 PRACTICE SITES; AVAILABILITY. Professional Association shall
conduct its practice from the emergency departments of contracted hospitals and
care centers ("Practice Sites") set forth in SCHEDULE 1.5 as may be amended from
time to time. Any additional or substitute Practice Site shall be deemed to be
part of the Practice for the purposes of this Agreement. Contracted Providers
shall be available at Practice Sites to provide Emergency Services twenty-four
(24) hours per day, seven (7) days per week. Contracted Providers shall provide
Emergency Services to Patients in a courteous and prompt fashion, be available
and accessible to Patients, provide Patients with full and meaningful
information, and render Emergency Services in a manner that assures continuity
of care.
1.6 QUALITY ASSURANCE. Professional Association shall monitor and
develop quality assurance programs and performance standards, shall monitor
utilization and quality of services provided by Contracted Providers, and shall
take all steps necessary to remedy any and all deficiencies in the efficiency or
the quality of medical care provided.
1.7 PATIENT REFERRALS. The parties agree that the benefits to
Professional Association hereunder do not require, are not payment for, and are
not in any way contingent upon the admission, referral or any other arrangements
for the provision of any item or service offered by Management Company or any
affiliate of Management Company to any of Professional Association's patients in
any facility or laboratory controlled, managed or operated by Management Company
or any affiliate of Management Company.
1.8 PROFESSIONAL DUES AND EDUCATION EXPENSES. Professional Association
and its Contracted Providers shall be solely responsible for the cost of
membership in professional associations and continuing professional education.
Professional Association shall ensure that each of its Contracted Providers
participates in such continuing medical education as is necessary for such
provider to remain current with professional licensure and community standards.
1.9 PROFESSIONAL INSURANCE ELIGIBILITY. Professional Association shall
cooperate in the obtaining and retaining of professional liability insurance by
assuring that either its Contracted Providers are insurable or instituting
proceedings to terminate any Contracted Provider who is not insurable or loses
his or her insurance eligibility. Termination shall be effective no more than
thirty (30) days from such determination. Professional Association shall require
all Contracted Providers to participate in an on-going risk management program.
1.10 FEES FOR PROFESSIONAL SERVICES. Professional Association shall be
solely responsible for legal, accounting and other professional services fees
incurred by Professional Association.
II. RESPONSIBILITIES OF MANAGEMENT COMPANY
2.1 GENERAL RESPONSIBILITY. Management Company shall have general
respon sibility for providing fiscal services, management information services,
and other support services to Professional Association with respect to the
Practice, except as otherwise provided in this Agreement. Management Company
shall perform all required functions in accordance with sound management
techniques. Notwithstanding Management Company's general and specific rights and
responsibilities set forth in this Agreement, Professional Association shall
have full authority and control with respect to all medical, professional and
ethical determinations over the Practice to the extent required by federal,
state and city law and regulation. Management Company shall not engage in
activities which constitute the practice of medicine under applicable law.
Management Company shall neither exercise control over nor interfere with the
physician-patient relationship, which shall be maintained strictly between the
physicians of Professional Association and their Patients.
2.2 RESPONSIBILITIES WITH REGARD TO SELECTED PATIENT-RELATED MATTERS.
(a) PATIENT RELATIONS. Management Company shall assist
Professional Association in maintaining positive Patient relations by, among
other things: responding to Patient grievances and complaints in matters other
than medical evaluation, diagnosis, and treatment; and establishing and
maintaining Patient transfer arrangements to expedite referrals where medically
necessary, as determined and requested by the attending physician.
(b) QUALITY ASSURANCE. Management Company shall assist
Professional Association, in accordance with criteria established by
Professional Association, in the development and implementation of appropriate
quality assurance programs, including development of performance and utilization
standards, sampling techniques for case review, and preparation of appropriately
documented studies. Notwithstanding the foregoing, Management Company shall not
perform any duties that constitute the corporate practice of medicine.
2.3 RESPONSIBILITIES WITH REGARD TO SELECTED FINANCIAL MATTERS.
(a) BILLING. Management Company shall submit on a timely basis
all bills and necessary documentation required by Patients and Payors in order
to obtain payment in connection with Professional Association's delivery of
health care services at the Practice or its arrangement for the delivery of such
services. In seeking such payment, Management Company shall act as Professional
Association's agent in billing and collecting professional fees, charges,
premiums, or other amounts owed to Professional Association. In such billing,
Management Company shall indicate on its billhead that it is billing in the name
of Professional Association and shall only bill under Professional Association's
provider number. In this connection, Professional Association hereby appoints
Management Company, during the term of this Agreement, as Professional
Association's true and lawful attorney-in-fact, with power of substitution, for
the following purposes relating to the Practice:
(i) To bill Professional Association's Patients in
Professional Association's name and on Professional Association's behalf for all
billable medical services provided by Professional Association.
(ii) To bill in Professional Association's name and on
Professional Association's behalf, all claims for reimbursement or
indemnification from insurance companies, Medicare, Medicaid and all other
Payors or fiscal intermediaries for all covered billable medical services
provided by Professional Association to Patients.
(iii) To collect accounts receivable generated by such
billings in Professional Association's name and on Professional Association's
behalf, including, where deemed appropriate by Management Company and approved
in advance by Professional Association, settling and compromising claims,
assigning such accounts receivable to a collection agency or the bringing of
legal action against a Patient or Payor on Professional Association's behalf.
(iv) To receive all payments in Professional
Association's name and on behalf of Professional Association from Patients and
Payors. After receipt of such payments, Management Company shall endorse in the
name of Professional Association and, in the name of Professional Association
pursuant to Section 3.4, deposit all such payments directly into a depository
account with a banking institution selected by Management Company and approved
by Professional Association, such approval not to be unreasonably withheld, and
shall apply such payments in accordance with the terms of this Agreement.
(v) To write checks against or otherwise withdraw funds
depos ited in Professional Association's bank account for the purposes and only
for the purposes described in this Agreement. Except as otherwise provided
herein, in no event shall Management Company commingle funds of Professional
Association with its own funds or utilize Professional Association's funds or
other assets for the benefit of Management Company or any of its directors,
officers, employees or agents.
(b) CASH MANAGEMENT. In addition to the billing, collecting, and
payment services referenced in Section 2.3(a), Management Company shall manage
the cash and cash equivalents of Professional Association. Management Company
shall be entitled (and is hereby authorized) to transfer such cash to the
accounts of Management Company or its Affiliates and to use such cash for such
purposes as Management Company or its Affiliates deem appropriate, without any
interest charge to Management Company or its Affiliates.
Management Company may subcontract with a third party for the performance of all
or a portion of the foregoing services.
(c) ACCOUNTING. Management Company shall direct and maintain the
operation of an appropriate accounting system with respect to Professional
Association's operation of the Practice which shall perform all bookkeeping and
accounting services required for the operation of the Practice, including the
maintenance, custody and supervision of business records, ledgers and reports;
the establishment, administration and implementation of accounting procedures,
controls and systems; and implementation and management of computer-based
management information systems. Such accounting system shall allow Management
Company to prepare the reports specified in Section 2.3(c). Professional
Association and its authorized representatives shall have the right to review
the financial books and records maintained by Management Company relating to the
operation of the Practice, and Management Company shall, upon reasonable advance
written notice from Professional Association, allow Professional Association and
its authorized representatives access to all information and documents required
for such review.
(d) REPORTING. Management Company shall present to Professional
Association reports on the financial condition of Professional Association on
the basis set forth below in clauses (i) and (ii) and such other reports that
Professional Association may reasonably request, including daily activity
reports, weekly analyses, alternative delivery system reports, backlog reports
and the like. Management Company also shall provide such reports as may be
required by any regulatory agency having jurisdiction over the operations of
Professional Association.
The reports initially required to be delivered to
Professional Association under this Section 2.3(c) with respect to the Practice
are as follows:
(i) As soon as possible after the close of each month, a
balance sheet and a related statement of revenues and expenses showing the
results of Professional Association's operations for the preceding month of the
fiscal year and the year to date.
(ii) As soon as possible after the close of each fiscal
year, a balance sheet and related statement of revenues and expenses showing the
results of Professional Association's operations during that fiscal year.
Professional Association, at its option and expense, may have such annual
financial statement reviewed by an independent certified public accounting firm
selected by Professional Association and acceptable to Management Company.
2.4 RESPONSIBILITIES FOR FINANCIAL PLANNING AND GOALS.
(a) PREPARATION OF BUDGET. Management Company shall prepare the
Professional Association Budget and the Management Company Budget for each
Budget Period in accordance with the provisions of this SECTION 2.4(A). The
Professional Association Budget and the Management Company Budget for the first
Budget Period, each dated as of the Effective Date, will be in form and
substance as mutually agreed by the parties hereto prior to the Effective Date.
For the purposes of this Agreement, "Budget Period" shall mean each fiscal year
of Professional Association which shall be a calendar year, and any partial
fiscal year of Professional Association that occurs either during 1996 or
immediately prior to the Termination Date.
With respect to each Budget Period following the initial
Budget Period, the Management Company shall prepare a preliminary draft
Professional Association Budget and the Management Company Budget, and shall
deliver a preliminary draft of each such budget to the Professional Association,
with a copy to Professional Association, at least 120 days prior to the
commencement of the Budget Period to which such budget relates. The Professional
Association shall provide any comments or required changes to such preliminary
drafts to the Management Company within 15 days after receipt thereof. The
Management Company shall then submit a revised Professional Association Budget
and Management Company Budget to the Professional Association, with a copy to
Professional Association, for approval by the Professional Association no later
than 15 days after the end of the 15-day period referred to in the immediately
preceding sentence. The foregoing time periods during which drafts of the
Professional Association Budget and Management Company Budget are to be
delivered and approved shall be subject to adjustment from time to time as
determined appropriate by the Professional Association.
If, prior to the commencement of any Budget Period, either
the Professional Association or the Professional Association board of directors
has not yet approved the Professional Association Budget, or the Professional
Association has not yet approved the Management Company Budget, then the
Management Company and Professional Association will work diligently in good
faith to obtain such approvals, and until such approvals are obtained, with
respect to the Professional Association Budget and the Management Company
Budget, (i) as to any disputed line items, the immediately preceding Budget
Period's budget shall be controlling until such time, if any, as agreement is
reached on the amounts to be allocated to such disputed line items, specifically
as follows: (A) non-recurring extraordinary items shall not be continued from
the budget for the immediately preceding Budget Period, (B) if the previous
budget was for a Budget Period of less than 12 months, it shall be annualized,
(C) if items such as rents or taxes are subject to an automatic increase, such
increases shall be effective at the increased rate, (D) for items such as
employee salaries, the total salary number shall be adjusted to take into
account changes in the number of employees, but individual salaries shall not
increase and (E) Provider compensation and purchased medical services,
collectively, shall be decreased to the extent that Professional Association's
gross revenues decline in the new Budget Period and shall be increased to the
extent that Professional Association's gross revenues increase in the new Budget
Period (in each case as compared to the immediately preceding Budget Period) so
that the sum of Provider compensation and purchased medical services as a
percentage of Professional Association's gross revenues remains constant between
the two Budget Periods; and (ii) as to any line items which are not in dispute,
the revised budgets submitted by the Management Company shall control.
(b) EXPANSION OF THE PRACTICE. Management Company shall assist
Professional Association in its efforts to expand the Practice by the addition
of new physicians through recruitment, or through the merger with or acquisition
of other physician groups, as may be economically justified and provided for in
the Professional Association Budget. The Professional Association Budget may be
adjusted as required to accurately reflect such mergers or acquisitions,
anticipated mergers or acquisitions, or other changes in the number of
Contracted Providers. Such services shall include, without limitation,
performance of the following services on behalf of Professional Association:
(i) Preparing and sending mass mailing recruitment
literature and materials;
(ii) Accepting and reviewing applications of prospective
independent contractor physicians and Support Personnel;
(iii) Reviewing and verifying references and D.E.A.
numbers of prospective independent contractor physicians and/or Support
Personnel;
(iv) Reviewing and verifying licensing status and
requirements with respect to prospective independent contractor physicians
and/or Support Personnel;
(v) Preparing and reviewing all necessary tax forms and
related information applicable to prospective independent contractor physicians
and/or other licensed or certified persons with whom Professional Association
contracts for the provision of ancillary services ("Support Personnel");
(vi) Interviewing prospective independent contractor
physicians and/or Support Personnel;
(vii) Assisting in scheduling meetings between hospitals
and/or medical facilities and prospective independent contractor physicians
and/or Support Personnel, as may be necessary or required by such hospitals
and/or medical facilities;
(viii)Negotiating and preparing documents as may be
necessary to establish appropriate contractual relationships between (a)
independent contractor physicians and/or Support Personnel and/or (b)
Professional Association and/or any entities related thereto; and
(ix) Performing any and all other services relating to and
arising out of the recruitment of independent contractor physicians and/or
Support Personnel.
(x) Soliciting proposals from the emergency departments of
hospitals and care centers and negotiating and entering into contracts with such
entities in the name of and on behalf of Professional Association and subject to
Professional Association's approval.
(c) DEVELOPMENT OF NEW SERVICES. Management Company will
exercise its good faith business judgment to add new services or to supplement
existing services, subject to Section 3.1(d) below, as may be economically
justified and provided for in the Professional Association Budget. The parties
agree that expansion of the Practice and development of new services will depend
on, among other things, physician composition, anticipated volume, type and
level of reimbursement available, the number and the specialty mix of physicians
in the Practice, the level of physician support, the overall performance of the
Practice, and the requirements of applicable leases and subleases.
(d) CAPITAL INVESTMENT AND SUPPORT. The parties acknowledge that
the addition of new services, the provision of working capital support, the
merger or acquisition of assets of other physician groups, building
improvements, the purchase of new or replacement equipment, and the provision of
space, facilities and equipment for new physicians (without limitation, "Capital
Investments") together may require substantial capital investment by Management
Company. Management Company will exercise its good faith business judgment to
provide the appropriate level of capital support and management services to
accomplish the financial goals of Professional Association.
2.5 DATA PROCESSING. Management Company shall provide, operate,
supervise and direct the development of appropriate and efficient electronic
data processing systems with respect to Professional Association's operation of
the Practice.
2.6 OTHER RESPONSIBILITIES.
(a) MARKETING.
(i) Management Company shall provide all services
reasonably necessary for marketing Professional Association's health care
services and shall submit any marketing programs for prior review and revision,
if necessary, and approval by Professional Association, which approval shall not
be unreasonably withheld. Such marketing shall comply with applicable laws and
regulations governing the use of advertising by the medical profession and with
applicable standards of medical ethics.
(ii) Management Company may make recommendations and
assist in developing patient education materials and programs. Prior to
instituting any such programs, Management Company shall obtain the approval of
Professional Association, which approval shall not be unreasonably withheld.
(b) INSURANCE.
(i) PROFESSIONAL ERRORS AND OMISSIONS COVERAGE. Management
Company shall obtain and maintain during the term of this Agreement, on behalf
of itself and Professional Association, if available on commercially reasonable
terms as determined by Management Company, professional errors and omissions
insurance and general liability insurance, with coverage in amounts to be agreed
upon. To the extent obtainable without incurring additional material expense,
the policies providing coverage to Management Company shall name Professional
Association as an additional insured, and the policies providing coverage to
Professional Association shall name Management Company as an additional insured.
(ii) PREMIUM AMOUNTS. The amount of the premiums for all
insurance provided under this Agreement for Professional Association shall be
included, either separately or as part of the line-item for leasehold expenses,
in Professional Association Budget as an expense to Professional Association.
(iii) MALPRACTICE INSURANCE. It is understood that
Professional Association and its Contracted Providers shall, at Professional
Association's cost, at all times be covered by malpractice insurance with
coverage in amounts to be agreed upon.
(iv) COPIES OF INSURANCE POLICIES. Management Company
shall, upon request, promptly provide Professional Association with copies of
all policies of insurance that it procures under this Agreement. Each such
policy shall provide that it cannot be modified or terminated except after
thirty (30) days written notice to Professional Association.
(c) PERSONNEL. To the extent such personnel are not provided by
the relevant hospital, Management Company shall furnish the services of all
personnel required for the operation of the Practice. Except as specifically
provided in this Section 2.6(c), Management Company has the power to recruit,
hire, train, promote, assign, set the compensation level for, and discharge all
nonmedical personnel. Physician Assistants who provide direct patient care shall
provide such services under the exclusive direction, supervision and control of
Professional Association, while all other services of Management Company
personnel shall be performed under the exclusive direction, supervision and
control of Management Company. Notwithstanding the foregoing, if the activities
of any of the nonprofessional personnel affects the delivery of medical care by
Professional Association, Professional Association shall direct and supervise
the provision of such activities to ensure that the best possible medical care
is provided to Professional Association's patients and such activities shall not
be subject to any direction or control by Management Company except as may be
specifically authorized by Professional Association. If Professional Association
is dissatisfied with the services of any such personnel, Professional
Association shall consult with Management Company. Management Company shall in
good faith determine whether the performance of that employee could be brought
to acceptable levels through counsel and assistance, or whether such employee
should be terminated. All of Management Company's obligations regarding staff
shall be governed by the goal of supporting Professional Association in its
provision of high quality medical care. Employee assignments shall be made with
the intention of assuring consistent and continued rendering of high quality
medical support services and to ensure prompt availability and accessibility of
individual medical support personnel to physicians in order to develop constant,
familiar and routine working relationships between individual physicians and
individual members of the medical support personnel.
(d) MANAGED CARE AGREEMENTS. Management Company shall negotiate
and administer all Payor agreements in the name of and on behalf of Professional
Association and subject to Professional Association's approval and Management
Company shall consult with Professional Association on all professional and
clinical matters relating thereto.
III. FINANCIAL ARRANGEMENTS
3.1 MANAGEMENT COMPANY'S COMPENSATION. In consideration for the
services furnished by the Management Company to Professional Association
hereunder, Professional Association shall pay the Management Company a
management fee (the "Management Fee"), which shall be calculated and paid as
follows:
(a) CALCULATION.
(i) The Management Fee for any period shall be equal to
the sum of (x) the Base Fee for such period and (y) the Incentive Fee, if any,
for such period.
(ii) For purposes of this Agreement:
(A) The term "Base Fee" shall mean, for any period,
all expenses of the Management Company of any kind whatsoever with
respect to any period in providing the services contemplated under
this Agreement (including any depreciation expense), other than
Excluded Expenses. For purposes of this Agreement, the term "Excluded
Expenses" shall mean (1) any interest expense on money which is
borrowed by the Management Company from a third party (not including
under this clause (1) interest expense on indebtedness incurred by
Management Company or its Affiliates to finance any of its obligations
hereunder or services provided hereunder, or interest which may accrue
on any accounts payable of the Management Company generated in
providing the services contemplated under this Agreement, which
interest shall be included in the Base Fee) and (2) any federal or
state income tax expenses of the Management Company. The Management
Company shall be entitled, at its option, to include as an expense of
the Management Company for purposes of the Base Fee a reasonable
hourly fee for any specialist or professional employed by Management
Company or one of its Affiliates (such as a management systems
specialist, an insurance consultant, a lawyer, etc.) who provides
services to the Management Company for specific projects in connection
with Management Company's obligations hereunder, provided that such
fees are not in excess of comparable fees that would be charged by
unaffiliated parties providing a comparable quality of service.
(B) The term "Incentive Fee" shall mean, for any period,
an amount, if any, equal to the lesser of (i) gross revenues of
Professional Association minus the sum of (x) the Professional
Association Operating Expenses, plus (y) the Base Fee, or (ii) the
Capital Return Amount.
(iii) The calculation of the "Capital Return Amount", for
purposes of Section 3.1(a)(ii)(B) for any period, shall be made by multiplying
the Managed Capital for such period by the Capital Return Percentage applicable
to such period. The Managed Capital and the Capital Return Percentage shall be
determined as follows:
(A) The Management Company's managed capital ("Managed
Capital") on the Effective Date shall be deemed to be $5,000,000.
From and after the Effective Date, such Managed Capital
shall be subject to adjustment and calculation as follows:
(1) Managed Capital shall be (a) increased dollar for dollar by
(A) any additional cash and the fair market value of other property
contributed by the Management Company from and after the Effective
Date, and (B) the Net Income of the Management Company for any period,
and (b) decreased dollar for dollar by any cash or the fair market
value of other property distributed to the Management Company or any
Affiliate of the Management Company from and after the Effective Date,
other than in exchange for goods or services acquired by the
Management Company from such Affiliate or as otherwise provided in
this Agreement or in reduction of any liabilities of the Management
Company. Managed Capital shall not be reduced by any Net Loss of the
Management Company.
The terms "Net Income of the Management Company" and "Net
Loss of the Management Company" shall mean the net income or net loss
of the Management Company, determined in accordance with GAAP and the
customary accounting practices of the Management Company, PROVIDED,
HOWEVER, that the calculation of such net income or net loss shall not
take into account any provision for income tax expense or any other
Excluded Expense.
(2) Any funds which are provided by the Management Company or
its Affiliates to the Management Company shall be deemed to be
additional cash contributions to, and not debt obligations of, the
Management Company for purposes of this calculation, whether or not
such contributions are otherwise characterized by Management Company
or its Affiliates for other purposes as inter-company losses.
(3) Managed Capital for purposes of this Section 3.1 shall be
determined as of the end of each quarter during a Budget Period.
However, the cash balance of the Management Company included as of the
end of each quarter shall be the sum of the daily cash balance for the
Management Company for each day during such quarter, divided by the
number of days during such quarter.
(B) The "Capital Return Percentage" shall initially mean
33.1%.
The Capital Return Percentage was calculated by dividing
an agreed upon after-tax percentage of 20% by 0.605 (i.e., assuming
the Management Company was a separate legal entity and would be
subject to an approximately 35% rate for U.S. federal or state
franchise or income tax, as applicable, and a 4.5% rate (after giving
effect to the U.S. federal income tax benefit) for state income tax
purposes) and may be adjusted for increases in federal or state income
tax rates. However, commencing on the fifth anniversary of the
Effective Date, and for each year thereafter, the Management Fee shall
be subject to reasonable increase, at the discretion of the Management
Company, to reflect profitability, expansion and improvements in
operations of the System.
(b) PAYMENT. The Management Fee for any Budget Period shall be
paid as follows:
(i) The Management Fee for such Budget Period shall be
paid as determined by the parties.
(ii) The Management Fee will be reconciled on a quarterly
basis with respect to three-month periods ending March 31, June 30, September 30
and December 31 of each year.
3.2 DEFINITIONS. For the purposes of this Article III, the following
definitions shall apply:
(a) An "Affiliate" of an entity means (i) any person or entity
directly or indirectly controlled by such entity, (ii) any person or entity
directly or indirectly controlling such entity, (iii) any subsidiary of such
entity if the entity has a fifty percent (50%) or greater ownership interest in
the subsidiary, or (iv) such entity's parent entity if the parent has a fifty
percent (50%) or greater ownership interest in the entity. For purposes of this
Article III, Professional Association is not an Affiliate of Management Company.
(b) "Professional Association Operating Expenses" shall mean the
amount set forth in the applicable Professional Association Budget as
Professional Association Operating Expense, which shall include the budgeted
cost and expense for the following items:
(i) payments and compensation to be made by or on behalf
of Professional Association to Contracted Providers;
(ii) compensation, employment-related benefits and
applicable payroll and other deductions, withholdings or payments of Physician
Assistants, if any, in consideration for the provision of professional medical
or other health care services;
(iii) professional liability insurance, to the extent paid
by Professional Association;
(iv) arranging health care services for patients covered
by Payor Contracts where such health care services are not provided by
Professional Association; and
(v) such other items as the parties agree.
It is the intention of Professional Association and Management Company that, for
the administrative convenience of Professional Association, the Professional
Association Budget will generally consist of only the budgeted cost and expense
of any additional items which legally or practically cannot be supplied by
Management Company.
3.3 ACCOUNTS RECEIVABLE. On approximately the tenth of each month,
Management Company may purchase the accounts receivable of Professional
Association, arising during the previous month, by transferring the amount set
forth below by wire transfer into an account of Professional Association at such
place and by such method as may be designated by Professional Association. The
consideration for such purchase would be an amount equal to all fees recorded
each month (net of uncollectible accounts, discounts, Medicare, Medicaid,
Worker's Compensation, employee/dependent healthcare benefit programs,
professional courtesies and other activities that do not generate a collectible
fee (together "Adjustments"), less the Management Fee. In the event Management
Company exercises its right to purchase pursuant to this Section 3.3, it is the
intention of the parties that Management Company would thereby become owner of
the accounts receivable of Professional Association. However, in case such
purchase shall be ineffective for any reason, concurrently with any exercise by
Management Company of its right to purchase, the parties shall execute a
Security Agreement, in a form acceptable to Management Company, to grant a
security interest in the accounts receivable to Management Company. In addition,
in the event Management Company exercises its right to purchase, Professional
Association shall cooperate with Management Company to execute all necessary
documents in connection with the pledge of such accounts receivable to
Management Company, or at Management Company's option, its lenders. All
collections in respect of such accounts receivable shall be deposited in a bank
account at a bank designated by Management Company. To the extent Professional
Association comes into possession of any payments in respect of such accounts
receivable, Professional Association shall direct such payments to Management
Company for deposit in bank accounts designated by Management Company.
IV. COVENANTS
4.1 COVENANTS AND WARRANTIES OF PROFESSIONAL ASSOCIATION. Professional
Association covenants with and warrants to Management Company as follows:
(a) Professional Association is and shall remain during the term
of this Agreement a professional association duly organized, validly existing
and in good standing under the laws of the State of Texas, actively engaged in
the practice of medicine, and possessing full power and authority to own its
properties and to conduct the business in which it engages.
(b) Professional Association has full power and authority to
execute and deliver this Agreement and to engage in the transactions and
obligations contemplated by this Agreement. Upon its execution, this Agreement
shall constitute a valid and binding obligation of Professional Association,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, moratorium, or other similar laws affecting generally
the rights of creditors and by principles of equity. The party executing this
Agreement on behalf of Professional Association is duly authorized to do so.
(c) The consummation of the transactions contemplated by this
Agree ment will not: result in a breach of the terms, provisions, or conditions
of or constitute a default under the Articles of Association, Bylaws or other
enabling or governing instruments of Professional Association or any agreement
to which Professional Association is a party or by which it is bound; or, to the
best knowledge of Professional Association, constitute a violation of any
applicable law or regulation.
4.2 COVENANTS AND WARRANTIES OF MANAGEMENT COMPANY. Management
Company covenants with and warrants to Professional Association as follows:
(a) Management Company is and shall remain during the term of
this Agreement a corporation which is duly organized, validly existing and in
good standing under the laws of the State of Texas, possessing full corporate
power and authority to own its prop erties and to conduct the business in which
it engages.
(b) Management Company has full corporate power and authority to
execute and deliver this Agreement and to engage in the transactions and
obligations contemplated by this Agreement. Upon its execution, this Agreement
shall constitute a valid and binding obligation of Management Company,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, moratorium, or other similar laws affecting generally
the rights of creditors and by principles of equity. The party executing this
Agreement on behalf of Management Company is duly authorized to do so.
(c) The consummation of the transactions contemplated by this
Agree ment will not: result in any breach of the terms, provisions or conditions
of or constitute a default under the Articles of Incorporation, Bylaws or other
enabling or governing instruments of Management Company or any agreement to
which Management Company is a party or by which it is bound; or, to the best
knowledge of Management Company, constitute a violation of any applicable law or
regulation.
V. TERM AND TERMINATION
5.1 TERM. This Agreement shall commence on Effective Date and shall
continue in effect in perpetuity, unless sooner terminated pursuant to this
Article V.
5.2 EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" (the party causing such default is referred to as the
"Breaching Party"):
(a) The Breaching Party fails to make any payment required under
this Agreement.
(b) The Breaching Party admits in writing its inability to pay
its debts as they mature, makes any general assignment for the benefit of
creditors, or seeks to avail itself of any law for the release of insolvent
debtors.
(c) Insolvency, bankruptcy, dissolution, liquidation, or
receivership proceedings are commenced by or with the consent of the Breaching
Party, or are pending for more than sixty (60) days against the Breaching Party.
(d) The Breaching Party fails to observe or otherwise breaches
any material term, condition, covenant, or warranty of this Agreement.
5.3 TERMINATION. Subject to the provisions of this Article V, the
non-Breaching Party may terminate this Agreement upon the occurrence of an Event
of Default in accordance with the following:
(a) In the event of the occurrence of an Event of Default
referred to in Section 5.2(a) above, upon the expiration of thirty (30) days
after written notice, which notice shall specify the nature and extent of such
Event of Default to the Breaching Party, unless the amount due is paid within
such thirty (30) days.
(b) In the event of the occurrence of any other Event of
Default, upon the expiration of ninety (90) days after written notice, which
notice shall specify the nature and extent of such Event of Default to the
Breaching Party. However, in the case of a remediable Event of Default, the
Breaching Party shall have the opportunity to remedy such Event of Default
within such ninety (90) days.
5.4 DUTIES UPON TERMINATION OR EXPIRATION OF THIS AGREEMENT. If this
Agreement is terminated upon expiration of its term, or earlier as provided in
Sections 5.3 or 8.12:
(a) Neither party shall be released or discharged from any
obligation, debt or liability which has previously accrued or been incurred and
remains to be performed upon the date of termination or expiration;
(b) Any sums of money owing by one party to the other shall be
paid immediately;
(c) Each party shall return to the other party all originals and
copies of the Proprietary Information of any of the Protected Parties (as those
terms are defined in Article VI) which are in the possession of such party or
any other person or entity to whom it has delivered such originals and copies;
and
(d) Damages and any other remedies available at law or in equity
may be sought and collected from the Breaching Party in the event of a
termination resulting from an Event of Default.
VI. RESTRICTIVE COVENANTS
6.1 COVENANT REGARDING PROPRIETARY INFORMATION. In the course of the
relationship created pursuant to this Agreement, Professional Association will
have access to certain methods, trade secrets, processes, ideas, systems,
procedures, inventions, discoveries, concepts, software in various stages of
development, designs, drawings, specifications, models, data, documents,
diagrams, flow charts, research, economic and financial analysis, developments,
procedures, know-how, policy manuals, form contracts, marketing and other
techniques, plans, materials, forms, copyrightable materials and trade
information (all of which is referred to in this Agreement as "Proprietary
Information") regarding the operations of Management Company and/or of its
Affiliates (collectively, the "Protected Parties"). Professional Association
shall maintain all such Proprietary Information in strict secrecy and shall not
divulge such information to any third parties, except as may be necessary for
the discharge of their obligations under this Agreement. Professional
Association shall take all necessary and proper precautions against disclosure
of any Proprietary Information to unauthorized persons by any of its officers,
directors, employees or agents. All officers, directors, employees, and agents
of Professional Association who will have access to all or any part of the
Proprietary Information may be required to execute an agreement, at the
reasonable request of the other party, valid under the law of the jurisdiction
in which such agreement is executed, and in a form acceptable to Management
Company and its counsel, committing themselves to maintain the Proprietary
Information in strict confidence and not to disclose it to any unauthorized
person or entity. The Protected Parties not party to this Agreement are hereby
specifically made third party beneficiaries of this Section 6.1, with the power
to enforce the provisions hereof. Upon termination of this Agreement for any
reason, Professional Association and each of its Contracted Providers shall
cease all use of any of the Proprietary Information and, at the request of
Management Company, shall execute such documents as may be necessary to evidence
Professional Association's abandonment of any claim thereto. The parties
recognize that a breach of this Section 6.1 cannot be adequately compensated in
money damages and therefore agree that injunctive relief shall be available to
the Protected Parties as their respective interests may appear.
The obligations of Professional Association under this Section 6.1
shall not apply to information: (i) which is a matter of public knowledge on or
becomes a matter of public knowledge after the Effective Date of this Agreement,
other than as a breach of the confidentiality terms of this Agreement or as a
breach of the confidentiality terms of any other agreement between Professional
Association and Management Company or its Affiliates; or (ii) was lawfully
obtained by Professional Association on a non-confidential basis other than in
the course of performance under this Agreement and from some entity other than
Management Company or its Affiliates or from some person other than one employed
or engaged by Management Company or its Affiliates, which entity or person has
no obligation of confidentiality to Management Company or its Affiliates.
6.2 COVENANTS NOT TO COMPETE DURING THE TERM. The parties recognize
that the services to be provided by Management Company shall be feasible only if
Professional Association operates an active emergency physician practice to
which Professional Association and Contracted Physicians devote full time and
attention. To that end:
(a) RESTRICTIVE COVENANTS BY PROFESSIONAL ASSOCIATION. During
the term of this Agreement, Professional Association shall not establish,
operate or provide physician or other health care services at any hospital,
medical office, clinic or other health care facility providing services
substantially similar to those provided by Professional Association pursuant to
this Agreement anywhere other than at the Practice Sites and as may be approved
in writing by Management Company. Professional Association shall also not enter
into any management or administrative services agreement or arrangement with any
person or entity other than Management Company without Management Company's
prior written approval.
(b) RESTRICTIVE COVENANTS BY CONTRACTED PHYSICIANS. Professional
Association may obtain and enforce formal agreements with its Contracted
Physicians not to establish, operate or provide physician or other health care
services, during the term of this Agreement pursuant to such terms and language
as the parties agree.
6.3 COVENANT NOT TO COMPETE FOLLOWING TERMINATION. For three (3) years
following the termination of this Agreement by Management Company pursuant to
Section 5.3 or by either party pursuant to Section 8.12, Professional
Association shall not enter into any management or administrative services
agreement or any similar arrangement with any person or entity for the provision
of the same or similar services as Management Company provides to Professional
Association under this Agreement, or who otherwise competes with Management
Company within such area as the parties agree surrounding any location where
Management Company or any of its Affiliates is conducting the same or similar
business.
6.4 COVENANT NOT TO SOLICIT. For three (3) years following the
termination of this Agreement, Professional Association shall not:
(a) Directly or indirectly solicit, recruit or hire, or induct
any party to solicit, recruit or hire any person who is an employee of, or who
has entered into an independent contractor arrangement with, Management Company
or any Affiliate of Management Company;
(b) Directly or indirectly, whether for itself or for any other
person or entity, call upon, solicit, divert or take away, or attempt to
solicit, call upon, divert or take away any Management Company's customers,
business, or clients; or
(c) Directly or indirectly solicit, or induce any party to
solicit, any of Management Company's contractors or the contractors of any
Affiliate of Management Company, to enter into the same or a similar type of
contract with any other party; or
(d) Disrupt, damage, impair or interfere with the business of
Management Company.
VII. INFORMATION AND RECORDS
7.1 OWNERSHIP OF RECORDS. At all times during and after the term of
this Agreement, including any extensions or renewals hereof, all business
records, including but not limited to, business agreements, books of account,
general administrative records and all information generated under or contained
in the management information system pertaining to Management Company's
obligations hereunder, and other business information of any kind or nature,
except for patient medical records and Professional Association's Records (as
defined in Section 7.2 below), shall be and remain the sole property of
Management Company; provided that after termination of this Agreement
Professional Association shall be entitled to reasonable access to such records
and information, including the right to obtain copies thereof, for any purpose
related to patient care or the defense of any claim relating to patient care or
the business of Management Company or Professional Association.
7.2 PROFESSIONAL ASSOCIATION'S BUSINESS AND FINANCIAL RECORDS. At all
times during and after the term of this Agreement, the financial, corporate and
personnel records and information relating exclusively to the business and
activities of Professional Association, as distinguished from the business and
activity of Management Company, hereinafter referred to as "Professional
Association's Records," shall be and remain the sole property of Professional
Association.
7.3 ACCESS TO RECORDS. Each party shall be entitled, upon request and
with reasonable advance notice, to obtain access to all records of the other
party directly related to the performance of such party's obligations pursuant
to this Agreement; provided, however, that such right shall not allow for access
to records that must necessarily be kept confidential. Either party, at its
expense, shall have the right to make copies of any records to which it has
access pursuant to this Section.
7.4 CONFIDENTIALITY OF RECORDS. Management Company and Professional
Association shall adopt procedures for maintaining the confidentiality of the
records relating to the operations of Management Company and Professional
Association, including but not limited to all statistical, financial and
personnel data related to the operations of Management Company or Professional
Association, which information is not otherwise available to third parties
publicly or by law, and shall comply with all applicable federal and state
statutes and regulations relating to such records. Patient medical records and
other privileged patient information shall not be disclosed or utilized by
Professional Association or Management Company or their agents or employees
except as required or permitted by applicable laws and regulations.
7.5 LIMITATIONS ON USE OF MANAGEMENT INFORMATION SYSTEM. Professional
Association shall use all software and hardware provided or arranged for by
Management Company pursuant to this Agreement in accordance with and subject to
the terms and conditions of any license, sublicense, lease or other agreement
applicable thereto and shall not allow or permit any person to use the software
or hardware or any portion thereof in violation of any such license, sublicense,
lease or other agreement.
VIII. MISCELLANEOUS
8.1 INDEPENDENT CONTRACTOR STATUS OF PARTIES. In the performance of
the work, duties and obligations under this Agreement, it is mutually understood
and agreed that each party is at all times acting and performing as an
independent contractor with respect to the other and that no relationship of
partnership, joint venture or employment is created by this Agreement. Neither
party, nor any other person performing services on behalf of such party pursuant
to this Agreement, shall have any right or claim against the other party for
Social Security benefits, workers' compensation benefits, disability benefits,
unemployment insurance benefits, health benefits, vacation pay, sick leave or
any other employee benefits of any kind.
8.2 NO WAIVER. The waiver by any party to this Agreement of any breach
of any term or condition of this Agreement shall not constitute a waiver of
subsequent breaches. No waiver by any party of any provision of this Agreement
shall be deemed to constitute a waiver of any other provision.
8.3 NOTICES. If, at any time after the execution of this Agreement, it
shall become necessary or convenient for one of the parties to serve any notice,
demand or communication upon the other party, such notice, demand, or
communication shall be in writing and shall be served personally, by facsimile
transmission, with voice confirmation and receipt confirmed, overnight courier
which provides confirmation of delivery, or by depositing the same in the United
States mail, registered or certified, return receipt requested, postage prepaid
and,
(a) If intended for Professional
Association, then the notice shall be
addressed:
STAT Physicians, P.A.
12450 Greenspoint Drive, Suite 1200
Houston, Texas 77060
Attn: President
(b) If intended for Management Company, then
the notice shall be addressed:
STAT Healthcare, Inc.
12450 Greenspoint Drive, Suite 1200
Houston, TX 77060
Attn: Ned E. Chapman
or to such other address as either party may have furnished to the other party
in writing as the place for the service of notice. Any notice so mailed shall be
deemed to have been given three (3) days after the same has been deposited in
the United States mail; any notice given personally, by facsimile or overnight
courier shall be deemed to have been given upon receipt of the notice.
8.4 ASSIGNMENT. Neither party may sell, transfer, assign, or otherwise
convey its rights or obligations under this Agreement without the prior written
consent of the other; which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, Management Company shall have the limited right
to delegate or subcontract for the performance of any and all duties required to
be performed by Management Company as set forth herein. In effecting any such
subcontract or delegation, Management Company must assure that the subcontractor
or delegee is qualified and will be compensated for the subcontracted or
delegated services in an amount no greater than the fair market value of such
services as paid for comparable services charged by other persons or entities in
the same geographic area.
8.5 SUCCESSORS AND ASSIGNS. Subject to the provisions of this
Agreement respecting assignment, the terms, covenants and conditions contained
herein shall be binding upon and inure to the benefit of the successors and
permitted assigns of the parties hereto.
8.6 SEVERABILITY. If any provision of this Agreement other than
Article III is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
8.7 THIRD PARTIES. Except as provided in Article VII, nothing in this
Agreement shall be construed to create any duty to, any standard of care with
reference to or any liability to anyone not a party to this Agreement.
21.
8.8 HEADINGS. The headings used in this Agreement are for convenience
of reference only and shall have no force or effect in the construction or
interpretation of the provisions of this Agreement.
8.9 TIME OF THE ESSENCE. Time is of the very essence of each and all
of the agreements, covenants and conditions of this Agreement.
8.10 GOVERNING LAW. This Agreement shall be interpreted in accordance
with and governed by the laws of the State of Texas, to the jurisdiction of
which each of the parties hereby submits.
8.11 CONFIDENTIALITY. Except for disclosure to its bankers,
underwriters or lenders, or as necessary or desirable for conduct of business,
including negotiations with other acquisition candidates, neither party hereto
shall disseminate or release to any third party any information regarding any
provision of this Agreement, or any financial information regarding the other
(past, present or future) that was obtained by the other in the course of the
negotiations of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which (i) is generally available to the
public other than as a result of a breach of confidentiality provisions; (ii)
becomes available on a non-confidential basis from a source other than the other
party or its Affiliates or agents, which source was not itself bound by a
confidentiality agreement, or (iii) which is required to be disclosed by law
including securities laws, or pursuant to court order.
8.12 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. The parties
acknowledge that Management Company is not authorized or qualified to engage in
any activity which may be construed or deemed to constitute the practice of
medicine. Professional Association and Management Company shall amend this
Agreement if (i) any act or service required of Management Company in this
Agreement is interpreted by judicial decision, a regulatory agency or legal
counsel of both parties in such a manner as to indicate that such act or service
constitutes the practice of medicine; or (ii) the structure of this Agreement is
in violation of state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement. Such amendment shall, to
the maximum extent possible, preserve the underlying economic and financial
arrangements between Professional Association and Management Company. The
parties agree that such amendment may require reorganization of Professional
Association or Management Company, or both, and may require either or both
parties to obtain appropriate regulatory licenses and approvals. If an amendment
is not possible, either party shall have the right to terminate this Agreement.
8.13 LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
8.14 COMMUNICATIONS. Professional Association and Management Company
agree that good communication between the parties is essential to the successful
performance of this Agreement, and each pledges to communicate fully and clearly
with the other on matters relating to the successful operation of Professional
Association's practice.
8.15 INDEMNIFICATION. Professional Association shall indemnify, hold
harmless and defend Management Company, its officers, directors, shareholders,
employees, agents and independent contractors from and against any and all
liabilities, losses, damages, claims, causes of action, and expenses (including
reasonable attorneys' fees and disbursements), whether or not covered by
insurance, caused or asserted to have been caused, directly or indi rectly, by
or as a result of the performance of medical services or any other acts or
omissions by Professional Association and/or its partners, agents, employees
and/or subcontractors (other than Management Company) during the term hereof.
Management Company shall indemnify, hold harmless and defend Professional
Association, its officers, directors, partners, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action, and expenses (including reasonable attorneys'
fees and disbursements), whether or not covered by insurance, caused or asserted
to have been caused, directly or indirectly, by or as a result of the
performance of any acts or omissions by Management Company and/or its
shareholders, agents, employees and/or subcontractors during the terms of this
Agreement.
8.16 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussion, whether written or oral, between the or among parties regarding the
subject matter of this Agreement.
8.17 INCORPORATION BY REFERENCE. All exhibits and other attachments to
this Agreement are incorporated by reference into this Agreement by such
reference.
8.18 AMENDMENTS ONLY IN WRITING. This Agreement may not be amended or
modified in any respect whatsoever, except by an instrument in writing signed by
the parties hereto.
8.19 COUNTERPARTS. This Agreement may be executed in one or more
counter parts, each of which shall be considered an original and all of which
shall constitute one and the same agreement. This Agreement shall not become
effective until it has been executed by all of the parties hereto.
8.20 COMMERCIAL IMPRACTICABILITY. No party to this Agreement shall be
liable for any failure to perform its obligations hereunder where such failure
results from any cause beyond that party's reasonable control, including, for
example, an act of God, labor disturbance such as a strike or walkout, war,
riot, fire, storm, accident, government regulation or interference, or
mechanical, electronic or communications failure.
8.21 ELECTION OF REMEDIES. The respective rights of the parties to
this Agree ment shall be cumulative. Each party shall have all other rights and
remedies not inconsistent with this Agreement as law and equity may provide. No
exercise by any party of any one right or remedy shall be deemed to be an
exclusive election of rights or remedies.
8.22 ATTORNEYS' FEES AND EXPENSES. In the event of any arbitration or
action or proceeding at law or in equity between the parties to enforce any
provision of this Agreement or to protect or establish any right or remedy of
either party hereunder, the substantially unsuccessful party to such arbitration
or litigation shall be obligated to pay to the substantially prevailing party
all costs and expenses, including reasonable attorneys' fees, incurred therein
by such prevailing party, and if such prevailing party shall receive an award or
recover judgment in any such action or proceeding, such costs, expenses and
attorneys' fees shall be included in and as a part of such award or judgment.
8.23 SURVIVAL. The provisions of Articles III, IV, V, VI, VII and VIII
shall survive any termination of this Agreement.
IN WITNESS WHEREOF, Management Company and Professional Association
have caused this Agreement to be executed by their duly authorized respective
officers as of the Effective Date.
STAT Healthcare, Inc.
/s/ NED E. CHAPMAN
By: Ned E. Chapman
Its: Chief Financial Officer
STAT Physicians, P.A.
/s/ WILLIAM H. RICE
By: William H. Rice, M.D.
Its: Chairman
EXHIBIT 10.25
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of
_______________, 1996 between STAT Healthcare, Inc., a Delaware corporation
("Corporation"), and ("Indemnitee").
RECITALS:
WHEREAS, Indemnitee performs a valuable service in the capacity of
________________________ of Corporation; and
WHEREAS, the Bylaws (the "Bylaws") of Corporation provide that
Corporation shall indemnify the officers, directors, agents and employees of
Corporation to the maximum extent authorized by Section 145 of the Delaware
General Corporation Law, as amended ("DGCL"); and
WHEREAS, the Bylaws and the DGCL, by their non-exclusive nature,
permit contracts between Corporation and each of its officers and directors with
respect to indemnification of such persons; and
WHEREAS, in accordance with the authorization as provided by the
DGCL, Corporation has purchased a policy of Directors and Officers Liability
Insurance ("D & O Insurance"), covering certain liabilities which may be
incurred by its directors and officers in the performance as directors and
officers, respectively, of Corporation; and
WHEREAS, as a result of developments affecting the terms, scope, and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded officers and members of the Board of Directors by
such D & O Insurance and by statutory and Bylaw indemnification provisions; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer or member of the Board of Directors of Corporation, Corporation has
determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service
as an officer or director of Corporation after the date hereof, the parties
hereto agree as follows:
1. INDEMNITY OF INDEMNITEE. Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the provisions of the DGCL, as may be amended from time to time.
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the right of
Corporation) to which Indemnitee is, was or at any time becomes a party,
or is threatened to be made a party, by reason of the fact that Indemnitee
is, was or at any time becomes a director, officer, employee or agent of
Corporation, or is or was serving or at any time serves at the request of
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by Corporation under the non-exclusivity provisions of Article
XI, Section 42(f) of the Bylaws of Corporation and the DGCL.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which Indemnitee
is indemnified pursuant to Section 1 hereof or pursuant to any D & O
Insurance purchased and maintained by Corporation;
(b) in respect to remuneration paid to Indemnitee if it shall
be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or
sale by Indemnitee of securities of Corporation pursuant to the provisions
of Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any federal, state or local statutory
law;
(d) on account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or
to constitute willful misconduct;
(e) on account of Indemnitee's conduct which is the subject of
an action, suit or proceeding described in Section 7(c)(ii) hereof;
(f) on account of any action, claim, or proceeding (other than
a proceeding referred to in Section 8(b) hereof) initiated by Indemnitee
unless such action, claim, or proceeding was authorized in the specific
case by action of the Board of Directors;
(g) for any amounts paid in settlement of any action or claim
without Corporation's written consent; or
(h) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in
this respect, both Corporation and Indemnitee have been advised that the
Securities and Exchange Commission believes that indemnification for
liabilities arising under the federal securities laws is against public
policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for
adjudication).
4. CONTRIBUTION. If the indemnification provided in Sections 1 and 2
hereof is unavailable by reason of a Court decision described in Section 3(h)
hereof based on grounds other than any of those set forth in paragraphs (b)
through (g) of Section 3 hereof, then in respect of any threatened, pending, or
completed action, suit or proceeding in which Corporation is jointly liable with
Indemnitee (or would be if joined in such action, suit, or proceeding),
Corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred and paid or payable by Indemnitee in such proportion as is appropriate
to reflect (i) the relative benefits received by Corporation on the one hand and
Indemnitee on the other hand from the transaction from which such action, suit,
or proceeding arose, and (ii) the relative fault of Corporation on the one hand
and of Indemnitee on the other in connection with the events which resulted in
such expenses, judgments, fines, or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of Corporation on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent the circumstances resulting in such
expenses, judgments, fines, or settlement amounts. Corporation agrees that it
would not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation or any other method of allocation which does
not take account of the foregoing equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Indemnitee shall be subject
to any possible claim, or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director of Corporation or serving in any other capacity
referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Indemnitee of notice of the commencement of any action,
suit, or proceeding, Indemnitee will, if a claim in respect thereof is to be
made against Corporation under this Agreement, notify Corporation of the
commencement thereof; but the omission so to notify Corporation will not relieve
it from any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit, or proceeding as to which
Indemnitee notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, to the extent that it
may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from Corporation to
Indemnitee of its election so as to assume the defense thereof,
Corporation will not be liable to Indemnitee under this Agreement for any
legal or other expenses subsequently incurred by Indemnitee in connection
with the defense thereof other than reasonable costs of investigation or
as otherwise provided below. Indemnitee shall have the right to employ its
counsel in such action, suit, or proceeding but the fees and expenses of
such counsel incurred after notice from Corporation of its assumption of
the defense thereof shall be at the expense of Indemnitee unless (i) the
employment of counsel by Indemnitee has been authorized by Corporation,
(ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between Corporation and Indemnitee in the conduct of
the defense of such action, or (iii) Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Indemnitee's separate counsel shall be at
the expense of Corporation. Corporation shall not be entitled to assume
the defense of any action, suit, or proceeding brought by or on behalf of
Corporation or as to which Indemnitee shall have made the conclusion
provided for in (ii) above; and
(c) Corporation shall be permitted to settle any action except
that it shall not settle any action or claim in any manner which would
impose any penalty or limitation on Indemnitee without Indemnitee's
written consent. Neither Corporation nor Indemnitee will unreasonably
withhold its consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Indemnitee employs his or her own
counsel pursuant to Section 6(b)(i) through (iii) above, Corporation shall
advance to Indemnitee, prior to any final disposition of any threatened or
pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending
any such action, suit, or proceeding within ten (10) days after receiving
copies of invoices presented to Indemnitee for such expenses.
(b) Indemnitee agrees that Indemnitee will reimburse
Corporation for all reasonable expenses paid by Corporation in defending
any civil or criminal action, suit, or proceeding against Indemnitee in
the event and only to the extent it shall be ultimately determined by a
final judicial decision (from which there is no right of appeal) that
Indemnitee is not entitled, under the provisions of the DGCL, the Bylaws,
this Agreement, or otherwise, to be indemnified by Corporation for such
expenses.
(c) Notwithstanding the foregoing, Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i)
commences any action, suit, or proceeding as a plaintiff unless such
advance is specifically approved by a majority of the Board of Directors,
or (ii) is a party to an action, suit, or proceeding brought by
Corporation and approved by a majority of the Board which alleges willful
misappropriation of corporate assets by Indemnitee, disclosure of
confidential information in violation of Indemnitee's fiduciary or
contractual obligations to Corporation, or any other willful and
deliberate breach in bad faith of Indemnitee's duty to Corporation or its
stockholders.
8. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on
Corporation hereby in order to induce Indemnitee to continue as an officer
or director of Corporation, and acknowledges that Indemnitee is relying
upon this Agreement in continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is
successful in such action, Corporation shall reimburse Indemnitee for all
Indemnitee's reasonable fees and expenses in bringing and pursuing such
action.
9. SUBROGATION. In the event of payment under this agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
10. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
Indemnitee by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of
Corporation's Certificate of Incorporation or Bylaws, agreement, vote of
stockholders or directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding office.
11. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee, or other agent of Corporation and shall inure to the benefit of
Indemnitee's heirs, executors, and administrators.
12. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof or the obligation of the
Corporation to indemnify the Indemnitee to the full extent provided by the
Bylaws or the DGCL.
13. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
14. BINDING EFFECT. This Agreement shall be binding upon Indemnitee
and upon Corporation, its successors and assigns, and shall inure to the benefit
of Indemnitee, his or her heirs, personal representatives, and assigns and to
the benefit of Corporation, its successors and assigns.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination, or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
STAT HEALTHCARE, INC.
By:
Name:
Title:
INDEMNITEE:
Name:
Address:
EXHIBIT 21.1
SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
- ------------------------- ----------------------------
Old STAT Healthcare, Inc. ................................ Deleware
STAT Dialysis Corp. ...................................... Deleware
STAT Management Corp. .................................... Deleware
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 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.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Houston, Texas
August 29, 1996
