AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON October 1, 1996
REGISTRATION NO. 333-2486
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
ON
FORM S-1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STAT HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3842
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
76-0496236
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
12450 GREENSPOINT DRIVE, SUITE 1200
HOUSTON, TEXAS 77060
(713) 872-6900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
NED E. CHAPMAN
CHIEF FINANCIAL OFFICER
STAT HEALTHCARE, INC.
12450 GREENSPOINT DRIVE, SUITE 1200
HOUSTON, TEXAS 77060
TELEPHONE: (713) 872-6900
FACSIMILE: (713) 876-2999
(NAME ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
CARMELO M. GORDIAN, ESQ.
RONALD G. SKLOSS, ESQ.
BROBECK, PHLEGER & HARRISON LLP
301 CONGRESS AVENUE, SUITE 1200
AUSTIN, TEXAS 78701
TELEPHONE: (512) 477-5495
FACSIMILE: (512) 477-5813
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE>
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* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
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SUBJECT TO COMPLETION, DATED October 1, 1996
PROSPECTUS
[STAT HEALTHCARE, INC. LOGO]
859,166 SHARES OF
COMMON STOCK
62,500 CLASS A WARRANTS
------------------------
This Prospectus relates to the issuance of (i) 859,166 shares of common stock,
par value $0.01 per share (the "Common Stock"), of STAT Healthcare, Inc.
("STAT" or the "Company") purchasable upon the exercise of the Company's
Class A redeemable common stock purchase warrants (the "Class A Warrants") and
(ii) 62,500 Class A Warrants purchasable upon the exercise of the Company's
Representatives' Warrants (the "Representatives' Warrants" and, collectively
with the Class A Warrants, the "Warrants"). Each Class A Warrant entitles the
holder thereof to purchase, at any time through April 19, 1998, one share of
Common Stock at a purchase price of $4.50 per share, subject to anti-dilution
adjustments. Each Representatives' Warrant entitles the holder thereof to
purchase, at any time through April 19, 2000, two shares of Common Stock and one
Class A Warrant at an aggregate price of $10.875, subject to anti-dilution
adjustments.
The Class A Warrants are redeemable by the Company, at a redemption price of
$0.05 per warrant, and prior to April 19, 1998, on 30 days prior written notice,
provided the closing sale price per share of the Common Stock for a period of 20
consecutive trading days, ending on the third business day prior to the date of
any redemption notice equals or exceeds at least $5.50 (subject to adjustment in
certain events). The Class A Warrants shall be exercisable until the close of
the business day preceding the date fixed for redemption. See "Description of
Capital Stock -- Class A Warrants."
The Company has filed a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), relating to a proposed underwritten public
offering (the "Underwritten Offering") of 3,300,000 additional shares of
Common Stock, including 3,000,000 shares to be issued and sold by the Company
and 300,000 shares to be sold by certain stockholders of the Company. If the
Underwritten Offering is consummated, the Company will agree not to redeem the
Class A Warrants for 180 days following the date of the final Prospectus
relating to the Underwritten Offering. See "Recent Developments -- Proposed
Underwritten Offering" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Common Stock and the Class A Warrants are quoted on the Nasdaq National
Market under the symbols "STHC" and "STHCW," respectively. On September 26,
1996, the closing per unit sale prices of the Common Stock and the Class A
Warrants on the Nasdaq National Market were $7 1/16 and $2 7/16, respectively.
See "Market Prices."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING
INFORMATION UNDER "RISK FACTORS."
THE COMPANY
STAT Healthcare, Inc. ("STAT" or the "Company") provides a continuum of
disease management services primarily to patients with end-stage renal disease
("ESRD" or "chronic kidney failure") and physician practice management
services to affiliated physician groups which staff hospital emergency
departments. The Company currently operates five kidney dialysis facilities,
manages two hyperbaric oxygen ("HBO") therapy facilities and provides home
healthcare management and related ancillary services primarily in the Rio Grande
Valley of south Texas. Through its affiliates 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 hospital emergency departments
in the U.S., many of which face numerous problems in managing their emergency
departments, including difficulties in recruiting, evaluating, scheduling and
retaining qualified emergency physicians, and the inefficient use of emergency
departments for routine primary care. The Company intends to continue to focus
on strategic relationships and outsourcing opportunities with hospital networks
rather than management contracts with individual hospitals. In addition, STAT
believes it can provide physician practice management services to other
hospital-based physician practices, such as radiology, pathology and
anesthesiology.
The Company's objective is to be the preferred provider of integrated kidney
disease management services and physician practice management services in its
current and future market areas. The principal elements of the Company's
strategy are to (i) expand its integrated disease management services, (ii)
leverage its existing relationships with hospital networks, (iii) expand into
new geographic markets and (iv) attract managed care contracts.
In June 1996, the Company acquired AmHealth Corporation and its related
healthcare entities (collectively, "AmHealth") in exchange (the "Exchange")
for 11,200,000 shares of Common Stock, representing approximately 75% of the
Company's Common Stock outstanding immediately after the Exchange. AmHealth
operated kidney dialysis facilities, managed HBO therapy facilities and provided
home healthcare management and related ancillary services primarily in the Rio
Grande Valley of south Texas. The Exchange was accounted for as a pooling of
interests, and the Company's consolidated financial statements as of and for the
years ended December 31, 1993, 1994 and 1995 have been restated to give
retroactive effect to the consummation of the Exchange.
<PAGE>
THE OFFERING
Securities offered................... 859,166 shares of Common Stock
62,500 Class A Warrants
Common Stock to be outstanding if all
Warrants are exercised............. 15,761,638 shares (1)
Use of Proceeds...................... For general corporate purposes.
Nasdaq National Market symbols....... Common Stock: STHC
Class A Warrants: STHCW
- ------------------------------
(1) Excludes 1,500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan. See "Management -- 1996 Stock
Incentive Plan."
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993(1) 1994(2) 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Net service revenues................. $ 10,043 $ 14,521 $ 23,141 $ 10,375 $ 16,663
--------- --------- --------- --------- ---------
Operating expenses:
Professional medical fees....... 6,823 7,714 9,241 4,548 6,695
Human resources................. 1,107 1,949 4,640 1,625 3,516
Supplies........................ 375 1,143 1,818 822 1,136
Billing and collection costs.... 304 795 1,461 697 996
Other costs..................... 784 1,140 2,215 899 1,437
--------- --------- --------- --------- ---------
Total operating expenses... 9,393 13,041 19,375 8,591 13,780
--------- --------- --------- --------- ---------
Operating income..................... 650 1,480 3,766 1,784 2,883
Interest expense..................... 33 5 121 29 133
Reorganization costs................. -- -- -- -- 1,269
--------- --------- --------- --------- ---------
Income before income taxes........... 617 1,475 3,645 1,755 1,481
Income taxes......................... -- 65 347 181 (44)
--------- --------- --------- --------- ---------
Net income........................... $ 617 $ 1,410 $ 3,298 $ 1,574 1,525
========= ========= ========= ========= =========
Pro forma data (3):
Pro forma income taxes.......... 210 436 892 416 577
--------- --------- --------- --------- ---------
Pro forma net income............ $ 407 $ 974 $ 2,406 $ 1,158 $ 948
========= ========= ========= ========= =========
Pro forma net income per common
share........................... $ 0.05 $ 0.11 $ 0.20 $ 0.13 $ 0.06
========= ========= ========= ========= =========
Number of shares used in
computing pro forma net income
per share....................... 7,458 8.545 11,897 9,078 15,320
========= ========= ========= ========= =========
</TABLE>
JUNE 30,
1996
---------
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $ 4,189
Total assets......................... 13,759
Long-term debt and capital lease
obligations, less current
portion............................ 2,282
Total liabilities.................... 7,099
Stockholders equity.................. 6,660
- ------------------------------
(1) Represents consolidated financial data for the Company combined with
financial data for its affiliated physician group, South Texas Acute Trauma
Physicians, P.A. ("STAT Physicians").
(2) Represents consolidated financial data for the Company for the year ended
December 31, 1994 combined with financial data for STAT Physicians for the
eight months ended August 31, 1994.
(3) Reflects the effects of income taxes not otherwise payable by entities which
were partnerships or S corporations prior to the Exchange.
UNLESS OTHERWISE INDICATED HEREIN, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES THE UNDERWRITTEN OFFERING IS NOT CONSUMMATED. 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."
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE FOLLOWING
RISK FACTORS SHOULD BE CAREFULLY CONSIDERED BY POTENTIAL INVESTORS BEFORE
PURCHASING COMMON STOCK OFFERED HEREBY:
CLIENT CONCENTRATION; DEPENDENCE ON COLUMBIA/HCA HEALTHCARE CORPORATION. During
the years ended December 31, 1994 and 1995 and the six months ended June 30,
1996, approximately 46%, 41% and 50% of the Company's net service revenues,
respectively, were derived from fee-for-service contracts entered into by the
Company's affiliated physician groups with hospitals currently owned by
Columbia/HCA Healthcare Corporation ("Columbia"). The Company's affiliated
physician groups have contracted to provide physician practice management
services at 23 hospital-based emergency departments, 20 of which are owned by
Columbia. Fifteen of the Columbia hospitals are covered by a single contract.
Several or all of the Columbia hospitals served by the Company in a given region
are generally covered by a single contract. Each current Columbia contract has
an initial term of two years with provisions for automatic renewal, and may be
terminated by Columbia in certain circumstances, including unsatisfactory
service by the Company or its affiliated physician groups. During the term of
each Columbia contract and for two years thereafter, STAT has agreed not to
organize or provide administrative or advisory services to independent physician
or similar associations whose practices relate to areas other than emergency
medicine and who are located in proximity to specified Columbia medical centers.
There can be no assurance that any contract will be renewed, that any contract
will be renewed on substantially the same terms and conditions, or that any
contract will not be terminated prior to the conclusion of its term. Loss of any
Columbia contract covering a substantial number of hospitals would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Operations -- Emergency Physician
Practice Management Services -- Hospital Contracts."
LIMITED OPERATING HISTORY; INTEGRATION OF OPERATIONS OF AMHEALTH. The Company
did not conduct operations as a combined entity with AmHealth until the
consummation of the Exchange in June 1996. Accordingly, the Company has a
limited operating history upon which an evaluation of its prospects can be
based. The integration of the operations of AmHealth will require the dedication
of management resources and distract attention from the day-to-day business of
the Company, which could adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will not incur additional charges in subsequent quarters to reflect costs
associated with the Exchange or that management will be successful in its
efforts to integrate the operations of AmHealth. There can also be no assurance
that the Company's management will be able to oversee the combined entity and
effectively implement the Company's operating and growth strategy. Failure to
integrate the operations of AmHealth or to implement the Company's operating and
growth strategy successfully could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON MEDICARE/MEDICAID AND OTHER SOURCES OF REIMBURSEMENT; RISKS OF
COLLECTION. The Company's business is materially dependent upon its ability to
obtain and maintain reimbursement from third-party payors, including government
programs (such as Medicare and Medicaid) and private insurers, for the Company's
dialysis services and medical services provided by its affiliated physician
groups. The Company's business is also subject to collection risks and working
capital demands associated with its affiliated physician groups fee-for-service
contracts with hospitals.
MEDICARE
A significant portion of the Company's net service revenues is derived from its
services as a provider of dialysis treatment. The Company is reimbursed for
dialysis services primarily at fixed rates established under the ESRD program
administered by the U.S. Health Care Financing Administration ("HCFA"). Under
this program, once a patient becomes eligible for Medicare reimbursement,
Medicare is responsible
5
<PAGE>
for payment of 80% of the composite rate determined by HCFA for dialysis
treatments and a secondary payor (usually Medicare supplemental insurance or the
state Medicaid or ESRD-type program) pays approximately 20% of the composite
rate. Since 1972, qualified patients with ESRD have been entitled to Medicare
benefits regardless of age or financial circumstances. Since 1983, numerous
Congressional actions have resulted in changes in the Medicare composite
reimbursement rate. The Medicare ESRD composite reimbursement rate currently
ranges from $117 to $138 per treatment, depending on regional wage variations.
The Company receives reimbursement for outpatient dialysis services provided to
Medicare-eligible patients at rates that are currently $117 per treatment. The
Company is not able to predict whether future rate changes will be made. Because
the Medicare program represents a substantial portion of the federal budget,
Congress takes action in almost every legislative session to modify the Medicare
program for the purpose of reducing the amounts payable from the program to
healthcare providers. Legislation or regulations may be enacted in the future
that may significantly modify the Medicare program or substantially reduce the
amount paid for the Company's services. Such actions could have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, increases in operating costs that are subject to
inflation, such as labor and supply costs, without a compensating increase in
prescribed rates, may have a material adverse effect on the Company's results of
operations in the future. The Company also is unable to predict whether certain
ancillary services, for which the Company currently is reimbursed separately,
may in the future be included in the Medicare ESRD composite rate. See
"Business -- Operations -- Disease Management Services -- Sources of
Reimbursement."
MEDICAID
Texas, the only state in which the Company currently operates, provides Medicaid
(or comparable) benefits to qualified recipients to supplement their Medicare
entitlement. The Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy and governmental
funding restrictions, all of which may have the effect of decreasing program
payments, increasing costs or modifying the way the Company operates its
business. See "Business -- Operations -- Disease Management Services -- Sources
of Reimbursement."
OTHER SOURCES OF REIMBURSEMENT
Other sources of reimbursement include payments from third-party private payors
with whom the Company contracts. Payments from private payors are generally at
rates that exceed the Medicare and Medicaid rates. Termination of such private
payor agreements could have an adverse effect on the Company. The Company
believes that health maintenance organizations ("HMOs") and other managed care
providers may have a strong incentive to reduce the costs of healthcare and may
seek to reduce amounts paid for the Company's services. The Company is unable to
predict whether and to what extent changes in private reimbursement rates may be
made in the future. Any reduction in such rates could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, as patient care is increasingly controlled by managed care
entities, the Company believes that its success will, in part, be dependent upon
the ability of the Company or its affiliated physician groups to negotiate
managed care contracts with HMOs and other private third-party payors. Such
contracts often shift much of the financial risk of providing care from the
payor to the provider. There can be no assurance that satisfactory arrangements
with respect to risk sharing can be negotiated or that any managed care
contracts entered into will not adversely affect the Company.
FEE-FOR-SERVICE REIMBURSEMENT
The net service revenues from the Company's emergency physician practice
management services are derived under its affiliated physician groups
fee-for-service contracts with hospitals, pursuant to which the Company assumes
the financial risks arising from changes in patient volume, payor mix and
third-party reimbursement rates. Fee-for-service contractual arrangements also
involve a credit risk related to services provided to uninsured individuals. The
Company's working capital needs are related to the acquisition of
6
<PAGE>
new hospital contracts by its affiliated physician groups. As a result, the
Company may require additional working capital in the event of significant
growth in emergency physician practice management services. The Company may
experience a net use of cash in its operating activities in future projects if
the growth in fee-for-service hospital contracts continues. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS ASSOCIATED WITH THE COMPANY'S GROWTH STRATEGY. The Company's growth
strategy includes the development of new dialysis facilities, the acquisition of
existing dialysis facilities and the entry into additional hospital-based HBO
therapy and physician practice management contracts, particularly through
strategic relationships with hospital networks. Competition for existing
dialysis facilities and HBO therapy and physician practice management contracts
has increased significantly in recent years and, as a result, the cost of these
activities has also increased. There can be no assurance that the Company will
be able to develop new dialysis facilities or identify, acquire or successfully
integrate acquired dialysis facilities, or that the Company will be able to
identify, enter into or successfully integrate additional HBO therapy and
physician practice management contracts. In addition, there can be no assurance
that dialysis facilities, HBO therapy facilities or physician practices
developed, acquired or managed in the future will achieve net service revenues
or earnings that justify the Company's investment therein. Such expansion
methods involve a number of risks, including diversion of managements attention
and dependence on retention, hiring and training of increasing numbers of
physicians, nurses and technical personnel, some or all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent the Company is unable to develop or acquire
dialysis facilities or enter into additional HBO therapy and physician practice
management contracts, or to integrate such facilities and activities
successfully, its ability to expand its business would be reduced significantly.
See "Business -- Business Strategy."
COMPETITION. The markets for dialysis, HBO therapy, home healthcare and
physician practice management services are highly competitive. The Company has
both local and national competitors in its businesses, many of whom focus solely
in a particular segment of the Company's business. The Company is also, in
effect, competing against the traditional structure of hospital management and
practicing physician management operations. Competition is based on the scope,
quality and cost of services provided. Certain of the Company's competitors are
significantly larger and have substantially greater financial and other
resources available to them than the Company. There can be no assurance that the
Company can compete effectively with any such competitor. See
"Business -- Competition."
LACK OF BROAD ACCEPTANCE OF HBO THERAPY. The Company's growth strategy includes
expansion through the management of additional HBO therapy facilities. HBO
therapy is recognized as an effective primary treatment for a number of medical
conditions, including carbon monoxide poisoning and smoke inhalation,
decompression sickness and air embolism. Approximately 85% of the patients
treated by the Company's disease management services during 1995 suffer from
diabetes or vascular disease, which conditions predispose those patients to
problem wounds which fail to respond to established medical/surgical management.
Although the Company believes that HBO therapy enhances the healing of selected
problem wounds of these patients, and Medicare currently reimburses certain
costs of HBO therapy, the general medical community has not historically
recognized HBO therapy as primary treatment for such wounds and there can be no
assurance that broad acceptance of HBO therapy for problem wounds will be
achieved in the future. The reluctance of the general medical community to
achieve broad acceptance of HBO therapy to treat problem wounds could adversely
affect the Company's ability to expand such business.
DEPENDENCE ON AFFILIATED PHYSICIAN GROUPS. The Company has entered into
management agreements (the "Management Agreements") with affiliated physician
groups which in turn contract to provide emergency medical services to
hospitals. The Company receives a management fee pursuant to the Management
Agreements, the amount of which is, in part, tied to gross revenues of the
affiliated physician group. The affiliated physician groups, in turn, enter into
contracts with hospitals for the provision of emergency medical and
administrative services. The terms of the hospital contracts are generally two
years,
7
<PAGE>
with provisions for automatic renewal for additional periods. The termination or
failure to renew a significant number of these hospital contracts or a single
contract covering a significant number of facilities would have a material
adverse impact on the Company. See Business -- Operations -- Emergency Physician
Practice Management Services -- Hospital Contracts."
CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS; POTENTIAL STATE AND
FEDERAL TAX LIABILITY. The Company's affiliated physician groups contract with
physicians as independent contractors, rather than employees, to fulfill their
contractual obligations to hospitals. Therefore, no affiliated physician group
currently withholds federal or state income taxes, makes federal or state
unemployment tax payments or provides workers compensation insurance with
respect to such independent contractors. The payment of applicable taxes is
regarded as the responsibility of such independent contractors. The Company
believes that classification of physicians as independent contractors is
standard industry practice and proper for federal tax purposes. A contrary
determination by taxing authorities or a change in existing law could materially
adversely affect the Company and its results of operations. See
"Business -- Operations -- Emergency Physician Practice Management
Services -- Physician Contracts."
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The Company is highly dependent
upon the active involvement of its key management and executive personnel, in
particular Russell D. Schneider, the Company's Chairman and Chief Executive
Officer, William H. Rice, M.D., its Vice Chairman, Victor M. Miranda, M.D., its
President -- Emergency Physicians, and Ruben A. Perez, its
President -- Healthcare Management. Messrs. Schneider and Perez have each
enjoyed a long-term relationship with Columbia and Drs. Rice and Miranda have
been largely responsible for the development and maintenance of existing
relationships with hospital administrators. Accordingly, the Company has entered
into employment and non-competition agreements with each of these executive
officers. The Company believes that its future success will also be
significantly dependent on its ability to recruit and retain qualified
physicians to serve as medical directors and to retain independent contractor
attending physicians and skilled nurses, for which competition is intense. The
loss by the Company of any of its executive officers, or the inability to
recruit and retain qualified management personnel, medical directors, and
independent contractor physicians or nurses could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Employees and Independent Contractor Physicians" and
"Management."
DEPENDENCE ON PHYSICIAN REFERRALS. The Company's dialysis facilities are
dependent upon referrals of ESRD patients for treatment by physicians
specializing in nephrology and practicing in the communities served by the
Company's facilities. As is generally true in the dialysis industry, at each
facility one or a few physicians account for all or a significant portion of the
patient referral base. During 1995, two nephrologists who are also principal
stockholders of the Company collectively accounted for approximately 80% of the
Company's net service revenues from dialysis services (approximately 27% of the
Company's total net service revenues). The loss of one or more key referring
physicians at a particular facility could have a material adverse effect on the
operations of that facility and could adversely affect the Company's overall
results of operations.
GOVERNMENT REGULATION. Various state and federal laws regulate the
relationships between providers of healthcare services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Social
Security Act, which prohibit the solicitation, payment, receipt or offering of
any direct or indirect remuneration for the referral of Medicare or Medicaid
patients, or for the ordering or providing of Medicare of Medicaid covered
services, items or equipment. These laws also impose restrictions on physicians
referrals for designated healthcare services to entities with which they have
financial relationships. Violations of these laws may result in substantial
civil or criminal penalties for individuals or entities, including large civil
monetary penalties and exclusion from participation in the Medicare and Medicaid
programs. State laws also prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
Such exclusion, if applied to the Company or its affiliated physician groups,
could result in significant loss of reimbursement to the Company.
8
<PAGE>
Although the Company believes its operations as described herein are, and will
continue to be, in material compliance with existing applicable laws, the
Company's business operations have not been the subject of judicial or
regulatory interpretation. There can be no assurance that review of the
Company's business by courts or regulatory authorities will not result in
determinations that could adversely affect the operations of the Company or that
the healthcare regulatory environment will not change so as to restrict the
Company's existing operations or their expansion. In addition, the regulatory
framework of certain jurisdictions may limit the Company's expansion into, or
ability to continue operations within, such jurisdictions if the Company is
unable to modify its operational structure to conform with such regulatory
framework. Any limitation on the Company's ability to expand its business could
have an adverse effect on the Company.
In addition to extensive, existing government healthcare regulation, there have
been numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of healthcare services. The
Company believes that such initiatives will continue during the foreseeable
future. Aspects of certain of these reforms as proposed in the past, such as
further reductions in Medicare and Medicaid payments and additional prohibitions
on physician ownership, directly or indirectly, of facilities to which they
refer patients, if adopted, could adversely affect the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation."
CORPORATE EXPOSURE TO PROFESSIONAL LIABILITIES. Due to the nature of their
businesses, the Company's affiliated physician groups and certain physicians who
provide services on their behalf may be the subject of medical malpractice
claims, with the attendant risk of substantial damage awards. One of the most
significant sources of potential liability in this regard is the alleged
negligence of physicians placed by the affiliated physician groups at contract
hospitals. To the extent such physicians are regarded as agents of the Company
in the practice of medicine, the Company could be held liable for any medical
negligence of such physicians. In addition, the Company could be found in
certain instances to have been negligent in performing its contract management
services for the hospitals even if no agency relationship between the Company,
the affiliated physician groups and/or such physician exists. Each affiliated
physician groups contracts with hospitals generally require the affiliated
physician group to indemnify such other parties for losses resulting from a
contracted physicians malpractice. However, there can be no assurance that a
future claim or claims will not exceed the scope or limits of available
insurance coverage or that such coverage will continue to be available. See
"Business -- Corporate Liability and Insurance" and "Legal Proceedings."
POSSIBLE INSUFFICIENCY OF LIABILITY COVERAGE. The Company maintains
professional liability insurance coverage in amounts and coverages as required
by certain agreements or deemed appropriate by management. However, there can be
no assurance that any claim will be within the scope or limits of the Company's
coverage, that any insurer will remain solvent and able to meet its obligations
to provide coverage for any claim or claims or that such coverage will continue
to be available or available with sufficient limits and at a reasonable cost to
adequately and economically insure the Company's operations in the future. See
"Business -- Corporate Liability and Insurance."
VOTING CONTROL BY MANAGEMENT. The current executive officers and directors of
the Company in the aggregate beneficially own approximately 66% of the
outstanding Common Stock. As a result, management has significant influence over
the outcome of all matters submitted to the Company's stockholders for their
approval, including the election of directors and approval of significant
corporate transactions. This ownership by the Company's management may delay,
defer or prevent a potential change of control of the Company and, consequently,
the market price for the Common Stock may be less likely to reflect a
"premium" for such potential transactions. See "Principal Stockholders."
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation
("Charter") and Bylaws ("Bylaws") and the Delaware General Corporation Law
contain certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including provisions
authorizing the issuance of "blank check" Preferred Stock, establishing a
classified Board of Directors, limiting the persons who may
9
<PAGE>
call special meetings of stockholders, prohibiting stockholder action by written
consent and establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at stockholders meetings. See "Description of Capital Stock -- Certain
Anti-Takeover, Limited Liability and Indemnification Provisions."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS; ADVERSE EFFECT OF POSSIBLE REDEMPTION OF CLASS A WARRANTS. Holders of
the Warrants will be able to exercise the Warrants only if a current prospectus
relating to the securities issuable upon the exercise of the Warrants is then in
effect under the Securities Act and such securities are qualified for sale or
exempt from qualifications under the applicable securities or "blue sky" laws
of the states in which the various holders of the Warrants then reside. Although
the Company has undertaken to use reasonable efforts to maintain the
effectiveness of a current prospectus covering the securities issuable upon the
exercise of the Warrants, there can be no assurance that the Company will be
able to do so. The value of the Warrants may be greatly reduced if a current
prospectus covering the securities issuable upon exercise of the Warrants is not
kept effective or if such securities are not qualified or exempt form
qualification in the states in which the holders of the Warrants then reside.
In addition, the Class A Warrants are subject to redemption by the Company, on
30 days' prior written notice, provided the closing sale price per share of the
Common Stock for a period of 20 consecutive trading days, ending on the third
business day prior to the date of any redemption notice equals or exceeds at
least $5.50 (subject to adjustment in certain events). If the Class A Warrants
are redeemed, holders of Class A Warrants will lose their right to exercise the
Class A Warrants, except during such 30-day notice of redemption period. Upon
receipt of a notice of redemption of the Class A Warrants, the holders thereof
would be required to either exercise the Class A Warrants and pay the exercise
price at a time when it may be disadvantageous for them to do so; sell the Class
A Warrants at the then market price (if any) when they might otherwise wish to
hold the Class A Warrants; or accept the redemption price, which could be
substantially less than the market value of the Class A Warrants at the time of
redemption. If the Underwritten Offering is consummated, the Company will agree
not to redeem the Class A Warrants for 180 days following the date of the final
Prospectus relating to the Underwritten Offering. See "Description of Capital
Stock -- Class A Warrants."
LIMITED MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. The
Common Stock has been quoted on the Nasdaq National Market under the symbol
"STHC" since August 23, 1996. The Common Stock was quoted on the Nasdaq
SmallCap Market (under the symbol "ERDR" until June 24, 1996 and "STHC"
thereafter) from April 21, 1995 to August 22, 1996. Factors such as
announcements by the Company or its competitors concerning variations in results
of operations, changes in earnings estimates by securities analysts,
announcements of material events by the Company or its major strategic partners
and proposed government regulations may have a significant effect on the market
price of the Company's securities. The stock market has from time to time
experienced extreme price and volume fluctuations, particularly among healthcare
companies, which have often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
price of the Company's securities. See "Market Prices."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial
number of shares of Common Stock could adversely affect the market price of the
Common Stock and could impair the Company's ability to raise capital through the
sale of equity securities. If all of the Warrants are exercised and the
Underwritten Offering is not consummated, the Company will have outstanding
15,761,638 shares of Common Stock, assuming no exercise of outstanding options
after August 31, 1996. Of these shares, (i) 2,847,184 shares, including the
859,166 shares offered hereby, will be freely tradeable without restriction or
further registration under the Securities Act unless purchased by "affiliates"
of the Company as that term is defined in Rule 144 promulgated under the
Securities Act ("Rule 144"), (ii) 3,065,346 shares will be freely tradeable
without restriction or further registration under the Securities Act following
the termination of the lock-up arrangements described below, (iii) 9,176,486
shares will be held by affiliates and will become available for sale pursuant to
the volume and manner of sale provisions of Rule 144
10
<PAGE>
following the termination of the lock-up arrangements, and (iv) 672,622 shares
of Common Stock will be "restricted securities" as that term is defined under
Rule 144 and will become available for sale beginning on June 24, 1998 pursuant
to the volume and manner of sale provisions of Rule 144. An additional 50,000
shares of Common Stock are issuable upon the exercise of currently exercisable
options. Substantially all shares issued following the exercise of such options
will be freely tradeable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company or subject to
the lock-up arrangements. See "Shares Eligible for Future Sale."
In connection with the Exchange, the Company's officers, directors and certain
of its stockholders holding in the aggregate 12,921,454 shares of Common Stock
entered into lock-up agreements providing that such persons will not sell,
assign, pledge, hypothecate or otherwise dispose of, directly or indirectly,
such shares of Common Stock, or any shares acquired upon the exercise of any
options or warrants until June 24, 1997, without the prior written consent of
the Company. See "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS. The Company has not declared or paid dividends in the
past and does not anticipate declaring or paying any dividends on the Common
Stock in the foreseeable future. Certain of the AmHealth entities made and have
declared distributions to their shareholders and partners for periods prior to
the Exchange. See "Dividend Policy."
11
<PAGE>
THE COMPANY
STAT provides a continuum of disease management services primarily to patients
with chronic kidney failure and physician practice management services to
affiliated physician groups which staff hospital emergency departments. The
Company currently operates five kidney dialysis facilities, manages two HBO
therapy facilities and provides home healthcare management and related ancillary
services primarily in the Rio Grande Valley of south Texas. Through its
affiliated physician groups, STAT also 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.
RECENT DEVELOPMENTS
PROPOSED UNDERWRITTEN OFFERING
In August 1996, Company filed a registration statement under the Securities Act
relating to an underwritten public offering of 3,300,000 additional shares of
Common Stock, including 3,000,000 shares to be issued and sold by the Company
and 300,000 shares to be sold by certain stockholders of the Company. A portion
of the net proceeds from the Underwritten Offering, if consummated, will be used
by the Company to repay all outstanding indebtedness under the Company's
revolving line of credit with a bank. The balance of such net proceeds will be
used for general working capital 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 such offering to
acquire businesses that are complementary to those of the Company. No assurances
can be given that the Underwritten Offering will be consummated.
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,
12
<PAGE>
Treasurer and a director of the Company, and Daniel A. Perez was elected Senior
Vice President of the Company. Messrs. Schneider, R. Perez and D. Perez, each of
whom was an affiliate of AmHealth prior to the Exchange, also entered into
employment agreements with the Company. Following the Exchange, Ned E. Chapman,
the Company's Chief Financial Officer, resigned from the Company's Board of
Directors and Mr. R. Perez was elected to fill the vacancy created by Mr.
Chapmans resignation. The number of directors constituting the Board was
increased to six persons, and Ann N. James, Ph.D. and David C. Colby, both of
whom were designated by former affiliates of AmHealth, were elected to fill the
two newly created positions. See "Management," "Certain Transactions" and
"Principal and Selling Stockholders."
At the time of the Exchange, AmHealth operated kidney dialysis facilities,
managed HBO therapy facilities and provided home healthcare management and
related ancillary services primarily in the Rio Grande Valley of south Texas.
The Exchange was accounted for as a pooling of interests, and the Company's
consolidated financial statements as of and for the years ended December 31,
1993, 1994 and 1995 have been restated to give retroactive effect to the
consummation of the Exchange. See the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
COLUMBIA AGREEMENT
Effective February 1996, one of the Company's affiliated physician groups
entered into an agreement (the "Columbia Agreement") to provide emergency
medical services to 15 of Columbia's hospitals in the Houston greater
metropolitan area, six of which hospitals were then being served by the Company
under individual contracts with hospitals. The Columbia Agreement has an initial
term ending in January 1998 with provisions for automatic renewal, and may be
terminated by Columbia in certain circumstances, including the loss of
Columbia's certification as a Medicare provider or unsatisfactory service by the
Company or its affiliated physician groups. During the term of the Columbia
Agreement and for two years thereafter, STAT has agreed not to organize or
provide administrative or advisory services to independent physician or similar
associations whose practices relate to areas other than emergency medicine and
who are located in proximity to specified Columbia medical centers. There can be
no assurance that the Columbia Agreement will be renewed at the conclusion of
its initial term, that it will be renewed on substantially the same terms and
conditions, or that it will not be terminated prior to the conclusion of its
term. See "Business -- Operations -- Emergency Physician Practice Management
Services -- Hospital Contracts."
ACQUISITION OF ASSETS OF AMEDICA, LTD.
In February 1996, the Company acquired certain intangible assets of Amedica,
Ltd. for a total purchase price of $270,000, consisting of $200,000 in cash and
15,730 shares of Common Stock. These assets consisted of certain contract rights
and the right to use the name "Amedica."
ACQUISITION OF HEMA CONTRACT
In January 1996, in contemplation of the Columbia Agreement, the Company
acquired the rights to a contract (the "HEMA Contract") for the provision of
physician practice management services at one of Columbia's Houston-area
hospitals for a total purchase price of $1.2 million, consisting of $960,000 in
cash and 52,174 shares of Common Stock. The Company also agreed to pay to the
assignor of the HEMA 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.
13
<PAGE>
USE OF PROCEEDS
If all the Warrants are exercised, the Company will receive approximately $3.9
million after deducting estimated offering expenses payable by the Company (and
before deduction of fees paid to any solicitation agents). No assurances can be
given than any or all of the Warrants will be exercised. Any net proceeds
received from the exercise of the Warrants will be used for working capital and
general corporate purposes, including financing accounts receivable and capital
expenditures made in the ordinary course of its business. Pending such uses, the
net proceeds will be invested in government securities and other short-term,
investment-grade, interest-bearing instruments.
DIVIDEND POLICY
To date, the Company has not paid or declared any cash dividends and does not
anticipate paying or declaring any dividends on the Common Stock in the
foreseeable future. In addition, the Company's credit agreement with a
commercial bank prohibits the payment of dividends. Certain of the AmHealth
entities made and have declared distributions to their shareholders and partners
for periods prior to the Exchange. Any future change in the Company's dividend
policy rests solely within the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, capital requirements,
financial condition and any restrictions under credit agreements, as well as
other factors deemed relevant by the Board of Directors.
MARKET PRICES
The Common Stock and the Class A Warrants have been quoted on the Nasdaq
National Market (under the symbols "STHC" and "STHCW," respectively) since
August 23, 1996, and were quoted on the Nasdaq SmallCap Market (under the
symbols "ERDR" and "ERDRW," respectively, until June 24, 1996 and "STHC"
and "STHCW," respectively, thereafter) from April 21, 1995 to August 22, 1996.
The following table sets forth the high and low sales prices for the Common
Stock and the Class A Warrants as reported by the Nasdaq National Market and the
Nasdaq SmallCap Market for the periods indicated:
CLASS A
COMMON STOCK WARRANTS
-------------- --------------
HIGH LOW HIGH LOW
---- --- ---- ---
1995:
Second Quarter (beginning April
21)............................. $ 3 13/16 $2 1/8 $ 1 5/8 $ 1/4
Third Quarter................... 3 7/8 2 3/8 1 7/8 1
Fourth Quarter.................. 5 2 3/4 1 1/16 1 1/16
1996:
First Quarter................... 6 3/4 3 5/8 4 1/2 1 1/4
Second Quarter.................. 9 5/8 5 1/2 4 7/8 2 3/8
Third Quarter (through September
26)............................. 8 3/8 5 3/4 3 1/2 1 1/2
The Company believes there are currently approximately 59 record holders of
Common Stock and approximately 13 record holders of Class A Warrants. On
September 26, 1996, the closing per unit sale prices of the Common Stock and the
Class A Warrants as reported by the Nasdaq National Market were $7 1/16 and
$2 7/16, respectively.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June 30,
1996. The following table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and Unaudited Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
(IN THOUSANDS)
Current portion of long-term debt.... $ 1,486
Current portion of capital lease
obligations........................ 72
Long-term debt....................... 289
Long-term capital lease
obligations........................ 1,993
Stockholders' equity:
Preferred Stock, $.01 par value,
5,000,000 shares authorized,
no shares issued................ --
Common Stock, $.01 par value,
40,000,000 shares authorized,
14,902,472 shares issued and
outstanding(1).................. 179
Capital in excess of par value..... 4,563
Retained earnings.................. 1,948
--------------
Total stockholders' equity.... 6,660
--------------
Total capitalization....... $ 10,500
==============
- ------------------------------
(1) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan and (ii) 859,166 shares of Common
Stock issuable upon the exercise of the Warrants. Subsequent to June 30,
1996, 71,940 shares of Common Stock were issued upon the exercise of Class A
Warrants. See "Management -- 1996 Stock Incentive Plan" and "Description
of Capital Stock -- Class A Warrants" and "-- Other Warrants."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents selected consolidated financial data of the Company
and its affiliated physician group, STAT Physicians. The data as of and for the
years ended December 31, 1993, 1994 and 1995 are derived from the Company's
Consolidated Financial Statements and STAT Physicians' Financial Statements
included herein. The data as of June 30, 1996 and for the six months ended June
30, 1995 and 1996 are derived from the Company's Unaudited Consolidated
Financial Statements included herein. In the opinion of management, such
unaudited data reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the financial data for such
periods. The results of operations for the six months ended June 30, 1996 are
not necessarily indicative of results that may be expected for any future
period. The data set forth below include the accounts of the Company and
AmHealth, which was acquired in June 1996 in a transaction accounted for as a
pooling of interests, as if such businesses had always been members of the same
operating group. See "Recent Developments -- Exchange with AmHealth Corporation
and Related Entities." The selected consolidated financial data are qualified
in their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Consolidated Financial Statements and Notes thereto and Unaudited
Consolidated Financial Statements and Notes thereto, and STAT Physicians'
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993(1) 1994(2) 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Net service revenues................. $ 10,043 $ 14,521 $ 23,141 $ 10,375 $ 16,663
--------- --------- --------- --------- ---------
Operating expenses:
Professional medical fees....... 6,823 7,714 9,241 4,548 6,695
Human resources................. 1,107 1,949 4,640 1,625 3,516
Supplies........................ 375 1,143 1,818 822 1,136
Billing and collection costs.... 304 795 1,461 697 996
Other costs..................... 784 1,440 2,215 899 1,437
--------- --------- --------- --------- ---------
Total operating expenses... 9,393 13,041 19,375 8,591 13,780
--------- --------- --------- --------- ---------
Operating income..................... 650 1,480 3,766 1,784 2,883
Interest and other (income) expense,
net................................ 33 5 121 29 133
Reorganization costs................. -- -- -- -- 1,269
--------- --------- --------- --------- ---------
Income before income taxes........... 617 1,475 3,645 1,755 1,481
Income taxes......................... -- 65 347 181 (44)
--------- --------- --------- --------- ---------
Net income........................... $ 617 $ 1,410 $ 3,298 $ 1,574 $ 1,525
========= ========= ========= ========= =========
Pro forma data (3):
Pro forma income taxes.......... 210 436 892 416 577
--------- --------- --------- --------- ---------
Pro forma net income............ $ 407 $ 974 $ 2,406 $ 1,158 $ 948
========= ========= ========= ========= =========
Pro forma net income per common
share......................... $ 0.05 $ 0.11 $ 0.20 $ 0.13 $ 0.06
========= ========= ========= ========= =========
Number of shares used in
computing pro forma net income
per share..................... 7,458 8,545 11,897 9,078 15,320
========= ========= ========= ========= =========
</TABLE>
DECEMBER 31,
------------------------------- JUNE 30,
1993 1994 1995 1996
--------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $ 197 $ 1,215 $ 5,618 $ 4,189
Total assets......................... 1,143 4,824 10,575 13,759
Long-term debt and capital lease
obligations, less current
portion............................ 330 1,194 1,640 2,282
Total liabilities.................... 697 3,045 4,203 7,099
Stockholders' equity................. 446 1,779 6,372 6,660
- ------------------------------
(1) Represents consolidated financial data for the Company combined with
financial data for STAT Physicians.
(2) Represents consolidated financial data for the Company for the year ended
December 31, 1994 combined with financial data for STAT Physicians for the
eight months ended August 31, 1994.
(3) Reflects the effects of income taxes not otherwise payable by entities which
were partnerships or S corporations prior to the Exchange.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
The following discussion and analysis reviews consolidated financial data for
companies which previously reported separately. The consolidation has been made
because of the June 1996 merger of the Company's predecessor ("Old STAT") and
AmHealth into the Company in connection with the Exchange. AmHealth is comprised
of a group of corporations and partnerships with related ownership which were
formed at various dates commencing in October 1992 and which commenced operating
activities in April 1993. The Exchange was accounted for as a pooling of
interests.
Old STAT was incorporated on July 29, 1994, and commenced active operations
effective September 1, 1994, pursuant to a Management Agreement with STAT
Physicians which had been in effect since January 1, 1986. To provide
comprehensive historical operating data, STAT Physicians' operating results for
the year ended December 31, 1993 and the eight months ended August 31, 1994,
which are reported separately, have been combined in the comparative statements
of income data discussed herein. Subsequent to August 1994, STAT Physicians'
operating results were reported on a consolidated basis with the results of Old
STAT.
Historically, Old STAT's operations were limited to a single business segment:
emergency medical management services. AmHealth's operations were focused on
integrated disease management services comprised of two identifiable segments:
kidney dialysis services and medical management services encompassing HBO
therapy and home healthcare management services.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
For purposes of this discussion, the term "same store" refers to facilities
which were open for the duration of each comparable period.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NET SERVICE REVENUES. Net service revenues increased by $6.3 million, or 61%,
to $16.7 million in the six months ended June 30, 1996 from $10.4 million in the
comparable period of 1995. This increase is comprised of a $3.2 million (93%)
increase in disease management revenues and a $3.1 million (45%) increase in
emergency medical management revenues.
The increase in disease management revenues, to $6.7 million in the six months
ended June 30, 1996 from $3.5 million in the comparable period of 1995, was
primarily attributable to the introduction of new services and facilities.
Kidney dialysis services accounted for approximately $3.8 million of 1996
revenues and approximately $2.6 million of 1995 revenues, while medical
management services accounted for $2.9 million of 1996 revenues compared to $0.9
million of 1995 revenues.
At June 30, 1996, the Company operated five kidney dialysis facilities compared
with three facilities at June 30, 1995. Revenues during 1996 attributable to the
new facilities approximated $0.6 million while revenues attributable to
facilities open during both periods increased to $3.2 million from $2.6 million
or a same store growth rate of approximately 19%. Per patient revenue rates
remained relatively constant between the periods. At June 30, 1996, the Company
had approximately 270 dialysis patients compared with approximately 185 patients
at June 30, 1995.
17
<PAGE>
At June 30, 1996, the Company provided management services to one home
healthcare agency, which services commenced in June 1995, and managed two HBO
therapy facilities, one of which opened in May 1995 and one of which opened in
April 1996. The increase in comparative medical management revenues of $2.0
million is attributable to a combination of the short operating history as of
June 30, 1995 and the opening of the second HBO therapy facility in April 1996.
In July 1996, the Company announced contracts for three additional HBO therapy
facilities which are expected to be opened during the fourth quarter of 1996.
The increase in emergency medical management revenues, to $10.0 million in the
six months ended June 30, 1996 from $6.9 million in the comparable period of
1995, was primarily attributable to an increase in the number of patients
treated in 1996 (approximately 124,000) compared with 1995 (approximately
90,000). The increase in patients relates to an increase in the number of
emergency departments being served, 18 as of June 30, 1996 compared with 13 as
of June 30, 1995. During the 1996 period, the Company began providing services
at nine additional emergency departments. In July 1996, the Company announced
contracts for services to five additional emergency departments, two of which
commenced July 1 with the remaining three to commence during the fourth quarter
of 1996. Services were terminated by the Company at four emergency departments
(two in April 1996 and two during the second half of 1995) which were served at
June 30, 1995. Also contributing to the increase in revenues is a 5% increase in
average revenue per patient to $80.31 in 1996 from $76.27 in 1995. The increase
in per patient revenue was due to a pricing increase implemented in February
1996.
OPERATING EXPENSES. Operating expenses increased by $5.2 million, or 60%, to
$13.8 million in the six months ended June 30, 1996 from $8.6 million in the
comparable period of 1995. This percentage increase approximated the comparative
increase in net service revenues.
Significant elements comprising operating expenses included: (i) professional
medical fees which increased $2.1 million or 47%; (ii) human resource costs
which increased $1.9 million or 116%; (iii) billing and collection costs which
increased $0.3 million or 43%; (iv) supplies costs which increased $0.3 million
or 38%; and (v) liability insurance which increased $0.2 million or 54%. Other
combined costs accounted for the remaining increase of $0.4 million. Comments
relating to the five identified costs are as follows:
Professional medical fees, liability insurance, and billing and collection
costs, which increased by 47%, 54% and 43%, respectively, were all directly
related to emergency medical management services, which revenues increased by
45%. The percentage increase in professional medical fees exceeded the
percentage increase in related revenues because of rate increases in fees paid
to independent contract physicians. The percentage increase in liability
insurance exceeded the percentage increase in patients treated (38%) because of
an increase in premiums which are paid on a per patient basis. The average cost
for 1996 was approximately $4.00 per patient compared to approximately $3.60 per
patient in the 1995 period. The increase in billing and collection costs was
slightly less than the increase in revenues because of a May 1996 negotiated
reduction in the cost of this contracted service which is based on a percentage
of collections.
The rate of increase in human resource costs exceeded the rate of increase in
revenues. Such costs increased by 75% (compared to a revenue increase of 45%) or
$0.5 million in emergency medical management services and by 146% (compared to a
revenue increase of 93%) or $1.4 million relating to disease management
services. The disproportionate percentage increases were attributable to the
hiring of administrative and support personnel to accommodate the expanded
operations and contracted future business. Additionally, the home healthcare and
HBO services businesses which were started late in the 1995 period are highly
labor intensive and contributed to an increase in these costs as a percentage of
revenues.
The 38% increase in supply costs was most directly related to a 46% increase in
dialysis net service revenues. These costs did not increase at as great a rate
as revenues because of economies of scale in purchasing supplies for expanded
operations.
REORGANIZATION COSTS. The reorganization costs incurred during the six months
ended June 30, 1996 relate entirely to the Exchange and consist of legal,
accounting and other transactional costs.
18
<PAGE>
INCOME TAXES AND PROFORMA INCOME TAXES. Combined income taxes and proforma
income taxes have been calculated using estimated effective tax rates of 36% for
the six months ended June 30, 1996 and 34% for the comparable period of 1995.
Because the AmHealth entities were S corporations or partnerships for federal
income tax purposes, no income taxes were provided on their pre-Exchange
incomes. Pro forma income taxes represent the additional taxes which would have
been provided had they been subject to income taxes at the established rates.
SHARES USED IN COMPUTING NET INCOME PER SHARE. Shares used in computing net
income per share is based on the weighted average common shares and common share
equivalents outstanding during the periods presented. For the six months ended
June 30, 1996, this includes 14,902,472 shares outstanding plus approximately
418,000 common share equivalents relating to warrants and options. For the
comparable period of 1995, there were no common share equivalents because the
warrants and options were anti-dilutive. Additionally, shares allocable to
AmHealth entities included in the Exchange which were not yet operational as of
June 30, 1995 were excluded from the 1995 average.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SERVICE REVENUES. Net service revenues increased by $8.6 million, or 59%,
to $23.1 million in 1995 from $14.5 million in 1994. This increase was comprised
of a $5.0 million (127%) increase in disease management revenues and a $3.6
million (34%) increase in emergency medical management revenues.
The increase in disease management revenues, to $9.0 million in 1995 from $5.0
in 1994, was primarily attributable to the introduction of new services and
facilities from year to year. Kidney dialysis services accounted for
approximately $6.3 million of 1995 revenues and approximately $3.8 million of
1994 revenues, while medical management services accounted for $2.7 million of
1995 revenues compared to $0.2 million of 1994 revenues.
At December 31, 1995, the Company operated four kidney dialysis facilities
compared with three facilities at December 31, 1994. Two facilities were open
throughout 1994 and 1995, one facility was open for seven months of 1994 and
throughout 1995 and the fourth facility was opened in August 1995. Of the $2.5
million increase in dialysis revenues, approximately $1.4 million was
attributable to new facilities and $1.1 million was attributable to a same store
growth rate of approximately 28%.
Medical management services consisting of one HBO therapy facility and
management and personnel services to a home healthcare agency commenced in May
1995 and June 1995, respectively, and generated approximately $2.6 million of
revenues in 1995 with no comparable revenues for 1994.
The increase in emergency medical management revenues, to $14.1 million in 1995
from $10.5 million in 1994, was attributable to an 18% increase in patients
treated (approximately 180,000 in 1995 compared with approximately 153,000 in
1994) and a 14% increase in average revenue per patient ($78.47 in 1995 compared
with $68.94 in 1994). The comparative increase in patients is attributable to
new emergency department contracts which commenced in mid-December 1994 and in
March 1995. Patient volumes under contracts serviced throughout both periods
were mostly unchanged. The increase in average revenue per patient is
attributable to the conversion between 1994 and 1995 of additional contracts to
fee-for-service arrangements and to increases in levels of service which were
required by patients treated. Standard billing rates for medical procedures were
identical between the two years.
OPERATING EXPENSES. Operating expenses increased by $6.3 million, or 49%, to
$19.4 million in 1995 from $13.1 million in 1994. Significant elements
comprising this increase included: (i) human resource costs which increased $2.7
million or 138%; (ii) professional medical fees which increased $1.5 million or
20%; (iii) supply costs which increased $0.7 million or 59%; and (iv) billing
and collection costs which increased $0.7 million or 84%. Other combined costs
accounted for the remaining increase of $0.7 million. Comments relating to the
four identified costs follow:
Approximately $1.2 million of the increase in human resource costs was
attributable to additional personnel associated with the medical management
services contracts which commenced operations in May and June 1995.
Approximately $0.4 million is attributable to personnel associated with expanded
dialysis operations
19
<PAGE>
and approximately $0.3 million was associated with a recharacterization of
compensation paid to the principal physician stockholders of Old STAT who
received higher compensation as contract physicians. The remaining $0.8 million
increase in attributable to increases in general administrative personnel
required by the expanding operations and general salary increases awarded to
employees.
The percentage increase in professional medical fees approximates the percentage
increase in patients treated between 1995 and 1994. The increase in supply costs
was largely attributable to the expansion of the dialysis business which
increased at a rate of 66% over 1994. The 84% increase in billing and collection
costs, an outsourced service, exceeded the rate of increase in emergency medical
management revenues (34%) because of a shift in reimbursement methods from
direct hospital payments in 1994 to fee-for-service in 1995. Billing and
collection costs were borne by the hospitals under the direct payment
arrangements.
INTEREST INCOME. Interest income of $1.1 million in 1995 was attributable to
the investment of net proceeds received in Old STAT's April 1995 initial public
offering.
INTEREST EXPENSE. Interest expense of $0.2 million in 1995 was attributable to
borrowings associated with equipment for dialysis and HBO therapy facilities and
the interest component of capitalized leases.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SERVICE REVENUES. Net service revenues increased by $4.5 million, or 45%,
to $14.5 million in 1994 from $10.0 million in 1993. This increase was comprised
of a $2.8 million (240%) increase in disease management revenues and a $1.7
million (19%) increase in emergency medical management revenues.
Disease management revenues for both years were comprised almost entirely of
dialysis service revenues which increased to $4.0 million in 1994 from $1.2
million in 1993. This increase is attributable to an expansion of operations and
length of time that dialysis services were provided. The three dialysis centers
which were operational at December 31, 1994 commenced operations at the
following dates: April 1993, November 1993 and June 1994.
The increase in emergency medical management revenues, to $10.5 million in 1994
from $8.8 million in 1993, was attributable to an 18% increase in patients
treated (approximately 153,000 in 1994 compared with approximately 130,000 in
1993). This increase was attributable to additional emergency department
contracts added in 1994.
OPERATING EXPENSES. Operating expenses increased by $3.7 million, or 39%, to
$13.1 million in 1994 from $9.4 million in 1993. Significant elements comprising
this increase included: (i) professional medical fees which increased $0.9
million or 13%; (ii) human resources which increased $0.8 million or 76%; (iii)
supply costs which increased $0.8 million or 205%; and (iv) billing and
collection costs which increased $0.5 million or 162%. Other combined costs
accounted for the remaining increase of $0.7 million. Comments relating to the
identified costs are as follows.
Professional medical fees increased at a slightly lower rate than the increase
in patients treated. This was attributable to increased physician productivity
(more patients treated per physician) from 1993 to 1994. Human resources costs
increased at a greater rate than revenues because of the need for additional
contracts, the staffing of new dialysis centers which had not yet achieved
optimum productivity and annual salary increases for personnel working
throughout both periods. The increase in supply costs was attributable to the
commencement of services at the dialysis centers which are supply cost intensive
operations. Billing and collection costs increased at a disproportionate rate
compared to emergency medical management revenues because of a shift in 1994 to
fee-for-service business from direct reimbursement contracts in 1993 which had
no related billing and collection costs.
20
<PAGE>
QUARTERLY FINANCIAL RESULTS
The following tables set forth unaudited consolidated income statement data for
the ten quarters ended June 30, 1996, as well as such data expressed as a
percentage of the Company's total net service revenues for the periods
indicated. This data has been derived from unaudited interim consolidated
financial statements that, in the opinion of management, have been prepared on a
basis consistent with the Company's Consolidated Financial Statements appearing
elsewhere herein and include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with the Company's Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. The operating results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
1994 1995
--------------------------------------------- ------------------------------------
MAR 31(1) JUN 30(1) SEP 30(1) DEC 31 MAR 31 JUN 30 SEP 30 DEC 31
--------- --------- --------- ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net service revenues................. $ 3,342 $ 3,368 $ 3,718 $4,093 $4,873 $5,502 $6,148 $6,618
--------- --------- --------- ------ ------ ------ ------ ------
Operating expenses:
Professional medical fees.......... 1,862 1,918 1,950 1,984 2,200 2,348 2,367 2,326
Human resources.................... 398 424 530 597 696 929 1,352 1,663
Supplies........................... 168 228 334 413 382 440 473 523
Billing and collection costs....... 170 176 199 250 316 381 395 369
Other costs........................ 314 324 389 413 400 499 648 668
--------- --------- --------- ------ ------ ------ ------ ------
Total operating expenses......... 2,912 3,070 3,402 3,657 3,994 4,597 5,235 5,549
--------- --------- --------- ------ ------ ------ ------ ------
Operating income..................... 430 298 316 436 879 905 913 1,069
Interest and other (income) expense,
net................................ 30 26 32 (83 ) 30 (1 ) 56 36
Reorganization costs................. -- -- -- -- -- -- -- --
--------- --------- --------- ------ ------ ------ ------ ------
Income before income taxes........... 400 272 284 519 849 906 857 1,033
Income taxes......................... 58 27 29 55 77 104 111 55
--------- --------- --------- ------ ------ ------ ------ ------
Net income........................... $ 342 $ 245 $ 255 $ 464 $ 772 $ 802 $ 746 $ 978
========= ========= ========= ====== ====== ====== ====== ======
Pro forma data (1):
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 (1):
Pro forma income taxes............. 359 268
------ ------
Pro forma net income............... $ 775 $ 173
====== ======
Pro forma net income per common
share............................ $0.05 $0.01
====== ======
Number of shares used in computing
pro forma net income per share... 15,180 15,424
====== ======
AS A PERCENTAGE OF NET SERVICE
REVENUES:
Net service revenues................. 100.0 % 100.0 %
------ ------
Operating expenses:
Professional medical fees.......... 37.4 41.8
Human resources.................... 23.1 19.1
Supplies........................... 7.5 6.2
Billing and collection costs....... 5.9 5.9
Other costs........................ 9.3 8.0
------ ------
Total operating expenses......... 83.2 81.0
------ ------
Operating Income..................... 16.8 19.0
====== ======
- ------------------------------
(1) Represents consolidated financial data for the Company for the year ended
December 31, 1994 combined with financial data for STAT Physicians for the
eight months ended August 31, 1994.
(2) Reflects the effects of income taxes not otherwise payable by entities which
were partnerships or S corporations prior to the Exchange.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Capital requirements of the Company relate principally to three areas: (i) funds
required to purchase capital assets for dialysis facilities and equipment for
the expansion of existing and opening of new HBO therapy facilities; (ii)
working capital needs associated with the start-up of new emergency department
contracts; and (iii) availability of funds for acquisitions which complement the
Company's growth strategy.
Management is actively evaluating new markets for the expansion of the Company's
disease management services and considers either dialysis facilities or HBO
therapy facilities to be the optimum vehicles for market entry. These ventures
are the most capital intensive of the Company's businesses and require funds to
purchase dialysis and HBO therapy equipment. At June 30, 1996, the Company had
commitments for approximately $0.5 million of HBO therapy equipment for new
facilities expected to open during the fourth quarter of 1996.
In evaluating individual business segments of the Company, working capital needs
are most extensive as they relate to increases in emergency department
contracts. Experience indicates that upon commencement of new contracts, periods
ranging from 90 to 150 days are required to achieve normal cash flows.
Accordingly, the more rapidly the Company is able to add new contracts, the
greater the working capital needs.
In evaluating growth opportunities, management expects to consider acquisitions
as well as growth through internal development. Some acquisitions may be
accomplished through the issuance of additional stock; however, it is expected
that cash will be a significant medium in the Company's acquisition strategy.
Historically, capital requirements have been met through a combination of
sources including: (i) cash flows from operations; (ii) proceeds from Old STAT's
April 1995 initial public offering; and (iii) lease and bank financing. The
Company currently has a $6.5 million Revolving and Term Credit Facility with two
commercial banks (the "Revolving and Term Credit Facility"). The revolving
portion of the facility has a borrowing limit of up to $3.0 million, based upon
qualified accounts receivable, bears interest, at the Company's option, at
either (i) the prime rate or (ii) the London Interbank Offered Rate plus 1.50%
to 2.25% per annum, depending on the Company's debt to cash flow ratio, and
matures in August 1997. The term portion of the facility has a borrowing limit
equal to the lesser of $3.5 million or 75% of new equipment purchases, bears
interest at the prime rate, and matures in August 1999. Accrued interest is
payable monthly. All borrowings under the term facility must be made prior to
August 1997. Until August 1997, outstanding principal under the term facility is
payable monthly in installments equal to 1/36 of the principal then outstanding.
After August 1997, principal outstanding under the term facility will be payable
in 24 equal monthly installments. In addition, the Company is required to pay to
the banks a quarterly commitment fee of up to 0.25% of the unused revolving
credit commitment. The Revolving and Term Credit Facility also contains
customary restrictive covenants, prohibits the payment of dividends, requires
the Company to maintain certain financial ratios and guaranteed by all of the
Company's subsidiaries and affiliated physician groups. At September 11, 1996,
there was $2.3 million outstanding under the revolving facility and $425,150
outstanding under the term facility. Discussions recently commenced to increase
the borrowing limits of the proposed Revolving and Term Credit Facility.
However, no assurances can be made that the Company will be able to achieve this
objective.
The Company has filed a registration statement under the Securities Act relating
to a proposed underwritten public offering of 3,300,000 additional shares of
Common Stock, including 3,000,000 shares to be issued and sold by the Company
and 300,000 shares to be sold by certain stockholders of the Company. If the
Underwritten Offering is consummated, the Company will receive net proceeds of
approximately $19.3 million from such offering ($22.5 million if an
over-allotment option granted to the underwriters of such offering is exercised
in full), based on an assumed offering price of $6 31/32 per share and after
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company. A portion of the net proceeds from the Underwritten
Offering will be used by the Company to repay outstanding indebtedness under the
Company's Revolving and Term Credit Facility. The balance of such net proceeds
will be used for general working capital 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 such offering to
acquire businesses that are complementary to those of the Company. The Company
will not receive any proceeds from the sale of Common Stock by the selling
stockholders in
22
<PAGE>
the Underwritten Offering. No assurances can be given that the Underwritten
Offering will be consummated or that, if consummated, it will be consummated at
the assumed offering price.
Management believes that cash flows from operations, the net proceeds from the
Underwritten Offering (if consummated) and its borrowing capacity should be
sufficient to meet its anticipated capital expenditures and other operating
requirements and to substantially fund its growth strategy for the next 12
months. However, because future cash flows and the availability of financing are
subject to a number of variables, such as the timing and size of dialysis and
HBO therapy developments and acquisitions and new emergency medical management
contracts, there can be no assurance that the Company's capital resources will
be sufficient to maintain currently planned levels of growth. If the
Underwritten Offering is not consummated, the Company may be required to seek
additional equity or debt financing from other sources to fund its growth
strategy. If alternative financing is not available or is not available on terms
acceptable to the Company, the Company may not be able to maintain currently
planned levels of growth.
INFLATION
Inflation has not had a material impact on the operations or financial condition
of the Company during the last three years.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The financial accounting standards of SFAS No. 123
permit companies to either continue accounting for stock-based compensation
under existing rules or adopt SFAS No. 123 and begin reflecting the fair value
of stock options and other forms of stock-based compensation in the results of
operations as additional expense. The disclosure requirements of SFAS No. 123
require companies which elect not to record the fair value in the statement of
operations to provide pro forma disclosures of net income and earnings per share
in the notes to the financial statements as if the fair value of stock-based
compensation had been recorded. The disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company will provide the pro forma disclosures beginning with its 1996
Annual Report and will continue accounting for such plans under the existing
accounting rules.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The requirements
are effective for financial statements for fiscal years beginning after December
15, 1995. STAT does not anticipate that adoption of SFAS No. 121 will have a
significant effect on its financial condition or results of operations.
FUTURE OUTLOOK
In addition to historical information, this Prospectus contains predictions,
estimates and other forward-looking statements that involve a number of risks
and uncertainties. These risks and uncertainties include the fact that the
Company is a relatively young company whose business is still developing. This
development will require substantial amounts of funding and the Company will be
dependent on debt financing and the equity markets to finance such efforts.
Where access to funding is difficult, the Company's stockholders may face
significant dilution, and the ability of STAT to proceed with its programs and
plans may be significantly and adversely affected. Actions and advances by
competitors may also significantly affect STAT's prospects.
While this outlook represents managements current judgment on the future
direction of the business, these risks and uncertainties are only some of the
factors that may ultimately affect STAT's success, and actual results may differ
materially from any future performance suggested in this Prospectus. A more
detailed explanation of these and other risks is contained under "Risk
Factors."
23
<PAGE>
BUSINESS
GENERAL
STAT Healthcare, Inc. ("STAT" or the "Company") provides a continuum of
disease management services primarily to patients with end-stage renal disease
("ESRD" or "chronic kidney failure") and also provides physician practice
management services to affiliated physician groups which staff hospital
emergency departments. The Company currently operates five dialysis facilities,
manages two HBO therapy facilities and provides home healthcare management and
related ancillary services primarily in the Rio Grande Valley of south Texas.
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.
HEALTHCARE INDUSTRY OVERVIEW
GENERAL. Healthcare in the U.S. traditionally has been delivered through a
fragmented system of healthcare providers. Diverse treatment protocols among
providers of chronic disease care have contributed to increased costs. The role
of healthcare providers is changing dramatically. Third-party payors, including
HMOs, increasingly are turning to specialized disease management companies that
offer integrated care solutions to improve quality and reduce costs. In
addition, hospital networks are outsourcing departmental functions to
specialized management companies to reduce the administrative burdens of
providing healthcare and permit hospitals to focus on their core competencies.
DISEASE MANAGEMENT SERVICES. Certain chronic diseases, including chronic kidney
failure, require frequent and specialized healthcare services to maximize the
benefits of advanced treatment protocols. Chronic kidney failure is the state of
advanced renal impairment that generally is irreversible and requires routine
dialysis treatments an average of three times per week or kidney transplantation
in order to sustain life. In addition to the need for dialysis treatment,
chronic kidney failure patients frequently suffer from one or more associated
medical conditions, including diabetes, non-healing wounds, hypertension,
coronary artery disease, anemia and nutritional problems. Qualified patients
with chronic kidney failure have been entitled since 1972 to Medicare benefits
regardless of age or financial circumstances under the federal ESRD program.
Industry sources estimate that diabetes accounts for approximately 36% of all
new cases of chronic kidney failure, and that in 1995 there were approximately
16 million diagnosed and undiagnosed cases of diabetes in the U.S. According to
the U.S. Health Care Financing Administration ("HCFA"), the number of patients
requiring chronic dialysis services in the U.S. has grown at a 9% compounded
annual growth rate to 187,000 patients in 1994 from 66,000 in 1982. The Company
estimates that the U.S. market for outpatient and inpatient dialysis services
exceeded $3.6 billion in 1994 based on an average of three treatments per week
per patient at an average cost of $126 per treatment.
Advanced-stage diabetics typically have decreased sensation and oxygenation in
their lower extremities and, as a result, are predisposed to non-healing,
ulcerating lower extremity wounds which can become gangrenous and lead to
amputation. Historically, nearly one-third of all diabetics have required lower
extremity amputation after chronic kidney failure. HBO therapy is considered an
important adjunctive treatment for infected, non-healing wounds and other
chronic conditions caused by diminished tissue oxygenation. During HBO therapy,
a patient breathes 100% oxygen in a pressurized chamber at two to three times
the atmospheric pressure at sea level. There are currently only approximately
260 HBO therapy facilities in the U.S. HBO therapy can help avoid amputation and
its costs and complications and is also considered a vital and primary treatment
for resolution of certain emergency situations such as air embolism,
decompression sickness, carbon monoxide poisoning and burns. Medicare
reimbursement is generally available for all these conditions other than
treatment for burns.
The healthcare needs of patients with chronic kidney failure are complex and
costly and require frequent, specialized care. When specifically tailored to
care for patients with chronic kidney failure, home healthcare helps identify
problems early, often reducing the need for more expensive in-patient care. Home
healthcare organizations also assist in administering special medical services
to persons with ESRD, including the
24
<PAGE>
administration of erythropoietin ("EPO") and general nutrition analysis.
Management believes that the healthcare needs of patients with chronic kidney
failure are better served by an integrated approach including kidney dialysis,
HBO therapy and home healthcare and related ancillary services.
EMERGENCY PHYSICIAN PRACTICE MANAGEMENT SERVICES. Hospitals frequently
outsource key departmental functions, including emergency medicine, radiology,
anesthesiology and pathology, to third-party management companies in an effort
to control and reduce operating costs and focus on their core competencies.
There are approximately 5,200 hospitals in the U.S., many of which face numerous
problems in managing their emergency departments, including difficulties in
recruiting, evaluating, scheduling and retaining qualified emergency physicians,
increased patient volumes, and the inefficient use of emergency departments for
routine primary care. Competitive pressures have focused the attention of many
hospital administrators on the need for better management of their emergency
departments. Hospitals frequently turn to physician practice management firms
with specialized skills to help solve physician contract and scheduling
problems, to strengthen the management of their professional medical staff and
specific clinical departments, to better control costs, and to assist in meeting
their healthcare coverage needs and obligations to patients who are indigent,
uninsured or unassigned to a referring private physician.
OPERATIONS
DISEASE MANAGEMENT SERVICES
GENERAL. The Company currently operates five dialysis facilities, manages two
HBO therapy facilities and provides home healthcare management and related
ancillary services primarily in the Rio Grande Valley of south Texas.
TREATMENT OPTIONS FOR END-STAGE RENAL DISEASE. Treatment options for chronic
kidney failure include hemodialysis, peritoneal dialysis and kidney
transplantation. HCFA estimates that as of December 31, 1994, 82% of the ESRD
patients in the United States were receiving hemodialysis treatment in
outpatient facilities, with the remaining patients being treated in the home
either through peritoneal dialysis (17%) or home hemodialysis (1%).
Hemodialysis is generally performed on an outpatient basis in a freestanding
facility. Hemodialysis uses an artificial kidney, called a dialyzer, to remove
certain toxins, fluids and salt from a patients blood combined with a machine to
control external blood flow and to monitor certain vital signs of the patient. A
hemodialysis treatment usually lasts approximately three hours and is performed
three times per week per patient.
Peritoneal dialysis is generally performed by the patient at home. There are
several variations of peritoneal dialysis. The most common are continuous
ambulatory peritoneal dialysis ("CAPD") and continuous cycling peritoneal
dialysis ("CCPD") or automated peritoneal dialysis ("APD"). All forms of
peritoneal dialysis use the patients peritoneal (abdominal) cavity to eliminate
fluid and toxins from the patient. Toxins in the blood continuously cross the
peritoneal membrane into the dialysis solution. After several hours, the patient
drains the used dialysis solution and replaces it with fresh solution. CCPD and
APD are performed in a manner similar to CAPD, but use a mechanical device to
cycle dialysis solution while the patient is sleeping or at rest.
An alternative treatment not provided by the Company is kidney transplantation.
While transplantation, when successful, is generally the most desirable form of
therapeutic intervention, the shortage of suitable donors limits the
availability of this treatment option. The Company currently has transplantation
agreements with the University of Texas Medical Branch-Galveston and the
University of Texas Health Science Center, San Antonio, to provide assessment
and evaluation of the Company's patients for possible kidney transplant services
and to facilitate patient transfers. No fees are involved or paid in connection
with such relationship.
25
<PAGE>
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:
<TABLE>
<CAPTION>
NO. OF SERVICE
INSTALLED STATION COMMENCEMENT
FACILITY LOCATIONS STATIONS CAPACITY(1) DATE
- ------------------------------------- ---------- ----------- ---------------
<S> <C> <C> <C>
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
== ===
</TABLE>
- ------------------------------
(1) Number of dialysis stations for which plumbed, certified space is currently
available.
(2) Owned by a limited partnership in which physicians hold a non-controlling
interest.
(3) Operations expected to commence in the fourth quarter of 1996.
Company's dialysis facilities are designed specifically for outpatient
hemodialysis and generally contain, in addition to space for dialysis
treatments, a nurses' station, a patient weigh-in area, a supply room, a water
treatment space used to purify the water used in hemodialysis treatments, a
dialyzer reprocessing room (where dialyzers are sterilized for reuse), staff
work areas, offices and a staff lounge and kitchen. Many of the Company's
facilities also have a designated area for training patients in home dialysis.
Each currently installed dialysis unit is generally operated at or near capacity
ten to 13 hours per day, six days per week. As demand for dialysis increases,
the Company intends to increase capacity by purchasing and installing additional
dialysis units in vacant stations and/or expanding operating hours.
In accordance with conditions for participation in the Medicare ESRD program,
each facility has a qualified physician who serves as medical director and an
Administrator who supervises the day-to-day operations of the facility and the
staff. Generally, the medical director must be board eligible or board certified
in internal medicine and have had at least 12 months of experience or training
in the care of patients at ESRD facilities. The staff of each facility typically
consists of registered nurses, licensed practical or vocational nurses, patient
care technicians, a social worker, a registered dietician, a unit clerk and
bio-medical technicians.
All of the Company's dialysis facilities offer both high-efficiency and
conventional hemodialysis, which physicians practicing at the Company's
facilities deem suitable for their patients. The Company considers the equipment
installed and supplies utilized at its facilities to be among the most
technologically advanced presently available.
The Company also offers CAPD and various other forms of home dialysis. Home
dialysis services consist of providing equipment and supplies, training, patient
monitoring and follow-up assistance to patients who prefer and are able to
receive dialysis treatments in their homes. Patients and their families are
trained by a registered nurse to perform either CAPD or CCPD at home.
HBO THERAPY SERVICES. Approximately 85% of the patients with chronic kidney
failure served by the Company during 1995 also suffer from diabetes or vascular
disease. These diseases generally cause decreased sensation and oxygenation in
the lower extremities. As a result, these individuals are predisposed to problem
wounds which fail to respond to established medical/surgical management,
including diabetic feet, compromised amputation sites, non-healing traumatic
wounds, and vascular insufficiency ulcers. HBO therapy provides a significant
increase in tissue oxygenation in the poorly perfused, infected wound. This
elevation in oxygen induces significant positive changes in the wound repair
process. HBO therapy is prescribed, either as a primary or adjunctive treatment,
and only for those physical conditions approved by the Undersea and Hyperbaric
Medical Society. In the case of problem wounds, the average treatment
26
<PAGE>
consists of approximately 20 treatments, each with a duration of approximately
two hours. Specially-trained personnel observe and monitor the entire treatment.
Governmental regulations require that HBO therapy be hospital-based.
STAT currently manages the operations of six monoplace chambers at two HBO
therapy facilities, and expects to open six monoplace chambers at three
additional facilities in the fourth quarter of 1996. The following table sets
forth certain information as of the date of this Prospectus regarding the HBO
therapy facilities managed by the Company:
<TABLE>
<CAPTION>
NO. OF
INSTALLED CHAMBER EXPIRATION OF INITIAL
FACILITY 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 had chronic kidney
failure or diabetes. In addition, a number of Company's patients are elderly,
are often immobile and have medical conditions requiring frequent at-home
healthcare. To serve the special needs of these patients, the Company has
entered into a management services agreement with a local provider of home
healthcare services. Under the terms of the agreement, the Company furnishes
nursing staff to perform basic nursing services as well as a nursing staff
specially trained for the care of renal, diabetic, transplant, cancer and
cardiac patients. In addition, the Company provides continuing education and
training for its employees on an on-going basis and provides a number of
administrative, financial and management services to the home health agency such
as quality assurance, risk management, employee safety and physician relations
services. For its services, the Company receives a fixed fee for each visit made
to a patients home and a fixed hourly management support services fee for other
enumerated services. Fees are subject to amendment based on changes in Medicare
or Medicaid laws. The agreement expires in December 2002 and contains
non-competition provisions throughout its term and for a one-year period
thereafter.
STAT's dialysis facilities also provide a comprehensive range of related
ancillary services to ESRD patients, the most significant of which is the
administration of EPO upon a physicians prescription. EPO is a bio-engineered
protein which stimulates the production of red blood cells and is used in
connection with all
27
<PAGE>
forms of dialysis to treat anemia, a medical complication frequently experienced
by ESRD patients. Other ancillary services include: (i) certain laboratory tests
required by Medicare to determine the effectiveness of dialysis treatments; (ii)
general nutrition analysis; (iii) studies to test the degree of bone
deterioration; (iv) electrocardiograms; (v) nerve conduction studies to test for
deterioration of a patients nerves; (vi) doppler flow testing to test the
effectiveness of a patients vascular access for dialysis; and (vii) blood
transfusions.
PHYSICIAN RELATIONSHIPS. A key factor in the success of any of the Company's
dialysis facilities is its relationship with local nephrologists. ESRD patients
generally seek treatment at a facility near home and where the attending
nephrologist has practice privileges. Consequently, the Company's dialysis
business relies upon its ability to meet the needs of the referring physicians
and the ESRD patients in the communities the Company serves. During 1995, two
nephrologists who are also principal stockholders of the Company collectively
accounted for approximately 80% of the Company's net service revenues from
dialysis services (approximately 27% of the Company's total net service
revenues).
The medical directors of the Company's dialysis facilities, each of whom is a
nephrologist, enter into written contracts with the Company which specify their
duties and establish their compensation (which is fixed for periods of three
years or more). The compensation of the medical directors and other physicians
for services under contract is separately negotiated for each facility and
generally depends upon competitive factors in the local market, the physicians
professional qualifications and responsibilities and the size and utilization of
the facility or relevant program.
SOURCES OF REIMBURSEMENT. Under the Medicare ESRD program, Medicare reimburses
dialysis providers for the treatment of individuals who are diagnosed to have
chronic kidney failure and are eligible for participation in the Medicare
program, regardless of age or financial circumstances. For each treatment,
Medicare pays 80% of the amount set by the Medicare prospective reimbursement
system, and a secondary payor (usually Medicare supplemental insurance or the
state Medicaid program) pays approximately 20% of the amount set by the Medicare
prospective reimbursement system. Texas (currently the only state where the
Company provides dialysis services) provides Medicaid benefits to qualified
recipients to supplement their Medicare entitlement. The Medicare and Medicaid
programs are subject to statutory and regulatory changes, administrative
rulings, interpretations of policy and governmental funding restrictions, some
of which may have the effect of decreasing program payments, increasing costs or
modifying the way the Company operates its dialysis business. See "Medicare
Reimbursement," below.
Assuming a patient is eligible for participation in the Medicare program, the
commencement date of Medicare benefits for ESRD patients electing hemodialysis
is dependent on several factors. ESRD patients under 65 years of age who are not
covered by an employer group health plan (for example, the uninsured, those
covered by Medicaid and those covered by an individual health insurance policy)
must wait 90 days after commencing dialysis treatment to be eligible for
Medicare benefits. During the first 90 days of treatment, the patient, Medicaid
or the private insurer is responsible for payment (and, in the case of the
individual covered by private insurance, such responsibility is limited to the
terms of the policy, with the patient being responsible for the balance). ESRD
patients under 65 years of age who are covered by an employer group health plan
must wait 21 months after commencing dialysis treatment before Medicare becomes
the primary payor. Medicare generally covers those who are ages 65 and over,
except that Medicare coverage is secondary for some patients who have qualifying
employer group health insurance. During the first 21 months of treatment, the
employer group health plan is responsible for payment at its negotiated rate or,
in the absence of such a rate, at the Company's usual and customary rates and
the patient is responsible for deductibles and co-payments, if applicable, under
the terms of the employer group health plan.
If an ESRD patient with an employer group health plan elects home dialysis
training during the first 90 days of dialysis, Medicare becomes the primary
payor after 18 months. If an ESRD patient without an employer group health plan
begins home dialysis training during the first three months of dialysis,
Medicare immediately becomes the primary payor.
28
<PAGE>
MEDICARE REIMBURSEMENT. The Company is reimbursed by Medicare under a
prospective reimbursement system for chronic dialysis services provided to ESRD
patients. Under this system, the reimbursement rates are fixed in advance and
have been adjusted from time to time by Congress. Although this form of
reimbursement limits the allowable charge per treatment, it provides the Company
with predictable and recurring per treatment revenues and allows the Company to
retain any profit earned. Medicare has established a composite rate set by HCFA
that governs the Medicare reimbursement available for a designated group of
dialysis services, including the dialysis treatment, supplies used for such
treatment, certain laboratory tests and certain medications. The Medicare
composite rate is subject to regional differences based upon certain factors,
including regional differences in wage earnings. Certain other services and
items are eligible for separate reimbursement under Medicare and are not part of
the composite rate, including certain drugs (including EPO), blood (for amounts
in excess of three units per patient per year), and certain physician-ordered
tests provided to dialysis patients. Claims for Medicare reimbursement must
generally be presented within 15 to 27 months of treatment depending on the
month in which the service was rendered and for Medicaid secondary
reimbursement, if applicable, within 60 to 90 days after payment of the Medicare
claim. The Company generally submits claims monthly and is usually paid by
Medicare within 30 days of the submission. If in the future Medicare were to
include in its composite reimbursement rate any of the ancillary services
presently reimbursed separately, the Company would not be able to seek separate
reimbursement for these services and this would adversely affect the Company's
results of operations to the extent a corresponding increase were not provided
in the Medicare composite rate.
The Company receives reimbursement for outpatient dialysis services provided to
Medicare-eligible patients at rates that are currently $117 per treatment. The
Medicare ESRD composite reimbursement rate is subject to change by legislation
and recommendations by the Prospective Payment Assessment Commission
("PROPAC"). The Medicare ESRD composite reimbursement rate currently ranges
from $117 to $138 per treatment, depending on regional wage variations. The
Company is unable to predict what, if any, future changes may occur in the rate
of reimbursement, or, if made, whether any such changes will have a material
effect on the Company's revenues and net earnings.
On June 1, 1989, the FDA approved the production and sale of EPO, and
HCFA-approved Medicare reimbursement for EPO's use by dialysis patients. EPO
stimulates the production of red blood cells and is beneficial in the treatment
of anemia, with the effect of reducing or eliminating the need for blood
transfusions for dialysis patients. Physicians began prescribing EPO for their
patients in the Company's dialysis facilities in April 1993. The Medicare ESRD
reimbursement rate for EPO is currently $10 per 1,000 units. Legislation has
been enacted in recent years to reduce the Medicare reimbursement rate for EPO,
and the reimbursement rate may be further reduced in the future. There can be no
assurance that the Company can maintain current operating margins in the future
for EPO administrations due to potential reimbursement decreases, or to
potential increases in product costs from its sole manufacturer.
MEDICAID REIMBURSEMENT. Medicaid programs are state administered programs
partially funded by the federal government. These programs are intended to
provide coverage for patients whose income and assets fall below state defined
levels and who are otherwise uninsured. The programs also serve as supplemental
insurance programs for the Medicare co-insurance portion and provide certain
coverages (E.G., oral medications) that are not covered by Medicare. State
regulations generally follow Medicare reimbursement levels and coverages without
any co-insurance amounts. The Company is a licensed ESRD Medicaid provider in
Texas.
PRIVATE REIMBURSEMENT/CERTAIN PAYOR ARRANGEMENTS. The Company receives
reimbursement from private payors for ESRD treatments prior to Medicare becoming
a patients primary payor at rates significantly higher than the per treatment
rate set by Medicare. After Medicare becomes a patients primary payor, private
secondary payors generally reimburse the Company for 20% of the Medicare per
treatment rate. In addition, the Company has entered into non-exclusive
contracts with third-party payors, including many leading HMOs in the Company's
service areas, to provide dialysis services to their beneficiaries.
29
<PAGE>
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 final decisions relating to
medical care are solely that of the affiliated physician groups.
In consideration of the services provided by the Company under the Management
Agreements, each affiliated physician group pays a management fee and provides
reimbursement of all related expenses to the Company. Each affiliated physician
group has also appointed the Company its attorney-in-fact to act on its behalf
for the purposes of collecting and receiving all fees and revenues payable to
the affiliated physician groups as a result of professional services rendered
and for the purpose of carrying out its management functions under its hospital
contracts.
30
<PAGE>
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) Facility owned by The Methodist Healthcare Network.
(3) Facility 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
31
<PAGE>
service by the Company or its affiliated physician group. During the term of the
Columbia Agreement and for two years thereafter, STAT has agreed not to organize
or provide administrative or advisory services to independent physician or
similar associations whose practices relate to areas other than emergency
medicine and who are located in proximity to specified Columbia medical centers.
There can be no assurance that the Columbia Agreement will be renewed at the
conclusion of its initial term, that it will be renewed on substantially the
same terms and conditions, or that it will not be terminated prior to the
conclusion of its term.
PHYSICIAN CONTRACTS. The Company's affiliated physician groups contract with
physicians as independent contractors to fulfill their contractual obligations
to provide qualified doctors to hospital clients. While each hospital with which
each affiliated physician group contracts ultimately determines whether a
physician must be board certified in emergency medicine to provide medical
services in its emergency room, hospitals generally do not require physicians to
be so certified. Each affiliated physician group requires all physicians to be
currently licensed to practice medicine and to be Advanced Cardiac Life Support
("ACLS") certified before entering into a contract for the physicians service.
Professional fees payable to the physician are disbursed by the Company pursuant
to the Management Agreements. As independent contractors, the physicians are
responsible for their own income and social security taxes, as well as workers
compensation insurance. The contracts with independent contractor physicians can
be terminated by the affiliated physician group or the independent contractor
physicians with 30 days' notice, or immediately by the affiliated physician
group for cause.
QUALITY ASSURANCE
As part of the Company's continuing efforts to increase the quality of its
services and reduce its professional liability exposure with respect to
potential negligent acts of its employees and contractors, the Company manages
and monitors the quality and performance of its physicians and services.
DISEASE MANAGEMENT SERVICES. In order to optimize therapy and improve outcomes,
the Company monitors patient outcomes in all of its dialysis facilities. Regular
monitoring of the prescribed dialysis treatments and the key physiological
parameters of patients (including periodic measurements to assess anemia,
nutritional status and adequacy of dialysis) constitutes part of the continuous
quality improvement that is conducted as a matter of Company policy. At the
dialysis facility level, pursuant to Medicare requirements, each facility has a
quality assurance committee that typically includes the facilitys medical
director, administrator and nurses, as well as other technical personnel. This
committee meets regularly to monitor the quality of care in the facility and to
assure compliance with applicable regulations. At the patient level, the Company
attempts to ensure quality care through the provision of instruction to all ESRD
patients before and after the initiation of dialysis treatment. Patients are
encouraged to participate in their own care to the fullest extent possible.
A comprehensive wound monitoring, measurement and documentation process provides
consistency and quality of the wound management systems associated with HBO
therapy. Clinical records are monitored to assure compliance with treatment
standards, clinical improvements and outcomes. Side effect and infection
profiling are also a routine part of the quality monitoring process. The
complete quality measurement program of HBO therapy is incorporated into each
hospital-wide continuous quality improvement process and is regularly reported.
EMERGENCY PHYSICIAN PRACTICE MANAGEMENT SERVICES. STAT employs an ongoing
quality management system for its emergency physician practice management
services which measures both clinical and non-clinical outcomes. For clinical
outcomes, the system is focused on high frequency or high criticality diagnoses
with diagnosis-specific standards reported in a physician- and hospital-specific
format enabling a very focused feedback to physicians and support staff. For
non-clinical outcomes, the system tracks and studies waiting times,
interpersonal interactions, and patient perceptions in order to measure overall
patient satisfaction and identify areas for improvement. The non-clinical system
includes a patient questionnaire
32
<PAGE>
program, a patient complaint program, and a patient call-back program and
complies with Joint Commission on Accreditation of Healthcare Organizations
(JCAHO) standards. Both the clinical and non-clinical portions of the quality
management system are incorporated into each individual hospitals continuous
quality improvement program and are reported on a monthly basis.
MANAGEMENT INFORMATION SYSTEMS
The Company has implemented information systems designed to enhance the quality
of its disease management and emergency physician practice management services.
The Company's management information systems collect and report data regarding
patient flow, utilization, physician efficiency, patient demographics, managed
care participation and other important data used by the Company, hospital
clients and medical directors. In addition to assisting the Company in
developing staffing patterns and marketing strategies, the Company believes
these systems improve efficiency of service, cost effectiveness and patient
outcomes.
GOVERNMENT REGULATION
GENERAL. The Company's operations are subject to extensive governmental
regulations at the federal, state and local levels. These regulations require
the Company to meet various standards relating to, among other things, the
management of facilities, personnel, maintenance of proper records, equipment
and quality assurance programs. The Company's facilities are subject to periodic
inspection by state agencies and other governmental authorities to determine if
the premises, equipment, personnel and patient care meet applicable standards.
Any loss by the Company of its various federal certifications, its authorization
to participate in the Medicare or Medicaid programs or its license under the
laws of any state or other governmental authority from which a substantial
portion of its revenues is derived, or a change resulting from reforms that
reduce reimbursement or reduce or eliminate coverage for services would have a
material adverse effect on the Company's business. To date, the Company has not
had any difficulty in maintaining the required licenses or its Medicare and
Medicaid certifications. The healthcare services industry will continue to be
subject to intense regulation at the federal and state levels, the scope and
effect of which cannot be predicted. No assurance can be given that the
activities of the Company will not be reviewed and challenged or that healthcare
reform will not result in a material adverse change to the Company's business.
FEE-SPLITTING; CORPORATE PRACTICE OF MEDICINE. The laws of many states prohibit
physicians from splitting professional fees with non-physicians and prohibit
non-physician entities, such as the Company, from practicing medicine and from
employing physicians to practice medicine. In the states in which the Company
conducts or may conduct business, including Texas, general business corporations
are not permitted to practice medicine, exercise control over physicians who
practice medicine or engage in certain practices such as fee-splitting with
physicians. The corporate practice of medicine refers to the rendering directly,
or through employment, of medical services by a business corporation. The laws
in most states regarding the corporate practice of medicine have been subject to
limited judicial and regulatory interpretation. Management believes the
Company's current and planned activities do not constitute fee-splitting or the
corporate practice of medicine as contemplated by these statutes or case law
interpretations. The Company believes that it is not engaged in the corporate
practice of medicine because the physicians who provide patient care services do
so as independent professionals. Physicians who are paid directly by the Company
are paid for specific administrative and management services under medical
director agreements. These agreements also reserve to the physicians exclusive
authority to make all decisions regarding medical care. Under the Company's
Management Agreements with its affiliated physician groups, the Company is paid
for administrative and other services provided at rates which the Company
believes reflect the fair market value of such services. In addition, these
agreements specifically acknowledge that the affiliated physician groups have
the exclusive authority and responsibility for making all decisions regarding
medical care. Based on current interpretations of state law in Texas where the
Company now operates, the Company believes its arrangements with physicians and
affiliated physician groups do not violate the prohibition against the corporate
practice of medicine. However, all such laws are subject to interpretation by
the courts
33
<PAGE>
as well as administrative agencies, and any restructuring required by such
change could be detrimental to the Company's business, financial condition and
results of operations. There can be no assurance that future interpretations of
such laws will not require structural and organizational modifications of the
Company's existing relationships with physicians and its affiliated physician
groups.
SELF-REFERRAL. Certain provisions contained in the Omnibus Budget
Reconciliation Act of 1989 ("Stark I") and the Omnibus Budget Reconciliation
Act of 1993 ("Stark II"), and subsequent amendments, prohibit physician
referrals for clinical laboratory services and certain other designated health
services, including without limitation outpatient prescription drugs, parenteral
and enteral nutrients, equipment and supplies, durable medical equipment and
supplies, home health services, and inpatient and outpatient hospital services,
to entities with which a physician or an immediate family member has a financial
relationship (the "Stark Law"). The Stark Law also prohibits entities from
presenting or causing to be presented a claim or bill to any individual,
third-party payor or other entity for designated health services furnished under
a prohibited referral. A violation of the Stark Law may result in significant
civil penalties, which may include exclusion or suspension of the physician and
entity from future participation in the Medicare and Medicaid programs and
substantial fines.
In August 1995, HCFA published regulations interpreting Stark I. These
regulations only address the original scope of Stark I (clinical laboratories)
but representatives of HCFA assert in the preamble to the regulations that these
regulations will be used by HCFA as the basis for interpretation of matters
involving the other designated health services. The regulations specifically
provide that clinical laboratory services that are reimbursed as part of the
Medicare composite billing rate for renal dialysis services are excluded from
the coverage of Stark I. However, laboratory services not included in the
Medicare composite rate could be included within the coverage of Stark I.
Although the Company provides a limited number of such laboratory services, the
Company believes that it is not a provider of clinical laboratory services
subject to the Stark Law.
In addition, the Company believes it is not a provider of any designated health
services which would subject it to application of Stark II. Based upon the
preamble to the regulations, as described above, the Company believes that the
provision of other services that are paid for under the composite billing rate
is outside of the scope of the Stark Law. The Company believes that EPO and
other pharmaceuticals that the Company uses in connection with its dialysis
services and bills HCFA for separately from the composite billing rate do not
constitute outpatient prescription drugs for purposes of the Stark Law and that,
therefore, the Company is not a provider of outpatient prescription drugs as a
designated health service. However, if it is determined that the Company is
providing a designated health service, then each financial relationship between
the Company and any physician who refers Medicare or Medicaid covered patients
to the Company for the provision of a designated health service must qualify
under an exception to the Stark Law or the Company will be unable to submit a
bill for payment for such service.
A financial relationship consists of either a compensation arrangement between a
physician, a member of the physicians immediate family and the Company or an
ownership interest in the Company held by a physician or a member of the
physicians immediate family. The Company has entered into medical director
agreements with certain physicians who are in a position to refer patients to
the Company's dialysis facilities. The Company has structured these medical
director agreements to comply with the Stark Law exception for personal service
arrangements. Four of the Company's dialysis facilities lease space from joint
ventures in which physicians who refer patients to the facilities hold
interests. The Company has structured the leases to comply with the Stark Law
exception for the rental of office space. Two nephrologists who are in a
position to refer patients to the Company are significant equity owners of the
Company as well as medical directors of the Company. In addition, one of the
Company's dialysis facilities is currently owned by a limited partnership in
which four physicians who refer patients to the facility own interests as
limited partners. The physicians respective ownership interests in the Company
and the limited partnership do not fully comply with any of the exceptions to
the Stark Law. Determinations that the Company provides designated health
services and that any particular financial relationship with a referring
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physician does not comply with an exception to the Stark Law could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although HBO therapy services constitute outpatient and inpatient hospital
services and are therefore a designated health service, the Company does not own
or control such services, but merely administers HBO therapy services, and
perform certain non-professional functions related thereto, pursuant to
management contracts with hospitals. The hospitals, as the licensed entities,
provide and bill for the HBO therapy services. The Company is not a licensed
provider of inpatient and outpatient hospital services and has no control over
or financial interest in any of these hospitals. The only relationship between
the hospital and the Company is through the Company's HBO management agreements.
Accordingly, the Company believes its HBO administrative operations fall outside
the purview of the Stark Law. Nevertheless, a determination that the Stark Law
is applicable to the Company's HBO activities would require that the Company's
financial relationships with referring physicians comply with a specified
exception set forth in the Stark Law, or that the Company take steps to ensure
that the physician does not refer patients covered under the Medicare or
Medicaid programs to any hospital with which the Company has an agreement to
administer HBO therapy services.
The Company also provides nursing staff and certain administrative, financial
and management services to a local home healthcare agency that provides home
health services to patients, including many of the patients of the Company's
dialysis facilities. The home healthcare agency, as the licensed entity,
provides and bills for the home health services. Since the Company is not a
licensed home healthcare agency and has no control over nor financial interest
in this agency other than through the Company's management agreement, the
Company believes that it is not a provider of home health services as designated
health services under the Stark Law. However, if a court or regulatory or
enforcement agent determines that the Stark Law applies to the Company's home
health management activities, the Company would have to ensure that each of its
financial relationships with referring physicians complies with an exception to
the Stark Law. In such event, a determination that any financial relationship
between the Company and affiliated physicians described in the second preceding
paragraph fails to comply with an exception to the Stark Law could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The list of designated health services under the Stark Law does not include the
management of a physician healthcare practice such as the Company performs for
its affiliated physician groups. The Company does not consider these operations
to include the provision of a designated health service. In addition, the
Company believes that the Stark Law does not apply to its affiliated physician
groups' contracts with hospitals. The affiliated physician groups have entered
into agreements with hospitals whereby the hospitals authorize the physician
groups to bill and collect the professional component of the charges for medical
services rendered by the groups' independent contractor physicians. Depending
upon a hospital's patient volume and payor mix, a hospital may pay an affiliated
physician group a stand-by or on-call fee. In such an event, the agreement could
constitute a financial relationship between the affiliated physician group and
the hospital that would prohibit the physicians from referring covered patients
to the hospital for designated health services. The Company believes that each
of the hospital contracts either does not constitute a financial relationship
between the affiliated physician group and the hospital because no remuneration
is paid to the group by the hospital, or if the relationship qualifies as a
financial relationship, it complies with the Stark Law exception for
remuneration paid to a physician by a hospital that does not relate to the
provision of designated health services. Because the Common Stock is publicly
held, a determination of the ownership of such shares by a referring physician,
or any member of his or her immediate family, may be extraordinarily difficult.
It is the Company's belief that it does not provide, directly or indirectly, any
designated health service and that the Stark Law does not apply to the Company's
activities. Because there have been no cases or other interpretations of the
Stark Law or regulations applicable to organizations like the Company, the
Company cannot ascertain how its activities might be assessed if reviewed.
Furthermore, the Company has no ability to obtain advisory opinions from the
regulatory and enforcement agencies that govern the Stark Law. If it is
determined that the Company is a provider of designated health services, then no
physician who owns, or
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who has an immediate family member who owns, shares of the capital stock of the
Company, may refer a Medicare or Medicaid covered patient to the Company for
designated health services.
Violations of the Stark Law are punishable by civil penalties, which may include
exclusion or suspension of the provider from future participation in Medicare
and Medicaid programs and substantial fines. A determination that any of the
Company's activities constitutes a violation of the Stark Law could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
MEDICARE AND STATE FRAUD AND ABUSE PROVISIONS. Federal law prohibits the offer,
payment, solicitation or receipt of any form of remuneration in return for the
referral of Medicare or Medicaid program patients or patient care opportunities,
or in return for the purchase, lease or order of any item or service that is
covered by Medicare or certain other federal and state healthcare programs (the
"Anti-Kickback Laws"). To prove a violation of the Anti-Kickback Laws, the
entity must provide services that are reimbursable under the Medicare or other
federal or state healthcare programs, the offer or receipt of remuneration, and
the intent to induce referrals.
Pursuant to the Anti-Kickback Laws, the federal government released a special
alert which announced a policy of increased scrutiny of joint ventures and other
transactions among healthcare providers in an effort to reduce potential fraud
and abuse relating to Medicare and Medicaid costs. The applicablility of these
provisions to many business transactions in the healthcare industry has not yet
been subject to judicial and regulatory interpretation.
In 1991, the Inspector General of the U.S. Department of Health and Human
Services published "Safe Harbor Regulations" defining safe harbors for certain
arrangements that, if complied with, would not violate the Anti-Kickback Laws. A
failure to comply with the safe harbors does not, however, mean that a person or
entity has violated the Anti-Kickback Laws. Among the safe harbors specifically
provided for are safe harbors for ownership interests, personal service
contracts, management contracts and space rentals.
The Anti-Kickback Laws provide civil and criminal penalties for individuals or
entities participating in the Medicare and Medicaid programs who knowingly and
willfully offer, pay, solicit or receive remuneration in order to induce
referrals for items or services reimbursed under such programs. In addition to
federal criminal penalties, the Social Security Act also establishes the
intermediate sanctions of excluding violators from participation in the Medicare
or Medicaid programs.
The Company believes that its medical director agreements for its dialysis
centers, HBO therapy operations and affiliated physician groups described above
comply with the safe harbor provisions for personal service arrangements.
Four of the Company's dialysis facilities are leased from entities in which
physicians who refer patients to the facility hold ownership interests. The
Company believes that the leases comply with the space rental safe harbor and
are in compliance with the Anti-Kickback Laws.
Although certain other of the Company's financial relationships with affiliated
physicians relating to ownership interests in the Company (as described in the
fourth paragraph under "-- Self-Referral" above) do not fully comply with the
safe harbor for investment interests, the Company believes these relationships
are in compliance with the Anti-Kickback Laws, and the Company has no intent to
compensate any party for the referral of any patients.
The Company is compensated under its various management agreements for providing
management services to affiliated physician groups, home health agencies and
hospital-based HBO therapy operations. The fees payable under these agreements
are intended by the Company to be consistent with fair market value in arms'
length transactions for the nature and amount of management services rendered,
and therefore, would not constitute unlawful remuneration under the
Anti-Kickback Laws. Furthermore, the Company does not believe it is in a
position to make or influence referrals of patients or services reimbursed under
Medicare or Medicaid programs to any provider of covered services. Consequently,
the Company does not believe that the management fees payable to it should be
viewed as remuneration for referring or
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influencing referrals of patient or services covered by such programs as
prohibited by the Anti-Kickback Laws. Except for its dialysis services, the
Company is not a provider or supplier of services or items reimbursed by
Medicare or state healthcare programs.
No assurance can be made, however, that a court or regulatory or enforcement
agency would view these above-described arrangements in a similar manner. Should
any of the Company's business arrangements be deemed to constitute an
arrangement designed to induce the referral of Medicare, Medicaid or other
covered patients, then such arrangement could be viewed as violating the
Anti-Kickback Laws. Noncompliance with the Anti-Kickback Laws can result in
exclusion from all such governmental programs as well as civil and criminal
penalties. A determination of liability under any such law could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In 1991, Texas enacted a law similar to the federal Anti-Kickback Laws which is
referred to as the "Illegal Remuneration Statute" and which covers patients
sponsored by private payors as well as governmental programs. The Illegal
Remuneration Statute prohibits, among other things, a person from intentionally
offering to pay or accepting any remuneration directly or indirectly to or from
any person or corporation in exchange for a healthcare referral if the person,
at the time of initial contact and at the time of the referral, does not
disclose to the patient the person's affiliation with the person for whom the
patient is secured and that the person will receive remuneration for securing
the patient. The Company believes it is in compliance with the Illegal
Remuneration Statute and that none of its business arrangements constitute a
payment in exchange for a referral. However, a determination that the Company
has violated the Illegal Remuneration Statute could subject the Company to
injunctive relief, civil penalties or both, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
THE FALSE CLAIMS ACT. An increasing number of healthcare providers and other
entities are being faced with lawsuits alleging fraudulent billing practices
under the federal Civil False Claims Act. The Civil False Claims Act permits a
person (generally employees or former employees of the healthcare provider or
other entity) to assert the rights of the government by initiating a qui tam
action against a healthcare provider or other entity if such person has or
purports to have information that the healthcare provider or other entity
submitted a claim to the government for payment that could be false or
fraudulent. Upon filing, the government has the opportunity to intervene and
assume control of the case. Penalties of up to $10,000 for each false or
fraudulent claim presented to the government for payment may be awarded as well
as treble damages. Defendants also may be excluded permanently or for a period
of time from participation in the Medicare and Medicaid programs. Because of
penalties and treble damages, many of these lawsuits involve large monetary
claims and substantial defense costs. In the event that the Company as a
dialysis provider is named as a defendant in a qui tam action and it is
successfully prosecuted, no assurance can be made that such event would not have
a material adverse effect on the Company and its operations.
MEDICARE. The Medicare program represents a substantial portion of the federal
budget, and Congress takes action in almost every legislative session to modify
the Medicare program for the purpose of reducing the amounts otherwise payable
from the program to healthcare providers. Legislation or regulations may be
enacted in the future that may significantly modify the ESRD program or
substantially reduce the amount paid for the company's services. Further,
statutes or regulations may be adopted which impose additional requirements for
the Company to be eligible to participate in the federal and state healthcare
payment programs. Such new legislation or regulations may adversely affect the
Company's business operations.
Recently, HCFA has promulgated regulations to implement the Omnibus Budget
Reconciliation Act of 1993 ("OBRA 93") with respect to the
coordination-of-benefits period for Medicare beneficiaries. HCFA has established
rules for Medicare beneficiaries who are eligible for, or entitled to, Medicare
on the basis of ESRD and are also entitled on the basis of age or disability.
There are essentially four rules currently in effect for primary payor
determination during the coordination-of-benefits period.
o first rule provides that if the 18-month period ended before August
1993, Medicare is primary payor from the first month of dual
eligibility entitlement.
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o The second rule provides that if the first month of ESRD-based
eligibility or entitlement and the first month of dual
eligibility/entitlement both fall after February 1992 and before August
10, 1993, Medicare is (i) primary payor from the first month of dual
eligibility/entitlement through August 9, 1993; (ii) secondary payor
from August 10, 1993 through the 18th month of ESRD-based eligibility
or entitlement; and (iii) primary payor again after the 18th month of
ESRD-based eligibility or entitlement.
o The third rule provides that if the first month of dual eligibility or
entitlement is after February 1992, and the first month of dual
eligibility or entitlement is after August 9, 1993, Medicare is
secondary payor during the first 18 months of ESRD-based eligibility or
entitlement, and primary payor after the 18th month of ESRD-based
eligibility or entitlement.
o The fourth rule, and the most controversial, provides in part that
Medicare remains the primary payor if a group health plan was already
secondary payor for an individual entitled on the basis of age or
disability when the individual becomes eligible on the basis of ESRD.
Initially, HCFA had interpreted OBRA 93 to require a private plan to become
primary payor under these circumstances. HCFA later corrected its interpretation
of the statute and issued guidance on April 24, 1995 that Medicare remains the
primary payor. On June 6, 1995, a federal court issued a preliminary injunction
precluding HCFA from retroactively implementing its corrected program
instruction for items and services furnished between August 10, 1993 (the
enactment of OBRA 93) and April 24, 1995, pending the courts decision on the
merits. HCFA has stated that it will modify the rules if required by the final
ruling of the court.
If the court determines that Medicare is the primary payor during the period
between August 10, 1993 and April 24, 1995, then this decision could have a
material adverse effect on the Company in that it would require the Company to
refund certain payments to private insurers for services during that time
period, and then re-bill the Medicare Program for such payments. This
retroactive application of HCFA's April 1995 program instruction could cause the
Company to incur a significant amount of cost in terms of work hours and office
expenses. If the court maintains its current position that these rules cannot be
retroactively applied, then the Company does not anticipate any impact on its
earnings from such finding. However, the Company cannot estimate with any
certainty, at the present time, the potential impact that any final ruling or
interpretation or the timing of same may have upon its earnings.
OTHER REGULATIONS. The Company's operations are also subject to various state
hazardous waste disposal laws. Those laws as currently in effect do not classify
most of the waste produced during the provision of dialysis services to be
hazardous, although disposal of non-hazardous medical waste is also subject to
regulation. Occupational Safety and Health Administration regulations require
employers of workers who are occupationally subject to blood or other
potentially infectious materials to provide those workers with certain
prescribed protections against bloodborne pathogens. The regulatory requirements
apply to all healthcare facilities, including dialysis facilities, and require
employers to make a determination as to which employees may be exposed to blood
or other potentially infectious materials and to have in effect a written
exposure control plan. In addition, employers are required to provide or employ
hepatitis B vaccinations, personal protective equipment, infection control
training, post-exposure evaluation and follow-up, waste disposal techniques and
procedures, and engineering and work practice controls. Employers are also
required to comply with certain record-keeping requirements. The Company
believes it is in material compliance with the foregoing laws and regulations.
Although STAT believes it complies in all material respects with current
applicable laws and regulations, the healthcare service industry will continue
to be subject to substantial regulation at the federal and state levels, the
scope and effect of which cannot be predicted by the Company. No assurance can
be given that the Company's activities will not be reviewed or challenged by
regulatory authorities.
REGULATORY COMPLIANCE AND POSSIBLE NEGATIVE EFFECTS OF PROSPECTIVE HEALTHCARE
REFORM. Various plans have been proposed and are being considered on federal,
state and local levels to reduce costs in healthcare
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spending. Although the Company believes it responds to the concerns addressed by
such plans, it is not possible to assess the likelihood of whether any of these
proposals will be enacted or to assess the impact any of these proposals may
have on reimbursement to healthcare providers. Lower rates of reimbursement may
reduce the amounts paid by any government payor and, accordingly, may have a
material adverse effect on the Company's businesses and the results of its
operations.
Healthcare reforms may expand the existing Anti-Kickback Law and the Stark Law
to apply to all healthcare payors, not just Medicare and Medicaid. It is unclear
how any reform legislation would affect healthcare provider networks or other
types of managed care arrangements. There can be no assurance that the Company
will be able to comply with any new laws.
The Company believes it is in material compliance with current applicable laws
and regulations. No assurance can be made that in the future the Company's
business arrangements, past or present, will not be the subject of an
investigation or prosecution by a federal or state governmental authority. Such
an investigation or prosecution could result in any, or a combination, of the
penalties discussed above depending upon the agency involved in such
investigation and prosecution. None of the Company's business arrangements with
physicians, vendors, patients or others have been the subject of investigation
by any governmental authority. No assurance can be given that the Company's
activities will not be reviewed or challenged by regulatory authorities. The
Company monitors legislative developments and would seek to restructure a
business arrangement if the Company determined that one or more of its business
relationships placed it in material noncompliance with such a statute.
The Company believes that healthcare regulations will continue to change and, as
a result, regularly monitors developments in healthcare law. The Company expects
to modify its agreements and operations from time to time as the business and
regulatory environment changes. While the Company believes it will be able to
structure all its agreements and operations in accordance with applicable law,
there can be no assurance that its arrangements will not be successfully
challenged.
CORPORATE LIABILITY AND INSURANCE
The Company's business entails an inherent risk of claims of physician
professional and other liability. The Company currently maintains professional
liability insurance underwritten by an insurance company unaffiliated with the
Company for itself, its affiliated physician groups and its contracted
physicians, in amounts it deems to be appropriate, based upon historical claims
and the nature and risks of its business. The professional liability insurance
coverage is on a claims-made basis (the coverage includes claims reported during
the period that the insured was covered by the policy) and includes certain
self-insurance retention. There can be no assurance that a future claim for
professional liability will not exceed the scope or limits of the Company's
available insurance coverage or that such coverage will continue to be available
at acceptable costs or at all. Such insurance provides coverage, subject to
policy limits, in the event that the Company is held liable as a co-defendant in
a lawsuit against an independent contractor physician or hospital or other
client. The Company does not control the practice of medicine by physicians or
the compliance with certain other regulatory and other requirements directly
applicable to physicians or hospitals or other clients. The likelihood that the
Company could be held liable for the negligence of a physician would be
increased if such physician were determined to be an employee or other agent of
the Company.
In addition to any potential tort liability of the Company, the affiliated
physician groups' contracts with hospitals generally contain provisions under
which the Company agrees to indemnify the hospital for losses resulting from the
contracted physician's malpractice and the hospital agrees to indemnify the
Company for losses resulting from the negligence of the hospital or hospital
personnel. See "Risk Factors -- Corporate Exposure to Professional
Liabilities."
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COMPETITION
The markets for dialysis, HBO therapy, home healthcare and physician practice
management services are highly competitive. The Company competes not only with
other national and regional management companies and treatment facilities but
also with local physician groups and with hospitals themselves, many of which
are also trying to combine their own services with those of physicians into
integrated delivery networks. The Company is also, in effect, competing against
the traditional structure of practicing physician management and hospital
management operations. Competition in the industry is based on the scope,
quality, and cost of services provided. Certain of the Company's competitors are
significantly larger and have substantially greater financial and other
resources available to them than the Company.
LEGAL PROCEEDINGS
The Company and its affiliated physician groups are involved in various legal
proceedings incidental to their business, substantially all of which involve
claims related to the alleged medical malpractice of contracted physicians. In
the opinion of the Company's management, no individual item of litigation or
group of similar items of litigation, taking into account the insurance coverage
available to the Company, is likely to have a material adverse effect on the
Company's financial position.
EMPLOYEES AND INDEPENDENT CONTRACTOR PHYSICIANS
At 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 77060 under an agreement
terminating in June 1998.
All of the Company's operations are conducted from leased facilities. The
Company leases four facilities from entities in which referring physicians hold
an interest. The leases for the Company's operating facilities generally cover
periods from three to ten years and typically contain renewal options of one to
five years at the fair rental value at the time of renewal or at rates subject
to consumer price index increases since the inception of the lease. The
Company's facilities range in size from approximately 900 to approximately 7,200
square feet. The Company considers its physical properties to be in good
operating condition and suitable for the purposes for which they are being used.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning each of the executive officers
and directors of the Company as of June 30, 1996, including the business
experience of each during the past five years:
<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 Forth Worth, Texas from 1988 to 1992 and controller of The
Methodist Healthcare Network from 1986 to 1988.
NED E. CHAPMAN joined STAT Physicians as Chief Financial Officer in 1992 and has
been Chief Financial Officer of the Company since its inception. From 1989 until
joining STAT Physicians, Mr. Chapman served as a financial consultant to a
number of private and public companies in California's Silicon Valley. Mr.
Chapman was formerly Chief Financial Officer of three companies, two of which
were public
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companies (Magnuson Computers and CAS, Inc.). Mr. Chapman is a Certified Public
Accountant and was with Price Waterhouse for 11 years, last serving as a senior
audit manager.
DANIEL A. PEREZ has been Senior Vice President of the Company since June 1996.
Mr. Perez was a co-founder of AmHealth Corporation and served as Assistant
Secretary of AmHealth Corporation and Chief Operating Officer of AmHealth's
Kidney Dialysis Centers from November 1992 until the Exchange. He was a former
area administrator for Bio-Medical Applications' South Texas operations, where
he gained extensive experience in the development and management of dialysis
centers, and served as Administrator of Bio-Medical Applications of the Rio
Grande Valley from 1988 to 1991.
ANN N. JAMES, PH.D. was appointed to the Board of Directors in June 1996 as a
designee of AmHealth following the consummation of the Exchange. Dr. James has
been a partner of and the Director of the Health Law Section of the law firm of
Jenkens & Gilchrist, L.L.P., Houston, Texas since 1992. Dr. James presently
serves on the Board of the Health Law and Policy Institute of the University of
Houston, the Advisory Board for the Healthcare Administration Program of the
University of Houston, the Board of the Greater Houston Hospital Council
Research and Education, and the Board of Directors of the Carondelet Health
System.
DAVID C. COLBY was appointed to the Board of Directors in June 1996 as a
designee of AmHealth following the consummation of the Exchange. Mr. Colby has
served as Executive Vice President, Chief Financial Officer and Treasurer of
American Medical Response, Inc. since April 1996. Mr. Colby served as the Chief
Financial Officer of Columbia/HCA Healthcare Corporation from 1988 to 1996, as
Chief Financial Officer of Methodist Hospital from 1983 to 1988 and as a
healthcare consultant for Touche Ross & Co. from 1978 to 1983.
BOARD OF DIRECTORS
The Charter and Bylaws provide that the Board shall be classified with respect
to terms of office into three classes. Each class of directors shall consist of
an equal, or as near to equal as possible, number of directors. The term of the
Class I Directors will expire at the 1997 annual meeting, the term of the Class
II Directors will expire at the 1998 annual meeting, and the term of the Class
III Directors will expire at the 1999 annual meeting. At each annual meeting,
the successor or successors to the class of directors whose terms shall expire
in that year shall be elected to hold office for a term of three years, so that
the term of office of one class of directors shall expire in each year.
Directors who are not employees are paid a fee of $1,000 for each meeting of the
Board of Directors that they attend in person and are reimbursed for reasonable
out-of-pocket expenses incurred in attending such meetings. In fiscal 1995, the
Company granted to Mr. Schneider options to purchase 10,000 shares of Common
Stock at an exercise price of $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. The Company has entered into indemnification
agreements with each of its directors and executive officers that provide for
indemnification and expense advancement to the fullest extent permitted under
the Delaware General Corporation Law. See "Description of Capital Stock --
Certain Anti-Takeover, Limited Liability and Indemnification Provisions."
The Board has established an Audit Committee and Compensation Committee. The
current members of the Audit Committee are Mr. Colby (Chairman) and Dr. James.
The Audit Committees functions include recommending to the Board the engagement
of the Company's independent auditors, reviewing with such auditors the plans
for and the results and scope of their auditing engagement and certain other
matters,
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including the independence of such auditors. The current members of the
Compensation Committee are Dr. James (Chairperson) and Mr. Colby. The
Compensation Committee reviews compensation of directors, executive officers and
key employees and administers the 1996 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Company had no compensation committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made during such year by Messrs.
Schneider and Chapman and Drs. Rice and Miranda, who constituted the Company's
Board of Directors during 1995. During 1995, Drs. Rice and Miranda and Mr.
Chapman served as the Company's Chairman of the Board, President and Chief
Financial Officer, respectively. None of the individuals who served on the Board
of Directors during 1995 served as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
In June 1996, upon consummation of the Exchange, Mr. Schneider received
2,811,922 shares of Common Stock in exchange for his interests in the AmHealth
Corporations and AmHealth Partnerships, was elected Chairman of the Board and
Chief Executive Officer of the Company, and entered into an employment agreement
with the Company. In October 1995, Drs. Rice and Miranda each borrowed $100,000
from the Company to pay federal income tax obligations arising from the income
of STAT Physicians attributable to them. In April 1995, the Company repaid a
$400,000 bank loan of STAT Physicians. Drs. Rice and Miranda control STAT
Physicians. See "Certain Transactions."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the cash
compensation, as well as certain other compensation paid or accrued, by the
Company and STAT Physicians, as identified, to the Company's Vice Chairman of
the Board (the chief executive officer during the years presented) and the other
executive officers of the Company who had total annual salary and bonus of more
than $100,000 (the "named executive officers") for the fiscal years ended
December 31, 1995, 1994 and 1993. In June 1996, Mr. Schneider was elected
Chairman and Chief Executive Officer and Mr. R. Perez was elected
President -- Healthcare Management, and such persons entered into employment
agreements pursuant to which they will each receive an annual salary of
$120,000. See "-- Employment Agreements," below.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) OPTIONS(#)
- ---------------------------------------- --------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
William H. Rice, M.D.................... 1995 $ 274,999 $ 26,595 21,658
Vice Chairman of the Board 1994 153,467(2) 154,165 --
1993 195,845(3) 217,372
Victor M. Miranda, M.D.................. 1995 283,281 65,182 109,342
President -- Emergency Physicians 1994 153,467(2) 265,588 --
1993 196,851(3) 332,583
Ned E. Chapman.......................... 1995 127,265 -- 45,000
Chief Financial Officer 1994 79,846(2) -- --
1993 68,115 -- --
</TABLE>
- ------------------------------
(1) Represents shift pay for Drs. Miranda and Rice when performing services as
attending physicians.
(2) Includes compensation from STAT Physicians.
(3) Represents compensation from STAT Physicians.
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<PAGE>
OPTION/SAR GRANTS TABLE. The following table sets forth certain information
concerning stock options granted to the named executive officers during 1995. No
stock appreciation rights were granted during 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
- -------------------------------------------------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE(2) EXPIRATION DATE 5% 10%
- ---------------------------------------- ----------- ------------- -------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William H. Rice, M.D.................... 21,658 7% $ 3.17 10/16/00 $ 10,814 $ 31,625
Victor M. Miranda, M.D.................. 109,342 36 3.17 10/16/00 54,596 159,663
Ned E. Chapman.......................... 45,000 15 2.88 10/16/00 35,744 78,985
</TABLE>
- ------------------------------
(1) Each option will become exercisable in five equal annual installments over
the optionees continued service measured from the date of grant.
(2) The exercise price must be paid in cash.
(3) Potential realizable value is based on the assumption that the price per
share of the Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. There is no assurance that the assumed 5%
and 10% annual rates of appreciation (compounded annually) will actually be
realized over the term of the option. The assumed 5% and 10% annual rates
are set forth in accordance with the rules and regulations adopted by the
Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES. The following table sets forth certain information
concerning unexercised options held by the named executive officers at December
31, 1995. No options or stock appreciation rights were exercised during 1995,
and no options were exercisable and no stock appreciation rights were
outstanding at December 31, 1995.
<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.
44
<PAGE>
1996 STOCK INCENTIVE PLAN
The 1996 Stock Incentive Plan (the "1996 Plan") serves as the successor equity
incentive program to the Company's 1994 Stock Option Plan (the "Predecessor
Plan"). 1,500,000 shares of Common Stock have initially been authorized for
issuance under the 1996 Plan. This initial share reserve is comprised of (i) the
shares which remained available for issuance under the Predecessor Plan,
including the shares subject to outstanding options thereunder plus (ii) an
additional increase of 1,200,000 shares. In addition, the share reserve will
automatically be increased on the first trading day of January each calendar
year, beginning in January 1997, by a number of shares equal to 1.5% of the
number of shares of Common Stock outstanding on the last trading day of the
immediately preceding calendar year. However, in no event may any one
participant in the 1996 Plan receive option grants or direct stock issuances for
more than 300,000 shares in the aggregate.
Outstanding options under the Predecessor Plan were incorporated into the 1996
Plan upon the consummation of the Exchange, and no further option grants will be
made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1996 Plan to those options. However, except as
otherwise noted below, the outstanding options under the Predecessor Plan
contain substantially the same terms and conditions summarized below for the
Discretionary Option Grant Program in effect under the 1996 Plan.
The 1996 Plan is divided into four separate components: (i) the Discretionary
Option Grant Program under which eligible individuals in the Company's employ or
service (including officers, non-employee Board members and consultants) may, at
the discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock at an exercise price not less than 85% of their fair market
value on the grant date; (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrators discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price not less
than 85% of their fair market value at the time of issuance or as a bonus tied
to the performance of services; (iii) the Salary Investment Option Grant Program
under which executive officers and other highly compensated employees may elect
to apply a portion of their base salary to the acquisition of special
below-market stock option grants; and (iv) the Automatic Option Grant Program
under which option grants will automatically be made at periodic intervals to
eligible non-employee Board members to purchase shares of Common Stock at an
exercise price equal to 100% of their fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will be
administered by the Compensation Committee of the Board of Directors. The
Compensation Committee as Plan Administrator will have complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the status
of any granted option as either an incentive stock option or a non-statutory
stock option under the Federal tax laws, the vesting schedule to be in effect
for the option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding. The administration of the Salary
Investment Option Grant, Automatic Option Grant and Director Fee Option Grant
Programs will be self-executing in accordance with the express provisions of
each such program.
The exercise price for the shares of Common Stock subject to option grants made
under the 1996 Plan may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the Plan Administrator may provided financial assistance to one or more
optionees in the exercise of their outstanding options by allowing such
individuals to deliver a full-recourse, interest-bearing promissory note in
payment of the exercise price and any associated withholding taxes incurred in
connection with such exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Stock Issuance Program will immediately
45
<PAGE>
vest, except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation. The Plan Administrator
will have the authority under the Discretionary Option Grant and Stock Issuance
Programs to grant options and to structure repurchase rights so that the shares
subject to those options or repurchase rights will automatically vest in the
event the individuals service is terminated, whether involuntarily or through a
resignation for good reason, within 18 months following (i) a merger or asset
sale in which those options are assumed or those repurchase rights are assigned
or (ii) a hostile change in control of the Company effected by a successful
tender offer for more than 50% of the outstanding voting stock or by proxy
contest for the election of Board members. Options currently outstanding under
the Predecessor Plan will accelerate upon an acquisition of the Company by
merger or asset sale, unless those options are assumed by the acquiring entity,
but such options are not subject to acceleration upon the termination of the
optionees service following an acquisition in which those options are assumed or
a hostile change in control of the Company.
Stock appreciation rights are authorized for issuance under the Discretionary
Option Grant Program which provide the holders with the election to surrender
their outstanding options for an appreciation distribution from the Company
equal to the excess of the fair market value of the vested shares of Common
Stock subject to the surrendered option over the aggregate exercise price
payable for such shares. Such appreciation distribution may be made in cash or
in shares of Common Stock. There are currently no outstanding stock appreciation
rights under the Predecessor Plan.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer and
other highly compensated employee of the Company selected for participation may
elect, prior to the start of the calendar year, to reduce his or her base salary
for that calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000. In return, the officer will automatically be granted, on the
first trading day in the calendar year for which the salary reduction is to be
in effect, a non-statutory option to purchase that number of shares of Common
Stock determined by dividing the salary reduction amount by two-thirds of the
fair market value per share of Common Stock on the grant date. The option will
be exercisable at a price per share equal to one-third of the fair market value
of the option shares on the grant date. As a result, the total spread on the
option shares at the time of grant will be equal to the salary reduction amount.
The option will vest in a series of 12 equal monthly installments over the
calendar year for which the salary reduction is in effect and will be subject to
full and immediate vesting upon certain changes in the ownership or control of
the Company.
Under the Automatic Option Grant Program, each individual who first joins the
Board after the consummation of the Exchange as a non-employee Board member will
receive an option grant for 20,000 shares of Common Stock at the time of his or
her commencement of Board service, provided such individual has not otherwise
been in the prior employ of the Company. In addition, at each annual
stockholders meeting, beginning with the 1997 annual meeting, each individual
who is to continue to serve as a non-employee Board member will receive an
option grant to purchase 20,000 shares of Common Stock, whether or not such
individual has been in the prior employ of the Company.
Each automatic grant will have an exercise price equal to the fair market value
per share of Common Stock on the grant date and will have a maximum term of ten
years, subject to earlier termination following the optionees cessation of Board
service. Each automatic option will be immediately exercisable; however, any
shares purchased upon exercise of the option will be subject to repurchase, at
the option exercise price paid per share, should the optionees service as a
non-employee Board member cease prior to vesting in the shares. The 20,000-share
grant will vest in four equal and successive annual installments over the
optionees period of Board service. Each additional 20,000-share grant will vest
upon the optionees completion of one year of Board service measured from the
grant date. However, each outstanding option will immediately
46
<PAGE>
vest upon (i) certain changes in the ownership or control of the Company or (ii)
the death or disability of the optionee while serving as a Board of Directors
member.
The Board of Directors may amend or modify the 1996 Plan at any time. The 1996
Plan will terminate on June 24, 2006, unless sooner terminated by the Board of
Directors.
401(K) SAVINGS PLAN
The Company has established a tax-qualified, deferred compensation plan (the
"401(k) Savings Plan") covering all of the Company's eligible full-time
employees. Under the plan, participants may elect to contribute, through salary
reductions, up to 15% of their annual compensation. The Company may provide
additional matching contributions to the plan in a percentage set by the Company
prior to the end of each plan year, which the Company currently expects will not
exceed 3% of pre-tax compensation. The 401(k) Savings Plan is designed to
qualify under Section 401 of the Internal Revenue Code of 1986, as amended, so
that contributions by employees or by the Company to the plan, and income earned
on plan contributions, are not taxable to employees until withdrawn from the
401(k) Savings Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. Investment decisions are made by the Plan
trustee or at the direction of the Plan participants in several investment
options.
47
<PAGE>
CERTAIN TRANSACTIONS
In June 1996, upon consummation of the Exchange, Messrs. R. Perez, Schneider and
D. Perez were issued 3,868,917, 2,809,922 and 1,509,231 shares of Common Stock,
respectively, in exchange for their interests in the AmHealth Corporations and
AmHealth Partnerships. The AmHealth shareholders and partners collectively were
issued 11,200,000 shares of Common Stock representing approximately 75% of the
Common Stock outstanding immediately after the Exchange. In connection with the
Exchange, Mr. Schneider was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company, Mr. R. Perez was elected
President -- Healthcare Management, Treasurer and a director of the Company, and
Mr. D. Perez was elected Senior Vice President of the Company. Messrs.
Schneider, R. Perez and D. Perez also entered into employment agreements with
the Company. See "Recent Developments -- Exchange with AmHealth Corporation and
Related Entities," "Management -- Employment Agreements" and "Principal and
Selling Stockholders."
Effective as of September 1, 1994, the Company entered into a Management
Agreement with STAT Physicians whereby the Company has agreed to manage the
business and affairs of STAT Physicians. Effective as of February 1, 1996, the
Company entered into a Management Agreement with STAT Physicians, P.A., an
affiliated physician group ("STAT P.A."), whereby the Company has agreed to
manage the business and affairs of STAT P.A. STAT Physicians and STAT P.A. are
controlled by Drs. Rice and Miranda. In addition, Drs. Rice and Miranda have
entered into an agreement with the Company restricting any transfer of their
interests in STAT 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.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of Common Stock as of August 31, 1996 by (i) each
person who owns beneficially more than five percent of the Common Stock, (ii)
each of the Company's directors and named officers and (iii) all current
executive officers and directors as a group.
BENEFICIAL OWNER NUMBER PERCENTAGE(1)
- ------------------------------------- ----------- -------------
Ruben A. Perez(2).................... 3,868,917 25.8%
Russell D. Schneider(3).............. 2,824,922(4) 18.9
Daniel A. Perez(5)................... 1,509,231 10.1
William Restrepo, M.D.(6)............ 1,043,018 7.0
M.K. Razdan, M.D.(7)................. 1,026,038 6.9
William H. Rice, M.D.(3)............. 783,756(8) 5.2
Victor M. Miranda, M.D.(3)........... 805,677(9) 5.4
Ned E. Chapman(3).................... 90,136(10) *
David C. Colby....................... 20,000(11) *
Ann N. James, Ph.D................... 20,000(11) *
All officers and directors as a group
(Eight persons).................... 9,922,639(12) 65.9%
- ------------------------------
* Indicates less than 1%.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or become exercisable within 60 days are deemed
outstanding. However, such shares are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Unless
otherwise indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) The address for Mr. R. Perez is 8200 I.H. 10 West, Suite 209, San Antonio,
Texas 78230.
(3) The address for Mr. Schneider, Dr. Rice, Dr. Miranda and Mr. Chapman is
12450 Greenspoint Drive, Suite 1200 Houston, Texas 77060.
(4) Includes 10,000 shares purchasable upon the exercise of options.
(5) The address for Mr. D. Perez is 1300 North 10th, Suite 220, McAllen, Texas
78501.
(6) The address for Dr. Restrepo is 1801 South 5th Street, Suite 209, McAllen,
Texas 78503.
(7) The address for Dr. Razdan is 222 East Ridge Road, Suite 116, McAllen,
Texas 78503.
(8) Includes 5,414 shares purchasable upon the exercise of options and 778,342
shares owned of record by STAT Physicians. Drs. Rice and Miranda each own
50% of the outstanding equity interest in STAT Physicians and share the
power to vote and dispose of the shares owned by STAT Physicians. Excludes
778,342 shares attributable to Dr. Rice's equity interest in STAT
Physicians, of which Dr. Miranda disclaims beneficial ownership.
(9) Includes 27,335 shares purchasable upon the exercise of options and 778,342
shares owned of record by STAT Physicians. Drs. Rice and Miranda each own
50% of the outstanding equity interest in STAT Physicians and share the
power to vote and dispose of the shares owned by STAT Physicians. Excludes
778,342 shares attributable to Dr. Miranda's equity interest in STAT
Physicians, of which Dr. Rice disclaims beneficial ownership.
(10) Includes 11,250 shares purchasable upon the exercise of options.
(11) Represents shares purchasable upon the exercise of options. The shares
underlying such options are subject to repurchase by the Company.
(12) Includes 93,999 shares purchasable upon the exercise of options.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The total authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, $0.01 par value per share, and 5,000,000 shares of preferred
stock, $0.01 par value per share (the "Preferred Stock"). The following
descriptions of the capital stock are qualified in all respects by to the
Charter and Bylaws, copies of which are available without charge to any person
to whom this Prospectus is delivered upon written or oral request to STAT
Healthcare, Inc., Attention: Corporate Secretary, 12450 Greenspoint Drive, Suite
1200, Houston, Texas 77060.
As of the date of this Prospectus, 14,974,412 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 31, 1996, the Company had outstanding 599,726 Class A Warrants. Each
Class A Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of $4.50 per share until April 19, 1998. The Class A Warrants
were issued pursuant to a warrant agreement (the "Warrant Agreement"), and are
evidenced by warrant certificates in registered form.
The exercise price of the Class A Warrants and the number and kind of shares of
Common Stock or other securities and property issuable upon exercise of such
warrants are subject to adjustment in certain circumstances, including a stock
split of, stock dividend on or a subdivision, combination or capitalization of
the Common Stock. Additionally, an adjustment will be made upon the sale of all
or substantially all of the assets of the Company in order to enable holders of
Class A Warrants to purchase the kind and number of shares or other securities
or property (including cash) receivable in such event by a holder of the number
of shares of Common Stock that might otherwise have been purchased upon exercise
of the Class A Warrants.
The Class A Warrants do not confer upon the holder any voting or any other
rights of a stockholder of the Company. Upon notice to the holders of Class A
Warrants, the Company has the right to reduce the exercise price or extend the
expiration date of the Class A Warrants.
The Class A Warrants may be exercised upon surrender of the warrant certificate
evidencing those warrants on or prior to the expiration date (or earlier
redemption date) of such warrants at the offices of American
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<PAGE>
Stock Transfer & Trust Company, the warrant agent, with the form of "Election
to Purchase" on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by payment of the full exercise price (by
certified check payable to the order of the warrant agent) for the number of
Class A Warrants being exercised.
No Class A Warrant will be exercisable unless at the time of exercise the
Company has filed with the Commission a current prospectus covering the issuance
of shares of Common Stock issuable upon exercise of such warrant and the
issuance of shares has been registered or qualified or is deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of the warrant. The Company will use its best efforts to
maintain a current prospectus relating to the issuance of shares of Common Stock
upon the exercise of the Class A Warrants until the expiration of the warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to maintain a current prospectus, there is no assurance that it will
be able to do so.
No fractional shares will be issued upon exercise of the Class A Warrants.
However, if a holder of a warrant exercises all Class A Warrants then owned of
record, the Company will pay to that holder, in lieu of the issuance of a
fractional share which would be otherwise issuable, an amount in cash equal to
such fractional interest based on the market value of the Common Stock on the
last trading day prior to the exercise date.
The Class A Warrants are redeemable by the Company at a price of $0.05 per
warrant, and prior to their expiration, on 30 days prior written notice to the
registered holders of the warrants, provided the closing high bid or sale price
per share of the Common Stock (if the Common Stock is then traded on Nasdaq or a
national securities exchange, respectively) for a period of 20 consecutive
trading days, ending on the third business day prior to the date of any
redemption notice, equals or exceeds at least $5.50 (subject to adjustment in
certain events). The Class A Warrants shall be exercisable until the close of
the business day preceding the date fixed for redemption. In addition, subject
to the rules of the National Association of Securities Dealers, Inc., the
Company has agreed to engage certain persons as its exclusive warrant
solicitation agents, in connection with which such persons would be entitled to
a 4% fee upon exercise of the Class A Warrants. If the Underwritten Offering is
consummated, STAT will agree not to redeem the Class A Warrants for a period of
180 days after the date of the final Prospectus relating to the Underwritten
Offering without the prior written consent of the representative of the
underwriters of such offering.
REPRESENTATIVES' WARRANTS
At August 31, 1996, the Company had outstanding 62,500 Representatives Warrants,
each of which entitles the holders thereof to purchase two shares of Common
Stock and one Class A Warrant for an aggregate price of $10.875, subject to
anti-dilution provisions, at any time through April 19, 2000.
CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
Certain provisions of the Charter and Bylaws may have the effect of deterring or
preventing hostile takeovers including those that might result in a premium over
the then-current trading price or delaying or preventing changes in control or
management of the Company. The Board of Directors believes that these provisions
are in the best interests of stockholders because they will encourage a
potential acquiror to negotiate with the Board of Directors which then will be
able to consider the interest of all stockholders in a change of control
situation.
AUTHORIZED BUT UNISSUED CAPITAL STOCK. The authorization of undesignated
Preferred Stock permits the Board of Directors to issue Preferred Stock with
voting or other rights or preferences that could impede the success of any
attempt to effect a change of control of the Company. There will also be a
substantial number of authorized but unissued shares of Common Stock that could
be issued for such purpose.
CLASSIFIED BOARD OF DIRECTORS. The Charter and Bylaws provide for a classified
Board of Directors pursuant to which the Company's directors are divided into
three classes as nearly as equal in size as practicable. Each class of directors
will be elected once every three years. Therefore, a stockholder that has
acquired enough stock to ensure control of the election process can only elect
approximately one-third of the directors in each year and must wait at least two
elections before electing a majority of directors.
51
<PAGE>
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.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of Common
Stock, or the availability of Common Stock for future sale, will have on the
market price of the Common Stock prevailing from time to time. Future sales of
substantial amounts of Common Stock in the public market could adversely affect
the prevailing market prices and impair the Company's ability to raise capital
through the sale of equity securities. The following discussion is based upon
shares outstanding as of August 31, 1996.
If all of the Warrants are exercised and the Underwritten Offering is not
consummated, the Company will have outstanding 15,761,638 shares of Common
Stock, assuming no exercise of outstanding options after August 31, 1996. Of
these shares, (i) 2,847,184 shares, including the 859,166 shares offered hereby,
will be freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 described below, (ii) 3,065,346 shares of Common Stock
will be freely tradeable without restriction or further registration under the
Securities Act following the termination of the lock-up arrangements described
below, (iii) 9,176,486 shares of Common Stock will be held by "affiliates" and
will become available for sale pursuant to the volume and manner of sale
provisions of Rule 144 following the termination of the lock-up arrangements and
(iv) 672,622 shares of Common Stock are "restricted securities" and will
become available for sale beginning on June 24, 1998 pursuant to the volume and
manner of sale provisions of Rule 144. An additional 50,000 shares of Common
Stock are issuable upon the exercise of currently exercisable options.
Substantially all shares issued following the exercise of such options will be
freely tradeable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company or subject to
the lock-up arrangements.
In connection with the Exchange, the Company's officers, directors and certain
of its stockholders holding in the aggregate 12,921,454 shares of Common Stock
entered into lock-up agreements providing that such persons will not sell,
assign, pledge, hypothecate or otherwise dispose of, directly or indirectly,
such shares of Common Stock, or any shares acquired upon the exercise of any
options or warrants until June 24, 1997, without the prior written consent of
the Company.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned shares for at least two years
(including the holding period of any prior owner except an affiliate from whom
such shares were purchased) is entitled to sell in "broker's transactions" or
to market makers, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the number of shares of Common
Stock then outstanding (approximately 157,000 shares if all of the Warrants are
exercised), or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are generally subject to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
other than an affiliate from whom such shares were purchased), is entitled to
sell such shares without having to comply with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. The Securities
and Exchange Commission (the "Commission") has proposed to reduce the two- and
three-year holding periods of Rule 144 to one and two years, respectively.
However, no assurances can be given that such proposal will be adopted or that
such proposal will be adopted in the form proposed.
The Company 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."
53
<PAGE>
PLAN OF DISTRIBUTION
The Company will issue and sell shares of Common Stock to the holders of the
Class A Warrants upon the exercise of the Class A Warrants in accordance with
their terms. The Company will also issue and sell Class A Warrants and shares of
Common Stock to the holders of the Representatives' Warrants upon the exercise
of the Representatives' Warrants in accordance with their terms. Holders of
Warrants who exercise their warrants while the Registration Statement of which
this Prospectus is a part is effective under the Securities Act may freely
resell the shares of Common Stock and Class A Warrants acquired upon such
exercise, except for holders who are "affiliates" of the Company within the
meaning of the Securities Act. Affiliates may resell such shares and warrants in
accordance with certain provisions of Rule 144.
Upon the exercise of the Class A Warrants and to the extent not inconsistent
with the guidelines of the National Association of Securities Dealers, Inc. and
the rules and regulations of the Commission, the Company has agreed to pay to
Network 1 Financial Securities, Inc. and Rothschild Global Investments, Inc.,
the underwriters of the Company's April 1995 initial public offering (the
"Underwriters"), a solicitation fee equal to 4% of the exercise price for each
Class A Warrant exercised. However, no compensation will be paid to the
Underwriters in connection with the exercise of Class A Warrants if (a) the
market price of the underlying shares of Common Stock is lower than the exercise
price, (b) the Class A Warrants are held in a discretionary account, (c) the
Class A Warrants are exercised in an unsolicited transaction or (d) the
disclosure of such compensation arrangement has not been made in documents
provided to the customers both as part of the initial public offering of the
Class A Warrants and at the time of exercise. In addition, unless granted an
exemption by the Commission from Rule 10b-6 under the Securities Exchange Act of
1934, as amended (the"Exchange Act"), the Underwriters will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities until the later of the termination of such
solicitation activity or the termination by waiver or otherwise of any right
such persons may have to receive a fee for exercise of the Class A Warrants
following such solicitations.
The Common Stock and the Class A Warrants are quoted and trade on the Nasdaq
National Market under the symbols "STHC" and "STHCW," respectively.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Austin, Texas. A member of such firm
currently owns or has the right to acquire approximately 25,000 shares of Common
Stock.
EXPERTS
The consolidated financial statements and schedule of STAT Healthcare, Inc. and
subsidiaries as of December 31, 1994 and 1995 and for the years then ended have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and in reliance upon the report of Long, Chilton,
Payte & Hardin, LLP, independent certified public accountants, with respect to
the combined financial statements of AmHealth Corporation and its related
healthcare entities as of December 31, 1994 and for the year then ended, and
upon the authority of said firms as experts in accounting and auditing.
The consolidated financial statements and schedule of STAT Healthcare, Inc. and
subsidiaries as of December 31, 1993 and for the year then ended have been
included herein and in the Registration Statement in reliance upon the report of
Long, Chilton, Payte & Hardin, LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of South Texas Acute Trauma Physicians, P.A. as of
December 31, 1993 and August 31, 1994 and for the year ended December 31, 1993
and the eight months ended August 31, 1994 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat
54
<PAGE>
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports, proxy statements and other information
with the Commission. These materials can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commissions regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of these materials can also
be obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Such filings may also be obtained from the Commission through the
Internet at http://www.sec.gov.
The Company has filed a Registration Statement (Reg. No. 333-2486) (the
"Registration Statement") with the Commission under the Securities Act with
respect to the securities covered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth above. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as a part thereof.
55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----------
STAT HEALTHCARE, INC. AND
SUBSIDIARIES
Independent Auditors' Report.... F-2
Independent Auditors' Report.... F-3
Independent Auditors' Report.... F-4
Consolidated Balance Sheets at
December 31, 1993, 1994 and
1995........................... F-5
Consolidated Statements of
Income for the years ended
December 31, 1993, 1994
and 1995....................... F-6
Consolidated Statements of
Changes in Stockholders' Equity
for the years ended December
31, 1993, 1994 and 1995........ F-7
Consolidated Statements of Cash
Flows for the years ended
December 31, 1993, 1994 and
1995........................... F-8
Notes to Consolidated Financial
Statements..................... F-9
STAT HEALTHCARE, INC. AND
SUBSIDIARIES (UNAUDITED)
Consolidated Balance Sheet at
June 30, 1996 (unaudited)...... F-23
Consolidated Statements of
Income for the six months ended
June 30, 1995 and
1996 (unaudited)............... F-24
Consolidated Statement of
Changes in Stockholders' Equity
for the six months ended June
30, 1996 (unaudited)........... F-25
Consolidated Statement of Cash
Flows for the six months ended
June 30, 1996 (unaudited)...... F-26
Notes to Unaudited Consolidated
Financial Statements........... F-27
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS,
P.A.
Independent Auditors' Report.... F-28
Balance Sheets at December 31,
1993 and August 31, 1994....... F-29
Statements of Income for the
year ended December 31, 1993
and the eight months ended
August 31, 1994................ F-30
Statements of Changes in
Shareholders' Equity for the
year ended December 31, 1993
and the eight months ended
August 31, 1994................ F-31
Statements of Cash Flows for the
year ended December 31, 1993
and the eight months ended
August 31, 1994................ F-32
Notes to Financial Statements... F-33
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of STAT Healthcare,
Inc. and subsidiaries (the Company) as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the 1994 financial statements of AmHealth Corporation and its
related health care entities, a wholly-owned subsidiary, which statements
reflect total assets constituting 57% and total net service revenues
constituting 52% of the related consolidated totals in 1994. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for AmHealth Corporation
and its related health care entities, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors for 1994 provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors for 1994,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of STAT Healthcare, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles applicable.
KPMG PEAT MARWICK LLP
Houston, Texas
August 9, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors/Partners
AmHealth Corporation and its
Related Health Care Entities:
We have audited the combined balance sheets of AmHealth Corporation and its
related health care entities (collectively referred to as the Company) as of
December 31, 1994, and the related combined statements of income, changes in
shareholders' equity and partners' capital, and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of AmHealth Corporation
and its related health care entities as of December 31, 1994, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
LONG, CHILTON, PAYTE & HARDIN, LLP
Certified Public Accountants
McAllen, Texas
February 22, 1995
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
We have audited the accompanying consolidated balance sheet of STAT Healthcare,
Inc. and subsidiaries (the Company) as of December 31, 1993, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of STAT Healthcare,
Inc. and subsidiaries as of December 31, 1993, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
LONG, CHILTON, PAYTE & HARDIN, LLP
Certified Public Accountants
McAllen, Texas
August 9, 1996
F-4
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ --------------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents............ $ 114,000 $ 470,000 $ 2,538,000
Accounts receivable, net (notes 5 and
8)................................... 339,000 2,382,000 4,565,000
Notes receivable (note 6)............ 8,000 8,000 266,000
Inventories (note 8)................. 32,000 63,000 103,000
Prepaid and other current assets..... 71,000 143,000 709,000
------------ ------------ --------------
Total current assets....... 564,000 3,066,000 8,181,000
Property and equipment, net (notes 7
and 8)............................... 526,000 1,446,000 2,261,000
Other non-current assets............. 53,000 312,000 133,000
------------ ------------ --------------
Total assets............... $ 1,143,000 $ 4,824,000 $ 10,575,000
============ ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt
(note 8)............................. $ 122,000 $ 470,000 $ 88,000
Current portion of capital lease
obligations (note 9)................. 80,000 37,000 48,000
Accrued physicians' fees............. -- 724,000 706,000
Accounts payable..................... 116,000 352,000 925,000
Accrued liabilities.................. 49,000 268,000 513,000
Distributions payable................ -- -- 283,000
------------ ------------ --------------
Total current
liabilities................ 367,000 1,851,000 2,563,000
Long-term debt (note 8).............. 87,000 95,000 156,000
Long-term capital lease obligations
(note 9)............................. 243,000 1,099,000 1,484,000
------------ ------------ --------------
Total liabilities.......... 697,000 3,045,000 4,203,000
------------ ------------ --------------
Stockholders' equity (notes 8, 11 and
12):
Preferred stock, $.01 par value.
Authorized 5,000,000 shares;
Series A convertible, issued
and outstanding 74,000 shares
at December 31, 1994.......... -- 370,000 --
Common stock, $.01 par value.
Authorized 40,000,000 shares;
issued and outstanding
4,165,166, 6,183,552 and
14,823,332 shares,
respectively.................. 42,000 62,000 148,000
Capital in excess of par
value........................... 269,000 589,000 4,204,000
Retained earnings............... 135,000 758,000 2,020,000
------------ ------------ --------------
Total stockholders'
equity..................... 446,000 1,779,000 6,372,000
------------ ------------ --------------
Commitments and contingencies (notes
9, 13 and 15)
Total liabilities and
stockholders' equity....... $ 1,143,000 $ 4,824,000 $ 10,575,000
============ ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
Net service revenues (note 4)........ $ 1,170,000 $ 7,645,000 $ 23,141,000
------------ ------------ --------------
Operating expenses:
Professional medical fees....... -- 2,601,000 9,241,000
Human resources................. 394,000 1,424,000 4,640,000
Supplies........................ 336,000 1,127,000 1,818,000
Billing and collection costs.... -- 322,000 1,461,000
Outside services and other...... 226,000 624,000 970,000
Liability insurance............. -- 167,000 706,000
Furniture and equipment......... 59,000 204,000 400,000
Occupancy....................... -- 17,000 139,000
------------ ------------ --------------
Total operating expenses... 1,015,000 6,486,000 19,375,000
------------ ------------ --------------
Operating income........... 155,000 1,159,000 3,766,000
Interest income...................... -- -- 75,000
Interest expense..................... (21,000) (143,000) (225,000)
Other income......................... 1,000 153,000 29,000
------------ ------------ --------------
Income before income
taxes................... 135,000 1,169,000 3,645,000
Income taxes (note 10)............... -- 65,000 347,000
------------ ------------ --------------
Net income................. 135,000 1,104,000 3,298,000
Proforma income taxes (note 2)....... 46,000 332,000 892,000
------------ ------------ --------------
Proforma net income........ $ 89,000 $ 772,000 $ 2,406,000
============ ============ ==============
Proforma net income per
common share
(note 2)................ $ 0.02 $ 0.11 $ 0.20
============ ============ ==============
Number of shares used in computing
proforma net income per common
share.............................. 5,257,954 7,079,131 11,897,371
============ ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL IN TOTAL
-------------------- --------------------- EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------- --------- --------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993.......... -- $ -- 339,604 $ 4,000 $ 18,000 $ -- $ 22,000
Capital contributions................ -- -- 3,825,562 38,000 251,000 -- 289,000
Net income........................... -- -- -- -- -- 135,000 135,000
------- --------- --------- -------- ----------- ---------- -------------
Balances at December 31, 1993........ -- -- 4,165,166 42,000 269,000 135,000 446,000
Sale of common stock at par.......... -- -- 450,000 5,000 -- -- 5,000
Sale of Series A, Convertible
Preferred stock.................... 74,000 370,000 -- -- -- -- 370,000
Sale of common stock at $.10 per
share.............................. -- -- 100,000 1,000 9,000 -- 10,000
Sale of common stock at $1.00 per
share, net of issuance cost........ -- -- 250,000 2,000 233,000 -- 235,000
Capital contributions................ -- -- 1,218,386 12,000 78,000 -- 90,000
Distributions to shareholders........ -- -- -- -- -- (481,000) (481,000)
Net income........................... -- -- -- -- -- 1,104,000 1,104,000
------- --------- --------- -------- ----------- ---------- -------------
Balances at December 31, 1994........ 74,000 370,000 6,183,552 62,000 589,000 758,000 1,779,000
Initial public offering of common
stock, net of issuance cost........ -- -- 1,250,000 12,000 3,243,000 -- 3,255,000
Conversion of 10% secured notes to
common stock....................... -- -- 93,332 1,000 17,000 -- 18,000
Conversion of Series A, Convertible
Preferred stock to common stock.... (74,000) (370,000) 1,480,000 15,000 355,000 -- --
Capital contributions................ -- -- 5,816,448 58,000 -- (31,000) 27,000
Distributions to shareholders........ -- -- -- -- -- (2,005,000) (2,005,000)
Net income........................... -- -- -- -- -- 3,298,000 3,298,000
------- --------- --------- -------- ----------- ---------- -------------
Balances at December 31, 1995........ -- $ -- 14,823,332 $148,000 $4,204,000 $2,020,000 $ 6,372,000
======= ========= ========= ======== =========== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 135,000 $ 1,104,000 $ 3,298,000
------------ -------------- --------------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.... 59,000 196,000 360,000
Changes in assets and
liabilities:
(Increase) in net accounts
receivable................. (337,000) (2,043,000) (2,183,000)
(Increase) in inventories..... (32,000) (31,000) (40,000)
(Increase) in prepaid and
other current assets....... (71,000) (72,000) (566,000)
(Increase) in organization and
start-up costs............. (59,000) (43,000) (68,000)
(Increase) in other
non-current assets......... -- -- (9,000)
Increase (decrease) in accrued
physicians' fees........... -- 724,000 (18,000)
Increase in accounts
payable.................... 116,000 236,000 573,000
Increase in accrued
liabilities................ 49,000 219,000 245,000
Increase in distributions
payable.................... -- -- 283,000
------------ -------------- --------------
Total adjustments............. (275,000) (814,000) (1,423,000)
------------ -------------- --------------
Net cash provided by (used
in) operating
activities............... (140,000) 290,000 1,875,000
------------ -------------- --------------
Cash flows from investing activities:
Increase in notes receivable.......... (8,000) -- (258,000)
Purchase of property and equipment.... (219,000) (186,000) (548,000)
------------ -------------- --------------
Net cash used in investing
activities............... (227,000) (186,000) (806,000)
------------ -------------- --------------
Cash flows from financing activities:
Capital contributions................. 289,000 90,000 27,000
Proceeds from sale of common stock.... -- 250,000 3,255,000
Proceeds from sale of preferred
stock.............................. -- 370,000 --
Proceeds from issuance of convertible
secured notes...................... -- 350,000 --
Distributions to shareholders......... -- (481,000) (2,005,000)
Issuance of long-term debt............ 220,000 360,000 278,000
Repayment of long-term debt........... (11,000) (354,000) (249,000)
Repayment of convertible secured
notes.............................. -- -- (332,000)
Repayments of capital lease
obligations........................ (34,000) (99,000) (209,000)
Decrease (increase) in deferred
offering costs..................... -- (234,000) 234,000
------------ -------------- --------------
Net cash provided by
financing activities..... 464,000 252,000 999,000
------------ -------------- --------------
Net increase in cash and cash
equivalents............................. 97,000 356,000 2,068,000
Cash and cash equivalents at beginning
of year................................. 17,000 114,000 470,000
------------ -------------- --------------
Cash and cash equivalents at end of
year.................................... $ 114,000 $ 470,000 $ 2,538,000
============ ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(1) BUSINESS OF THE COMPANY AND ORGANIZATION
BUSINESS OF THE COMPANY
STAT Healthcare, Inc. (STAT) was incorporated in the state of Delaware on July
29, 1994. STAT provides emergency medical management services. On June 24, 1996,
STAT, through a successor entity formed for the purpose of effecting a business
combination, acquired all the common stock and partnership interests of AmHealth
Corporation and its related health care entities (AmHealth) (see note 3).
AmHealth provides disease management services focused primarily on ailments
associated with diabetes. STAT and AmHealth merged into the successor entity
which became the parent and registrant and which then changed its name to STAT
Healthcare, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
The merger of STAT and AmHealth has been accounted for as a pooling of
interests. Accordingly, the consolidated financial statements of STAT
Healthcare, Inc. and subsidiaries (the Company) have been restated to include
the accounts and results of operations of both STAT and AmHealth for all periods
presented.
Following the merger, the Company is an integrated disease management and
medical services company which provides a continuum of disease management
services primarily to patients with end-stage renal disease and also provides
physician practice management services to hospital-based emergency departments.
OPERATIONS AND ORGANIZATION OF STAT
Upon incorporation in July 1994, STAT negotiated a Management Agreement with
South Texas Acute Trauma Physicians, P.A. (STAT Physicians). The Management
Agreement became effective September 1, 1994 and is perpetual. The Management
Agreement has no termination or cancellation provisions. In addition, the
Company has the ability to control the designation of physician owner(s) of STAT
Physicians. Prior to the merger with AmHealth, the Company's income was derived
exclusively from revenues associated with the Management Agreement, less direct
expenses paid by the Company on behalf of STAT Physicians, as provided in the
Management Agreement and less the operating expenses of the Company.
Additionally, on September 1, 1994, the Company assumed the employment of all
personnel previously employed at STAT Physicians and the operating costs
associated therewith from that date forward.
Prior to the merger with AmHealth, the Company operated in a single business
segment, emergency medical management services. The Company's principal business
related to management and administrative services provided to those engaged in
physician staffing of hospital emergency departments. At December 31, 1994 and
1995, the Company managed contracts for physician services with 12 and 11
hospitals, respectively, primarily located in the Houston greater metropolitan
area. Under these contracts, 24-hour physician coverage of the emergency
departments is provided.
Physicians providing services are independent contractors to STAT Physicians and
are paid monthly on a basis of fixed hourly rates. As independent contractors,
these physicians are responsible for their own income and Social Security taxes
as well as workers compensation insurance.
The contracts between STAT Physicians and hospitals are generally written for an
initial term of two years and automatically renew for extended periods after the
initial term. STAT Physicians' contractual arrangements with hospitals are
principally fee-for-service contracts under which the Company bills and collects
the professional component of medical services on behalf of STAT Physicians. At
December 31, 1994, 9 of 12 contracts were fee-for-service contracts, while at
December 31, 1995, all contracts were fee-for-service
F-9
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(1) BUSINESS OF THE COMPANY AND ORGANIZATION: (CONTINUED)
contracts. Services performed under contracts not subject to fee-for-service
arrangements at December 31, 1994 were compensated by the hospitals on a fixed
fee basis.
OPERATIONS AND ORGANIZATION OF AMHEALTH
AmHealth operates in two business segments, kidney dialysis services and
healthcare management services. It operates outpatient kidney dialysis
facilities, provides management services for hospital-based hyperbaric oxygen
therapy facilities, and provides management and personnel services to outpatient
home health providers in the Rio Grande Valley of south Texas.
The AmHealth entities, their pre-merger structure and their dates of inception
are as follows:
ENTITY STRUCTURE DATE OF INCEPTION
- ------------------------------------- --------------------- -----------------
Management operations:
AmHealth Corporation............ S Corporation Oct 1992
Kidney dialysis center operations:
AmHealth Enterprises of the
Valley, Inc................... S Corporation Oct 1992
AmHealth Kidney Center of the
Valley, Ltd................... Partnership Apr 1993
Starr Dialysis Center, Ltd...... Partnership Nov 1993
Weslaco Kidney Center, Ltd...... Partnership Jun 1994
Mission Kidney Center, Ltd...... Partnership Aug 1995
Brownsville Kidney Center,
Ltd........................... Partnership Apr 1996
Healthcare management operations:
Southwestern Infusion
Healthcare, Ltd............... Partnership Jun 1994
AmHealth Ambulatory Services,
Inc........................... C Corporation Apr 1995
AmHealth Ambulatory Healthcare,
Ltd........................... Partnership Apr 1995
Brownsville Hyperbaric
Healthcare, Ltd............... Partnership May 1995
AmHealth Medical Management,
Ltd........................... Partnership Jun 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of STAT Healthcare,
Inc., AmHealth Corporation and its related health care entities (all
wholly-owned), and the results of operations of STAT Physicians since September
1, 1994, the effective date of the Company's Management Agreement with STAT
Physicians.
Because of the existence of a parent-subsidiary relationship by means other than
record ownership of STAT Physicians' voting stock and because of the unilateral
control, notwithstanding the lack of technical majority ownership, which the
Company has over the assets and operation of STAT Physicians, consolidation of
its results of operations is necessary to present fairly the results of
operations of the Company.
All significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial
F-10
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
statements and accompanying notes. Management believes that the estimates
utilized in preparing its consolidated financial statements are reasonable and
prudent. Actual results could differ from these estimates.
CASH EQUIVALENTS
Investments in highly liquid, short-term instruments purchased with original
maturities of three months or less are deemed to be cash equivalents.
SERVICE REVENUES AND ACCOUNTS RECEIVABLE
Patient service revenues are recorded at established billing rates, net of an
allowance for contractual adjustments and a provision for uncollectible
accounts. Management services revenue for hospital and home health agency
accounts are recorded net of an allowance for doubtful accounts.
Patient accounts receivable are reduced to an estimated realizable value taking
into consideration contractual adjustments mandated by payors (Medicare,
Medicaid and private insurers) and expected write-offs of uncollectible
accounts. These estimates are based upon management judgements and historical
experience.
INVENTORIES
Inventories, consisting primarily of dialysis and pharmacy supplies, are stated
at the lower of cost or market. Cost is determined using the first-in, first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line depreciation method over the estimated useful lives of the assets
by class: minor equipment, 3 years; major equipment, 5 years; improvements, 5
years.
Equipment under capital lease is stated at the lesser of the present value of
the minimum lease payments or the fair value of the leased property at the
inception of the lease. Equipment under capital lease is amortized using the
straight-line method over the term of the leases which is 4 to 7 years.
Buildings and land under capital lease are stated at the fair value of the
properties and are amortized using the straight-line method over the term of the
leases which is 10 years.
ORGANIZATION AND START-UP COSTS
Organization and start-up costs have been capitalized and are being amortized
using the straight-line method over five years.
DEFERRED OFFERING COSTS
Deferred offering costs totaling $234,000 at December 31, 1994 were included in
other non-current assets. Such assets were combined with additional offering
costs incurred during 1995 and were recorded as a reduction of the proceeds from
the initial public offering of common stock during 1995.
DEFERRED ACQUISITION COSTS
Costs incurred to effect an expected pooling of interests business combination
are deferred and charged to expense in the period that the business combination
is consummated. If a plan of combination is abandoned,
F-11
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
costs that have been deferred are expensed. At December 31, 1995, deferred
acquisition costs of $134,000 were included in prepaid and other current assets.
These costs were combined with additional acquisition costs incurred in 1996 and
were expensed in the second quarter of 1996 when the AmHealth merger was
consummated.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to consummation of the merger, each of the AmHealth entities (except
AmHealth Ambulatory Services, Inc.) was a partnership or had elected to be
treated as an S Corporation. Accordingly, each entity's income or loss was
allocated to that entity's shareholders or partners for inclusion in their
personal federal income tax returns. No federal income taxes were assessed to
any of the entities (except AmHealth Ambulatory Services, Inc.), and
accordingly, no provision for federal income taxes for these entities has been
reflected in the accompanying consolidated statements of income prior to
consummation of the merger. AmHealth Ambulatory Services, Inc. began operations
in April 1995. Taxable income of this corporation from its date of inception
through December 31, 1995 was not material.
NET INCOME PER COMMON SHARE
Net income per common share is computed based on the sum of STAT and AmHealth
common and common equivalent shares calculated as follows:
o STAT. From inception through the date of STAT's initial public
offering, the number of common and common equivalent shares is computed
as if all shares were outstanding for the entire period, less the
number of treasury shares assumed to have been purchased (at the
initial offering price of STAT's common stock) from the proceeds of
actual sales of stock. Following the initial public offering, the
number of common and common equivalent shares is computed based on the
weighted average number of common shares outstanding adjusted for the
incremental shares attributed to outstanding options and warrants to
purchase common stock.
o AmHealth. The number of common and common equivalent shares is computed
based on the number of shares of the Company's common stock issued to
the shareholders or partners of each AmHealth entity upon consummation
of the merger, as if such shares were outstanding since the date of
inception for each entity.
PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER SHARE
Pro forma income taxes are calculated to reflect the effect of income taxes not
otherwise payable by the AmHealth entities which were partnerships or S
Corporations prior to consummation of the merger. The pro forma income taxes are
based on an effective rate of 34%. Pro forma net income per share is computed
based on the pro forma net income amount.
F-12
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Methods and assumptions used to estimate the fair value of each class of
financial instruments are as follows:
o Cash equivalents, trade accounts receivable, notes receivable and
payables -- The carrying amounts approximate fair value because of the
short maturity of these instruments.
o Long-term debt -- The carrying amount approximates fair value because
the notes generally have an adjustable interest rate based on the prime
rate.
(3) MERGER
On June 24, 1996, the Company acquired all the common stock and partnership
interests of AmHealth Corporation and its related health care entities
(AmHealth) for 11,200,000 shares of the Company's common stock. AmHealth
operates outpatient kidney dialysis facilities, provides management services for
hospital-based hyperbaric oxygen therapy facilities, and provides management and
personnel services to outpatient home health providers in the Rio Grande Valley
of south Texas. The transaction has been accounted for as a pooling of interests
and, accordingly, the consolidated financial statements for all periods
presented have been restated to include the accounts of AmHealth.
Separate and combined results of STAT and AmHealth during the years ended
December 31, 1993, 1994 and 1995 (periods preceding the merger) were as follows:
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
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(4) NET SERVICES REVENUES: (CONTINUED)
arrangements with private insurers. Discounts also include provisions for
indigent patients without the means of paying for services provided.
Gross service revenues and billings discounts for the years ended December 31,
1993, 1994 and 1995 are as follows:
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
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(7) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993, 1994 and 1995 are as follows:
1993 1994 1995
---------- ------------ ------------
Land and buildings................... $ -- $ 619,000 $ 969,000
Equipment and furnishings............ 515,000 915,000 1,705,000
Improvements......................... 63,000 142,000 155,000
---------- ------------ ------------
578,000 1,676,000 2,829,000
Less accumulated depreciation
and amortization................ (52,000) (230,000) (568,000)
---------- ------------ ------------
Property and equipment,
net........................ $ 526,000 $ 1,446,000 $ 2,261,000
========== ============ ============
Depreciation and amortization of property and equipment charged to operations
was $52,000, $178,000 and $338,000 during the years ended December 31, 1993,
1994 and 1995, respectively.
(8) LONG-TERM DEBT
Long-term debt at December 31, 1993, 1994 and 1995 is as follows:
1993 1994 1995
------------ ------------ ----------
Convertible secured notes; interest
at 10%............................. $ -- $ 350,000 $ --
Revolving credit payable to bank, due
in quarterly installments of $9,375
plus interest through March 1999;
interest at prime plus .5%......... -- -- 122,000
Revolving credit payable to bank;
interest at prime plus 1%.......... 79,000 75,000 --
Note payable to TransAmerican
Insurance Finance, due January 1,
1996; interest at 11.64%........... -- -- 4,000
Note payable to bank, due April 2,
1996; interest at prime plus 1%.... 54,000 27,000 10,000
Noninterest-bearing note payable to
Palmco, Inc., for construction
allowance on leased building, due
April 1, 1996...................... 26,000 15,000 4,000
Note payable to bank, due October 30,
1997; interest at prime plus 1%.... 50,000 38,000 6,000
Note payable to bank, due June 15,
1998; interest at prime plus 1%.... -- 60,000 48,000
Note payable to bank, due November 6,
1999; interest at prime plus 1%.... -- -- 50,000
------------ ------------ ----------
Total debt...................... 209,000 565,000 244,000
Less current portion............ (122,000) (470,000) (88,000)
------------ ------------ ----------
Long-term debt.................. $ 87,000 $ 95,000 $ 156,000
============ ============ ==========
The convertible secured notes were issued in October and November 1994 in
connection with a bridge financing. A total of $332,000 was repaid and the
balance of $18,000 was converted to common stock in connection with STAT's
initial public offering during 1995. The conversion of convertible secured notes
to common stock is a non cash investing and financing transaction and is
excluded from the 1995 consolidated statement of cash flows.
F-15
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(8) LONG-TERM DEBT: (CONTINUED)
The revolving credit payables to bank and notes payable to bank are secured by
the Company's accounts receivable, inventories and equipment. Long-term debt
totaling $240,000 at December 31, 1995 was guaranteed by a stockholder of the
Company.
Future payments of long-term debt at December 31, 1995 are as follows:
1996.................................... $ 88,000
1997.................................... 66,000
1998.................................... 68,000
1999.................................... 22,000
----------
$ 244,000
==========
Cash paid for interest was $21,000, $126,000 and $214,000 during the years ended
December 31, 1993, 1994 and 1995, respectively.
(9) LEASE OBLIGATIONS
Future minimum lease payments under capital leases, together with the present
value of the net minimum lease payments, at December 31, 1995 are as follows:
1996.................................... $ 476,000
1997.................................... 426,000
1998.................................... 341,000
1999.................................... 261,000
2000.................................... 203,000
Later years............................. 781,000
------------
Total minimum lease payments............ 2,488,000
Less amount representing interest....... (956,000)
------------
Present value of net minimum lease
payments.............................. 1,532,000
Less current portion............... (48,000)
------------
Long-term capital lease
obligations....................... $ 1,484,000
============
At December 31, 1995, the Company's capital lease obligations include amounts
payable to entities owned or controlled by stockholders of the Company. Total
payments to these entities under the capital leases were $87,000 and $147,000
for the years ended December 31, 1994 and 1995, respectively.
On September 10, 1995, the Company entered into an agreement to lease a facility
located in Brownsville, Texas, to be constructed and owned by an entity owned by
stockholders of the Company. Lease payments begin 45 days after completion and
are $7,600 per month for a term of 120 months. Based on an estimated fair market
value of $490,000 and the terms of the lease, the lease will be a capital lease.
F-16
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(9) LEASE OBLIGATIONS: (CONTINUED)
Future minimum rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year at December 31,
1995 are as follows:
1996.................................... $ 265,000
1997.................................... 268,000
1998.................................... 121,000
1999.................................... 16,000
----------
Total minimum lease payments............ $ 670,000
==========
Rental expense under operating leases was $16,000, $31,000 and $60,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
Obligations under capital lease incurred for property and equipment were
$358,000, $912,000 and $605,000 during the years ended December 31, 1993, 1994
and 1995, respectively. These non cash investing and financing transactions have
been excluded from the consolidated statements of cash flows.
(10) INCOME TAXES
Income taxes for the years ended December 31, 1993, 1994 and 1995 are as
follows:
1993 1994 1995
--------- --------- ----------
Federal.............................. $ -- $ 58,000 $ 330,000
State................................ -- 7,000 17,000
--------- --------- ----------
Total................................ $ -- $ 65,000 $ 347,000
========= ========= ==========
The actual income tax expense for the years ended December 31, 1993, 1994 and
1995 differs from the expected federal income tax computed by applying the U.S.
corporate rate of 34% to income before income taxes as follows:
1993 1994 1995
---------- ------------ ------------
Computed "expected" tax expense.... $ 46,000 $ 398,000 $ 1,239,000
Taxes on income earned and reported
by shareholders of S corporations
and partners of partnerships....... (46,000) (332,000) (892,000)
Increase in tax resulting from
nondeductible expenses............. -- 1,000 2,000
State tax provision, net of federal
benefit............................ -- 4,000 11,000
Other................................ -- (6,000) (13,000)
---------- ------------ ------------
Actual income tax
expense................. $ -- $ 65,000 $ 347,000
========== ============ ============
For the years ended December 31, 1993, 1994 and 1995, there were no significant
temporary differences which created deferred tax assets or liabilities. Income
taxes payable of $65,000 are included in accrued liabilities at December 31,
1994. Refundable income taxes of $31,000 are included in other current assets at
December 31, 1995. No income taxes were paid during the years ended December 31,
1993 and 1994. Income taxes of $440,000 were paid during the year ended December
31, 1995.
F-17
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(11) CAPITAL STOCK
Authorized capital stock of the Company consists of 5,000,000 shares of $.01 par
value preferred stock and 40,000,000 shares of $.01 par value common stock. In
September 1994, STAT sold 74,000 shares of Series A convertible preferred stock
(Preferred Stock) to STAT Physicians for $370,000. The Preferred Stock was
converted into common stock at a rate of 20 shares of common stock for each
share of Preferred Stock (1,480,000 common shares) upon the completion of STAT's
initial public offering of common stock in 1995. The conversion of Preferred
Stock into common stock is a non cash investing and financing transaction and is
excluded from the 1995 consolidated statement of cash flows.
At December 31, 1995, shares of common stock are reserved for issuance in
connection with the future exercise of Class A warrants to purchase common stock
at the price of $4.50 per share (734,166 shares) and underwriter warrants for
125,000 shares of common stock at $5.44 per share. These warrants were issued in
connection with STAT's initial public offering of common stock and the related
conversion of 10% convertible secured notes. Additionally, at December 31, 1995,
300,000 shares of common stock are reserved for issuance in connection with the
Company's stock option plan.
(12) STOCK OPTION PLAN
The Company has a stock option plan, providing for the granting of incentive
stock options or nonqualified stock options, for the benefit of its employees
and directors. Under this plan, options may be granted to purchase an aggregate
of 300,000 shares of common stock at no less than 100% (90% in the event of a
nonqualified stock option) of the fair market value of the common stock at the
time of the grant. At December 31, 1995, 10,000 unoptioned shares were available
for granting. All options which have been granted expire five years from the
date of grant. Information relating to stock options is as follows:
NUMBER OF
OPTIONS OPTION PRICE PER SHARE
--------- ----------------------
Outstanding at December 31, 1994..... -- --
Granted.............................. 290,000 $ 2.88--3.17
---------
Outstanding at December 31, 1995..... 290,000 $ 2.88--3.17
=========
Shares exercisable at December 31,
1995............................... 2,500 $ 3.00
========= ======================
(13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has certain pending and threatened litigation and claims incurred in
the ordinary course of business; however, management believes that the probable
resolution of such contingencies will not materially affect the liquidity, the
financial position, or the results of the Company's operations.
The Company procures professional liability insurance on behalf of STAT
Physicians which provides coverage on a claims-made basis during the policy
period. The coverage is purchased on a "slot" basis and extends to the
Company, to STAT Physicians and to contract physicians who perform services.
Individual policies are not provided to physicians; however, they must be
prequalified for coverage as a routine credentialing process. If a claims-made
policy is not renewed or replaced by a new policy which provides coverage
retroactively, it becomes necessary to purchase an extended reporting period
endorsement. Management intends to renew the existing claims-made policy and in
the past has either renewed or successfully purchased retroactive coverage.
F-18
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(13) COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
Although the Company does not directly contract with hospitals or physicians for
the provision or procurement of medical services, its contractual relationship
with STAT Physicians exposes it to potential claims from litigants. Accordingly,
the Company is named as an additional insured under the professional liability
coverage of STAT Physicians.
Effective October 1, 1995, the Company established a 401(k) plan (the Plan) for
its employees. The Plan allows participants with at least one year of prior
service to make elective deferrals of up to 15% of their compensation. The Plan
also allows discretionary matching employer contributions as well as additional
discretionary contributions which shall be allocated to each eligible employee
in proportion to his or her compensation as a percentage of the compensation of
all eligible employees. Employer contributions vest at the rate of 20% per year
of service. No discretionary contributions were made to the Plan by the Company
during the year ended December 31, 1995.
F-19
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(14) BUSINESS SEGMENTS
The Company operates in three business segments; emergency services, kidney
dialysis services and health care management services. Information by business
segment as of and for the years ended December 31, 1993, 1994 and 1995 is as
follows:
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
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(15) SUBSEQUENT EVENTS
In January 1996 the Company reached an agreement with the Greater Houston
Division of Columbia/HCA Healthcare Corporation (Columbia) to provide emergency
medicine services to all but one of Columbia's emergency departments in the
Greater Houston Division. This agreement will result in the addition of nine
hospitals to the Company's service base between February 1 and July 1, 1996
resulting in a total of 18 hospitals served (16 of which are owned by Columbia).
The contract for services relating to this agreement was finalized in April
1996. The Houston Division hospitals (15) are covered by this contract which has
an initial term of two years and which renews automatically. This contract will
account for a significant portion of the Company's net service revenues and
operating expenses.
On January 31, 1996, and in conjunction with the Columbia agreement noted above,
the Company acquired the rights to a one-hospital contract for the provision of
emergency department medical services. Consideration paid for the contract and
certain non-competition covenants consisted of $960,000 in cash and 52,174
shares of the Company's common stock. Up to an additional $100,000 may be paid
in each of the three twelve-month periods following the acquisition of the
contract based on profits realized at that hospital.
On February 1, 1996, the Company acquired intangible assets of Amedica, Ltd.
(Amedica) in a transaction that will be accounted for by the purchase method of
accounting. Amedica provides healthcare services relating to the management of
independent physician associations. Consideration paid consisted of $200,000 in
cash and 15,730 shares of the Company's common stock.
Unaudited financial information of Amedica as of December 31, 1995 and for the
year then ended is as follows:
Balance sheet information:
Current assets.................. $ 128,000
Total assets.................... 135,000
Current liabilities............. 25,000
Total liabilities............... 150,000
Partners' capital............... (15,000)
===========
Operations information:
Revenue......................... $ 439,000
Expenses........................ 518,000
Net loss........................ (79,000)
===========
Unaudited proforma results of operations for the year ended December 31, 1995,
giving effect to the Amedica acquisition as though it had occurred on January 1,
1995, are as follows:
Net service revenues................. $ 23,580,000
Net income........................... 3,222,000
==============
Net income per common share.......... $ 0.20
==============
STAT was advised in May 1996 that the common stock (67,904 shares, with an
ascribed value of $310,000) issued in connection with the acquisitions described
in this note, may have been issued in violation of Section 5 of the Securities
Act. Such a violation would entitle the recipients to recission rights. In July
1996, the Company offered the right of recission, which right included the
payment of the ascribed value plus accrued interest from the acquisition dates,
to the recipients. The recipients declined such offer and asserted
F-21
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
(15) SUBSEQUENT EVENTS: (CONTINUED)
their right to exchange their STAT common stock for common stock of the Company
pursuant to the merger and exchange agreement between STAT and AmHealth.
Accordingly, the $310,000 will be reported as permanent equity.
In June 1996, stockholders of STAT and stockholders and partners of AmHealth
approved the New STAT Healthcare, Inc. 1996 Stock Incentive Plan under which
1,500,000 shares of common stock of the Company became reserved for future
issuance to officers, employees, consultants and non-employee directors of the
Company. The 290,000 options outstanding at December 31, 1995 (see note 12) are
considered to be options outstanding under this 1996 plan.
On July 22, 1996, the Company signed a commitment letter for a $6,500,000 bank
credit facility comprised of a $3,000,000 revolving line of credit and a
$3,500,000 three year, non-revolving line of credit. The formal agreement is
expected to be finalized during August 1996 and pursuant to the commitment
agreement will provide for interest at prime. Borrowings under the lines will be
collateralized by security interests in the Company's accounts receivable and in
capital assets.
F-22
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
JUNE 30,
1996
--------------
ASSETS
Cash and cash equivalents............ $ 1,324,000
Accounts receivable, net............. 7,109,000
Notes receivable..................... 200,000
Inventories.......................... 78,000
Prepaid and other current assets..... 295,000
--------------
Total current assets....... 9,006,000
Property and equipment, net.......... 3,149,000
Intangible assets, net............... 1,408,000
Other non-current assets............. 196,000
--------------
Total assets............... $ 13,759,000
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.... $ 1,486,000
Current portion of capital lease
obligations........................ 72,000
Accrued physicians' fees............. 1,095,000
Accounts payable..................... 1,194,000
Accrued liabilities.................. 505,000
Distributions payable................ 465,000
--------------
Total current
liabilities............... 4,817,000
Long-term debt....................... 289,000
Long-term capital lease
obligations........................ 1,993,000
--------------
Total liabilities.......... 7,099,000
--------------
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 5,000,000 shares;
no shares outstanding......... --
Common stock, $.01 par value.
Authorized 40,000,000 shares;
issued and outstanding,
14,902,472 shares.............. 149,000
Capital in excess of par
value.......................... 4,563,000
Retained earnings............... 1,948,000
--------------
Total stockholders'
equity.................... 6,660,000
--------------
Commitments and contingencies
Total liabilities and
stockholders' equity...... $ 13,759,000
==============
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
Net service revenues................. $ 10,375,000 $ 16,663,000
------------- -------------
Operating expenses:
Professional medical fees....... 4,548,000 6,695,000
Human resources................. 1,625,000 3,516,000
Supplies........................ 822,000 1,136,000
Billing and collection costs.... 697,000 996,000
Liability insurance............. 324,000 499,000
Other costs..................... 575,000 938,000
------------- -------------
Total operating expenses... 8,591,000 13,780,000
------------- -------------
Operating income........... 1,784,000 2,883,000
Interest income...................... 31,000 17,000
Interest expense..................... (60,000) (150,000)
Reorganization costs................. -- (1,269,000)
------------- -------------
Income before income
taxes................... 1,755,000 1,481,000
Income taxes......................... 181,000 (44,000)
------------- -------------
Net income................. 1,574,000 1,525,000
Proforma income taxes................ 416,000 577,000
------------- -------------
Proforma net income............. $ 1,158,000 $ 948,000
============= =============
Proforma net income per common
share......................... $ 0.13 $ 0.06
============= =============
Number of shares used in computing
proforma net income per common
share.............................. 9,077,613 15,320,433
============= =============
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
------------------------ EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995........ 14,823,332 $ 148,000 $ 4,204,000 $ 2,020,000 $ 6,372,000
Common stock issued for:
Acquisitions.................... 67,904 1,000 309,000 -- 310,000
Compensation.................... 11,236 50,000 -- 50,000
Distributions to shareholders........ -- -- -- (1,597,000) (1,597,000)
Net income........................... -- -- -- 1,525,000 1,525,000
------------ ---------- ------------ ------------- -------------
Balances at June 30, 1996............ 14,902,472 $ 149,000 $ 4,563,000 $ 1,948,000 $ 6,660,000
============ ========== ============ ============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30, 1996
--------------
Cash flows from operating activities:
Net income......................... $ 1,525,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and
amortization................... 238,000
Increase in deferred tax
liability...................... 50,000
Changes in assets and
liabilities:
Increase in net accounts
receivable................ (2,544,000)
Decrease in inventories.... 25,000
Decrease in prepaid and
other current assets...... 464,000
Increase in other
non-current assets........ (68,000)
Increase in accrued
physicians' fees.......... 389,000
Increase in accounts
payable................... 269,000
Decrease in accrued
liabilities............... (58,000)
--------------
Total adjustments.......... (1,235,000)
--------------
Net cash provided by
operating activities.... 290,000
--------------
Cash flows from investing activities:
Repayment of notes receivable...... 66,000
Purchase of HEMA assets............ (960,000)
Purchase of Amedica assets......... (200,000)
Purchase of property and
equipment.......................... (243,000)
--------------
Net cash used in
investing activities.... (1,337,000)
--------------
Cash flows from financing activities:
Distributions to stockholders...... (1,415,000)
Net borrowings under line of credit
agreement.......................... 1,250,000
Issuance of long-term debt......... 285,000
Repayment of long-term debt........ (203,000)
Repayments of capital lease
obligations........................ (84,000)
--------------
Net cash provided by
financing activities.... (167,000)
--------------
Net decrease in cash and cash
equivalents.......................... (1,214,000)
Cash and cash equivalents at
beginning of period.................. 2,538,000
--------------
Cash and cash equivalents at end of
period............................... $ 1,324,000
==============
See accompanying notes to unaudited consolidated financial statements.
F-26
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements of STAT Healthcare, Inc. and
subsidiaries (the Company) present financial information as of June 30, 1996,
and for the six month periods ended June 30, 1995 and 1996. Because these
financial statements are unaudited and do not include all disclosures required
by generally accepted accounting principles, they should be read in conjunction
with the Company's audited consolidated financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information for the periods
reported have been made. Results of operations for the six month period ended
June 30, 1996 are not necessarily indicative of the results that may be achieved
for the year ending December 31, 1996.
(2) NET INCOME PER COMMON SHARE
Net income per common share is computed based on the number of common and common
equivalent shares of the Company. Equivalent shares are attributable to
outstanding warrants and options to purchase common shares.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
South Texas Acute Trauma
Physicians, P.A.:
We have audited the accompanying balance sheets of South Texas Acute Trauma
Physicians, P.A. (the Company) as of August 31, 1994 and December 31, 1993, and
the related statements of income, changes in shareholders' equity and cash flows
for the eight months ended August 31, 1994 and the year ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Texas Acute Trauma
Physicians, P.A. as of August 31, 1994 and December 31, 1993, and the results of
its operations and its cash flows for the eight months ended August 31, 1994 and
the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
March 10, 1995, except as to
the last paragraph of note 6,
which is as of April 11, 1995
F-28
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
BALANCE SHEETS
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
ASSETS
Cash and cash equivalents............ $ 10,000 $ 63,000
Accounts receivable (notes 5 and 6):
Patient accounts, net........... 840,000 1,312,000
Hospital accounts............... 439,000 316,000
------------ ------------
Net accounts receivable.... 1,279,000 1,628,000
Prepaid assets....................... 55,000 186,000
------------ ------------
Total current assets....... 1,344,000 1,877,000
Other assets......................... 8,000 15,000
------------ ------------
Total assets............... $1,352,000 $ 1,892,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term
debt (note 6)........................ $ 176,000 $ 210,000
Notes payable to hospitals (note
7)................................... 70,000 203,000
Accrued physicians' fees............. 605,000 681,000
Accrued liabilities.................. 37,000 71,000
Accounts payable..................... 62,000 126,000
Bank overdraft....................... 22,000 --
------------ ------------
Total current
liabilities.................. 972,000 1,291,000
Long-term debt, excluding current
liabilities (note 6)............... 3,000 --
------------ ------------
Total liabilities.......... 975,000 1,291,000
------------ ------------
Shareholders' equity:
Common Stock, $1 par value.
Authorized 100,000 shares;
issued and outstanding 1,000
shares......................... 1,000 1,000
Retained earnings............... 376,000 600,000
------------ ------------
Total shareholders'
equity....................... 377,000 601,000
Commitments and contingencies (notes
3, 8 and 9)
------------ ------------
Total liabilities and
shareholders' equity......... $1,352,000 $ 1,892,000
============ ============
See accompanying notes to financial statements.
F-29
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
STATEMENTS OF INCOME
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
Net service revenue (note 4)......... $8,873,000 $ 6,876,000
Direct expenses:
Physicians' fees................ 6,823,000 5,113,000
Liability insurance............. 368,000 314,000
Billing and collection.......... 304,000 473,000
------------ ------------
Total direct expenses...... 7,495,000 5,900,000
------------ ------------
Gross profit............... 1,378,000 976,000
------------ ------------
Operating expenses:
Human resources................. 713,000 525,000
Occupancy....................... 38,000 27,000
Furniture and equipment......... 30,000 19,000
Supplies........................ 39,000 16,000
Outside services and other...... 62,000 68,000
------------ ------------
Total operating expenses... 882,000 655,000
------------ ------------
Operating income........... 496,000 321,000
Interest expense..................... 14,000 15,000
------------ ------------
Net income................. 482,000 306,000
Proforma income taxes (note 3)....... 164,000 104,000
------------ ------------
Proforma net income........ $ 318,000 $ 202,000
============ ============
See accompanying notes to financial statements.
F-30
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ --------- --------------
Balances at December 31, 1992........ $1,000 $ 58,000 $ 59,000
Net income........................... -- 482,000 482,000
Shareholder distributions............ -- (164,000) (164,000)
------ --------- --------------
Balances at December 31, 1993........ 1,000 376,000 377,000
Net income........................... -- 306,000 306,000
Shareholder distributions............ -- (82,000) (82,000)
------ --------- --------------
Balances at August 31, 1994.......... $1,000 $ 600,000 $ 601,000
====== ========= ==============
See accompanying notes to financial statements.
F-31
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
STATEMENTS OF CASH FLOWS
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
Cash flows from operating activities:
Net income......................... 482,000 306,000
Adjustments to reconcile net income
to net cash used in
operating activities:
Changes in assets and
liabilities:
Increase in net accounts
receivable............. (669,000) (349,000)
Increase in prepaids and
other assets........... (42,000) (138,000)
Increase in accrued
physicians' fees....... 79,000 76,000
Increase in accrued
liabilities............ 34,000 34,000
Increase in accounts
payable................ 62,000 64,000
------------ ------------
Total adjustments....... (536,000) (313,000)
------------ ------------
Net cash used in
operating
activities........... (54,000) (7,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................ 150,000 51,000
Proceeds from issuance of hospital
notes........................... 70,000 200,000
Principal payments on long-term
debt............................ (37,000) (20,000)
Principal payments on hospital
notes........................... -- (67,000)
Shareholder distributions.......... (164,000) (82,000)
Increase (decrease) in bank
overdraft....................... 22,000 (22,000)
------------ ------------
Net cash provided by
financing
activities........... 41,000 60,000
------------ ------------
Net increase (decrease) in cash and
cash equivalents................... (13,000) 53,000
Cash and cash equivalents at
beginning of period................ 23,000 10,000
------------ ------------
Cash and cash equivalents at end of
period............................. $ 10,000 $ 63,000
============ ============
Supplemental disclosure of cash flow
information -- cash payments
during the period for interest..... $ 8,000 $ 9,000
============ ============
See accompanying notes to financial statements.
F-32
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND AUGUST 31, 1994
(1) THE COMPANY
South Texas Acute Trauma Physicians, P.A., dba STAT Physicians (the Company) was
incorporated as a professional association in the state of Texas on November 22,
1985. The Company's principal business is the physician staffing of hospital
emergency departments. At December 31, 1993 and August 31, 1994, the Company had
contracts for physician services with eleven hospitals located in south Texas.
Under these contracts the Company provides 24-hour physician coverage of the
emergency departments, and one of the Company's physicians acts as the
designated Director of Emergency Medicine for each hospital. At December 31,
1993, the Company also provided weekend physician coverage under another
contract. The Company terminated this weekend contract effective June 30, 1994
for economic reasons.
Physicians providing services on behalf of the Company are independent
contractors and are paid monthly on the basis of either a fixed hourly rate or
on the basis of a minimum hourly rate which is adjustable upward based on
monthly volume. As independent contractors, these physicians are responsible for
their own income and Social Security taxes as well as workers compensation
insurance.
Hospital contracts are generally written for an initial term of two years and
automatically renew each year after the initial term. These contracts have
cancellation clauses which provide for 90-day cancellation by either party
without significant penalty. Certain terms and conditions are routinely
modified. The Company's management believes that relations with all hospitals
are good and does not anticipate the cancellation of any contracts.
Contractual agreements with hospitals are primarily (a) contracts where the
Company bills and collects the professional component for the charges for
medical services, and (b) contracts where the Company receives fees from the
hospital based on a fixed fee, hourly rate or percentage of gross billings.
Effective September 1, 1994, the Company entered into a management agreement
with STAT Healthcare, Inc. (STAT Healthcare). Under this agreement, the Company
assigned all revenues and related accounts receivable from September 1, 1994
forward to STAT Healthcare. In consideration thereof, STAT Healthcare assumed
responsibility for collection of receivables and agreed to pay for all direct
and operating costs associated with the hospital contracts from September 1,
1994 forward.
Additionally, on September 1, 1994 STAT Healthcare employed all administrative
personnel previously employed by the Company and assumed responsibility for all
administrative matters relating to these contracts, pursuant to a management
agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash invested in short-term investments purchased with original maturities of
three months or less is deemed to be cash equivalents for financial statement
purposes. At December 31, 1993 and August 31, 1994, cash equivalents of $3,000
and $3,000, respectively, consisted of money market funds.
SERVICE REVENUES AND ACCOUNTS RECEIVABLE
Service revenues under contracts where fees are received from hospitals are
recorded at established billing rates, net of amounts to be retained by the
hospital. Service revenues under contracts where the Company bills and collects
for services provided are recorded at established billing rates, net of
contractual adjustments and the provision for uncollectible accounts.
F-33
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993 AND AUGUST 31, 1994
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Patient accounts receivable are reduced to an estimated realizable value taking
into consideration contractual adjustments mandated by payors (Medicare,
Medicaid and private insurers) and expected write-offs of uncollectible
accounts. These estimates are based upon historical experience at individual
hospitals.
(3) INCOME TAXES
For federal income tax purposes, the Company has elected to be treated as an "S
corporation." Accordingly, the Company's income is allocated to the Company's
shareholders, included in their personal income tax returns and taxed at their
respective individual rates. No federal income taxes will be assessed the
corporation. The proforma income taxes reflected in the accompanying statements
of income are based on an effective corporate rate of 34%.
The federal income tax return of the Company for the tax year ended January 31,
1992, is currently under examination by the Internal Revenue Service. Management
believes that the examination is routine in nature and does not anticipate any
significant adjustments from the examination.
(4) NET SERVICE REVENUES
Gross service revenues represent the billed value of physician services provided
at hospital locations. Under the contracts between the Company and the
hospitals, the Company has the ability, subject to hospital concurrence, to
establish the rates to be billed to patients for services provided.
Billings discounts represent the difference between gross service revenues and
the amount which the Company ultimately expects to receive. Net service revenues
consist of contractual payments from hospitals and estimated collectible fees
from patients and third-party payors where the Company is responsible for
billing and collection functions. Net service revenues for the year ended
December 31, 1993 and for the eight months ended August 31, 1994 are as follows:
1993 1994
------------ ------------
Net service revenues:
From hospitals..................... $ 6,250,000 $ 2,695,000
From patients...................... 2,623,000 4,181,000
------------ ------------
$ 8,873,000 $ 6,876,000
============ ============
Hospital account payments are usually received by the 15th day of the month
following service. Some hospitals make partial payments during the service
month. Patient accounts are collected over normal collection cycles from a
variety of payors including Medicare, Medicaid, private insurers and patients.
Gross and net service revenues for the year ended December 31, 1993 and for the
eight months ended August 31, 1994 are as follows:
1993 1994
-------------- --------------
Gross service revenues.................. $ 14,900,000 $ 14,369,000
Billings discounts...................... (6,027,000) (7,493,000)
-------------- --------------
Net service revenues.................... $ 8,873,000 $ 6,876,000
============== ==============
For the eight months ended August 31, 1994, four hospitals accounted for between
10% and 14% each of net service revenues.
F-34
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993 AND AUGUST 31, 1994
(5) NET PATIENT ACCOUNTS RECEIVABLE
Net patient accounts receivable at December 31, 1993 and at August 31, 1994 are
as follows:
1993 1994
-------------- ------------
Gross patient accounts receivable.... $ 1,867,000 $ 3,486,000
Allowance for contractual
adjustments........................ (615,000) (1,427,000)
-------------- ------------
Estimated accounts receivable........ 1,252,000 2,059,000
Allowance for doubtful accounts...... (412,000) (747,000)
-------------- ------------
Net patient accounts receivable...... $ 840,000 $ 1,312,000
============== ============
(6) LONG-TERM DEBT
Long-term debt at December 31, 1993 and at August 31, 1994 is as follows:
1993 1994
------------ ------------
13% note payable, due in monthly
installments of $1,878
including interest through April 1994. Paid in full in April
1994.. $ 8,000 $ --
10% note payable, due in monthly
installments of $1,616 including
interest through February 1995.
Paid in full in February 1995...... 21,000 10,000
Revolving credit note (up to
$200,000), interest due quarterly
at the bank's prime rate (7.75% at
August 31, 1994) plus 2%, principal
due August 1995.................... 150,000 200,000
------------ ------------
Total debt........................... 179,000 210,000
Less current installments............ (176,000) (210,000)
------------ ------------
Long-term debt............. $ 3,000 $ --
============ ============
The notes payable are secured by the Company's accounts receivable. The
revolving credit note is secured by the Company's accounts receivable and the
corporate guarantee and accounts receivable of STAT Healthcare. Subsequent to
August 31, 1994, the bank increased the revolving line of credit to $400,000. On
April 11, 1995, the line of credit was repaid by STAT Healthcare and was
canceled.
(7) NOTES PAYABLE TO HOSPITALS
Notes payable to hospitals at December 31, 1993 and at August 31, 1994 are as
follows:
1993 1994
---------- ----------
8% unsecured note, due in 16 monthly
installments of $4,690, including
interest, commencing in January
1995............................... $ 70,000 $ 70,000
Noninterest-bearing unsecured note,
due in monthly installments of
$33,333 through December 1994. Paid
in full in December 1994........... -- 133,000
---------- ----------
$ 70,000 $ 203,000
========== ==========
Notes payable to hospitals arose as unsecured advances designed to provide cash
flow assistance during the inception of fee-for-service activities.
F-35
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993 AND AUGUST 31, 1994
(8) LEASES
The Company leases its office space under a month-to-month lease. The Company
also leases certain equipment and vehicles under operating leases. Future
minimum lease payments under noncancelable operating leases at August 31, 1994
are as follows:
1994................................. $ 8,000
1995................................. 6,000
1996................................. 4,000
1997................................. 4,000
---------
$ 22,000
=========
Rental expense for the year ended December 31, 1993 and for the eight months
ended August 31, 1994 was $27,000 and $17,000 respectively.
(9) CONTINGENCIES
The Company procures professional liability insurance which provides coverage on
a claims-made basis during the policy period. The coverage is purchased on a
"slot" basis and extends to the Company and to contract physicians who perform
services. Individual policies are not provided to physicians; however, they must
be prequalified for coverage as a routine credentialing process. If a
claims-made policy is not renewed or replaced by a new policy which provides
coverage retroactively, it becomes necessary to purchase an extended reporting
period endorsement. Management intends to renew its existing claims-made policy
and in the past has either renewed or successfully purchased retroactive
coverage.
The Company has certain pending and threatened litigation and claims incurred in
the ordinary course of business; however, management believes that the probable
resolution of such contingencies will not materially affect the liquidity, the
financial position, or the results of the Company's operations.
F-36
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE
INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary...................... 2
Risk Factors............................ 5
The Company............................. 12
Recent Developments..................... 12
Use of Proceeds......................... 14
Dividend Policy......................... 14
Market Prices........................... 14
Capitalization.......................... 15
Selected Consolidated Financial Data.... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 17
Business................................ 24
Management.............................. 41
Certain Transactions.................... 48
Principal Stockholders.................. 49
Description of Capital Stock............ 50
Shares Eligible for Future Sale......... 53
Plan of Distribution.................... 54
Legal Matters........................... 54
Experts................................. 54
Additional Information.................. 55
Index to Consolidated Financial
Statements............................ F-1
859,166 SHARES
OF COMMON STOCK
62,500 CLASS A WARRANTS
[STAT HEALTHCARE LOGO]
PROSPECTUS
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the Prospectus which forms
a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of Common Stock in the offering. All amounts are estimates except the Commission
registration fee and the NASD filing fee.
Commission registration fee.......... $ 10,186
Printing expenses.................... 10,000
Legal fees and expenses.............. 10,000
Accounting fees and expenses......... 10,000
Blue sky fees and expenses........... 1,000
Transfer agent fees.................. 1,000
Miscellaneous........................ 814
---------
Total...................... $ 43,000
=========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by right of the corporation to procure a judgment in
its favor by reason of the fact that such person acted in any of the capacities
set forth above, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect to any claim issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
such action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that the indemnification provided for
by Section 145 shall not be deemed exclusive of any other rights which the
indemnified party may be entitled; that indemnification provided by Section 145
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a
II-1
<PAGE>
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Section 102(b)(7) of the General Corporation Law or the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of the
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article IX of the Company's Charter provides that "a director of the
corporation shall, to the full extent not prohibited by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, not be liable
to the corporation or its stockholders for monetary damages for breach of his or
her fiduciary duty as a director."
Article X of the Company's Charter further provides that "a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived any improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law as so amended."
Article XI of the Company's Bylaws provides that "the corporation shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law; PROVIDED, HOWEVER, that the
corporation may limit the extent of such indemnification by individual contracts
with its directors and executive officers; and, PROVIDED, FURTHER, that the
corporation shall not be required to indemnify any director or executive officer
in connection with any proceeding (or part thereof) initiated by such person or
any proceeding by such person against the corporation or its directors,
officers, employees or other agents unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation or (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law."
The Company has entered into indemnification agreements with each of its
directors and executive officers that provide for indemnification and expense
advancement to the fullest extent permitted under the Delaware General
Corporation Law.
The registrant maintains $1.0 million of officers' and directors' liability
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 24, 1996, the registrant issued 672,622 shares of Common Stock to four
former shareholders of AmHealth Corporation in connection with the Exchange.
These issuances were deemed exempt from registration under the Securities Act in
reliance upon Section 4(2) of the Securities Act. In addition, the recipients of
securities in such transaction represented their intentions to acquire the
securities for investment only and not with a view to, or for sale in connection
with, any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transaction.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following exhibits are filed as part of this Registration Statement unless
otherwise indicated:
<TABLE>
<S> <C> <C>
2.1# -- Amended and Restated Agreement and Plan of Reorganization, dated as of March 15, 1996 (the
"Reorganization Agreement"), among the registrant, STAT Healthcare, Inc., STAT
Acquisition Corp. and the AmHealth Corporations and AmHealth Partnerships named therein
(included as Appendix 1 to the registrants Joint Proxy Statement/Prospectus (the "Joint
Proxy Statement/Prospectus") dated May 22, 1996 and filed with the Commission pursuant to
Rule 424(b) on May 23, 1996)
2.1.1# -- First Amendment to the Reorganization Agreement, dated June 24, 1996 (filed as Exhibit
2.1.1 to the registrant's Registration Statement on Form S-1 (Reg. No. 333-11025) (the
"Form S-1"))
3.1# -- Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Form S-1)
3.2* -- Bylaws
4.1* -- Form of Common Stock Certificate
4.2# -- Warrant Agreement, dated June 24, 1996, among the registrant, American Stock Transfer &
Trust Company, as warrant agent, and Network 1 Financial Securities, Inc. (filed as
Exhibit 4.2 to the Form S-1)
4.3# -- Form of Class A Warrant Certificate (included as Exhibit A to the Warrant Agreement filed
as Exhibit 4.2)
4.4# -- Form of Representatives' Warrant (filed as Exhibit 4.4 to the Form S-1)
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP
10.1# -- Form of Form of Employment Agreement between the registrant and William H. Rice, M.D.
(filed as Exhibit 10.1 to the Form S-1)
10.2# -- Form of Employment Agreement between the registrant and Victor M. Miranda, M.D. (filed as
Exhibit 10.2 to the Form S-1)
10.3# -- Form of Employment Agreement between the registrant and Ned E. Chapman (filed as Exhibit
10.3 to the Form S-1)
10.4# -- Form of Employment Agreement between the registrant and Ruben A. Perez (filed as Exhibit
10.4 to the Form S-1)
10.5# -- Form of Employment Agreement between the registrant and Russell D. Schneider (filed as
Exhibit 10.5 to the Form S-1)
10.6# -- Management Agreement, dated as of September 1, 1994, by and between Old STAT, Inc., a
wholly owned subsidiary of the registrant previously named STAT Healthcare, Inc. ("Old
STAT"), and South Texas Acute Trauma Physicians, P.A. (filed as Exhibit 10.4 to Old
STAT's Registration Statement on Form SB-2 (Reg. No. 33-87860) (the "Form SB-2"))
10.6.1# -- Amendment to Management Agreement (filed as Exhibit 10.4 to the Form SB-2)
10.7* -- 1996 Stock Incentive Plan
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)
II-3
<PAGE>
10.13* -- Form of Succession Agreement by and between Old STAT and the stockholders of STAT
Physicians, P.A.
10.14* -- Form of Lock-Up Agreement between the registrant and each of its officers and directors
and certain former AmHealth partners and shareholders (included as Exhibit A to the
Reorganization Agreement included as Appendix 1 to the Joint Proxy Statement/Prospectus)
10.15* -- Facility Lease dated as of February 1, 1994 by and between Weslaco Medical Properties
Joint Venture and Weslaco Kidney Center, Ltd.
10.16* -- Facility Lease dated as of September 10, 1995 by and between Mission Medical Properties
Joint Venture and Brownsville Kidney Center, Ltd.
10.17* -- Facility Lease dated as of April 22, 1993 by and between Enterprise Real Estate and Starr
Dialysis Center, Ltd.
10.18* -- Facility Lease dated as of January 9, 1995 by and between Mission Medical Properties Joint
Venture and Mission Kidney Center, Ltd.
10.19# -- Asset Purchase Agreement made as of January 31, 1996, by and among Old STAT, Houston
Emergency Medicine Associates, William Blackstone, M.D., Diana Fite, M.D., and Tue Nguyen,
M.D. (filed as Exhibit 2.1 to Old STAT's Current Report on Form 8-K dated January 31,
1996)
10.20* -- Professional Services Agreement by and between the Greater Houston Division of Columbia
HCA Healthcare Corporation and STAT Physicians, P.A., dated February 1, 1996
10.21* -- Form of Affiliate and Shareholder Agreement between the registrant and the former
affiliates of AmHealth (included as Exhibit B to the Reorganization Agreement included as
Appendix 1 to the Joint Proxy Statement/Prospectus)
10.22 -- Credit Agreement dated as of August 29, 1996 among the registrant and Southwest Bank of
Texas, N.A. ("SWBT"), and The Boatmen's National Bank of St. Louis
10.23 -- Pledge and Security Agreement between the registrant and SWBT made as of August 29, 1996
10.24 -- Subrogation and Contribution Agreement, among the registrant, its subsidiaries, STAT
Physicians, P.A. and South Texas Acute Trama Physicians, P.A.
10.25 -- Amended and Restated Management Services Agreement, dated as of February 1, 1996, between
Old STAT and STAT Physicians, P.A. (filed as Exhibit 10.24 to the Form S-1)
10.26# -- Form of Indemnification Agreement between the registrant and each of its directors and
executive officers (filed as Exhibit 10.25 to the Form S-1)
21.1# -- List of Subsidiaries (filed as Exhibit 21.1 to the Form S-1)
23.1* -- Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as Exhibit 5.1)
23.2 -- Consent of KPMG Peat Marwick LLP, independent auditors of the registrant (included on page
S-1 hereof)
23.3 -- Consent of KPMG Peat Marwick LLP, independent auditors of South Texas Acute Trauma
Physicians, P.A.
23.4 -- Consent of Long, Chilton, Payte & Hardin, LLP, independent auditors of the registrant
(included on page S-2 hereof)
24.1* -- Power-of-attorney pursuant to which amendments to this Registration Statement may be filed
</TABLE>
- ------------------------------
* Previously filed.
# Incorporated herein by reference to the indicated filing.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in Part II of this
Registration Statement:
PAGE
SCHEDULE NO.
- ------------------------------------- ----
Independent Auditors' Report......... S-1
Independent Auditors' Report......... S-2
Schedule II - "Valuation and
Qualifying Accounts".............. S-3
All other financial statement schedules have been omitted because the
information required to be set forth therein is not required, is not applicable
or is shown in the Company's Consolidated Financial Statements or Notes thereto.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant will:
(1) File during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the Registration
Statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if
the total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a twenty (20%) change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) to include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial BONA FIDE offering; and
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the Delaware General Corporation Law, the Charter or the Bylaws of
the registrant, the Underwriting Agreement, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on this 27th day of September, 1996.
STAT HEALTHCARE, INC.
By: ___/s/__RUSSELL D. SCHNEIDER______
RUSSELL D. SCHNEIDER
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------------- ----------------------------------- -------------------
<S> <C> <C>
/s/RUSSELL D. SCHNEIDER Chairman of the Board and Chief September 27, 1996
RUSSELL D. SCHNEIDER Executive Officer (Principal
executive officer)
WILLIAM H. RICE, M.D.* Vice Chairman of the Board September 27, 1996
WILLIAM H. RICE, M.D.
VICTOR M. MIRANDA, M.D.* President -- Emergency Physicians September 27, 1996
VICTOR M. MIRANDA, M.D. and Director
/s/RUBEN A. PEREZ President -- Healthcare Management, September 27, 1996
RUBEN A. PEREZ Treasurer and Director
/s/NED E. CHAPMAN Chief Financial Officer and September 27, 1996
NED E. CHAPMAN Secretary (Principal financial
and accounting officer)
Director September 27, 1996
ANN N. JAMES, PH.D.
Director September 27, 1996
DAVID C. COLBY
*By: /s/NED E. CHAPMAN
NED E. CHAPMAN
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
The audits referred to in our report dated August 9, 1996, included the related
financial statement schedule as of December 31, 1995 and 1994, and for the years
then ended, included in the Registration Statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein on the consolidated
financial statements of STAT Healthcare, Inc. and subsidiaries as of December
31, 1995 and 1994 and for the years then ended. We also consent to the
references to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
September 25, 1996
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
The audit referred to in our report dated August 9, 1996, included the related
financial statement schedule as of December 31, 1993, and for the year then
ended, included in the Registration Statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audit. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein on the consolidated
financial statements of STAT Healthcare, Inc. and subsidiaries as of December
31, 1993 and for the year then ended. We also consent to the references to our
firm under the heading "Experts" in the Prospectus.
LONG, CHILTON, PAYTE & HARDIN, LLP
Certified Public Accountants
McAllen, Texas
September 25, 1996
S-2
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS- AT END
DESCRIPTION OF YEAR EXPENSES WRITE OFFS OF YEAR
- ------------------------------------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
1993:
Allowance for contractual adjustments
and doubtful accounts.............. $ -- $ 248,000 $ 150,000 $ 98,000
=========== ============== ============== ============
1994:
Allowance for contractual adjustments
and doubtful accounts.............. $ 98,000 $ 4,535,000 $ 2,151,000 $ 2,482,000
=========== ============== ============== ============
1995:
Allowance for contractual adjustments
and doubtful accounts.............. $ 2,482,000 $ 17,002,000 $ 14,664,000 $ 4,820,000
=========== ============== ============== ============
</TABLE>
S-3
EXHIBIT 10.22
CREDIT AGREEMENT
DATED AS OF AUGUST 29, 1996
AMONG
STAT HEALTHCARE, INC.,
AS BORROWER,
SOUTHWEST BANK OF TEXAS, N.A.,
INDIVIDUALLY AS LENDER AND AS AGENT,
AND
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
AS LENDER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 CERTAIN DEFINED TERMS...................................................1
Section 1.02 ACCOUNTING TERMS AND DETERMINATIONS....................................11
Section 1.03 OTHER DEFINITIONAL TERMS...............................................11
ARTICLE II
AMOUNT AND TERMS OF LOANS
Section 2.01 COMMITMENTS AND LOANS..................................................12
Section 2.02 NOTES AND AMORTIZATION.................................................13
Section 2.03 BORROWINGS.............................................................13
Section 2.04 DISBURSEMENT OF FUNDS..................................................14
Section 2.05 INTEREST...............................................................15
Section 2.06 INTEREST PERIODS.......................................................16
Section 2.07 CONTINUATION OPTIONS...................................................17
Section 2.08 CONVERSION OPTIONS.....................................................17
Section 2.09 VOLUNTARY PREPAYMENTS..................................................17
Section 2.10 FEES...................................................................18
Section 2.11 PAYMENTS...............................................................18
Section 2.12 INTEREST RATE NOT ASCERTAINABLE, ETC...................................19
Section 2.13 ILLEGALITY.............................................................19
Section 2.14 INCREASED COSTS........................................................20
Section 2.15 CHANGE OF LENDING OFFICE...............................................22
Section 2.16 FUNDING LOSSES.........................................................22
Section 2.17 SHARING OF PAYMENTS, ETC...............................................22
Section 2.18 TAXES..................................................................22
Section 2.19 PRO RATA TREATMENT.....................................................25
ARTICLE III
CONDITIONS PRECEDENT
Section 3.01 INITIAL LOANS..........................................................26
Section 3.02 CONDITIONS PRECEDENT TO EACH LOAN......................................27
Section 3.03 POSSESSION OF COLLATERAL SECURITY......................................28
-i-
CREDIT AGREEMENT
August 29, 1996
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 CORPORATE EXISTENCE....................................................28
Section 4.02 FINANCIAL CONDITION....................................................29
Section 4.03 LIABILITIES; LITIGATION................................................29
Section 4.04 NO BREACH..............................................................29
Section 4.05 CORPORATE ACTION.......................................................29
Section 4.06 APPROVALS..............................................................30
Section 4.07 USE OF LOANS...........................................................30
Section 4.08 ERISA..................................................................30
Section 4.09 TAXES..................................................................30
Section 4.10 TITLES, ETC............................................................31
Section 4.11 NO MATERIAL MISSTATEMENTS..............................................31
Section 4.12 INVESTMENT COMPANY ACT.................................................31
Section 4.13 PUBLIC UTILITY HOLDING COMPANY ACT.....................................31
Section 4.14 SUBSIDIARIES, AFFILIATED PROFESSIONAL ASSOCIATIONS, AND PARTNERSHIPS...31
Section 4.15 LOCATION OF BUSINESS AND OFFICES.......................................31
Section 4.16 ENVIRONMENTAL MATTERS..................................................31
Section 4.17 DEFAULTS...............................................................32
Section 4.18 COMPLIANCE WITH THE LAW................................................32
Section 4.19 INSURANCE..............................................................33
Section 4.20 MANAGEMENT FEES........................................................33
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.01 FINANCIAL STATEMENTS AND OTHER REPORTS.................................33
Section 5.02 LITIGATION.............................................................35
Section 5.03 MAINTENANCE OF EXISTENCE, ETC..........................................35
Section 5.04 ENVIRONMENTAL MATTERS..................................................36
Section 5.05 FURTHER ASSURANCES.....................................................36
Section 5.06 PERFORMANCE OF OBLIGATIONS.............................................37
Section 5.07 INSURANCE..............................................................37
Section 5.08 ACCOUNTS AND RECORDS...................................................37
Section 5.09 RIGHT OF INSPECTION....................................................38
Section 5.10 TAXES AND OTHER LIENS..................................................38
Section 5.11 NOTICE OF CERTAIN EVENTS...............................................38
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August 29, 1996
<PAGE>
Section 5.12 ERISA INFORMATION AND COMPLIANCE.......................................39
Section 5.13 PERFORMANCE OF DESIGNATED CONTRACTS...................................39
Section 5.14 AUDIT, MANAGEMENT AND OTHER REPORTS...................................39
Section 5.15 SEC AND OTHER REPORTS.................................................39
ARTICLE VI
NEGATIVE COVENANTS
Section 6.01 DEBT...................................................................40
Section 6.02 LIENS..................................................................40
Section 6.03 INVESTMENTS, LOANS AND ADVANCES........................................41
Section 6.04 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS...............................41
Section 6.05 SALES AND LEASEBACKS...................................................41
Section 6.06 NATURE OF BUSINESS.....................................................42
Section 6.07 SUBSIDIARIES AND AFFILIATES............................................42
Section 6.08 MERGERS, DISPOSITIONS, ETC.............................................42
Section 6.09 ERISA COMPLIANCE.......................................................42
Section 6.10 SALE OR DISCOUNT OF RECEIVABLES........................................43
Section 6.11 TANGIBLE NET WORTH.....................................................43
Section 6.12 CURRENT RATIO..........................................................43
Section 6.13 FUNDED INDEBTEDNESS COVERAGE RATIO.....................................43
Section 6.14 FIXED CHARGE COVERAGE RATIO............................................43
Section 6.15 ENVIRONMENTAL MATTERS..................................................43
Section 6.16 TRANSACTIONS WITH AFFILIATES...........................................43
Section 6.17 NEGATIVE PLEDGE AGREEMENTS.............................................44
Section 6.18 COMPENSATION...........................................................44
Section 6.19 PROCEEDS OF NOTES......................................................44
Section 6.20 PRESERVATION OF DESIGNATED CONTRACTS...................................44
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01 EVENTS OF DEFAULT......................................................44
Section 7.02 APPLICATION OF PROCEEDS................................................46
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ARTICLE VIII
THE AGENT
Section 8.01 APPOINTMENT AND POWERS.................................................47
Section 8.02 POWERS.................................................................47
Section 8.03 GENERAL IMMUNITY.......................................................47
Section 8.04 NATURE OF DUTIES OF AGENT..............................................47
Section 8.05 RIGHT TO INDEMNITY.....................................................47
Section 8.06 ACTION ON INSTRUCTIONS OF LENDERS......................................47
Section 8.07 LIMITATION ON AGENT'S DUTIES...........................................48
Section 8.08 EMPLOYMENT OF AGENTS AND COUNSEL.......................................48
Section 8.09 RELIANCE ON DOCUMENTS; COUNSEL.........................................48
Section 8.10 MAY TREAT LENDER AS OWNER..............................................48
Section 8.11 AGENT'S REIMBURSEMENT..................................................48
Section 8.12 RIGHTS AS A LENDER.....................................................48
Section 8.13 LENDER CREDIT DECISION.................................................49
ARTICLE IX
MISCELLANEOUS
Section 9.01 WAIVER.................................................................49
Section 9.02 NOTICES................................................................49
Section 9.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC..................................50
Section 9.04 AMENDMENTS, ETC........................................................52
Section 9.05 SUCCESSORS AND ASSIGNS.................................................52
Section 9.06 INVALIDITY.............................................................52
Section 9.07 COUNTERPARTS...........................................................52
Section 9.08 CAPTIONS...............................................................53
Section 9.09 NO ORAL AGREEMENTS.....................................................53
Section 9.10 GOVERNING LAW..........................................................53
Section 9.11 INTEREST...............................................................53
Section 9.12 WAIVER OF JURY TRIAL...................................................54
Section 9.13 BINDING ARBITRATION....................................................54
Section 9.14 EXCULPATION PROVISIONS.................................................56
Section 9.15 CUMULATIVE RIGHTS......................................................56
Section 9.16 SINGULAR AND PLURAL....................................................56
Section 9.17 SEVERAL OBLIGATIONS....................................................56
Section 9.18 EXHIBITS...............................................................57
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Section 9.19 SATISFACTION REQUIREMENT...............................................57
</TABLE>
Annex I -- Total Commitments
Schedule 1.01 -- Designated Contracts
Schedule 4.03 -- Liabilities; Litigation
Schedule 4.14 -- Subsidiaries, Affiliated Professional Associations, and
Partnerships
Schedule 4.16 -- Environmental Matters
Schedule 4.19 -- Insurance
Schedule 5.03(f) -- Existing Loans
Schedule 6.01(b) -- Debt of the Borrower
Exhibit A -- Form of Revolving Credit Note
Exhibit B -- Form of Term Note
Exhibit C -- Form of Borrowing Request
Exhibit D -- Security Instruments
Exhibit E -- Form of Legal Opinion
Exhibit F -- Form of Compliance Certificate
Exhibit G -- Form of Borrowing Base Certificate
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of August 29, 1996 (the "AGREEMENT"), by
and among STAT HEALTHCARE, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware (the "BORROWER"), SOUTHWEST
BANK OF TEXAS, N.A., a national banking association, individually and as
administrative agent for the financial institutions party hereto (in its
capacity as administrative agent, the "AGENT" ), and THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS, a national banking association (together with the Agent, the
"LENDERS").
RECITALS
A. The Borrower has requested that the Lenders provide certain loans to
it to refinance certain existing indebtedness, to finance certain equipment
purchases, and for general corporate purposes.
B. The Lenders have agreed to make such loans subject to the terms and
conditions set forth in this Agreement.
C. Therefore, in consideration of the mutual covenants and agreements
herein contained and of the loans and commitments hereinafter referred to, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"ADJUSTED TANGIBLE NET WORTH" shall mean, from time to time,
Tangible Net Worth PLUS 100% of the amount of any increase in equity in
the Borrower, including, without limitation, (i) the injection of new
capital and (ii) any conversion of Debt to
equity.
"ADVANCE NOTICE" shall mean written notice (or telephonic notice
promptly confirmed by telecopy or otherwise in writing), which in each
case shall be irrevocable, from the Borrower to be received by the Agent
before 10:00 a.m. (Houston time), by the number of Business Days in
advance of any borrowing, conversion, continuation, or voluntary
prepayment of any Loan pursuant to this Agreement as respectively
indicated below:
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CREDIT AGREEMENT
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<PAGE>
(i) LIBOR Loans - three (3) Business Days; and
(ii) Base Rate Loans - 11:00 a.m. of the same Business Day.
For the purpose of determining the applicable Loan in the case of the
conversion from one Type of Loan into another, the Loan into which there
is to be a conversion shall
control.
"AFFILIATE" of any Person shall mean (i) any Person directly or
indirectly controlled by, controlling or under common control with such
first Person, (ii) any director or officer of such first Person or of
any Person referred to in clause (i) above and, (iii) if any Person in
clause (i) above is an individual, any member of the immediate family
(including parents, spouse and children) of such individual and any
trust whose principal beneficiary is such individual or one or more
members of such immediate family and any Person who is controlled by any
such member or trust. As used in this definition, "CONTROL" (including,
with its correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH") shall mean any person which, at such time, owns directly or
indirectly ten percent (10%) or more of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation or ten percent (10%) or more of the partnership or other
ownership interests of any other Person (other than as a limited partner
of such other Person) will be deemed to control such corporation or
other Person.
"AGENT" shall have the meaning provided in the introductory
paragraph to this Agreement.
"AGREEMENT" shall mean this Credit Agreement, as the same may
from time to time be amended, supplemented, or modified.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code
entitled "Bankruptcy" as now or hereafter in effect, or any successor
thereto.
"BASE RATE" shall have the meaning set forth in Section 2.05(a).
"BASE RATE LOAN" shall mean a Loan bearing interest at the rate
provided in Section 2.05(a).
"BORROWER" shall have the meaning provided in the introductory
paragraph to this Agreement.
"BORROWING" shall mean a borrowing pursuant to a Borrowing
Request, a continuation pursuant to Section 2.07, or a conversion
pursuant to Section 2.08 consisting,
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August 29, 1996
<PAGE>
in each case, of the same Type of Loans having, in the case of LIBOR
Loans, the same Interest Period (except as otherwise provided in
Sections 2.13 and 2.14).
"BORROWING REQUEST" shall mean a request for a Borrowing pursuant
to Section 2.03, substantially in the form of EXHIBIT C hereto.
"BUSINESS DAY" shall mean any day excluding Saturday, Sunday, and
any other day on which banks are required or authorized to close in
Houston, Texas and, if the applicable Business Day relates to LIBOR
Loans, on which trading is carried on by and between banks in Dollar
deposits in the applicable London interbank LIBOR market.
"CAPITAL LEASE" shall mean any lease of Property which, in
accordance with GAAP, would be capitalized on the lessee's balance sheet
or for which the amount of the asset and liability thereunder as if so
capitalized should, in accordance with GAAP, be disclosed in a note to
such balance sheet.
"CHANGE OF CONTROL" shall mean a change in ownership or control
of the Borrower effected through one of the following transactions:
(a) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Borrower or an
Affiliate of the Borrower) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Borrower's outstanding
securities; or
(b) Ruben Perez or Russell Schneider, collectively, cease
to be the "beneficial owners" (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended) of at least
thirty-five percent (35%) of the total combined voting power of
the outstanding securities of the Borrower; or
(c) a change in the composition of the Board of Directors
of the Borrower over a period of thirty-six (36) consecutive
months or less such that a majority of the members of the Board
of Directors ceases to be comprised of individuals who either (i)
have been members of the Board of Directors continuously since
the beginning of such period or (ii) have been elected or
nominated for election as members of the Board of Directors
during such period by at least a majority of the members of the
Board of Directors described in clause (i) who were still in
office at the time such election or nomination was approved by
the Board of Directors.
"CLOSING DATE" shall mean August 29, 1996.
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<PAGE>
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COMMITMENT" shall mean, with respect to each Lender, the
obligation of such Lender to make loans to the Borrower under Section
2.01, up to the maximum amount set forth opposite such Lender's name on
Annex I under the caption "Total Commitment." Such Lender's Commitment
is the sum of its Revolving Credit Commitment and its Term
Commitment.
"CONSOLIDATED OPERATING CASH FLOW" shall mean, for any period,
without duplication, net income prior to all federal, state, local, and
foreign income taxes and after salary and bonuses paid to officers, in
each case of the Borrower and the Guarantors on a consolidated basis for
such period, PLUS the sum of (i) all depreciation and amortization of
assets (including goodwill and other intangible assets) of the Borrower
and the Guarantors, (ii) interest paid during such period, and (iii) all
other non-cash operating charges, in each case deducted in determining
net income for such period, and MINUS the sum of all federal, state,
local, and foreign income taxes (actually paid) of the Borrower and the
Guarantors, in each case, during such period.
"DEBT" shall mean, for any Person the sum of the following
(without duplication): (a) all obligations of such Person for borrowed
money or evidenced by bonds, debentures, notes, or other similar
instruments; (b) all obligations of such Person (whether contingent or
otherwise) in respect of letters of credit, bankers' acceptances, surety
or other bonds, and similar instruments; (c) all obligations of such
Person to pay the deferred purchase price of Property or services,
except trade accounts payable (other than for borrowed money) arising in
the ordinary course of business of such Person; (d) all obligations
under leases, whether designated as capital or operating leases, in
respect of which such Person is liable, contingently or otherwise, as
obligor, guarantor, or otherwise, or in respect of which obligations
such Person otherwise assures a creditor against loss; (e) all Debt of
others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person; (f) all Debt of others guaranteed
by such Person or upon which such Person is otherwise liable as a
partner or otherwise; and (g) all obligations or undertakings of such
Person to maintain or cause to be maintained the financial position or
covenants of other Persons.
"DEFAULT" shall mean an Event of Default or any condition or
event which, with notice or lapse of time or both, would constitute an
Event of Default.
"DEFAULT RATE" shall have the meaning assigned to that term in
Section 2.05(c).
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
"DESIGNATED CONTRACTS" shall mean each agreement (whether one or
more) identified on SCHEDULE 1.01 to this Agreement.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"DRAWDOWN TERMINATION DATE" shall mean the last Business Day
prior to the Revolving Credit Maturity Date.
"ENVIRONMENTAL LAWS" shall mean any and all laws, statutes,
ordinances, rules, regulations, orders, or determinations of any
Governmental Authority pertaining to health or the environment in effect
in any and all jurisdictions in which the Borrower is conducting or at
any time has conducted business, or where any Property of the Borrower
is located, or where any hazardous substances generated by or disposed
of by the Borrower is located, including without limitation, the Clean
Air Act, as amended, the Comprehensive Environ mental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety
and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act,
as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, the Texas Solid Waste Disposal
Act, as amended (the "PETROLEUM STORAGE TANK REMEDIATION FUND ACT"), and
other environmental conservation or protection laws. The terms
"hazardous substance," "release" and "threatened release" have the
meanings specified in CERCLA, the terms "solid waste" and "disposal" (or
"disposed") have the meanings specified in RCRA, and the term "petroleum
product" and "petroleum storage tank" have the meaning specified in the
Petroleum Storage Tank Remediation Fund Act; PROVIDED, HOWEVER, in the
event either CERCLA, RCRA or the Petroleum Storage Tank Remediation Fund
Act is amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of
such amendment with respect to all provisions of this Agreement other
than Article IV hereof; PROVIDED FURTHER that, to the extent the laws of
the state in which any Property of the Borrower is located establish a
meaning for "petroleum product," "petroleum storage tank," "hazardous
substance," "contaminants," "release," "solid waste" or "disposal" which
is broader than that specified in either CERCLA, RCRA or the Petroleum
Storage Tank Remediation Fund Act, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business
which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
Code) as the Borrower or is under common control (within the meaning of
Section 414(c) of the Code) with the Borrower.
"EVENT OF DEFAULT" shall have the meaning assigned to that term
in Section 7.01.
"FINANCIAL STATEMENTS" shall mean the financial statements of the
Borrower described or referred to in Section 4.02.
"FIXED CHARGES" shall mean, for any period, without duplication,
the sum of (i) the aggregate current maturities of all Funded
Indebtedness of the Borrower and the Guarantors paid during such period,
PLUS (ii) all interest paid by the Borrower and the Guarantors during
such period, PLUS (iii) all dividends declared or paid during such
period, PLUS (iv) all capitalized maintenance expenditures of the
Borrower and the Guarantors for such period, and PLUS (v) any operating
lease payments made by the Borrower and the Guarantors during such
period.
"FORM 1001 CERTIFICATION" shall have the meaning provided in
Section 2.18(f).
"FORM 4224 CERTIFICATION" shall have the meaning provided in
Section 2.18(f).
"FUNDED INDEBTEDNESS" shall mean, without duplication and with
respect to the Borrower and the Guarantors on a consolidated basis, all
Indebtedness for borrowed money, any Capital Lease obligations of the
Borrower and the Guarantors, and any guarantee by the Borrower and the
Guarantors with respect to Funded Indebtedness of another Person.
"GAAP" shall mean generally accepted accounting principles.
"GOVERNMENTAL AUTHORITY" includes the United States, the state,
county, parish, province, municipal, and political subdivisions in which
any Property of the Borrower or any Guarantor is located or which
exercises jurisdiction over any such Property, and any court, agency,
department, commission, board, bureau, or instrumentality of any of them
which exercises jurisdiction over any such Property.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, or other
direction or requirement (including, without limitation, Environmental
Laws, energy regulations and occupational, safety and health standards
or controls) of any Governmental Authority.
"GUARANTORS" shall mean the Persons listed on SCHEDULE 4.14 and
any other Person which becomes a guarantor pursuant to Section 6.07.
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
"HIGHEST LAWFUL RATE" shall mean the maximum nonusurious interest
rate, if any, that at any time or from time to time may be contracted
for, taken, reserved, charged, or received on the Loans or on other
indebtedness under laws applicable to the Lenders which are presently in
effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than presently applicable laws now allow.
"INDEBTEDNESS" shall mean any and all amounts owing or to be
owing by the Borrower to the Lenders in connection with the Notes or any
Security Instrument, including this Agreement, and all renewals,
extensions, replacements, amendments, and/or
rearrangements thereof.
"INDEMNIFIED PARTIES" shall have the meaning provided in Section
9.03(b).
"INDEMNITY MATTERS" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or inquiries),
claims, demands, and causes of action made or threatened against a
Person, and, in connection therewith, all reasonable costs, losses,
liabilities, damages or expenses of any kind or nature whatsoever
incurred by such Person.
"INTEREST PERIOD" shall have the meaning provided in Section
2.06.
"LENDER" or "LENDERS" shall have the meaning provided in the
introductory paragraph to this Agreement.
"LENDING OFFICE" shall mean, for each Lender, the office
specified opposite such Lender's name on the signature pages hereof, or
such other office as such Lender may designate in writing from time to
time to the Borrower and the Agent.
"LIBO RATE" or "LIBOR" shall mean the interest rate per annum
equal to the arithmetic average (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the offered quotations appearing on Telerate Page
3750 (or if such Telerate Page shall not be available, any successor or
similar service as may be selected by the Agent and the Borrower) as of
10:00 a.m. Houston time, (or as soon thereafter as practicable), on the
day two (2) Business Days prior to the first day of such Interest Period
for Dollar deposits in amounts in immediately available funds comparable
to the principal amount of the LIBOR Loan of the Lenders for which the
LIBO Rate is being determined with maturities comparable to the Interest
Period for which such LIBO Rate will apply.
"LIBOR LOAN" shall mean a Loan bearing interest at the rate
provided in Section 2.05(b).
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
"LIENS" shall mean, with respect to any asset, any mortgage,
lien, pledge, charge, security interest, or encumbrance of any kind in
respect of such asset. For the purposes of this Agreement, a Person
shall be deemed to own, subject to a Lien, any asset which it has
acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease, or other title retention
agreement relating to such asset.
"LOAN" shall mean a Revolving Credit Loan or a Term Loan, and
"LOANS" shall mean, collectively, the Revolving Credit Loans or the Term
Loans or one or more of them as provided herein.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, and the
Security Instruments.
"MATERIAL ADVERSE EFFECT" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations, affairs, or circumstances of the Borrower or any of the
Guarantors from those reflected in the Financial Statements or from the
facts represented or warranted in this Agreement or any other Security
Instrument, or (ii) the ability of the Borrower to carry out and
continue to carry out its business as carried out at the date of this
Agreement or meet its obligations under the Note, this Agreement or the
other Security Instruments on a timely basis.
"MULTIEMPLOYER PLAN" shall mean a Plan defined as such in Section
3(37) of ERISA to which contributions have been made by the Borrower or
any ERISA Affiliate and which
is covered by Title IV of ERISA.
"NOTES" shall mean, collectively, the Revolving Credit Notes and
the Term Notes.
"OTHER TAXES" shall have the meaning provided in Section 2.18(b).
"PAYMENT OFFICE" shall mean the Agent's office located at P. O.
Box 27459, Houston, Texas 77227-7459, Attention: Melanie Abedelfatah.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERCENTAGE SHARE" shall mean, as to each Lender, the fraction,
expressed as a percentage, the numerator of which is the amount of the
Lender's Commitment and the denominator of which is the amount of the
aggregate Commitments.
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
"PERSON" shall mean any individual, corporation, limited
liability company, voluntary association, partnership, joint venture,
trust, unincorporated organization, or government or any agency,
instrumentality, or political subdivision thereof, or any other form of
entity.
"PLAN" shall mean an employee pension benefit or other plan
established or maintained by the Borrower or any ERISA Affiliate and
which is covered by Title IV of ERISA, other than a Multiemployer Plan.
"PRIME RATE" shall mean the rate of interest from time to time
announced publicly by the Agent as its prime commercial lending rate.
Such rate is set by the Agent as a general reference rate of interest,
taking into account such factors as the Agent may deem appropriate, it
being understood that many of the Agent's commercial or other loans are
priced in relation to such rate, that it is not necessarily the lowest
or best rate actually charged to any customer and that the Agent may
make various commercial or other loans at rates of interest having no
relationship to such rate.
"PROPERTY" shall mean any interest in any kind of property or
asset, whether real, personal, or mixed, or tangible or intangible.
References to the "Borrower's Properties", "Properties of the Borrower",
or any other similar expressions shall mean any Property owned by the
Borrower as co-owner or owned by the Borrower individually.
"QUARTERLY DATES" shall mean the last Business Day of each March,
June, September, and December.
"RESPONSIBLE OFFICER" shall mean, (i) with respect to any
corporation, the chairman of the board, the president, any executive
vice president, the vice president of finance, the chief financial
officer, the chief operating officer, or the treasurer of such
corporation, and (ii) with respect to any professional association, the
chairman of the board, the president, any vice president, the secretary,
or the treasurer of such professional association.
"REVOLVING CREDIT BORROWING BASE" shall mean, at any time, an
amount equal to the sum of (a) an amount equal to twenty percent (20%)
of the amount of Medicare and Medicaid receivables of the Borrower and
the Guarantors having maturities of less than ninety (90) days, PLUS (b)
an amount equal to eighty-five percent (85%) of the amount of private
insurance accounts receivable of the Borrower and the Guarantors having
maturities of less than ninety (90) days.
"REVOLVING CREDIT COMMITMENT" shall mean the obligation of the
Lenders, upon the terms and conditions stated herein, in the Notes and
in the other Security Instruments, to make Revolving Credit Loans not to
exceed in the aggregate the lesser of (i)
$3,000,000.00
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
and (ii) the Revolving Credit Borrowing Base from the Closing
Date until the Drawdown Termination Date.
"REVOLVING CREDIT LOANS" shall have the meaning set forth in
Section 2.01(a).
"REVOLVING CREDIT MATURITY DATE" shall mean August 29, 1997.
"REVOLVING CREDIT NOTES" shall mean the revolving credit notes
issued by the Borrower evidencing the Revolving Credit Loans,
substantially in the form of EXHIBIT A to the Agreement.
"ROLLING PERIOD" shall mean for any fiscal quarter ending on a
Quarterly Date, such quarter and three preceding fiscal quarters.
"SECURITY INSTRUMENTS" shall mean this Agreement, the Notes, all
agreements listed on EXHIBIT D hereto, and any and all other agreements
or instruments now or hereafter executed and delivered by the Borrower
or any other Person in connection with, or as security for the payment
or performance of, the Notes, or this Agreement, as such agreements may
be amended or supplemented from time to time.
"SUBSIDIARY" shall mean, with respect to the Borrower, any
corporation of which at least a majority of the outstanding shares of
stock having by the terms thereof ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the
appending of any contingency) is at the time directly or indirectly
owned or controlled by the Borrower or one or more of the Subsidiaries.
"TANGIBLE NET WORTH" shall mean, as of any time, the sum of the
following for the Borrower determined (without duplication) in
accordance with GAAP:
(a) the sum of preferred stock (if any) and the par value
of common stock of the Borrower, PLUS
(b) the amount of surplus and retained earnings (or, in
the case of a surplus or retained earnings deficit, MINUS the
amount of such deficit), MINUS
(c) the sum of the following: cost of treasury shares and
the book value of all assets of the Borrower which should be
classified as intangibles (without duplication of deductions in
respect of items already deducted in arriving at surplus and
retained earnings) but in any event including as such intangibles
the following: goodwill, research and development costs,
trademarks, trade names, copyrights,
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CREDIT AGREEMENT
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<PAGE>
patents and franchises, unamortized debt discount and expense,
all reserves and any writeup in the book value of assets
resulting from a revaluation thereof or resulting
from any changes in GAAP.
"TAXES" shall have the meaning provided in Section 2.18(a).
"TERM COMMITMENT" shall mean the obligation of the Lenders, upon
the terms and conditions stated herein, in the Notes and in the other
Security Instruments, to make Term
Loans not to exceed, in the aggregate, $3,500,000.00.
"TERM LOANS" shall have the meaning set forth in Section 2.01(a).
"TERM MATURITY DATE" shall mean August 30, 1999.
"TERM NOTES" shall mean the term notes issued by the Borrower
evidencing the term loans, substantially in the form of EXHIBIT B to the
Agreement.
"TOTAL LIABILITIES" shall mean, as of any time, all Debt of the
Borrower, whether direct, contingent, or otherwise.
"TYPE" shall mean a Base Rate Loan or a LIBOR Loan.
Section 1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Agent or the Lenders hereunder shall be prepared
in accordance with GAAP, as in effect and applied on a basis consistent with the
Financial Statements (except for changes concurred with by the Borrower's
independent public accountants).
Section 1.03 OTHER DEFINITIONAL TERMS. The words "hereof," "herein," and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule, Exhibit, Annex, and like references
are to this Agreement unless otherwise specified.
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
ARTICLE II
AMOUNT AND TERMS OF LOANS
Section 2.01 COMMITMENTS AND LOANS.
(a) LOANS. Subject to the terms and conditions and relying on the
representations and warranties herein set forth, each Lender severally agrees
(i) from time to time and at any time prior to the Drawdown Termination Date, to
make revolving credit loans (each a "REVOLVING CREDIT LOAN") to the Borrower,
and (ii) from time to time and at any time prior to the Term Maturity Date, to
make term loans (each a "TERM LOAN") to the Borrower.
(b) TYPES OF LOANS. The Revolving Credit Loans made pursuant hereto
shall, at the option of the Borrower, be either Base Rate Loans or LIBOR Loans
and may be continued or converted pursuant to Sections 2.07 and 2.08,
respectively, provided that, except as otherwise specifically provided herein,
all Loans made pursuant to the same Borrowing shall be of the same
Type. The Term Loans shall be Base Rate Loans only.
(c) REVOLVING CREDIT COMMITMENTS. The Revolving Credit Loans made
pursuant hereto by each Lender shall not exceed in aggregate principal amount
outstanding at any one time the amount set forth opposite such Lender's name on
ANNEX I under the caption "Revolving Credit Loan Commitment"; PROVIDED, HOWEVER,
that the aggregate principal amount of all Revolving Credit Loans by the Lenders
at any one time outstanding shall not exceed the Revolving Credit Commitment.
Within the foregoing limits and subject to the conditions set out in Article
III, the Borrower may obtain Borrowings of Revolving Credit Loans, repay or
prepay such Revolving Credit Loans, and re-borrow such Revolving Credit Loans.
(d) TERM COMMITMENTS. The Term Loans made pursuant hereto by each Lender
shall not exceed the principal amount set forth opposite such Lender's name on
ANNEX I attached hereto under the caption "Term Loan Commitment." The portion of
each Lender's Term Commitment not utilized by August 29, 1997 shall be
permanently canceled. Any portion of the Term Loans that is repaid or prepaid
may not be re-borrowed.
(e) AMOUNTS OF BORROWINGS, ETC. The aggregate principal amount of each
Borrowing (i) of LIBOR Loans hereunder shall be not less than $50,000.00 and
shall be in integral multiples of $50,000.00 in excess thereof, and (ii) of Base
Rate Loans hereunder shall be not less than $50,000.00 and shall be in integral
multiples in excess thereof of $50,000.00 in excess thereof, except that any
Borrowing of Loans that are Base Rate Loans may be in the aggregate amount of
the unused Commitment. Borrowings of more than one Type may be outstanding at
the same time; PROVIDED, HOWEVER, that the Borrower shall not be entitled to
request any Borrowing that, if made, would result in an aggregate of more than
five (5) separate Borrowings of LIBOR Loans being
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CREDIT AGREEMENT
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<PAGE>
outstanding at any one time. For purposes of the foregoing, Borrowings having
different Interest Periods, regardless of whether they commence on the same
date, shall be considered separate Borrowings.
Section 2.02 NOTES AND AMORTIZATION.
(a) REVOLVING CREDIT LOANS. The Borrower's obligation to pay the
principal of, and interest on, the Revolving Credit Loans made by each Lender
shall be further evidenced by the Borrower's issuance, execution, and delivery
of a Revolving Credit Note payable to the order of such Lender in the amount of
such Lender's Revolving Credit Commitment and dated as of the date of issuance
of such Revolving Credit Note. The principal amount of the Revolving Credit
Notes shall be payable on or before the Drawdown Termination Date.
(b) TERM LOANS. The Borrower's obligation to pay the principal of, and
interest on, the Term Loans made by each Lender shall be further evidenced by
the Borrower's issuance, execution and delivery of Term Notes payable to the
order of each such Lender in the amount of such Lender's Term Commitment and
dated as of the date of issuance of such Term Note. The principal amount of the
Term Notes shall be repaid in the following manner:
(i) Commencing on October 10, 1996 and thereafter on the tenth
(10th) Business Day of each calendar month to and including September
10, 1997, an amount equal to one thirty-sixth (1/36) of the principal
balance of the Term Loans then outstanding;
(ii) On October 10, 1997 and thereafter on the tenth (10th)
Business Day of each calendar month, an amount equal to one
twenty-fourth (1/24) of the principal balance of the Term Loans
outstanding on October 10, 1997, with the final installment in the
amount of the unpaid principal balance then owing thereunder being
payable on or before the Term Maturity Date.
Any prepayment of the principal amount of the Term Notes shall be applied in the
inverse order of maturity to reduce the amounts of the installments unpaid at
such time.
Section 2.03 BORROWINGS.
(a) INITIAL LOANS. The initial Loans hereunder under (i) the Revolving
Credit Commitment shall be a renewal, extension, and rearrangement of the
principal balance outstanding on the Closing Date of that certain $1,500,000.00
note, dated April 10, 1996, executed by the Borrower payable to the order of the
Agent, and (ii) the Term Commitment shall be a renewal, extension, and
rearrangement of the principal balance outstanding on the Closing Date of (1)
that certain $313,800.00 note, dated May 9, 1996, executed by Brownsville
Hyperbaric Healthcare Ltd.
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
payable to the order of the Agent and (2) that certain $150,000.00 note, dated
May 9, 1996, executed by AmHealth Enterprises of the Valley, Inc. payable to the
order of the Agent.
(b) BORROWING REQUESTS. Whenever the Borrower desires to make an
additional Borrowing hereunder, it shall give (i) Advance Notice in the form of
a Borrowing Request, specifying, subject to the provisions hereof, (1) the
aggregate principal amount of the Loans to be made pursuant to such Borrowing,
(2) the date of Borrowing (which shall be a Business Day), (3) in the case of
Revolving Credit Loans, whether the Loans being made pursuant to such Borrowing
are to be Base Rate Loans or LIBOR Loans, and (4) in the case of LIBOR Loans,
the Interest Period to be applicable thereto, and (ii) an executed Borrowing
Base Certificate substantially in the form of EXHIBIT G hereto.
(c) NOTICE TO LENDERS. The Agent shall promptly give each Lender
telecopy or telephonic notice (and, in the case of telephonic notices, confirmed
by telecopy or otherwise in writing) of the proposed Borrowing, of such Lender's
proportionate share thereof and of the other matters covered by the Advance
Notice. Without in any way limiting the Borrower's obligation to confirm in
writing any telephonic notice, the Agent may act without liability upon the
basis of telephonic notice believed by the Agent in good faith to be from the
Borrower prior to receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Agent's record of the terms of
such telephonic notice, absent manifest error.
Section 2.04 DISBURSEMENT OF FUNDS.
(a) AVAILABILITY. No later than 4:00 p.m. (Houston time) on the date of
each Borrowing of Revolving Credit Loans, each Lender will make available its
PRO RATA portion of the amount (if any) by which the principal amount of the
Borrowing requested to be made on such date exceeds the principal amount of
Revolving Credit Loans (if any) maturing on such date, in Dollars and in
immediately available funds at the Payment Office. The Agent will make available
to the Borrower at the Payment Office the aggregate of the amounts (if any) so
made available by the Lenders.
To
the extent that Revolving Credit Loans mature on the date of a requested
Borrowing of Revolving Credit Loans, the Lenders shall apply the proceeds of the
Revolving Credit Loans then being made, to the extent thereof, to the repayment
of such maturing Revolving Credit Loans, and such
repayments are intended to be a contemporaneous exchange.
(b) FUNDS TO AGENT. Unless the Agent shall have been notified by any
Lender prior to the date of a Borrowing that such Lender does not intend to make
available to the Agent such Lender's portion of the Borrowing to be made on such
date, the Agent may assume that such Lender has made such amount available to
the Agent on such date, and the Agent may make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Agent by such Lender on the date of a Borrowing, the Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest at the customary rate set
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
by the Agent for the correction of errors among banks. If such Lender does not
pay such corresponding amount forthwith upon the Agent's demand therefor, the
Agent shall promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Agent together with interest at the rate
specified for the Borrowing which includes such amount
paid.
Nothing in this Section shall be deemed to relieve any Lender from its
obligation to fulfill its Commitment hereunder or to prejudice any rights which
the Borrower may have against any Lender
as a result of any default by such Lender hereunder.
(c) LENDERS' RESPONSIBILITIES. No Lender shall be responsible for any
default by any other Lender in its obligation to make Loans hereunder, and each
Lender shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Lender to fulfill its Commitment
hereunder.
Section 2.05 INTEREST. In all cases subject to Section 9.11:
(a) BASE RATE LOANS. With respect to either Term Loans or
Revolving Credit Loans that are Base Rate Loans, the Borrower agrees to
pay interest in respect of the unpaid principal amount of each such Loan
from the date thereof until payment in full thereof at a rate per annum
(the "BASE RATE") equal to, for any day, the Prime Rate in effect on
such day; PROVIDED, that, with respect to Revolving Credit Loans only,
for any period during which the Funded Debt Coverage Ratio is greater
than 2.00 to 1.00, the Base Rate shall be equal to the Prime Rate PLUS
one fourth of one percent (0.25%); PROVIDED FURTHER, that in no event
shall the Base Rate exceed the Highest Lawful Rate.
(b) LIBOR LOANS. With respect to Revolving Credit Loans that are
LIBOR Loans, the Borrower agrees to pay interest in respect of the
unpaid principal amount of each such Loan from the date thereof until
payment in full thereof at a rate per annum equal to the relevant LIBO
Rate PLUS:
(i) one and one half percent (1.5%), for any period during
which the Funded Debt Coverage Ratio is less than 1.00 to 1.00;
(ii) one and three fourths percent (1.75%), for any period
during which the Funded Debt Coverage Ratio is equal to or
greater than 1.00 to 1.00, but not more than 2.00 to 1.00; or
(iii) two and one fourth percent (2.25%), for any period
during which the Funded Debt Coverage Ratio is greater than 2.00
to 1.00.
In no event, however, shall such rate exceed the Highest Lawful Rate.
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
(c) DEFAULT INTEREST. Upon the occurrence and during the
continuance of an Event of Default specified in Section 7.01, principal
and, to the extent permitted by law, overdue interest in respect of each
Loan and all other amounts then due and payable hereunder shall bear
interest for each day at a rate per annum (the "DEFAULT RATE") equal to
three percent (3%) in excess of the Base Rate in effect for each such
day, but in no event to exceed the Highest Lawful Rate; PROVIDED,
HOWEVER, that no Loan shall bear interest after maturity (whether by
acceleration or otherwise) at a rate per annum less than three percent
(3%) in excess of the rate of interest applicable thereto at maturity,
but in no event to exceed the Highest Lawful Rate.
(d) MISCELLANEOUS. Interest on each Loan shall accrue from and
including the date of such Loan to but excluding the date of payment in
full thereof. Interest on each Loan shall be payable on the tenth (10th)
Business Day of each calendar month, commencing on the first of such
days to occur after such Loan is made, and on any prepayment (other than
voluntary partial prepayments of Base Rate Loans) on the amount prepaid,
at maturity (whether by acceleration or otherwise), and, after maturity,
on demand.
(e) NOTICE BY AGENT. The Agent, upon determining the LIBO Rate
for any Interest Period, shall promptly notify by telephone (confirmed
by telecopy or otherwise in writing) or in writing the Borrower and the
Lenders thereof.
Section 2.06 INTEREST PERIODS. In connection with each Borrowing of
LIBOR Loans, the Borrower shall elect an interest period (each an "INTEREST
PERIOD") to be applicable to such Borrowing, which Interest Period shall begin
on and include, as the case may be, the date selected by the Borrower pursuant
to Section 2.03, the conversion date or the date of expiration of the then
current Interest Period applicable thereto, and end on but exclude the date
which is either one, two, three, or six months thereafter, as selected by the
Borrower; PROVIDED that:
(a) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, PROVIDED, FURTHER, that if any Interest Period
(other than in respect of a Borrowing of LIBOR Loans the Interest Period
of which is expiring pursuant to Section 2.13(b) hereof) would otherwise
expire on a day which is not a Business Day but is a day of the month
after which no further Business Day occurs in such month, such Interest
Period shall expire on the next preceding Business Day;
(b) any Interest Period which begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to part (c) below, end on the last Business Day
of a calendar month;
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
(c) no Interest Period shall extend beyond any date that any
principal payment or prepayment is scheduled to be due unless the
aggregate principal amount of Borrowings which are Borrowings of Base
Rate Loans or which have Interest Periods which will expire on or before
such date, less the aggregate amount of any other principal payments or
prepayments due during such Interest Period, is equal to or in excess of
the amount of such principal payment or prepayment; and
(d) no Interest Period shall extend beyond the Drawdown
Termination Date.
Section 2.07 CONTINUATION OPTIONS. The Borrower may elect to continue
all or any part of any Borrowing of LIBOR Loans beyond the expiration of the
then current Interest Period relating thereto by giving Advance Notice of such
election, specifying the Borrowings of LIBOR Loans or portion thereof to be
continued and the Interest Period therefor; PROVIDED, HOWEVER, that any
continuation of such Borrowing shall be (as to each Borrowing as continued for
an applicable Interest Period) in the principal amount of not less than
$50,000.00 and in integral multiples of $50,000.00 in excess thereof. Promptly
after receipt of Advance Notice, the Agent shall notify each Lender of the
proposed continuation. In the absence of such a timely and proper election, the
Borrower shall be deemed to have elected to convert such Borrowing of LIBOR
Loans to a Borrowing of Base Rate Loans pursuant to Section 2.08(a).
Section 2.08 CONVERSION OPTIONS. With respect to Revolving Credit Loans,
(a) CONVERSION TO BASE RATE. The Borrower may elect to convert
any Borrowing of LIBOR Loans on the last day of the then current
Interest Period relating thereto to a Borrowing of Base Rate Loans by
giving Advance Notice of such election. Promptly after receipt of the
Advance Notice, the Agent shall notify each Lender of the proposed
conversion.
(b) CONVERSION TO LIBO RATE. The Borrower may elect to convert a
Borrowing of Base Rate Loans at any time or from time to time to a
Borrowing of LIBOR Loans by giving Advance Notice of such election;
PROVIDED, HOWEVER, that any conversion of such Borrowing shall be (as to
each Borrowing into which there is a conversion for an applicable
Interest Period) in the principal amount of not less than $50,000.00 and
in integral multiples of $50,000.00 in excess thereof. Promptly after
receipt of the Advance Notice, the Agent shall notify each Lender of the
proposed conversion.
Section 2.09 VOLUNTARY PREPAYMENTS. The Borrower may, at its option, at
any time and from time to time, prepay Loans, in whole or in part, without
premium or penalty (other than funding losses, breakage, and re-employment
costs, if any, resulting from such prepayment being made other than on the last
day of an Interest Period with respect to any LIBOR Loan as provided in Section
2.16), upon giving Advance Notice. Such notice shall specify the date and amount
of
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
prepayment and the Loan or Loans to which such prepayment is to be applicable.
Upon receipt of such notice, the Agent shall promptly notify each Lender of the
contents thereof and of such Lender's ratable share of such prepayment. The
payment amount specified in such notice shall be due and payable on the date
specified. Each prepayment shall be in a principal amount of not less than
$50,000.00, or any whole multiple of $10,000.00 in excess thereof, or the
aggregate balance outstanding on the applicable Notes. Each prepayment of Term
Loans made pursuant to this Section shall be accompanied by all interest accrued
on the amount prepaid to the date of such prepayment. Each prepayment shall be
applied ratably to prepay the Loans of the several Lenders.
Section 2.10 FEES.
(a) REVOLVING CREDIT COMMITMENTS. The Borrower shall pay to the Agent
for the account of and distribution to each Lender in accordance with its
Percentage Share a commitment fee for the period commencing on the Closing Date
to and including the Revolving Credit Maturity Date (or such earlier date as the
Revolving Credit Commitments shall have been terminated entirely) computed at a
rate per annum set forth below on the average daily unused portion of the
Revolving Credit Loan Commitments set forth in Annex I, payable in arrears on
the Quarterly Dates, commencing on the first Quarterly Date to occur after the
date of this Agreement:
(i) two tenths of one percent (0.20%), for any period during
which the Funded Debt Coverage Ratio is less than 1.00 to 1.00;
(ii) one fourth of one percent (0.25%), for any period during
which the Funded Debt Coverage Ratio is equal to or greater than 1.00 to
1.00.
Section 2.11 PAYMENTS.
(a) WITHOUT SETOFF, ETC. Except as otherwise specifically provided
herein, all payments under the Notes and this Agreement shall be made without
defense, set-off, or counterclaim to the Agent not later than 11:00 a.m.
(Houston time) on the date when due and shall be made in lawful money of the
United States of America in immediately available funds at the Payment Office.
The Agent will promptly thereafter distribute funds in the form received
relating to the payment of principal or interest ratably to the Lenders for the
account of their respective Lending Offices, and funds in the form received
relating to the payment of any other amount payable to any Lender to such Lender
for the account of its Lending Office.
(b) NON-BUSINESS DAYS. Whenever any payment to be made hereunder or
under the Notes shall be stated to be due on a day which is not a Business Day,
the due date thereof shall, subject to Section 2.06, be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall accrue at the applicable rate during such extension.
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
(c) COMPUTATIONS. All computations of interest shall be made on the
basis of a year of 360 days (unless such calculation would result in a usurious
rate, in which case interest shall be calculated on the basis of a year of 365
or 366 days, as the case may be) in the case of LIBOR Loans, and 365 or 366 days
(as the case may be) in the case of Base Rate Loans, and all computations of
fees shall be made on the basis of a year of 360 days (unless such calculation
would result in a usurious rate, in which case interest shall be calculated on
the basis of a year of 365 or 366 days, as the case may be), in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Agent of an interest rate or fee hereunder shall, except
for manifest error, be final, conclusive, and binding for all purposes.
Section 2.12 INTEREST RATE NOT ASCERTAINABLE, ETC. In the event that the
Agent shall have determined (which determination shall, absent manifest error,
be final, conclusive, and binding upon all parties) that on any date for
determining the LIBO Rate for any Interest Period, by reason of any changes
arising after the date of this Agreement affecting the interbank LIBOR market,
or any Lender's position in such market, adequate and fair means do not exist
for ascertaining the applicable interest rate on the basis provided for in the
definition of LIBO Rate, then, and in any such event, the Agent shall forthwith
give notice (by telephone confirmed by telecopy or otherwise in writing) to the
Borrower and to the Lenders of such determination. Until the Agent notifies the
Borrower that the circumstances giving rise to the suspension described herein
no longer exist, the obligations of the Lenders to make LIBOR Loans shall be
immediately suspended, any LIBOR Loan that is requested (by continuation,
conversion or otherwise) shall instead be made as a Base Rate Loan, and any
outstanding LIBOR Loan shall be converted, on the last day of the then current
Interest Period applicable thereto, to a Base Rate Loan.
Section 2.13 ILLEGALITY.
(a) DETERMINATION OF ILLEGALITY. In the event that any Lender shall have
determined (which determination shall, absent manifest error, be final,
conclusive, and binding upon all parties) at any time that the making or
continuance of any LIBOR Loan has become unlawful by compliance by such Lender
in good faith with any applicable law, governmental rule, regulation, guideline
or order (whether or not having the force of law and whether or not failure to
comply therewith would be unlawful) then, in any such event, the Lender shall
give prompt notice (by telephone confirmed by telecopy or otherwise in writing)
to the Borrower and to the Agent of such determination (which notice the Agent
shall promptly transmit to the other Lenders).
(b) LIBOR LOANS SUSPENDED. Upon the giving of the notice to the Borrower
referred to in subsection (a) above, (i) the Borrower's right to request (by
continuation, conversion, or otherwise) and such Lender's obligation to make
LIBOR Loans shall be immediately suspended, and any such requested LIBOR Loan
shall instead be made as a Base Rate Loan, and (ii) if the affected LIBOR Loan
or Loans are then outstanding, the Borrower shall immediately, or if permitted
by
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
applicable law, no later than the date permitted thereby, upon at least one
Business Day's written notice to the Agent and the affected Lender, convert each
such LIBOR Loan into a Base Rate Loan, provided that if more than one Lender is
affected at any time, then all affected Lenders must be treated the same
pursuant to this Section 2.13(b).
Section 2.14 INCREASED COSTS.
(a) LIBOR REGULATIONS, ETC. If, by reason of (x) after the date hereof,
the introduction of or any change (including but not limited to any change by
way of imposition or increase of reserve requirements) in or in the
interpretation of any law or regulation, or (y) the compliance with any
guideline or request from any central bank or other governmental authority or
quasi-governmental authority exercising control over banks or financial
institutions generally (whether or not having the force of law):
(i) any Lender (or its applicable Lending Office) shall be
subject to any tax, duty, or other charge with respect to its LIBOR
Loans or its obligation to make LIBOR Loans, or shall change the basis
of taxation of payments to any Lender of the principal of or interest on
its LIBOR Loans or its obligation to make LIBOR Loans (except for
changes in the rate of tax on the overall net income of such Lender or
its applicable Lending Office imposed by the jurisdiction in which such
Lender's principal executive office or applicable Lending Office is
located);
(ii) any reserve (including but not limited to any imposed by the
Board of Governors of the Federal Reserve System), special deposit or
similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender's applicable Lending Office either
shall be imposed or deemed applicable to its LIBOR Loans or its
obligation to make LIBOR Loans or shall be imposed on any Lender or its
applicable Lending Office or the interbank LIBOR market; or
(iii) there shall be imposed on a Lender or its applicable
Lending Office any other condition affecting any LIBOR Loan or its
obligation to make LIBOR Loans;
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining LIBOR Loans (except to the
extent already included in the determination of the applicable LIBO Rate), or
there shall be a reduction in the amount received or receivable by such Lender
or its applicable Lending Office, then the Borrower shall from time to time,
upon written notice from and demand by such Lender (with a copy of such notice
and demand to the Agent), pay to the Agent for the account of such Lender,
within five (5) Business Days after the date specified in such notice and
demand, additional amounts sufficient to indemnify or compensate such Lender
against such increased cost. A certificate as to the amount of such
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
increased cost, submitted to the Borrower and the Agent by such Lender, shall,
except for manifest error, be final, conclusive, and binding for all purposes.
(b) COSTS. If any Lender shall advise the Agent that at any time,
because of the circumstances described in clauses (x) or (y) in Section 2.14(a)
or any other circumstances arising after the Closing Date affecting such Lender
or the interbank LIBOR market or such Lender's position in such market, the LIBO
Rate, as determined by the Agent, will not adequately and fairly reflect the
cost to such Lender of funding its LIBOR Loans, then, and in any such event:
(i) the Agent shall forthwith give notice (by telephone confirmed
by telecopy or otherwise in writing) to the Borrower and to the Lenders
of such advice; and
(ii) the Borrower's right to request and such Lender's obligation
to make LIBOR Loans shall be immediately suspended, any such LIBOR Loan
that is requested (by continuation, conversion, or otherwise) shall
instead be made as a Base Rate Loan, and any such outstanding LIBOR Loan
shall be converted, on the last day of the then current Interest Period
applicable thereto, to a Base Rate Loan.
(c) CAPITAL ADEQUACY. Without limiting the foregoing, in the event that
any Lender shall have determined that the adoption of any law, treaty,
governmental or quasi-governmental rule, regulation, guideline, or order
regarding capital adequacy, or any change therein or in the interpretation or
application thereof, or compliance by any Lender with any request or directive
regarding capital adequacy (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) from any central bank or
governmental agency or body having jurisdiction, does or shall have the effect
of increasing the amount of capital required to be maintained by such Lender
(including, without limitation, with respect to any Lender's Commitment), then
the Borrower shall from time to time upon demand from such Lender (with a copy
to the Agent), pay to the Agent, for the account of such Lender, additional
amounts sufficient to compensate such Lender for the cost of such additional
required capital. A certificate as to the amount of such cost, submitted to the
Borrower and the Agent by such Lender, shall, absent manifest error, be final,
conclusive, and binding for all purposes.
(d) If any Lender elects to pass through to the Borrower any material
charge or cost under Section 2.14 or elects to terminate the availability of
LIBOR Loans, for any material period of time, the Borrower may, within sixty
(60) days after the date of such event and so long as no Event of Default shall
have occurred and be continuing, elect to terminate such Lender as a party to
this Agreement; PROVIDED that, concurrently with such termination the Borrower
shall, if the Agent and each of the other Lenders shall consent, pay that Lender
all principal, interest, and fees and other amounts owed to such Lender through
such date of termination.
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Section 2.15 CHANGE OF LENDING OFFICE. Each Lender agrees that it will
use reasonable efforts to designate an alternate Lending Office with respect to
any of its LIBOR Loans affected by the matters or circumstances described in
Sections 2.12, 2.13, or 2.14 to reduce the liability of the Borrower or avoid
the results provided thereunder, so long as such designation is not
disadvantageous to such Lender as determined by such Lender in its sole
discretion.
Section 2.16 FUNDING LOSSES. The Borrower shall compensate each Lender,
upon its written request (which request shall set forth the basis for requesting
such amounts and which request shall, absent manifest error, be final,
conclusive, and binding upon all of the parties hereto) for all reasonable
losses, expenses, and liabilities (including but not limited to any interest
paid by such Lender to lenders of funds borrowed by it to make or carry its
LIBOR Loans to the extent not recovered by the Lender in connection with the
re-employment of such funds), which the Lender may sustain: (i) if for any
reason (other than a default by such Lender) a borrowing, continuation, or
conversion of LIBOR Loans does not occur on the date or in the amount specified
therefor in an Advance Notice (whether or not withdrawn), or (ii) if any
payment, prepayment, or conversion of any of its LIBOR Loans occurs on a date
which is not the last day of an Interest Period applicable thereto (including
pursuant to Section 2.13).
Section 2.17 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment or reduction (including but not limited to any amounts received as
adequate protection of a deposit treated as cash collateral under the Bankruptcy
Code) of any obligation of the Borrower hereunder (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) in
excess of its ratable share of payments or reductions on account of such
obligations obtained by all the Lenders, such Lender shall forthwith (i) notify
each of the other Lenders and the Agent of such receipt, and (ii) purchase from
the other Lenders such participations in the affected obligations as shall be
necessary to cause such purchasing Lender to share the excess payment or
reduction, net of costs incurred in connection therewith, ratably with each of
them; PROVIDED that if all or any portion of such excess payment or reduction is
thereafter recovered from such purchasing Lender or additional costs are
incurred, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery or such additional costs, but without interest. The
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
Section 2.18 TAXES.
(a) PAYMENTS FREE AND CLEAR. Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.11, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges, or withholdings, and all liabilities with respect thereto,
EXCLUDING, in the case of each Lender and the Agent, taxes imposed on its
income,
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and franchise or similar taxes imposed on it, by (i) any jurisdiction (or
political subdivision thereof) of which the Agent, or such Lender, as the case
may be, is a citizen or resident or in which such Lender has a permanent
establishment (or is otherwise engaged in the active conduct of its banking
business through an office or a branch) which is such Lender's applicable
Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in
which the Agent or such Lender is organized, or (iii) any jurisdiction (or
political subdivision thereof) in which such Lender or the Agent is presently
doing business which taxes are imposed solely as a result of doing business in
such jurisdiction (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "TAXES").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder to the Lenders or the Agent (X) the sum payable
shall be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.18) such Lender or the Agent (as the case may be) shall receive
an amount equal to the sum it would have received had no such deductions been
made, (Y) the Borrower shall make such deductions and (Z) the Borrower shall pay
the full amount deducted to the relevant taxing authority or other Governmental
Authority in accordance with applicable law.
(b) OTHER TAXES. In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges, or similar levies that arise from any payment made hereunder or from
the execution, delivery, or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "OTHER Taxes").
(c) INDEMNIFICATION. The Borrower will indemnify each Lender and the
Agent for the full amount of Taxes and Other Taxes (including, but not limited
to, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 2.18) paid by such Lender or the Agent (on their behalf or on
behalf of any Lender), as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted. Any
payment pursuant to such indemnification shall be made within thirty (30) days
after the date any Lender or the Agent, as the case may be, makes written demand
therefor. If any Lender or the Agent receives a refund or credit in respect of
any Taxes or Other Taxes for which such Lender or the Agent has received payment
from the Borrower hereunder it shall promptly notify the Borrower of such refund
or credit and shall, within thirty (30) days after receipt of a request by the
Borrower (or promptly upon receipt, if the Borrower has requested application
for such refund or credit pursuant hereto), pay an amount equal to such refund
or credit to the Borrower without interest (but with any interest so refunded or
credited), provided that the Borrower, upon the request of such Lender or the
Agent, agrees to return such refund or credit (plus penalties, interest or other
charges) to such Lender or the Agent in the event such Lender or the Agent is
required to repay such refund or credit.
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(d) RECEIPTS. Within thirty (30) days after the date of any payment of
Taxes or Other Taxes withheld by the Borrower in respect of any payment to any
Lender or the Agent, the Borrower will furnish to the Agent the original or a
certified copy of a receipt evidencing payment
thereof.
(e) SURVIVAL. Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.18
shall survive the payment in full of principal and interest hereunder.
(f) LENDER REPRESENTATIONS. Each Lender represents that it is either (i)
a corporation organized under the laws of the United States of America or any
state thereof or (ii) it is entitled to complete exemption from United States
withholding tax imposed on or with respect to any payments, including fees, to
be made to it pursuant to this Agreement (1) under an applicable provision of a
tax convention to which the United States of America is a party or (2) because
it is acting through a branch, agency or office in the United States of America
and any payment to be received by it hereunder is effectively connected with a
trade or business in the United States of America. Each Lender that is not a
corporation organized under the laws of the United States of America or any
state thereof agrees to provide to the Borrower and the Agent on the Closing
Date, or on the date of its delivery of the Assignment and Acceptance pursuant
to which it becomes a Lender, and at such other times as required by United
States law or as the Borrower or the Agent shall reasonably request, two
accurate and complete original signed copies of either (X) Internal Revenue
Service Form 4224 (or successor form) certifying that all payments to be made to
it hereunder will be effectively connected to a United States trade or business
(the "FORM 4224 CERTIFICATION") or (Y) Internal Revenue Service Form 1001 (or
successor form) certifying that it is entitled to the benefit of a provision of
a tax convention to which the United States of America is a party which
completely exempts from United States withholding tax all payments to be made to
it hereunder (the "FORM 1001 CERTIFICATION"). In addition, each Lender agrees
that if it previously filed a Form 4224 Certification it will deliver to the
Borrower and the Agent a new Form 4224 Certification prior to the first payment
date occurring in each of its subsequent taxable years; and if it previously
filed a Form 1001 Certification, it will deliver to the Borrower and the Agent a
new certification prior to the first payment date falling in the third year
following the previous filing of such certification. Each Lender also agrees to
deliver to the Borrower and the Agent such other or supplemental forms as may at
any time be required as a result of changes in applicable law or regulation in
order to confirm or maintain in effect its entitlement to exemption from United
States withholding tax on any payments hereunder, PROVIDED that the
circumstances of the Lender at the relevant time and applicable laws permit it
to do so. If a Lender determines, as a result of any change in either (i)
applicable law, regulation or treaty, or in any official application thereof or
(ii) its circumstances, that it is unable to submit any form or certificate that
it is obligated to submit pursuant to this Section, or that it is required to
withdraw or cancel any such form or certificate previously submitted, it shall
promptly notify the Borrower and the Agent of such fact. If a Lender is
organized under the laws of a jurisdiction outside the United States of America,
unless the Borrower and the Agent have received a Form 1001 Certification or
Form 4224 Certification
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satisfactory to them indicating that all payments to be made to such Lender
hereunder are not subject to United States withholding tax, the Borrower shall
withhold taxes from such payments at the applicable statutory rate. Each Lender
agrees to indemnify and hold harmless from any United States taxes, penalties,
interest and other expenses, costs and losses incurred or payable by (i) the
Agent as a result of such Lender's failure to submit any form or certificate
that it is required to provide pursuant to this Section or (ii) the Borrower or
the Agent as a result of their reliance on any such form or certificate which it
has provided to them pursuant to this Section.
(g) FAILURE TO PROVIDE FORM. For any period with respect to which a
Lender has failed to provide the Borrower with the form required pursuant to
Section 2.18(f), if any, (other than if such failure is due to a change in
treaty, law or regulation occurring subsequent to the date on which a form
originally was required to be provided), such Lender shall not be entitled to
indemnification under Section 2.18(c) with respect to Taxes imposed by the
United States which Taxes would not have been imposed but for such failure to
provide such forms; PROVIDED, HOWEVER, that should a Lender, which is otherwise
exempt from or subject to a reduced rate of withholding tax becomes subject to
Taxes because of its failure to deliver a form required hereunder, the Borrower
shall take such steps as such Lender shall reasonably request to assist such
Lender to recover such Taxes.
(h) EFFORTS TO AVOID OR REDUCE. Any Lender claiming any additional
amounts payable pursuant to this Section 2.18 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by the Borrower or the Agent or to change the jurisdiction of
its applicable Lending Office or to contest any tax imposed if the making of
such a filing or change or contesting such tax would avoid the need for or
reduce the amount of any such additional amounts that may thereafter accrue and
would not, in the sole determination of such Lender, be otherwise
disadvantageous to such Lender.
Section 2.19 PRO RATA TREATMENT. Except as required under Section 2.13
or 2.14, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the fees, each
reduction of the Commitments, and each refinancing of any Borrowing, conversion
of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type,
shall be allocated PRO RATA among the Lenders in accordance with their
respective applicable Commitments (or, if such Commitments shall have expired or
been terminated, in accordance with the respective principal amounts of their
outstanding Loans made pursuant to such applicable Commitments). Each Lender
agrees that in computing such Lender's portion of any Borrowing to be made
hereunder, the Agent may, in its discretion, round each Lender's percentage of
such Borrowing to the next higher or lower whole dollar amount.
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ARTICLE III
CONDITIONS PRECEDENT
Section 3.01 INITIAL LOANS. At the time of the making by such Lender of
its initial Loans hereunder, all obligations of the Borrower hereunder to the
Agent or any Lender incurred prior to such initial Loan (including but not
limited to the Borrower's obligation to reimburse the fees and disbursements of
counsel to the Agent) shall have been paid in full, and the Agent shall have
received the following, each dated as of the Closing Date, in form and substance
reasonably satisfactory to the Agent with an original thereof for the Agent and
with sufficient copies thereof for each Lender (except that in the case of the
Notes, the originals thereof shall be delivered to the respective Lenders):
(a) An executed certificate of the Secretary or Assistant
Secretary of the Borrower setting forth (i) certified resolutions of its
board of directors in form and substance reasonably satisfactory to the
Agent with respect to the authorization of the Notes, this Agreement and
the other Security Instruments to which it is a party; (ii) the officers
of the Borrower (y) who are authorized to sign this Agreement, the
Notes, and the other Security Instruments to which it is a party, and
(z) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes
of signing documents and giving notices and other communications in
connection with this Agreement and the transactions contemplated hereby,
(iii) specimen signatures of the officers so authorized, and (iv) the
articles or certificate of incorporation and the bylaws of the Borrower,
certified as being true and complete. The Agent and the Lenders may
conclusively rely on such certificate until the Agent receives notice in
writing from the Borrower to the contrary.
(b) Executed certificates of the Secretary or Assistant Secretary
of each Guarantor that is a party to any Loan Document setting forth, in
each case, (i) certified resolutions of its board of directors in form
and substance reasonably satisfactory to the Agent with respect to the
authorization of the Loan Documents to which such Guarantor is a party;
(ii) the officers of the Guarantor (y) who are authorized to sign the
Loan Documents to which such Guarantor is a party, and (z) who will,
until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby, (iii) specimen
signatures of the officers so authorized, and (iv) the articles or
certificate of incorporation and the bylaws of each such Guarantor,
certified as being true and complete. The Agent and the Lenders may
conclusively rely on such certificates until the Agent receives notice
in writing from the relevant Guarantor to the contrary.
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(c) Certificates of the appropriate state agencies with respect
to the valid existence and good standing of the Borrower and each
Guarantor.
(d) The Notes, duly completed and executed.
(e) The Security Instruments listed on EXHIBIT D hereto, duly
completed and executed in sufficient number of counterparts for
recording purposes, as applicable.
(f) An opinion of counsel to the Borrower in substantially the
form of EXHIBIT E hereto.
(g) Appropriate UCC search certificates reflecting no prior Liens
or security interests other than Liens permitted by SCHEDULE 6.02.
(h) A certificate of insurance coverage of the Borrower
evidencing that the Borrower is carrying insurance in accordance with
Section 4.19 and SCHEDULE 4.19 hereof.
(i) A compliance certificate in substantially the form of EXHIBIT
F, reflecting that no Default or Event of Default has occurred and is
continuing.
(j) Each of the Designated Contracts.
(k) Evidence reasonably satisfactory to the Agent that the
following mergers have been consummated:
(i) Each of AmHealth Kidney Center of the Valley, Ltd.,
Weslaco Kidney Center, Ltd., Starr Dialysis Center, Ltd., and
Mission Kidney Center, Ltd. with and into STAT Dialysis
Corporation; and
(ii) Each of AmHealth Medical Management, Ltd.,
Brownsville Hyperbaric Healthcare, Ltd., Southwestern Infusion
Healthcare, Ltd., and AmHealth Ambulatory Healthcare, Ltd. with
and into STAT Management Corporation.
(l) Such other documents as the Agent or special counsel to the
Agent may reasonably request.
Section 3.02 CONDITIONS PRECEDENT TO EACH LOAN. At the time of the
making by such Lender of each Loan, including the initial Loan (before as well
as after giving effect to such Loan and to the proposed use of the proceeds
thereof):
(a) there shall exist no Default or Event of Default;
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(b) no condition causing a Material Adverse Effect shall have
occurred and be continuing;
(c) all representations and warranties contained herein shall be
true and correct in all material respects with the same effect as though
such representations and warranties
had been made on and as of the date of such Loan; and
(d) the Agent shall have received such other documents or legal
opinions as the Agent or any Lender or special counsel to the Agent may
reasonably request, all in form and
substance reasonably satisfactory to the Agent.
Each Borrowing Request and the acceptance by the Borrower of the proceeds
thereof or request for continuation or conversion of a Borrowing shall
constitute a representation and warranty by the Borrower, as of the date of the
Loans comprising such Borrowing, that the conditions specified in subsections
(a), (b), and (c) of this Section 3.02 have been satisfied.
Section 3.03 POSSESSION OF COLLATERAL SECURITY. The Property in which
the Agent shall at any time be entitled to have a Lien pursuant to this
Agreement or any other Security Instrument shall have been physically delivered
to the possession of the Agent or any bailee of the Agent to the extent that
such possession is necessary or appropriate for the purpose of perfecting the
Agent's Lien in such collateral security.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that (each
representation and warranty herein is given as of the date of this Agreement and
shall be deemed repeated and reaffirmed on the
dates provided in Section 3.02):
Section 4.01 CORPORATE EXISTENCE. The Borrower: (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdictions in which it is incorporated; (b) has all requisite corporate
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a Material
Adverse Effect.
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Section 4.02 FINANCIAL CONDITION.
(a) The financial statements of the Borrower dated June 30, 1996
heretofore furnished to the Agent are complete and correct and fairly present
the financial condition of the Borrower on a consolidated and consolidating
basis and the results of operations as at said date or dates and for the period
or periods stated (subject only to normal year-end adjustments with respect to
such unaudited interim statements), all in accordance with GAAP.
(b) The Borrower did not have on the respective dates set forth above,
any material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the Financial
Statements. Since June 30, 1996, there has been no change or event having a
Material Adverse Effect.
Section 4.03 LIABILITIES; LITIGATION. Except for liabilities incurred in
the normal course of business, the Borrower has no material (individually or in
the aggregate) liabilities, direct or contingent, except as disclosed or
referred to in the Financial Statements. There is no material litigation, legal,
administrative, or arbitral proceeding, investigation or other action of any
nature (individually or in the aggregate) pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower except as disclosed in
SCHEDULE 4.03.
Section 4.04 NO BREACH. Neither the execution and delivery of this
Agreement, the Notes, or the other Security Instruments, nor compliance with the
terms and provisions thereof will conflict with or result in a breach of, or
require any consent under, the respective charter or by-laws of the Borrower, or
any applicable law or regulation, or any order, writ, injunction, or decree of
any court or Governmental Authority, or any agreement or instrument to which the
Borrower is a party or by which the Borrower is bound or to which the Borrower
is subject, or constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the revenues or
assets of the Borrower pursuant to the terms of any such agreement or
instrument.
Section 4.05 CORPORATE ACTION. The Borrower is duly authorized and
empowered to execute, deliver and perform the Security Instruments to which it
is a party, including this Agreement, and the Borrower is duly authorized and
empowered to create and issue the Notes; all corporate action on the Borrower's
part requisite for the creation and issuance of the Notes and the due execution,
delivery and performance of each Security Instrument to which it is a party has
been duly and effectively taken; and this Agreement does, and the Notes and
other Security Instruments to which the Borrower is a party upon their creation,
issuance, execution, and delivery will, constitute valid and binding obligations
of the Borrower enforceable in accordance with their respective terms (except as
limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws
of general application relating to or affecting creditors' rights and general
principles of equity (whether considered in a proceeding in equity or at law)).
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Section 4.06 APPROVALS. The Borrower has obtained all authorizations,
approvals and consents of, and have made all filings and registrations with, any
Governmental Authority necessary for the execution, delivery or performance by
the Borrower of the Security Instruments to which it is a party, or for the
validity or enforceability thereof (except as to which such failure to obtain,
file, register, or perform would not have a material adverse effect on the
financial condition or business of the Borrower). The Borrower has not violated
any Governmental Requirement or failed to obtain any license, permit, franchise
or other governmental authorization necessary for the ownership of any of its
Properties or the conduct of its business (except as to which such violation or
failure to obtain would not have a material adverse effect on the financial
condition or business of the Borrower).
Section 4.07 USE OF LOANS.
(a) The proceeds of the Revolving Credit Loans shall be used by the
Borrower (i) for general corporate purposes, and (ii) to refinance certain
existing indebtedness in the aggregate
principal amount of $1,500,000.00.
(b) The proceeds of the Term Loans shall be used by the Borrower (i) to
finance seventy-five percent (75%) of the invoice price of equipment purchases
made after the Closing Date by Borrower or any Subsidiary, and (ii) to refinance
certain existing indebtedness in the aggregate
principal amount of $425,150.00.
(c) The Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying margin stock (within
the meaning of Regulations U or X of the Board of Governors of the Federal
Reserve System),and no part of the proceeds of any Loans hereunder will be used
to buy or carry any margin stock.
Section 4.08 ERISA. The Borrower and the ERISA Affiliates have fulfilled
their obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and are in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and have not incurred any
liability to the PBGC or any Plan or Multiemployer Plan.
Section 4.09 TAXES. The Borrower has filed all United States Federal
income tax returns and all other material tax returns which are required to be
filed by it and has paid all taxes due pursuant to such returns or pursuant to
any assessment received by it, except for such assessments which are being
contested in good faith by appropriate proceedings. The charges, accruals, and
reserves on the books of the Borrower in respect of taxes and other governmental
charges are, in the opinion of the Borrower, adequate. No tax lien has been
filed and, to the knowledge of the Borrower, no claim is being asserted with
respect to any such tax, fee or other charge.
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Section 4.10 TITLES, ETC. The Borrower has and upon the initial funding
hereunder will have good, marketable, and indefeasible title to its Properties,
free and clear of all liens and encumbrances except as disclosed in SCHEDULE
6.01.
Section 4.11 NO MATERIAL MISSTATEMENTS. No material information,
statement, exhibit, certificate, document, or report furnished to the Agent by
or on behalf of the Borrower in connection with the negotiation of this
Agreement contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statement contained therein not
materially misleading.
Section 4.12 INVESTMENT COMPANY ACT. The Borrower is not an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Section 4.13 PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is not a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 4.14 SUBSIDIARIES, AFFILIATED PROFESSIONAL ASSOCIATIONS, AND
PARTNERSHIPS. Except as set forth on SCHEDULE 4.14, the Borrower has no
Subsidiaries, is not affiliated with any Person doing business as a professional
association, and does not have any interest in any partnerships or other
Persons.
Section 4.15 LOCATION OF BUSINESS AND OFFICES. The Borrower's principal
place of business and chief executive offices are located at the address stated
on the signature page of this Agreement.
Section 4.16 ENVIRONMENTAL MATTERS. Except (i) as provided in SCHEDULE
4.16 or (ii) as would not have a Material Adverse Effect (or with respect to
(c), (d), and (e) below, where the failure to take such actions would not have a
Material Adverse Effect):
(a) No Property of the Borrower nor the operations conducted
thereon violate any Environmental Laws or any order or requirement of
any court or Governmental Authority to the extent pertaining to human
health or the environment, nor are there any conditions existing on or
resulting from operations conducted on or in connection with such
Property that may give rise on any on-site or off-site remedial
obligations under any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of the
Borrower nor the operations currently conducted thereon or by any prior
owner or operator of such Property or operation, are subject to any
existing, pending, or (to the knowledge of the
Borrower)
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threatened action, suit, investigation, inquiry, or proceeding by or
before any court or Governmental Authority with respect to Environmental
Laws or to any remedial obligations under any Environmental Laws;
(c) All notices, permits, licenses, or similar authorizations, if
any, required to be obtained or filed in connection with the operation
or use of any and all Property of the Borrower, including without
limitation, treatment, storage, disposal, or release of a petroleum
product, hazardous substance or solid waste into the environment, have
been duly obtained or filed, and the Borrower is in compliance with the
terms and conditions of all such notices, permits, licenses and similar
authorizations;
(d) All hazardous substances and solid wastes generated at any
and all Property of the Borrower has in the past been transported,
treated, and disposed of in accordance with all applicable Environmental
Laws and all such transport carriers and treatment and disposal
facilities have been and are operating in compliance with all applicable
Environmental Laws and, to the best of the Borrower's knowledge, are not
the subject of any existing, pending, or threatened action,
investigation, or inquiry by any Governmental Authority in connection
with any Environmental Laws;
(e) No petroleum product, hazardous substance, or solid waste has
been disposed of or otherwise released and there has been no threatened
disposal or release of any petroleum products, hazardous substances, or
solid wastes on, under or about any Property of the Borrower so as to
pose an imminent and substantial endangerment to public health or
welfare or the environment; and
(f) The Borrower has no contingent liability in connection with
any release or threatened release of any petroleum product, hazardous
substance, or solid waste into the
environment.
Section 4.17 DEFAULTS. The Borrower is not in default nor has any event
or circumstance occurred which, but for the expiration of any applicable grace
period or the giving of notice, or both, would constitute a default which in any
respect which would have a Material Adverse Effect under any Designated Contract
or any other material agreement or other instrument to which it is a party or by
which it is bound.
Section 4.18 COMPLIANCE WITH THE LAW. The Borrower has not violated any
Governmental Requirement or failed to obtain any license, permit, franchise, or
other governmental authorization necessary for the ownership of any of its
Properties or the conduct of its respective business, which violation or failure
would have (in the event such violation or failure were asserted by any Person
through appropriate action) a Material Adverse Effect.
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Section 4.19 INSURANCE. SCHEDULE 4.19 attached hereto contains an
accurate and complete description of all material policies of fire, general
liability, professional liability, workmen's compensation, automobile
comprehensive liability, and other forms of insurance owned or held by the
Borrower. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the closing
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. Such policies are sufficient for compliance
with all requirements of law and of all agreements to the Borrower is a party;
are valid, outstanding, and enforceable policies; provide adequate insurance
coverage in at least such amounts and against at least such risks (but including
in any event public liability) as are usually insured against in the same
general area by companies engaged in the same or a similar business for the
assets and operations of the Borrower; will remain in full force and effect
through the respective dates set forth in SCHEDULE 4.19 without the payment of
additional premiums; and will not in any way be affected by, or terminate or
lapse by reason of the transactions contemplated by this Agreement. SCHEDULE
4.19 identifies all material risks, if any, which the Borrower and its Board of
Directors or officers have designated as being self insured. The Borrower has
not been refused any insurance with respect to its assets or operations, nor has
its coverage been limited below usual and customary policy limits, by an
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last three (3) years.
Section 4.20 MANAGEMENT FEES. The fees and other compensation payable to
Borrower under that certain Management Services Agreement, dated February 1,
1996, between Borrower and STAT Physicians, P.A. and that certain Management
Services Agreement, dated September 1, 1994, between Borrower and South Texas
Acute Trauma Physicians, P.A., as amended, represent the fair market value of
the services to be rendered by the Borrower thereunder.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower agrees that, so long as any of the Commitments are in
effect and until payment in full of all Indebtedness hereunder, all interest
thereon and all other amounts payable
hereunder:
Section 5.01 FINANCIAL STATEMENTS AND OTHER REPORTS. The Borrower shall
deliver, or shall cause to be delivered to the Agent:
(a) As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, the audited
consolidated statements of income, stockholders' equity, changes in
financial position, and cash flow of the Borrower for such fiscal year,
and the related consolidated balance sheets of the Borrower as at the
end of such fiscal year, and setting forth in each case in comparative
form the corresponding figures for
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the preceding fiscal year, and accompanied by the related opinion of
independent public accountants of recognized national standing
acceptable to the Lenders which opinion shall state that said financial
statements fairly present the consolidated financial condition and
results of operations of the Borrower as at the end of, and for, such
fiscal year and that such financial statements have been prepared in
accordance with GAAP except for such changes in such principles with
which the independent public accountants shall have concurred and such
opinion shall not contain a "going concern" or like qualification or
exception, and a certificate, to the extent obtainable, of such
accountants stating that, in making the examination necessary for their
opinion, they obtained no knowledge, except as specifically stated, of
any Default.
(b) As soon as available and in any event within forty-five (45)
days after the end of each fiscal month of the Borrower, a consolidated
statement of income, stockholders' equity, changes in financial
position, and cash flow of the Borrower for such period and for the
period from the beginning of the respective fiscal year to the end of
such period, and the related consolidated balance sheets as at the end
of such period, and setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding
fiscal year, accompanied by the certificate of an officer of the
Borrower, which certificate shall state that said financial statements
fairly present the consolidated and consolidating financial condition
and results of operations of the Borrower in accordance with GAAP, as at
the end of, and for, such period (subject to normal year-end audit
adjustments).
(c) As soon as available and in any event within forty-five (45)
days after the end of each fiscal month of the Borrower, (i) a Borrowing
Base Certificate in the form of EXHIBIT G, executed by a Responsible
Officer of the Borrower, with information required therein completed to
reflect the Revolving Credit Borrowing Base as of the end of such fiscal
month, (ii) accounts receivable reports, dated as at the end of such
fiscal month, for each of the Borrower and the Guarantors, including
detailed listing and aging information in a form reasonably satisfactory
to the Agent in its sole discretion, and (iii) copies of all Accounts
Receivable Aging by Payor reports (also known as IDS Report No. 595)
received by Borrower from Insurance Data Services, dated as at the end
of such fiscal month.
(d) Promptly after the Borrower knows that any Default, including
without limitation any default or event of default on any Debt in excess
of $50,000.00 or any Material Adverse Effect has occurred, a notice of
such Default, default, or Material Adverse Effect, describing the same
in reasonable detail and the action the Borrower proposes to take with
respect thereto.
(e) Promptly upon receipt thereof, a copy of each other report or
letter submitted to the Borrower by independent accountants in
connection with any annual, interim or
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special audit made by it of the books of the Borrower, and a copy of any
response by the Borrower or the Board of Directors of the Borrower to
such letter or report.
(f) From time to time such other information regarding the
business, affairs, or financial condition of the Borrower (including,
without limitation, any Plan or Multi employer Plan and any reports or
other information required to be filed under ERISA) as the Agent may
reasonably request.
The Borrower will furnish to the Agent, at the time they furnish each set of
financial statements pursuant to paragraph (a) or (b) above and at the time of
each Borrowing hereunder, a compliance certificate of a senior financial officer
of the Borrower in substantially the form of EXHIBIT F hereto and setting forth
in reasonable detail the computations necessary to determine whether the
Borrower is in compliance with Sections 6.11, 6.12, 6.13, and 6.14 as of the end
of the applicable Rolling Period.
Section 5.02 LITIGATION. The Borrower shall promptly give to the Agent
notice of: (a) all legal or arbitral proceedings, and of all proceedings before
any Governmental Authority affecting the Borrower and/or the Guarantors, except
proceedings which, if adversely determined, would not have a Material Adverse
Effect, and (b) of any litigation or proceeding affecting the Borrower, in which
(i) the amount involved exceeds $50,000.00 and is not covered by insurance, (ii)
the amount involved is in excess of $300,000.00, or (iii) in which injunctive or
similar relief is sought, PROVIDED, HOWEVER, that in the event the aggregate
amount of litigation or proceedings affecting the Borrower that are not covered
by insurance exceed $125,000.00 or the aggregate amount of litigation or
proceedings (whether or not covered by insurance) exceed $500,000.00, then, in
such event, the Borrower shall promptly provide notice of such event to the
Agent and provide reasonably detailed reports to the Agent of all such
litigation.
Section 5.03 MAINTENANCE OF EXISTENCE, ETC. The Borrower will, and will
cause each Guarantor to,: (i) do or cause to be done all things reasonably
necessary to preserve and maintain its existence and all of its material rights,
privileges and franchises; (ii) keep books of record and account in which full,
true, and correct entries will be made of all material dealings or transactions
in relation to its business and activities; (iii) comply with all Governmental
Requirements if failure to comply with such requirements would have a Material
Adverse Effect; (iv) pay and discharge all taxes, assessments, and governmental
charges or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being contested in
good faith and by proper proceedings and against which adequate reserves are
being maintained; (v) upon forty-eight (48) hours' notice permit representatives
of the Lenders, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably requested
by the Lenders; and (vi) keep insured by financially sound and reputable
insurers all Property of a character usually insured by
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corporations engaged in the same or similar business similarly situated against
loss or damage of the kinds and in the amounts customarily insured against by
such corporations and carry such other insurance as is usually carried by such
corporations including, without limitation, fire and extended coverage insurance
covering all assets, business interruption insurance, workers' compensation
insurance, and liability insurance, all in such amounts as are satisfactory to
the Lenders.
Section 5.04 ENVIRONMENTAL MATTERS.
(a) The Borrower will establish and implement such procedures as may be
necessary to continuously determine and assure that any failure of the following
does not have a Material Adverse Effect: (i) all Property of the Borrower or any
Guarantor, and the operations conducted thereon, are in compliance with and do
not violate any Environmental Laws in a quantity that either exceeds five (5)
gallons or causes a sheen on nearby surface water, (ii) no solid wastes are
disposed of or otherwise released on, under or about any Property owned by any
such party except in compliance with Environmental Laws, (iii) no hazardous
substance will be released on, under or about any such Property in a quantity
equal to or exceeding that quantity which requires reporting pursuant to Section
103 of CERCLA, and (iv) no petroleum products are released on, under or about
such Property in a quantity that either exceeds five (5) gallons or causes a
sheen on nearby surface water.
(b) The Borrower will promptly notify the Lenders in writing within
three (3) Business Days of (i) any threatened action, investigation, or inquiry
by any Governmental Authority in connection with any Environmental Laws,
excluding routine testing and corrective action, (ii) any threatened action or
claim by any Person in connection with any loss or injury allegedly resulting
from the disposal or release of any petroleum product, hazardous substance, or
hazardous or solid waste or from any violation or alleged violation of any
Environmental Laws, (iii) the discovery of any occurrence or condition on,
under, or about any of Property of the Borrower or any Guarantor (or properties
on, under or about such Properties) of which the Borrower or any Guarantor
becomes aware, which may cause any, or any portion of, such Properties to be in
violation or alleged violation of any Environmental Laws.
(c) The Borrower will promptly and diligently investigate and pursue
remediation of any environmental contamination existing as of the Closing Date
or which arises after such date to the extent such contamination requires
remediation under applicable Environmental Laws.
Section 5.05 FURTHER ASSURANCES. The Borrower will, and will cause each
Guarantor to, cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the Security Instruments, including this
Agreement. The Borrower at its expense will promptly execute and deliver, or
cause to be executed and delivered, to the Agent upon request all such other and
further documents, agreements, and instruments (or cause any of the Guarantors
to take such action) in compliance with or accomplishment of the covenants and
agreements of the Borrower in the Security Instruments, including this
Agreement, or to further evidence and more fully describe
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the collateral intended as security for the Notes, or to correct any omissions
in the Security Instruments, or more fully state the security obligations set
out herein or in any of the Security Instruments, or to perfect, protect, or
preserve any liens created pursuant to any of the Security Instruments, or to
make any recordings, to file any notices, or obtain any consents, all as may be
necessary or appropriate in connection therewith.
Section 5.06 PERFORMANCE OF OBLIGATIONS. The Borrower will pay the Notes
according to the reading, tenor, and effect thereof; and the Borrower will do
and perform every act and discharge all of the obligations provided to be
performed and discharged by the Borrower under the Security Instruments,
including this Agreement, at the time or times and in the manner specified, and
cause each of the Guarantors to take such action with respect to their
obligations to be performed and discharged under the Security Instruments to
which they respectively are parties.
Section 5.07 INSURANCE.
(a) The Borrower maintains or causes to be maintained with financially
sound and reputable insurers, insurance with respect to its Properties and
business and the Properties and business of the Guarantors against such
liabilities, casualties, risks, losses, damages, and contingencies of the kinds
customarily insured against by reputable Persons in the same or similar
business, such insurance to be of such types and in such amounts (with such
deductible amounts) as is customary for Persons engaged in the same or similar
businesses and similarly situated.
Upon
the request of the Agent, the Borrower will furnish or cause to be furnished to
the Agent from time to time a summary of the insurance coverage of the Borrower
and the Guarantors in form and substance satisfactory to the Agent in its sole
discretion and if requested will furnish the Agent copies of the applicable
policies. In the case of any fire, accident, or other casualty causing loss of
damage to any Properties of the Borrower, the proceeds shall be used, at
Borrower's option, (i) to repair or replace the damaged Property, or (ii) to
prepay the Indebtedness.
(b) Notwithstanding anything to the contrary herein set forth, Borrower
shall at all times maintain professional liability coverage for itself and the
Guarantors for the emergency room operations in amounts not lower than
$1,000,000.00 per incident and $3,000,000.00 in the aggregate
per physician per hospital.
Section 5.08 ACCOUNTS AND RECORDS. The Borrower will keep, and will
cause each Guarantor to keep, books of record and account in which full, true,
and correct entries will be made of all material dealings or transactions in
relation to their respective business and activities, in accordance with
generally accepted accounting principles, consistently applied except only for
changes in accounting principles or practices with which the Borrower's
independent public accountants concur.
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Section 5.09 RIGHT OF INSPECTION. Upon reasonable prior written notice,
the Borrower will permit, and will cause each Guarantor to permit, any officer,
employee, or agent of the Agent or any of the Lenders to visit and inspect any
of the Properties of the Borrower or any Guarantor during normal business hours,
examine the Borrower's or any Guarantor's books of record and accounts, take
copies and extracts therefrom, and discuss the affairs, finances, and accounts
of the Borrower or any Guarantor with the Borrower's or Guarantor's officers,
accountants, and auditors, all at such reasonable times and as often as the
Agent or any of the Lenders may reasonably desire.
Section 5.10 TAXES AND OTHER LIENS. The Borrower will pay and discharge
promptly all taxes, assessments, and governmental charges or levies imposed upon
the Borrower or any Guarantor or upon the income or any Property of the Borrower
or any Guarantor as well as all claims of any kind (including claims for labor,
materials, supplies and rent) which, if unpaid, might become a Lien upon any or
all of the Property of the Borrower or any Guarantor; PROVIDED, HOWEVER, that
neither the Borrower nor any Guarantor shall be required to pay any such tax,
assessment, charge, levy, or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted by or on behalf of the Borrower or its Guarantor, and if
the Borrower or its Guarantor shall have set up reserves therefor adequate under
generally accepted accounting principles.
Section 5.11 NOTICE OF CERTAIN EVENTS. Promptly after a Responsible
Officer obtains knowledge of the receipt of occurrence of any of the following,
a certificate of a Responsible Officer of the Borrower specifying (i) any
official notice of any material violation, possible violation, non-compliance,
or claim made by any Governmental Authority pertaining to all or part of the
Properties of the Borrower or any of the Guarantors; (ii) any event which
constitutes a Default, together with a detailed statement by a Responsible
Officer of the Borrower of the steps being taken to cure the effect of such
Default; (iii) the receipt of any notice from, or the taking of any other action
by, the holder of any promissory note, debenture, or other evidence of
indebtedness of the Borrower or any Guarantor or of any security (as defined in
the Securities Act of 1933, as amended) of the Borrower or any Guarantor with
respect to a claimed default, together with a detailed statement by a
Responsible Officer of the Borrower specifying the notice given or other action
taken by such holder and the nature of the claimed default and what action the
Borrower or its Guarantor is taking or proposes to take with respect thereto;
(iv) any legal, judicial, or regulatory proceedings affecting the Borrower or
any Guarantor or any of the Properties of the Borrower or any Guarantor in which
the amount involved is material and is not covered by insurance or which, if
adversely determined, would have a Material Adverse Effect; (v) any dispute
between the Borrower or any Guarantor and any governmental or regulatory body or
any other Person which, if adversely determined, would have a Material Adverse
Effect; (vi) any material default or noncompliance of any party to any material
contract with any of the terms and conditions of such contract, or any notice of
termination or other material proceedings or actions which might adversely
affect any material contract; or (vii) any event or condition which may be
reasonably expected to have a Material Adverse Effect.
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CREDIT AGREEMENT
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Section 5.12 ERISA INFORMATION AND COMPLIANCE. The Borrower will
promptly furnish, and will cause the Guarantors and any ERISA Affiliate to
promptly furnish, to the Agent (i) immediately upon becoming aware of the
occurrence of any ERISA Event or of any "PROHIBITED TRANSACTION," as described
in Section 4975 of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal financial
officer of the Borrower, the Guarantor, or the ERISA Affiliate, as the case may
be, specifying the nature thereof, what action the Borrower, the Guarantor, or
the ERISA Affiliate is taking or proposes to take with respect thereto, and,
when known, any action taken or proposed by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, and (ii) immediately upon
receipt thereof, copies of any notice of the PBGC's intention to terminate or to
have a trustee appointed to administer any Plan. With respect to each Plan
(other than a Multiemployer Plan), the Borrower will, and will cause each
Guarantor and ERISA Affiliate to, (X) satisfy in full and in a timely manner,
without incurring any late payment or underpayment charge or penalty and without
giving rise to any Lien, all of the contribution and funding requirements of
Section 412 of the Code (determined without regard to Subsections (d), (e), (f)
and (k) thereof) and of Section 302 of ERISA (determined without regard to
Sections 303, 304 and 306 of ERISA), and (Y) pay, or cause to be paid, to the
PBGC in a timely manner, without incurring any late payment or underpayment
charge or penalty, all premiums required pursuant to Sections 4006 and 4007 of
ERISA.
Section 5.13 PERFORMANCE OF DESIGNATED CONTRACTS. The Borrower will, and
will cause each Guarantor to, perform and observe in all material respects each
of the provisions of each Designated Contract to which it is a party on its part
to be performed or observed prior to the termination thereof, unless and to the
extent only that (i) the same shall be contested in good faith by appropriate
action by or on behalf of the Borrower or the applicable Guarantor or (ii) the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
Section 5.14 AUDIT, MANAGEMENT AND OTHER REPORTS. Immediately upon the
request of the Agent, a copy of each written report submitted to Borrower or any
Guarantor by independent accountants in any annual, quarterly, or special audit,
review, or examination.
Section 5.15 SEC AND OTHER REPORTS. Promptly upon its becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by Borrower or any Guarantor to its stockholders or debtholders
generally and of each regular or periodic report, registration statement or
prospectus filed by Borrower or any Guarantor with any securities exchange or
the Securities and Exchange Commission or any successor agency or any similar
Governmental Authority of a foreign country, and of any order issued by any
Governmental Authority in an proceeding in which Borrower or any Guarantor is a
party.
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CREDIT AGREEMENT
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ARTICLE VI
NEGATIVE COVENANTS
The Borrower agrees that, so long as any of the Commitments are in
effect and until payment in full of the Indebtedness hereunder, all interest
thereon and all other amounts payable
hereunder:
Section 6.01 DEBT. Neither the Borrower nor any Guarantor shall incur,
create, assume, or suffer to exist any Debt, except:
(a) the Notes or other Indebtedness, and any guarantee thereof or
suretyship obligation therefore;
(b) Debt of the Borrower and the Guarantors existing on the date
of this Agreement which is reflected in the Financial Statements, and
more fully described in SCHEDULE 6.01(B) with regard to the Borrower and
any renewals and extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of Property
or services) from time to time incurred in the ordinary course of
business and which, if greater than sixty (60) days past the invoice or
billing date, are being contested in good faith by the Borrower as the
case may be; and
(d) additional Debt of the Borrower and the Subsidiaries in an
amount not to exceed $500,000.00 in the aggregate at any time.
Section 6.02 LIENS. Neither the Borrower nor any Guarantor shall create,
incur, assume, or permit to exist any Lien on any of its Properties (now owned
or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness;
(b) Liens existing on Property owned by the Borrower or any
Guarantor on the date of this Agreement which have been disclosed to the
Agent in the Financial Statements or in SCHEDULE 6.01(B) and any
renewals and extensions thereof; and
(c) Liens securing Debt permitted by Section 6.01(d); PROVIDED,
HOWEVER, in no event shall such Liens be permitted on Property on which
the Lenders have a Lien or on which any Security Instrument purports to
create a Lien in favor of the Lenders.
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CREDIT AGREEMENT
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Section 6.03 INVESTMENTS, LOANS AND ADVANCES. Neither the Borrower nor
any Guarantor will make or permit to remain outstanding any loans or advances to
or investments in any Person, except that the foregoing restriction shall not
apply to:
(a) investments, loans, or advances reflected in the Financial
Statements;
(b) accounts receivable arising in the ordinary course of
business;
(c) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency
thereof, in each case maturing within one year from the date of creation
thereof;
(d) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by Standard & Poors Ratings
Group or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of creation
thereof with, in cluding certificates of deposit issued by, the Lenders
or any other bank or trust company which is organized under the laws of
the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $35,000,000.00 (as of the date of
such Lenders or trust company's most recent financial reports) and has a
short term deposit rating of no lower than A2 or P2, as such rating is
set forth from time to time, by Standard & Poors Ratings Group or
Moody's Investors Service, Inc., respectively;
(f) existing loans to William H. Rice and Victor M. Miranda
described in SCHEDULE 5.03(F); and
(g) Working Capital Management Accounts, existing on the date
hereof, with Merrill Lynch.
Section 6.04 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. The Borrower will
not declare or pay any dividend, purchase, redeem or otherwise acquire for value
any of its stock now or hereafter outstanding, return any capital to its
stockholders, or make any distribution of its assets to its stockholders as
such, or permit any of the Guarantors to purchase or otherwise acquire for value
any stock of the Borrower; PROVIDED, HOWEVER, Borrower shall be permitted to
redeem the approximately 599,726 Class A Warrants currently outstanding at the
stated redemption rate of $0.05 per warrant.
Section 6.05 SALES AND LEASEBACKS. Neither the Borrower nor any
Guarantor will enter into any arrangements, directly or indirectly, with any
Person, whereby the Borrower or any Guarantor shall sell or transfer any
Property, whether now owned or hereafter acquired, and whereby the
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Borrower or any Guarantor shall then or thereafter rent or lease as lessee such
Property or any part thereof or other Property which the Borrower or any
Guarantor intends to use for substantially the same purpose or purposes as the
Property sold or transferred.
Section 6.06 NATURE OF BUSINESS. Neither the Borrower nor any Guarantor
will allow any material change to be made in the character of its business as
carried on at the Closing Date.
Section 6.07 SUBSIDIARIES AND AFFILIATES. The Borrower shall not,
without the prior written consent of the Lenders, (i) create or acquire any
additional Subsidiaries or (ii) become affiliated with any additional Persons
doing business as professional associations that provide medical services. If
the Lenders grant such consent, the Borrower will take, or cause such Subsidiary
or Affiliate to take, all of the actions specified below:
(a) The Borrower will cause any such Subsidiary or Affiliate to
execute a guaranty agreement in form and substance substantially similar
to the guaranty agreement executed by the Guarantors guaranteeing the
Indebtedness and a security agreement in form and substance
substantially similar to the security agreements executed by each of the
Guarantors granting the Agent a security interest to secure its guaranty
obligations; and
(b) In the case of a new Subsidiary, the Borrower will pledge one
hundred percent (100%) of the voting stock of such Subsidiary owned,
directly or indirectly, by the Borrower to secure the Indebtedness.
Section 6.08 MERGERS, DISPOSITIONS, ETC. The Borrower will not, without
the prior written consent of the Lenders, merge into, acquire or consolidate
with any other Person (whether in one transaction or in a series of
transactions) where (i) the net book value of the Person to be acquired in such
merger, acquisition, or consolidation is $1,000,000.00 or greater, or (ii) the
liabilities of the Person. The Borrower will not sell, lease, or otherwise
dispose of (whether in one transaction or in a series of transactions) its
Property or assets except sales of assets in the ordinary course of business.
Section 6.09 ERISA COMPLIANCE. The Borrower and the Guarantors will not
at any time permit any Plan maintained by each of them, respectively, to:
(a) engage in any "prohibited transaction" as such term is
defined in Section 4975 of the Code;
(b) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA; or
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(c) terminate any such Plan in a manner which could result in the
imposition of a Lien on the Property of the Borrower or the Guarantors
pursuant to Section 4068 of ERISA.
Section 6.10 SALE OR DISCOUNT OF RECEIVABLES. Neither the Borrower nor
any Guarantor will discount or sell (with or without recourse) any of its notes
receivable or accounts receivable.
Section 6.11 TANGIBLE NET WORTH. On or after the Closing Date, the
Borrower will not permit its consolidated Tangible Net Worth, determined as of
each Quarterly Date for the immediately preceding Rolling Period, to be less
than $3,500,000.00.
Section 6.12 CURRENT RATIO. On or after the Closing Date, the Borrower
will not permit its ratio of (i) consolidated current assets (determined in
accordance with GAAP) to (ii) consolidated current liabilities (determined in
accordance with GAAP), determined as of each Quarterly Date for the immediately
preceding Rolling Period, to be less than 1.50 to 1.00 at any time.
Section 6.13 FUNDED INDEBTEDNESS COVERAGE RATIO. On or after the Closing
Date, the Borrower will not permit its ratio of (i) Funded Indebtedness to (ii)
Consolidated Operating Cash Flow, determined as of each Quarterly Date for the
immediately preceding Rolling Period, to be
greater than 2.50 to 1.00.
Section 6.14 FIXED CHARGE COVERAGE RATIO. On or after the Closing Date,
the Borrower will not permit its ratio of (i) the sum of Consolidated Operating
Cash Flow PLUS operating lease payments made by the Borrower and the Guarantor
during such period to (ii) Fixed Charges, determined as of each Quarterly Date
for the immediately preceding Rolling Period, to be less than 1.25 to 1.00.
Section 6.15 ENVIRONMENTAL MATTERS. The Borrower will not permit any of
its Property to be in violation of, or do anything or permit anything to be done
which will subject any such Property to any fines, penalties, assessments,
citations, orders, or remedial obligations in excess of (i) $25,000.00
individually, or (ii) $50,000.00 in the aggregate, during any twelve (12) month
period, under any Environmental Laws, assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and circumstances, if
any, pertaining to such Property.
Section 6.16 TRANSACTIONS WITH AFFILIATES. The Borrower will not enter
into any transaction, including, without limitation, any purchase, sale, lease,
or exchange of Property or the rendering of any service, with any Affiliate if
such transactions are otherwise restricted under this Agreement, are not in the
ordinary course of its business, or are not upon fair and reasonable terms no
less favorable to it than it would obtain in a comparable arm's length
transaction with a Person not an Affiliate.
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Section 6.17 NEGATIVE PLEDGE AGREEMENTS. Neither the Borrower nor any
Guarantor will create, incur, assume or suffer to exist any contract, agreement,
or understanding (other than this Agreement and the Security Instruments) which
in any way prohibits or restricts the granting, conveying, creation, or
imposition of any Lien on any of its Property or which requires the consent of
or notice to other Persons in connection therewith.
Section 6.18 COMPENSATION. The Borrower and the Guarantors will not pay
compensation to their officers and directors in any fiscal year of the Borrower
in the form of any kind of incentive bonus or other incentive compensation if
either before or after giving effect to such payment, there exists or would
exist a Default or Event of Default.
Section 6.19 PROCEEDS OF NOTES. The Borrower will not permit the
proceeds of the Notes to be used for any purpose other than those permitted by
Section 4.07.
Section 6.20 PRESERVATION OF DESIGNATED CONTRACTS. The Borrower will
not, and will not permit any Guarantor to, agree to any change, modification, or
amendment to or waiver of any of the terms or provisions of any Designated
Contract. The Borrower will not, and will not permit any Guarantor to, take any
action or permit any action to be taken by others which will release any Person
from its obligations or liabilities under any Designated Contract.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01 EVENTS OF DEFAULT. If one or more of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Borrower shall default in the payment when due of any
principal, or the Borrower shall default in the payment when due of any
interest on any Loan or fees or other amount payable by it hereunder and
such default shall continue unremedied for a period of five (5) days;
(b) The Borrower or any of the Guarantors shall default in the
payment when due of any principal of or interest on any of its other
Debt in excess of $50,000.00, individually or in the aggregate, or any
event specified in any note, agreement, indenture, or other document
evidencing or relating to any such Debt shall occur if the effect of
such event is to cause, or (with the giving of any notice or the
expiration of any applicable grace period or both) to permit the holder
or holders of such Debt (or a trustee or agent on behalf of such holder
or holders) to cause, such Debt to become due prior to its stated
maturity;
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(c) Any representation, warranty, or certification made or deemed
made herein or in any other Security Instrument by the Borrower or any
Guarantor or in any certificate furnished to the Lenders pursuant to the
provisions hereof or any other Security Instrument, shall prove to have
been false or misleading as of the time made or furnished in any
material respect;
(d) The Borrower shall default in the performance of any of its
obligations (other than the payment of money which shall be governed by
Section 7.01(a)) under this Agreement or under any Security Instrument
and such default shall continue unremedied for a period of fifteen (15)
days after notice thereof to the Borrower by the Lenders;
(e) The Borrower shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due;
(f) The Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, or liquidator of itself or of all or a substantial part of its
Property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code (as
now or hereafter in effect), (iv) file a petition seeking to take
advantage of any other law relating to Bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under
the Bankruptcy Code, or (vi) take any corporate action for the purpose
of effecting any of the foregoing;
(g) A proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution,
or winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator, or the like
of any of them for all or any substantial part of its assets, or (iii)
similar relief in respect of the Borrower under any law relating to
Bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment, or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of thirty (30) days; or (iv) any order for relief against
the Borrower shall be entered in an involuntary case under the
Bankruptcy Code;
(h) A final judgment or judgments for the payment of money in
excess of $50,000.00 individually or in the aggregate shall be rendered
by a court or courts against the Borrower or any Guarantor and the same
shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within
thirty (30) days from the date of entry thereof and the Borrower, as the
case may be, shall not, within said period of thirty (30) days, or such
longer period during which execution of the
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same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal;
(i) An event or condition specified in Section 6.09 shall occur
or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or
conditions, the Borrower, any Guarantor, or any ERISA Affiliate shall
incur, or in the opinion of the Lenders shall be reasonably likely to
incur, a liability to a Plan, a Multiemployer Plan, or PBGC (or any
combination of the foregoing) which is, in the determination of the
Lenders, material in relation to the financial position of the Borrower;
or
(k) A Change of Control has occurred; or
(l) The occurrence of any event having a Material Adverse Effect.
THEREUPON: (i) in the case of an Event of Default other than one referred to in
clause (e), (f), or (g), the Lenders may by notice to the Borrower, cancel the
Commitments and/or declare the principal amount then outstanding of and the
accrued interest on the Loans and all other amounts payable by the Borrower
hereunder and under the Notes to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration, or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower; and (ii) in the case of the occurrence of an Event of Default referred
to in clause (e), (f), or (g), the Commitments shall be automatically canceled
and the principal amount then outstanding of, and the accrued interest on, the
Indebtedness shall become automatically immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
Section 7.02 APPLICATION OF PROCEEDS. All proceeds received after the
Maturity Dates of the Notes, whether by acceleration or otherwise shall be
applied first to reimbursement of expenses and indemnities provided for in this
Agreement and the Security Instruments; second to accrued interest on the Notes;
third to fees payable to the Lenders under this Agreement; fourth PRO RATA to
principal outstanding on the Notes and other Indebtedness; and any excess shall
be paid to the Borrower or as otherwise required by any Governmental
Requirement.
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ARTICLE VIII
THE AGENT
Section 8.01 APPOINTMENT AND POWERS. Southwest Bank of Texas, N.A., is
hereby appointed Agent hereunder and under the Notes and the other Security
Instruments, and each of the Lenders irrevocably authorizes the Agent to act as
the agent of such Lender hereunder and under the Notes and the other Security
Instruments. The Agent agrees to act as such upon the express conditions
contained in this Article VIII.
Section 8.02 POWERS. The Agent shall have and may exercise such powers
hereunder and under the Notes and the other Security Instruments as are
specifically delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. The Agent shall have no implied
duties to the Lenders or any obligation to the Lenders to take any action
hereunder or thereunder except any action specifically provided by this
Agreement or the other Security Instruments to be taken by the Agent.
Section 8.03 GENERAL IMMUNITY. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Lenders or any
Lender for any action taken or omitted to be taken by it or them hereunder or
under the Notes or the Security Instruments, including this Agreement, or in
connection herewith or therewith except for its or their own gross negligence or
wilful misconduct.
Section 8.04 NATURE OF DUTIES OF AGENT The Agent shall be responsible to
the Lenders for any recitals, reports, statements, warranties, or
representations herein or in the other Security Instruments, or for any loans
hereunder or be bound to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement or the other Security
Instruments. The Agent shall not be responsible for determining the Highest
Lawful Rate, if any, such determination being the sole responsibility of each
Lender.
Section 8.05 RIGHT TO INDEMNITY. The Agent shall be fully justified in
failing or refusing to take any action hereunder or under the Notes or other
Security Instruments, as Agent, unless it shall first be indemnified to its
satisfaction by the Lenders PRO RATA against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action.
Section 8.06 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder or
under the Notes or other Security Instruments in accordance with written
instructions signed by all Lenders, and such instructions and any action taken
or failure to act pursuant thereto shall be binding on all the Lenders and on
all holders of the Notes. The Agent shall not be required to take any action
pursuant to or in connection with Section 9.11 with respect to the Highest
Lawful Rate, if any, applicable to any Lender except
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in accordance with the written instructions of such Lender; and the Agent shall
be fully protected by such Lender in acting in accordance with such
instructions.
Section 8.07 LIMITATION ON AGENT'S DUTIES. Notwithstanding any other
provision of this Article VIII or any indemnity or instructions provided by any
or all of the Lenders, the Agent shall not be required to take any action which
exposes the Agent to personal liability or which is contrary to this Agreement
or applicable law.
Section 8.08 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any
of its duties as Agent hereunder or under the Notes or other Security
Instruments by or through employees, agents, and attorneys-in-fact and shall not
be answerable to the Lenders, except as to money or securities received by it or
its authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the agency
hereby created and its duties hereunder or under the Notes or other Security
Instruments.
Section 8.09 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled
to rely upon any Note, notice, consent, certificate, affidavit, letter, telex,
telegram, telecopy, statement, paper, or document believed by it to be genuine
and correct and to have been signed or sent by the proper Person or Persons,
and, in respect to legal matters, upon the opinion of counsel selected by the
Agent.
Section 8.10 MAY TREAT LENDER AS OWNER. The Agent may deem and treat
each Lender as the owner of such Lender's Notes for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority, or consent of any Person who at
the time of making such request or giving such authority or consent is the owner
of the Notes shall be conclusive and binding on any subsequent owner,
transferee, or assignee of such Notes.
Section 8.11 AGENT'S REIMBURSEMENT. Each Lender agrees to reimburse the
Agent in the amount of such Lender's PRO RATA share of the Commitments for any
expenses not reimbursed by or for the account of the Borrower (i) for which the
Agent is entitled to reimbursement by the Borrower under this Agreement, the
Notes or other Security Instruments and (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration, and enforcement of this Agreement, the
Notes, and the other Security Instruments.
Section 8.12 RIGHTS AS A LENDER. With respect to its Commitment, loans
made by it and its proportionate interest in the Notes, the Agent shall have the
same rights and powers hereunder as any Lender and may exercise the same as
though it were not the Agent, and the term "Lender" or "LENDERS" shall, unless
the context otherwise indicates, include the Agent in its individual capacity.
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The Agent may accept deposits from, lend money to, and generally engage in any
kind of banking or trust business with the Borrower as if it were not the Agent.
Section 8.13 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender and
based on the Financial Statements referred to in Section 5.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement, the Notes, or the other Security
Instruments.
ARTICLE IX
MISCELLANEOUS
Section 9.01 WAIVER. No failure on the part of the Lenders to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power, or privilege under this Agreement or the Notes or any other Security
Instrument shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege under this Agreement, or the Notes,
or any other Security Instrument preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
Section 9.02 NOTICES. All notices and other communications provided for
herein and in the other Security Instruments (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other
Security Instruments) shall be given or made by telecopy or in writing and
telecopied, mailed, or delivered to the intended recipient at the address
specified below its name on the signature pages hereof or in the other Security
Instruments; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement or in the other Security Instruments, all such communications
shall be deemed to have been duly given when transmitted by telecopier or
personally delivered or, in the case of a mailed notice, upon the earlier of
receipt or five (5) days after deposit in the U.S. mail, postage prepaid.
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Section 9.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC. The Borrower agrees
to:
(a) whether or not the transactions hereby contemplated are
consummated, pay all reasonable expenses of the Lenders in the
origination of the Loans (both before and after the execution hereof
including the advice of counsel), and in connection with the
negotiation, syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights under,
enforcement of, and refinancing, renegotiation, or restructuring of,
this Agreement, the Notes, and the other Security Instruments and any
amendment, waiver, or consent relating thereto (including, without
limitation, travel, photocopy, mailing, courier, telephone, and other
similar expenses of the Lenders, the cost of environmental audits, site
assessments, and environmental consultants retained by the Lenders and
the reasonable fees and disbursements of counsel for the Lenders); and
promptly reimburse the Lenders for all amounts expended, advanced, or
incurred by the Lenders to satisfy any obligation of the Borrower under
this Agreement, the Notes, or any Security Instrument; and to the
fullest extent permitted by applicable law, the Borrower agrees to pay
any present or future stamp or documentary taxes or any other excise or
property taxes, charges, or similar levies that arise from any payment
made hereunder or from the execution, delivery, or registration of, or
otherwise with respect to, this Agreement, the Notes, or any other
Security Instrument;
(b) INDEMNIFY THE LENDERS AND ITS AFFILIATES AND EACH OF THEIR OF
FICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS,
ACCOUNTANTS, AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM
HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM
FOR THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST
OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY
THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY
ACTUAL OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE
LOANS, (II) THE EXECUTION, DELIVERY, AND PERFORMANCE OF THIS AGREEMENT,
THE NOTES, AND THE OTHER SECURITY INSTRUMENTS, (III) THE OPERATIONS OF
THE BUSINESS OF THE BORROWER, (IV) THE FAILURE OF THE BORROWER TO COMPLY
WITH THE TERMS OF ANY SECURITY INSTRUMENT, INCLUDING THIS AGREEMENT, OR
WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY
REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE BORROWER SET FORTH
IN THIS AGREEMENT OR THE OTHER SECURITY INSTRUMENTS, OR (VI) ANY OTHER
ASPECT OF THIS AGREEMENT, THE NOTES, AND THE SECURITY INSTRUMENTS,
INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF
COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION, OR INQUIRIES), OR
CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE
ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL
INDEMNITY MATTERS
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ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS AND A SHAREHOLDER
AGAINST THE LENDERS OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND
(c) INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED
PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY
ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES, AND LIABILITIES
TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL
LAW APPLICABLE TO THE BORROWER OR ANY OF ITS PROPERTIES, INCLUDING
WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON
ANY OF ITS PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE
BY THE BORROWER WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER,
(III) DUE TO PAST OWNERSHIP BY THE BORROWER OF ANY OF ITS PROPERTIES OR
PAST ACTIVITY ON ANY OF ITS PROPERTIES OR PAST ACTIVITY ON ANY OF ITS
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD
RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE
PROPERTIES OWNED OR OPERATED BY THE BORROWER, OR (V) ANY OTHER
ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THIS
AGREEMENT, THE NOTES, OR ANY OTHER SECURITY INSTRUMENT, PROVIDED,
HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 9.03(C) IN
RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
OMISSIONS OF THE LENDERS DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS
SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY
(WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS
MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be
unreasonably withheld; provided, that the indemnitor may not reasonably
withhold consent to any settlement that an Indemnified Party proposes,
if the indemnitor does not have the financial ability to pay all its
obligations outstanding and asserted against the indemnitor at that
time, including the reasonably estimated maximum potential liability of
the Indemnified Party as determined by counsel of such indemnitor and as
agreed to by counsel to the Indemnified Party to be indemnified pursuant
to this Section 9.03.
(e) In the case of any indemnification hereunder, the Lenders
shall give notice to the Borrower of any such claim or demand being made
against the Indemnified Party and the Borrower shall have the
non-exclusive right to join in the defense against any such claim or
demand provided that if the Borrower provides a defense, the Indemnified
Party shall bear its own cost of defense unless there is a conflict
between the Borrower and such Indemnified Party.
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(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED
PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND
OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN
AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES
OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY
IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO
THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT
OF GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF
THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN
THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF THE INDEMNIFIED PARTY.
(g) The Borrower's obligations under this Section 9.03 shall
survive any termination of this Agreement and the payment of the Notes
and shall continue thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this Section
9.03 within thirty (30) days of the receipt by the Borrower of notice of
the amount due.
Section 9.04 AMENDMENTS, ETC. No provision of this Agreement or any
other Security Instruments may be amended, modified, or waived without each
Lender's express written consent.
Section 9.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned, either in
whole or in part, by the Borrower without the express written consent of the
Lenders. In the event that any Lender sells participations in the Notes or other
Indebtedness of the Borrower or to be incurred pursuant to this Agreement, to
other lenders, each of such other lenders shall have the rights of set-off
against such Indebtedness and similar rights or Liens to the same extent as may
be available to the Agent or the Lenders.
Section 9.06 INVALIDITY. In the event that any one or more of the
provisions contained in the Notes, this Agreement or in any other Security
Instrument shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of the Notes, this Agreement or any other Security
Instrument.
Section 9.07 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
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Section 9.08 CAPTIONS. Captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
Section 9.09 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTES, AND
THE OTHER SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
Section 9.10 GOVERNING LAW. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of Texas;
except that Tex. Rev. Civ. Stat. Ann. Art. 5069, ch. 15 (which regulates certain
revolving credit loan accounts and revolving tri-party accounts) shall not apply
to this Agreement or the Notes.
Section 9.11 INTEREST. It is the intention of the parties hereto that
the Lenders shall conform strictly to usury laws applicable to it. Accordingly,
if the transactions contemplated hereby would be usurious as to the Lenders
under laws applicable to it (including the laws of the United States of America
and the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to the Lenders notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in the
Notes, this Agreement, or in any other Security Instrument or agreement entered
into in connection with or as security for the Notes, it is agreed as follows:
(i) the aggregate of all consideration which constitutes interest under law
applicable to the Lenders that is contracted for, taken, reserved, charged, or
received by the Lenders under the Notes, this Agreement, or under any of the
other Security Instruments or agreements or otherwise in connection with the
Notes shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by the Lenders on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by the Lenders to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to the Lenders may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by the Lenders as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Lenders on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by the Lenders to the Borrower). All sums paid
or agreed to be paid to the Lenders for the use, forbearance or detention of
sums due hereunder shall, to the extent permitted by law applicable to the
Lenders, be amortized, prorated, allocated and spread in
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equal parts throughout the full term of the Loans evidenced by the Notes until
payment in full so that the rate or amount of interest on account of any Loans
hereunder does not exceed the maximum amount allowed by such applicable law. If
at any time and from time to time (i) the amount of interest payable to the
Lenders on any date shall be computed at the Highest Lawful Rate applicable to
the Lenders pursuant to this Section 9.11 and (ii) in respect of any subsequent
interest computation period the amount of interest otherwise payable to the
Lenders would be less than the amount of interest payable to the Lenders
computed at the Highest Lawful Rate applicable to the Lenders, then the amount
of interest payable to the Lenders in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to the Lenders until the total amount of interest payable to the
Lenders shall equal the total amount of interest which would have been payable
to the Lenders if the total amount of interest had been computed without giving
effect to this Section.
For the purpose of determining the Highest Lawful Rate, the Lenders
hereby elect to determine the applicable rate ceiling under Article 5069-1.04 of
the Texas Revised Civil Statutes by the indicated (weekly) rate ceiling from
time to time in effect.
Section 9.12 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO ENFORCE OR TO DEFEND ANY RIGHTS UNDER THIS
AGREEMENT, THE NOTES, OR ANY OTHER SECURITY INSTRUMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, THE NOTES, R ANY OTHER SECURITY
INSTRUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
Section 9.13 BINDING ARBITRATION.
(A) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE NOTES OR
THE SECURITY INSTRUMENTS, INCLUDING ANY CLAIM OR CONTROVERSY OF ANY KIND BASED
ON OR ARISING IN TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, APPLICABLE STATE LAW),
THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES
OR JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. ("J.A.M.S.") AND THE RULES
SET FORTH IN SECTION 9.13(B) BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE RULES
SET FORTH IN SECTION 9.13(B) BELOW SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
-54-
CREDIT AGREEMENT
August 29, 1996
<PAGE>
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THE NOTES OR
THE SECURITY INSTRUMENTS MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH EITHER
THE NOTES, OR ANY SECURITY INSTRUMENT APPLIES IN ANY COURT HAVING JURISDICTION
OVER SUCH ACTION.
(B) THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF HOUSTON, TEXAS AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCE
WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL, ONLY UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF
SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
(C) NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO (I) LIMIT THE
APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE OR
ANY WAIVERS CONTAINED IN THE NOTES OR THE SECURITY INSTRUMENTS; (II) BE A WAIVER
BY THE LENDERS OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SS. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDERS (AND
THE BORROWER, AS APPLICABLE) (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, (B) TO FORECLOSE AGAINST ANY COLLATERAL, WHETHER REAL OR
PERSONAL PROPERTY, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS, BUT NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION, OR
THE APPOINTMENT OF A RECEIVER. THE LENDERS (AND THE BORROWER, AS APPLICABLE) MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSURE UPON SUCH COLLATERAL, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THE NOTES, OR THE SECURITY
INSTRUMENTS. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
(D) THE PROVISIONS OF THIS SECTION 9.13 SHALL SURVIVE ANY TERMINATION,
AMENDMENT, OR EXPIRATION OF THE DOCUMENTS
-55-
CREDIT AGREEMENT
August 29, 1996
<PAGE>
EVIDENCING THE TRANSACTIONS. EACH PARTY AGREES TO KEEP ALL DISPUTES AND
ARBITRATION PROCEEDINGS STRICTLY CONFIDENTIAL, EXCEPT FOR DISCLOSURES OF
INFORMATION REQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PARTIES OR BY
APPLICABLE LAW OR REGULATION.
Section 9.14 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER
SECURITY INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF
THE TERMS OF THIS AGREEMENT, THE NOTES, AND THE OTHER SECURITY INSTRUMENTS; THAT
IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS
BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER SECURITY
INSTRUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND THE OTHER SECURITY INSTRUMENTS; AND THAT IT RECOGNIZES THAT
CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER SECURITY INSTRUMENTS RESULT
IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION
AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH
PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR
ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER
SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF
SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."
Section 9.15 CUMULATIVE RIGHTS. Rights and remedies of the Agent and the
Lenders under the Notes, this Agreement, and each other Security Instrument
shall be cumulative, and the exercise or partial exercise of any such right or
remedy shall not preclude the exercise of any other right or remedy.
Section 9.16 SINGULAR AND PLURAL. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such words
when used in the plural where the context so permits and vice versa.
Section 9.17 SEVERAL OBLIGATIONS. The respective obligations of the
Lenders under this Agreement are several and not joint, and no Lender shall be
the partner or agent of any other (except to the extent to which the Agent is
authorized to act as such). The failure of any Lender to perform
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder.
Section 9.18 EXHIBITS. The exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
Section 9.19 SATISFACTION REQUIREMENT. If any agreement, certificate,
instrument, or other writing, or any action taken or to be taken, is by the
terms of this Agreement required to be satisfactory to any party, the
determination of such satisfaction shall be made by such party in its sole and
exclusive judgment exercised reasonably and in good faith.
-57-
CREDIT AGREEMENT
August 29, 1996
<PAGE>
NOW, THEREFORE, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER: STAT HEALTHCARE, INC.
By:
Ned E. Chapman
Chief Financial Officer
Address: 12450 Greenspoint Drive
Suite 1200
Houston, Texas 77060
Telephone No. (713) 872-6900
Telecopy No. (713) 876-2999
LENDERS: SOUTHWEST BANK OF TEXAS, N.A.,
INDIVIDUALLY AS LENDER AND AS AGENT
By:
Yale Smith
Executive Vice President
Address: Commercial Banking Group
1100 Louisiana
Houston, Texas 77002
Telephone No. (713) 759-1434
Telecopy No. (713) 759-1425
Attn: Yale Smith
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CREDIT AGREEMENT
August 29, 1996
<PAGE>
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS, AS LENDER
By:
Name:
Title:
Corporate Banking Office
800 Market Street
St. Louis, Missouri 03166
Telephone No. (314) 466-6000
Telecopy No. (314) 466-6499
Attn: Steven A. Linton
-59-
CREDIT AGREEMENT
August 29, 1996
<PAGE>
ANNEX I
<TABLE>
<CAPTION>
Lender Revolving Credit Term Loan Total Commitment
Loan Commitment Commitment
<S> <C> <C> <C>
Southwest Bank of $1,500,000 $1,750,000 $3,250,000
Texas N.A.
The Boatmen's $1,500,000 $1,750,000 $3,250,000
National Bank of St.
Louis
</TABLE>
CREDIT AGREEMENT
August 29, 1996
Annex I-1
<PAGE>
EXHIBIT A
FORM OF
REVOLVING CREDIT NOTE
$1,500,000.00 August 29, 1996
STAT HEALTHCARE, INC., a Delaware corporation (the "BORROWER"), for
value received, promises and agrees (i) to pay on or before the Revolving Credit
Maturity Date to __________________________, (the "BANK"), or order, at
the principal sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100
($1,500,000.00), or such lesser amount as shall equal the aggregate unpaid
principal amount of the Revolving Credit Loans made by the Bank to the Borrower
hereunder and pursuant to the terms and conditions of the Credit Agreement, as
hereafter defined, in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement referred to below, and (ii) to pay interest on the
unpaid principal amount as provided in the Credit Agreement for such Revolving
Credit Loans, at such office, in like money and funds, for the period commencing
on the date of each such Revolving Credit Loan until such Revolving Credit Loan
shall be paid in full, at the rates per annum and on the dates provided in the
Credit Agreement.
In addition to and cumulative of any payments required to be made
against this Note pursuant to the Credit Agreement, this Note, including all
principal and accrued interest then unpaid, shall be due and payable on the
Revolving Credit Maturity Date. All payments shall be applied first to accrued
interest and the balance to principal, except as otherwise expressly provided in
the Credit Agreement. Prepayments on this Note shall be applied in the manner
set forth in the Credit Agreement.
This Note is the Revolving Credit Note referred to in the Credit
Agreement dated as of August 29, 1996 between the Borrower, Southwest Bank of
Texas, individually as Lender and as Agent, and The Boatmen's National Bank of
St. Louis, as Lender (together with all amendments or supplements thereto, the
"CREDIT AGREEMENT"). This Note evidences the Revolving Credit Loans made by the
Bank thereunder and shall be governed by the Credit Agreement. Capitalized terms
used in this Note and not defined in this Note, but which are defined in the
Credit Agreement, have the respective meanings herein as are assigned to them in
the Credit Agreement.
The Bank is hereby authorized to record all advances and all payments
and prepayments of the Loans evidenced hereby on account of principal and
interest on the schedules (or a continuation thereof) attached hereto and made a
part hereof for all purposes and to provide continuations to such schedule as
may be necessary. The failure of the Bank to record any such amounts shall not
CREDIT AGREEMENT
August 29, 1996
A-1
<PAGE>
diminish or impair the Borrower's obligation to repay all principal advanced and
to pay all interest accruing under this Note.
The Borrower and any and each co-maker, guarantor, accommodation party,
endorser or other Person liable for the payment or collection of this Note,
except as specifically provided in the Credit Agreement, expressly waive demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of intent to accelerate, notice of acceleration,
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder and in the handling of Property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any Lien at any time had or
existing as security for any amount called for hereunder.
If default is made in the payment of this Note (whether of principal,
interest or other amounts) when due (regardless of how the maturity of this Note
may be brought about) and the same is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in bankruptcy,
probate, receivership, or other judicial proceedings for the establishment or
collection of any amount called for hereunder, or any amount payable or to be
payable hereunder is collected through any such proceedings, the Borrower agrees
to pay to the owner and holder of this Note the reasonable attorneys' fees
incurred by the holder in connection therewith.
This Note is issued pursuant to and is entitled to the benefits of the
Credit Agreement and the Security Instruments. Reference is made to the Credit
Agreement for provisions for the acceleration of the maturity hereof on the
occurrence of certain events specified therein and for all
other pertinent purposes.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
STAT HEALTHCARE, INC.
By:
Ned E. Chapman
Chief Financial Officer
CREDIT AGREEMENT
August 29, 1996
A-2
<PAGE>
SCHEDULE A
BASE RATE LOANS, CONVERSIONS
AND REPAYMENTS OF BASE RATE LOANS
<TABLE>
<CAPTION>
AMOUNT CONVERTED
FROM LIBOR AMOUNT OF AMOUNT CONVERTED
AMOUNT OF TO BASE RATE BASE RATE FROM BASE RATE TO UNPAID PRINCIPAL
DATE BASE RATE LOAN LOANS (1) LOANS REPAID LIBOR LOANS (2) OF BASE RATE LOANS NOTATION MADE BY
<S> <C>
</TABLE>
(1) Conversions which increase the amount of Base Rate Loans (from LIBOR
Loans to Base Rate Loans) go in this column, and require a corresponding
entry in the column marked "Amount Converted from LIBOR to Base Rate
Loans" on Schedule B, as well as a higher "Unpaid Principal Balance of
Base Rate Loans" entry.
(2) Conversions which decrease the amount of Base Rate Loans (from Base Rate
Loans to LIBOR Loans) go in this column, and require a corresponding
entry in the column marked "Amount Converted from Base Rate to LIBOR
Loans" on Schedule B, as well as a lower "Unpaid Principal Balance of
Base Rate Loans" entry.
CREDIT AGREEMENT
August 29, 1996
A-3
<PAGE>
SCHEDULE B
EURODOLLAR RATE LOANS, CONVERSIONS
AND REPAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
AMOUNT
AMOUNT CONVERTED CONVERTED AMOUNT
CONTINUED FROM BASE AMOUNT OF UNPAID PRINCIPAL
ADJUSTED LIBOR AMOUNT OF FROM PRIOR RATE TO LIBOR FROM EURO- BALANCE OF
LIBOR INTEREST LIBOR LIBOR LIBOR LOANS DOLLAR TO LIBOR
DATE RATE PERIOD LOAN LOANS LOANS(1) REPAID BASE RATE LOANS(2) LOANS NOTATION MADE BY
<S> <C>
</TABLE>
(1) Conversions which increase the amount of LIBOR Loans (from Base Rate Loans
to LIBOR Loans) go in this column, and require a corresponding entry in
the column marked "Amount Converted from Base Rate to LIBOR Loans" on
Schedule A, as well as a higher "Unpaid Principal Balance of LIBOR Loans"
entry.
(2) Conversions which decrease the amount of LIBOR Loans (from LIBOR Loans to
Base Rate Loans) go in this column, and require a corresponding entry in
the column marked "Amount Converted from LIBOR to Base Rate Loans" on
Schedule A, as well as a lower "Unpaid Principal Balance of LIBOR Loans"
entry.
CREDIT AGREEMENT
August 29, 1996
A-4
<PAGE>
EXHIBIT B
FORM OF
TERM NOTE
$1,750,000.00 August 29, 1996
STAT HEALTHCARE, INC., a Delaware corporation (the "BORROWER"), for
value received, promises and agrees (i) to pay on or before the Term Maturity
Date to
(the
"BANK"), or order, at _____________________________________, the principal sum
of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND NO/100 ($1,750,000.00),
or such lesser amount as shall equal the aggregate unpaid principal amount of
the Term Loans made by the Bank to the Borrower hereunder and pursuant to the
terms and conditions of the Credit Agreement, as hereinafter defined, in lawful
money of the United States of America and in immediately available funds, in
installments on the dates and in the principal amounts provided in the Credit
Agreement, and (ii) to pay interest on the unpaid principal amount of the Term
Loans made by the Bank to the Borrower under the Credit Agreement, at such
office, in like money and funds, for the period commencing on the date of the
Term Loan until such Term Loan shall be paid in full, at the rates per annum and
on the dates provided in the Credit Agreement.
In addition to and cumulative of any payment required to be made against
this Note pursuant to the Credit Agreement, this Note, including all principal
and accrued interest then unpaid, shall be due and payable on the Term Maturity
Date. All payments shall be applied first to accrued interest and the balance to
principal, except as otherwise expressly provided in the Credit Agreement.
Prepayments on this Note shall be applied in the manner set forth in the Credit
Agreement.
This Note is one of the Term Notes referred to in the Credit Agreement
dated as of August 29, 1996, by and among the Borrower and Southwest Bank of
Texas, N.A., individually as Lender and as Agent, and The Boatmen's National
Bank of St. Louis, as Lender (together with all amendments or supplements
thereto, the "CREDIT AGREEMENT"). This Note evidences the Term Loans made by the
Bank thereunder and shall be governed by the Credit Agreement. Capitalized terms
used in this Note and not defined in this Note, but which are defined in the
Credit Agreement, have the respective meanings herein as are assigned to them in
the Credit Agreement.
The Bank is hereby authorized by the Borrower to record all advances and
all payments and prepayments of the Term Loans evidenced hereby on account of
principal and interest on schedule A (or a continuation thereof) attached hereto
and made a part hereof for all purposes and to provide continuations to such
Schedule A as may be necessary. The failure of the Bank to record any such
amounts shall not diminish or impair the obligations of the Borrower to repay
all principal advanced and to pay all interest accruing under this Note in
respect of such Term Loans.
The Borrower and any and each co-maker, guarantor, accommodation party,
endorser or other Person liable for the payment or collection of this Note,
except as specifically provided in the Credit Agreement, expressly waive demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of intent to accelerate, notice of acceleration,
CREDIT AGREEMENT
August 29, 1996
B-1
<PAGE>
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder and in the handling of Property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any Lien at any time had or
existing as security for any amount called for hereunder.
If default is made in the payment of this Note (whether of principal,
interest or other amounts) when due (regardless of how the maturity of this Note
may be brought about) and the same is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in bankruptcy,
probate, receivership, or other judicial proceedings for the establishment or
collection of any amount called for hereunder, or any amount payable or to be
payable hereunder is collected through any such proceedings, the Borrower agrees
to pay to the owner and holder of this Note the reasonable attorneys' fees
incurred by the holder in connection therewith.
This Note is issued pursuant to and is entitled to the benefits of the
Credit Agreement and the Security Instruments. Reference is made to the Credit
Agreement for provisions for the acceleration of the maturity hereof on the
occurrence of certain events specified therein and for all
other pertinent purposes.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
STAT HEALTHCARE, INC.
By:
Ned E. Chapman
Chief Financial Officer
CREDIT AGREEMENT
August 29, 1996
B-2
<PAGE>
SCHEDULE A
TO
TERM NOTE
This Note evidences the Term Loans made by the Bank under the Credit
Agreement to the Borrower by the Bank, in the principal amount set forth below
and the applicable rates for each such Term Loan, subject to the payments of
principal set forth below:
SCHEDULE
OF
LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
DATE RATE PRINCIPAL AMOUNT AMOUNT OF PRINCIPAL BALANCE OF NOTATION
OF LOAN PAID OR REPAID LOANS MADE BY
<S> <C>
</TABLE>
CREDIT AGREEMENT
August 29, 1996
B-3
<PAGE>
EXHIBIT C
FORM OF
BORROWING, CONTINUATION, AND CONVERSION REQUEST
_____________________, 199__
STAT HEALTHCARE, INC., a Delaware corporation (the "BORROWER"), pursuant
to the Credit Agreement dated as of August 29, 1996 (together with all
amendments or supplements thereto, the "CREDIT AGREEMENT") among the Borrower,
Southwest Bank of Texas, N.A., individually as Lender and as administrative
agent (the "AGENT"), and The Boatmen's National Bank of St.
Louis,
as Lender, hereby requests [a loan] [loans] on the date and in the amount[s] as
follows (unless otherwise defined herein, capitalized terms are defined in the
Credit Agreement):
1. Term Loans:
(a) Aggregate amount of new Term Loans to be $______________________;
(b) Requested funding date is _________________, 199__;
2. Revolving Credit Loans:
(a) Aggregate amount of new Revolving Credit Loans to be
$______________________;
(b) Requested funding date is _________________, 199__;
(c) $_____________________ of such borrowings are to be LIBOR Loans;
$_____________________ of such borrowings are to be Base Rate Loans; and
(d) Length of Interest Period for LIBOR Loans is:
_________________________.
3. LIBOR Loan Continuation for LIBOR Loans maturing on
_____________________:
(a) Aggregate amount to be continued as LIBOR Loans is $__________________;
(b) Aggregate amount to be converted to Base Rate Loans is
$____________________;
(c) Length of Interest Period for continued LIBOR Loans is
________________________.
CREDIT AGREEMENT
August 29, 1996
C-1
<PAGE>
4. Conversion of Outstanding Base Rate Loans to LIBOR Loans:
Convert $__________________ of the outstanding Base Rate Loans to
LIBOR Loans on ____________________ with an Interest Period of
______________________.
5. Conversion of Outstanding LIBOR Loans to Base Rate Loans:
Convert $__________________ of the outstanding LIBOR Loans with
Interest Period maturing on ______________________, 199_, to Base
Rate Loans.
The undersigned certifies that he is the _____________________ of the
Borrower, and that as such he is authorized to execute this certificate on
behalf of the Borrower. The undersigned further certifies, represents and
warrants on behalf of the Borrower that the Borrower is entitled to receive the
requested borrowing, continuation, or conversion under the terms and conditions
of the Credit Agreement.
STAT HEALTHCARE, INC.
By:
Name:
Title:
CREDIT AGREEMENT
August 29, 1996
C-2
<PAGE>
EXHIBIT D
ADDITIONAL SECURITY INSTRUMENTS
1. Guaranty Agreement of South Texas Acute Trauma Physicians, P.A., STAT
Physicians P.A., Old STAT, Inc., STAT Dialysis Corporation., and STAT
Management Corporation.
2. Pledge and Security Agreement executed by the Borrower granting to the
Lenders security interest in accounts receivables and equipment and
pledging stock of Subsidiaries.
3. Financing Statement with respect to item 2.
4. Security Agreements executed by South Texas Acute Trauma Physicians,
P.A., STAT Physicians P.A., Old STAT, Inc., STAT Dialysis Corp., and
STAT Management Corp. granting to the Lenders security interest in
accounts receivables and equipment.
5. Financing Statements with respect to item 4.
6. Subrogation and Contribution Agreement among Guarantors and Borrower.
CREDIT AGREEMENT
August 29, 1996
D-1
<PAGE>
EXHIBIT E
[FORM OF LEGAL OPINION]
August 29, 1996
To Each of the Lenders Parties
to the Credit Agreement Hereinafter
Referred to and Southwest Bank of Texas, N.A.,
as Agent
Re: Credit Agreement dated as of August 29, 1996 (the "CREDIT
AGREEMENT"), among STAT Healthcare, Inc. a Delaware corporation
(the "BORROWER"), Southwest Bank of Texas, N.A., individually as
Lender and as administrative agent (the "AGENT"), and The
Boatmen's National Bank of St. Louis, as Lender (together with
the Agent, the "LENDERS").
Gentlemen:
We have acted as special counsel for the Borrower, South Texas Acute
Trauma Physicians, P.A., a Texas professional association ("STAT P.A."), STAT
Physicians, P.A., a Texas professional association, Old STAT, Inc., a Texas
corporation, STAT Dialysis Corporation., a Texas corporation, and STAT
Management Corporation, a Texas corporation (STAT P.A., STAT Physicians, P.A.,
Old STAT, Inc., STAT Dialysis Corporation, and STAT Management Corporation,
collectively being the "GUARANTORS") in connection with the Credit Agreement.
This opinion is delivered to you pursuant to Section 3.01(f) of the Credit
Agreement. Capitalized terms not otherwise defined herein are defined as set
forth in the Credit Agreement, and other terms which are defined in the Uniform
Commercial Code as in effect in the State of Texas (the "CODE") have the same
meanings when used herein unless otherwise indicated by the context in which
such terms are so used.
In connection with the opinions hereinafter expressed, we have (i)
investigated such questions of law, (ii) examined such organizing and governing
documents and records of the Borrower and the Guarantors and certificates of
public officials, and (iii) received such information from officers and
representatives of the Borrower and the Guarantors, as we have deemed necessary
or appropriate for the purposes of this opinion. We have examined the following
documents (those identified in items (a) through (f) below being referred to
collectively as "LOAN DOCUMENTS"):
(a) An executed copy of the Credit Agreement;
(b) The executed promissory notes dated of even date with the
Credit Agreement issued by the Borrower payable to the order of the
Lenders (the "NOTES");
(c) An executed copy of each of (i) the Security Agreement (the
"BORROWER SECURITY AGREEMENT") dated of even date with the Credit
Agreement executed by the Borrower, as debtor, in favor of the Agent, as
secured party and (ii) the Security Agreements (the "GUARANTOR SECURITY
AGREEMENTS") dated of even date with the Credit Agreement executed by
each of STAT P.A., STAT Physicians, P.A., Old STAT, Inc., STAT Dialysis
CREDIT AGREEMENT
August 29, 1996
E-1
<PAGE>
Corporation and STAT Management Corporation, each as debtor, in favor of
the Agent, as secured party (the Borrower Security Agreement and
Guarantor Security Agreements being collectively referred to herein as
the "SECURITY AGREEMENTS");
(d) An executed copy of the financing statements executed in
connection with the Security Agreements (the "FINANCING STATEMENTS");
(e) An executed copy of the Guaranty Agreement dated of even date
with the Credit Agreement executed by each of the Guarantors
(collectively, the "GUARANTY AGREEMENTS");
(f) An executed copy of the Subrogation and Contribution
Agreement dated of even date with the Credit Agreement executed by the
Borrower and each of the Guarantors (the "SUBROGATION AND CONTRIBUTION
AGREEMENT"); and
(g) The Designated Contracts.
In rendering the opinions herein set forth, we have assumed (i) the due
authorization, execution and delivery of each document referred to in clauses
(a) through (f) of the second paragraph of this opinion by all parties to such
document other than the Borrower and the Guarantors), and that each such
document is valid, binding and enforceable against the parties thereto other
than the Borrower and the Guarantors, (ii) the legal capacity of natural
persons, (iii) the genuineness of all signatures, (iv) the authenticity of all
documents submitted to us as originals and (v) the conformity to original
documents of all documents submitted to us as copies. As to various questions of
fact material to our opinion we have relied upon the representations made in the
Loan Documents and upon certificates of officers of the Borrower.
Based upon the foregoing and subject to the qualifications set forth
below, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, and is qualified to do
business in the State of Texas and, to the best of our knowledge, in each other
jurisdiction in which the ownership of its properties or the nature of its
activities makes such qualification necessary, except for such jurisdictions in
which the failure to so qualify would not have a Material Adverse Effect on the
Borrower or on its ability to perform its obligations, under the Loan Documents.
2. STAT P.A. and STAT Physicians, P.A. are professional associations
validly existing under the laws of the State of Texas. Each of Old STAT, Inc.,
STAT Dialysis Corporation, and STAT Management Corporation is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas. Each Guarantor is qualified to do business in the State of Texas and,
to the best of our knowledge, in each other jurisdiction in which the ownership
of its properties or the nature of its activities makes such qualification
necessary, except for such jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect on such Guarantor or on its ability to
perform its obligations, under the Loan Documents.
3. The Borrower has the corporate power and authority to enter into and
perform its obligations under the Loan Documents to which it is a party and to
issue the Notes. The Borrower's
CREDIT AGREEMENT
August 29, 1996
E-2
<PAGE>
execution and delivery of the Loan Documents to which it is a party and the
issuance and delivery of the Notes have been duly authorized by all requisite
corporate action.
4. Each Guarantor has the power and authority to enter into and perform
its obligations under the Loan Documents to which it is a party. Each
Guarantor's execution and delivery of the Loan Documents to which it is a party
have been duly authorized by all requisite action.
5. The Loan Documents to which the Borrower is a party constitute legal,
valid and binding obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws of general application
relating to or affecting creditors' rights. The Loan Documents to which each
Guarantor is a party constitute legal, valid, and binding obligations of each of
the Guarantors enforceable against them in accordance with their respective
terms, except as limited by bankruptcy, insolvency, reorganization, moratorium,
or similar laws of general application relating to or affecting creditors'
rights. The enforceability and binding nature of the Loan Documents is subject
to (a) the qualification that certain provisions of the Loan Documents are or
may be unenforceable in whole or in part (but the inclusion of such provisions
does not affect the validity of such instruments and each such instrument
contains adequate provisions for the practical realization of the rights and
benefits afforded thereby) and (b) general principles of equity.
6. The execution and delivery of the Loan Documents to which each of the
Borrower and the Guarantors is a party and the performance by each of the
Borrower and the Guarantors of their respective terms do not conflict with or
result in a violation of the Certificate of Incorporation or By-laws of the
Borrower or the Guarantors, applicable provisions of statutory law or regulation
or, to the best of our knowledge, any material agreement, instrument or judicial
or regulatory order to which the Borrower or the Guarantors are party or are
subject or result in the Borrower or the Guarantors being obligated to create or
impose any Lien upon any of their Properties, other than those contemplated by
the Credit Agreement.
7. No approval, authorization, or other action by or filing with any
governmental authority is required in connection with the execution and delivery
by the Borrower or the Guarantors of the Loan Documents.
8. Except as described in the schedule of litigation heretofore
furnished to the Agent by the Borrower, there are, to the best of our knowledge,
no actions, suits, or proceedings pending or threatened against the Borrower
before any court or arbitrator(s) or by or before any administrative agency or
governmental authority, in which there is a reasonable possibility of an adverse
decision which could have a materially adverse effect on the financial condition
or business of the Borrower.
9. The Borrower is not an "investment company" or a company "controlled"
by an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
10. The Security Agreements create valid security interests in favor of
the Agent in the Collateral (as defined in each Security Agreement
respectively), if adequately described therein, to the extent the Code is
applicable thereto as security for the Notes. The Financing Statements are in
appropriate form and has been duly filed pursuant to the Code resulting in the
perfection of such security interests. We call to your attention that the
perfection of the above security interests will be terminated (i) as to any
Collateral (as to which the filing of a financing statement is necessary)
CREDIT AGREEMENT
August 29, 1996
E-3
<PAGE>
acquired by the Borrower, as the case may be, more than four (4) months after
the Borrower, respectively, so changes its name, identity, or corporate
structure as to make the financing statements seriously misleading, unless new
appropriate financing statements indicating the new name, identity or structure
of the Borrower are properly filed before the expiration of such four (4) months
and (ii) as to any Collateral consisting of accounts, general intangibles,
mobile goods, and (in the case of a non-possessory security interest) chattel
paper four (4) months after the Borrower changes its chief executive office to a
new jurisdiction outside the State of Texas unless such security interests are
perfected in such new jurisdiction before that termination.
11. The security interests referred to in paragraph 10 above as now
perfected are first priority.
12. The pledged securities listed in the Borrower Security Agreement
have been duly authorized and validly issued, are fully paid and non-assessable,
and constitute one hundred percent (100%) of the issued and outstanding shares
of stock of the respective issuers thereof.
13. The Designated Contracts are valid, binding, and enforceable on the
parties thereto and do not conflict with applicable provisions of statutory law
or regulations, including, without limitation, the Texas Medical Practices Act.
14. (i) Each of AmHealth Kidney Center of the Valley, Ltd., Weslaco
Kidney Center, Ltd., Starr Dialysis Center, Ltd., and Mission Kidney Center,
Ltd., each a Texas limited partnership, has been merged with and into STAT
Dialysis Corporation; (ii) each of AmHealth Medical Management, Ltd.,
Brownsville Hyperbaric Healthcare, Ltd., Southwestern Infusion Healthcare, Ltd.,
and AmHealth Ambulatory Healthcare, Ltd., each a Texas limited partnership, has
been merged with and into STAT Management Corporation; and (iii) each of the
mergers described in this paragraph has been duly authorized, has been filed,
and is effective in compliance with applicable law, and is final, binding, and
enforceable upon each of the entities and their owners under applicable law.
We are qualified to practice law in the State of Texas and we do not
purport to be experts on or express any opinion herein concerning any law other
than the law of the State of Texas and the federal law of the United States. The
opinions herein have been furnished at your request and are solely for your
benefit in connection with the subject transaction and may not be relied upon by
any other person or furnished to anyone else without the prior written consent
of the undersigned.
Very truly yours,
CREDIT AGREEMENT
August 29, 1996
E-4
<PAGE>
EXHIBIT F
FORM OF
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the ________________ of STAT
HEALTHCARE, INC., a Delaware corporation ("the BORROWER"), and that as such he
is authorized to execute and deliver this certificate on behalf of the Borrower
with reference to the Credit Agreement dated as of August 29, 1996 (together
with all amendments or supplements thereto being the "AGREEMENT") among the
Borrower, Southwest Bank of Texas, N.A., individually as a Lender (as defined in
the Agreement) and as administrative agent (the "AGENT"), and The Boatmen's
National Bank of St. Louis, as a Lender (together with the Agent, the
"LENDERS"). Each capitalized term used herein having the same meaning given to
it in the Agreement unless otherwise specified.
(a) The representations and warranties of the Borrower contained
in Article IV of the Agreement and in the Security Instruments and
otherwise made in writing by or on behalf of the Borrower pursuant to the
Agreement and the Security Instruments were true and correct when made,
and are repeated at and as of the time of delivery hereof and are true
and correct at and as of the time of delivery hereof, except as such
representations and warranties are modified to give effect to the
transactions expressly permitted by the Agreement or deviations from such
representations and warranties as to which the Borrower has notified the
Lenders in writing of even date herewith.
(b) The Borrower has performed and complied with all agreements
and conditions contained in the Agreement and in the Security Instruments
required to be performed or complied with prior to or at the time of
delivery hereof.
(c) The Borrower has not incurred any material liabilities,
direct or contingent, since August 29, 1996 except those set forth in
SCHEDULE 4.03 to the Agreement and except those allowed by the terms of
the Agreement or consented to by the Lenders in writing.
(d) Since August 29, 1996, no change has occurred, either in any
case or in the aggregate, in the condition of the Borrower which would
have a Material Adverse Effect.
(e) There exists, and, after giving effect to the loan or loans
with respect to which this certificate is being delivered, will exist, no
Default under the Agreement or any event or circumstance which
constitutes, or with notice or lapse of time (or both) would constitute,
an event of default under any material loan or credit agreement,
indenture, deed of trust, security agreement or other material agreement
or instrument evidencing or pertaining to any Debt of the Borrower, or
under any material agreement or instrument to which the Borrower is a
party or by which the Borrower is bound.
CREDIT AGREEMENT
August 29, 1996
F-1
<PAGE>
EXECUTED AND DELIVERED this ____ day of ______________.
STAT HEALTHCARE, INC.
By:
Name:
Title:
CREDIT AGREEMENT
August 29, 1996
F-2
<PAGE>
Schedule I to
Compliance Certificate
Computation of Financial Ratios for the
ROLLING PERIOD ENDED ON __________, 19__
<TABLE>
<CAPTION>
<S> <C>
I. SECTION 6.11 TANGIBLE NET WORTH
A. Preferred Stock....................................................$___________
B. Common Stock (par value)...........................................$___________
C. Capital in excess of I.B...........................................$___________
D. Surplus and Retained Earnings
(($______ ), if negative)..........................................$___________
E. Cost of Treasury Shares............................................$___________
F. Book Value of all Intangible Assets (not already
deducted from I.D. but including goodwill,
R&D costs, trademarks, trade names,
copyrights, franchises, unamortized debt
discount and expense and all reserves and
writeups in book value from revaluation
or changes in GAAP)................................................$___________
G. Tangible Net Worth (I.A. + I.B. + I.C. + I.D.
(- I.D., if negative)) - (I.E. + I.F.).............................$___________
H. Required Minimum..................................................$3,500,000.00
II. SECTION 6.12 CURRENT RATIO
A. Consolidated Current Assets (in accordance with GAAP)..............$___________
B. Consolidated Current Liabilities (in accordance with GAAP).........$___________
C. Ratio = II.A. / II.B...............................................____ to 1.00
D. Required Minimum...................................................1.50 to 1.00
CREDIT AGREEMENT
August 29, 1996
F-3
<PAGE>
III. SECTION 6.13 FUNDED INDEBTEDNESS COVERAGE RATIO
A. Indebtedness (as defined in the Credit Agreement)..................$___________
B. Capital Lease Obligations..........................................$___________
C. Guaranteed Amount of any Funded Indebtedness.......................$___________
D. Total Funded Indebtedness (III.A. + III.B. + III.C.)...............$___________
E. Consolidated Net Income (prior to all federal, state, local
and foreign income taxes and after salary and bonuses
paid to officers)..................................................$___________
F. Depreciation and Amortization of Assets (including goodwill
and other intangible assets).......................................$___________
G. Interest Paid during such period...................................$___________
H. Other Non-Cash Operating Charges ..................................$___________
I. Federal, state, local, and foreign income taxes (actually paid)....$___________
J. Consolidated Operating Cash Flow (III.E. + III.F. + III.G. +
III.H. - (III.I.)..................................................$___________
K. Ratio = III.D. / III.J............................................_____ to 1.00
L. Maximum Permissible................................................2.50 to 1.00
IV. SECTION 6.14 FIXED CHARGE COVERAGE RATIO
A. III.J..............................................................$___________
B. Current maturities of III.D........................................$___________
C. Interest paid during such period...................................$___________
D. Dividends declared or paid during such period......................$___________
E. Capitalized maintenance expenditures for such period...............$___________
F. Total Fixed Charges (IV.B. + IV.C. + IV.D. + IV.E.)................$___________
G. Ratio of IV.A. to IV.F.............................................____ to 1.00
H. Required Minimum...................................................1.25 to 1.00
</TABLE>
CREDIT AGREEMENT
August 29, 1996
F-4
<PAGE>
EXHIBIT G
FORM OF
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that he is the ________________ of STAT
HEALTHCARE, INC., a Delaware corporation ("the BORROWER"), and that as such he
is authorized to execute and deliver this certificate on behalf of the Borrower
with reference to the Credit Agreement dated as of August 29, 1996 (together
with all amendments or supplements thereto being the "AGREEMENT") among the
Borrower, Southwest Bank of Texas, N.A., individually as a Lender (as defined in
the Agreement) and as administrative agent (the "AGENT"), and The Boatmen's
National Bank of St. Louis, as a Lender (together with the Agent, the
"LENDERS").
<TABLE>
<CAPTION>
<S> <C>
I. TOTAL PRIVATE INSURANCE ACCOUNTS RECEIVABLE
(90 DAYS AND UNDER).....................................................$______________
II. ELIGIBLE PRIVATE INSURANCE ACCOUNTS RECEIVABLE
(85% of Line I).........................................................$______________
III. TOTAL MEDICARE AND MEDICAID RECEIVABLES
(90 DAYS AND UNDER).....................................................$______________
IV. ELIGIBLE MEDICARE AND MEDICAID RECEIVABLES
(20% of Line III).......................................................$______________
V. AVAILABLE REVOLVING CREDIT BORROWING BASE...............................$______________
(Line II PLUS Line IV)
VI. MAXIMUM REVOLVING CREDIT COMMITMENT.......................................$3,000,000.00
VII. OUTSTANDING LOAN BALANCE................................................$______________
VIII. AVAILABLE CREDIT........................................................$______________
( (greater than) of V or VI, minus VII)
</TABLE>
CREDIT AGREEMENT
August 29, 1996
G-1
<PAGE>
The undersigned certifies that he is the __________________ of the
Borrower and that as such he is authorized to execute this certificate on behalf
of the Borrower. The undersigned further certifies, represents and warrants on
behalf of the Borrower that information and calculations contained herein are
true and correct as of ______________________..
EXECUTED AND DELIVERED this ____ day of ______________.
STAT HEALTHCARE, INC.
By:
Name:
Title:
CREDIT AGREEMENT
August 29, 1996
G-2
EXHIBIT 10.23
PLEDGE AND SECURITY AGREEMENT
(ACCOUNTS, CHATTEL PAPER, EQUIPMENT,
STOCKS AND OTHER SECURITIES, INSTRUMENTS,
GENERAL INTANGIBLES, AND OTHER PROPERTY)
BETWEEN
STAT HEALTHCARE, INC.,
AS DEBTOR
AND
SOUTHWEST BANK OF TEXAS, N.A.,
AS SECURED PARTY
AUGUST 29, 1996
<PAGE>
PLEDGE AND SECURITY AGREEMENT
ACCOUNTS, CHATTEL PAPER, EQUIPMENT,
STOCKS AND OTHER SECURITIES, INSTRUMENTS,
GENERAL INTANGIBLES, AND OTHER PROPERTY
THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT") is made as of
August 29, 1996, between STAT HEALTHCARE, INC., a Delaware corporation with
principal offices at 12450 Greenspoint Drive, Suite 1200, Houston, Texas 77060
("DEBTOR") and SOUTHWEST BANK OF TEXAS, N.A., a national banking association
with offices at 1100 Louisiana, Houston, Texas 77002, as Agent ("SECURED PARTY")
for itself and the Lenders (hereinafter defined) parties to the Credit Agreement
referred to below.
RECITALS
A. On even date herewith, Debtor, Secured Party, and The Boatmen's
National Bank of St. Louis (together with Secured Party, the "LENDERS") are
executing a Credit Agreement (such agreement, as may from time to time be
amended or supplemented, being hereinafter called the "CREDIT AGREEMENT")
pursuant to which, upon the terms and conditions stated therein, the Lenders
agree to make loans to Debtor.
B. The Lenders have conditioned their obligations under the Credit
Agreement upon the execution and delivery by Debtor of this Agreement, and
Debtor has agreed to enter into this Agreement.
C. Therefore, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby agrees with Secured
Party as follows:
ARTICLE 1
SECURITY INTEREST
Section 1.01 GRANT OF SECURITY INTEREST. Debtor hereby assigns and
grants to Secured Party, as Agent for the Lenders, a security interest in and
right of set-off against the assets referred to in Section 1.02 (the
"COLLATERAL") to secure the prompt payment and performance of the "OBLIGATIONS"
(as defined in Section 2.02) and the performance by Debtor of this
Agreement.
-1-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
Section 1.02 COLLATERAL. The Collateral consists of the following types
or items of property (including property hereafter acquired by Debtor as well as
property which Debtor now owns or in which Debtor has rights):
(a) All of Debtor's accounts, chattel paper, equipment,
documents, instruments, and general intangibles including, without
limitation, accounts arising from governmental or private healthcare
insurance for healthcare services rendered.
(b) The following securities: all capital stock now or hereafter
owned by the Debtor in its Subsidiaries, together with stock
certificates and irrevocable stock powers in the Subsidiaries, including
but not limited to: Old STAT, Inc., STAT Dialysis Corporation, and STAT
Management Corporation (the "PLEDGED SECURITIES").
(c) (i) The certificates or instruments, if any, representing the
securities described in item (b) above, (ii) all dividends (cash, stock,
or otherwise), cash, instruments, rights to subscribe, purchase, or
sell, and all other rights and property from time to time received,
receivable, or otherwise distributed in respect of or in exchange for
any or all of such securities, (iii) any related or additional property
from time to time delivered to or deposited with Secured Party by or for
the account of Debtor; (iv) all property used or usable in connection
with any property referred to in this Section 1.02; (v) all proceeds,
replacements, additions to, and substitutions for any of the property
referred to in this Section 1.02 and claims against third parties; and
(vi) all books and records related to any of the property referred to in
this Section 1.02, including, without limitation, any and all books of
account, customer lists, payor lists, and other records relating in any
way to the accounts, chattel paper, or instruments referred to in this
Section 1.02.
(d) All general intangibles related to any property referred to
in this Section 1.02, including, without limitation, all (i) letters of
credit, bonds, guaranties, purchase or sales agreements, and other
contractual rights (including but not limited to the Designated
Contracts), rights to performance, and claims for damages, refunds
(including tax refunds), or other monies due or to become due; (ii)
orders, franchises, permits, certificates, licenses, consents,
exemptions, variances, authorizations, or other approvals by any
governmental agency or court; (iii) business records, computer tapes,
and computer software; (iv) goodwill; and (v) other intangible personal
property, whether similar or dissimilar to the property referred to in
this Section 1.02.
It is expressly contemplated that additional property may from time to time be
pledged, assigned, or granted to Secured Party as additional security for the
Obligations, and the term "COLLATERAL" as used herein shall be deemed for all
purposes hereof to include all such additional property, together with all other
property of the types described above related thereto.
-2-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
Section 1.03 TRANSFER OF COLLATERAL. All certificates or instruments
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant hereto by Secured Party and shall be indorsed to Secured Party or
indorsed in blank by an effective indorsement, all in form, manner, and
substance satisfactory to Secured Party. Notwithstanding the preceding sentence,
at Secured Party's discretion, all Pledged Securities must be delivered or
transferred in such manner as to permit Secured Party to be a "protected
purchaser" to the extent of its security interest as provided in Section 8.303
of the Code and to have "control" of such Pledged Securities as provided in
Section 8.106 of the Code. Secured Party shall have the right, at any time in
its discretion and without notice to Debtor, to transfer to or to register in
the name of Secured Party or any of its nominees any or all of the Pledged
Securities. In addition, Secured Party shall have the right at any time to
exchange certificates or instruments representing or evidencing Pledged
Securities for certificates or instruments of smaller or larger denominations.
Debtor shall execute and deliver to Secured Party, simultaneously with Debtor's
delivery of this Agreement, a financing statement describing the Collateral, in
form and substance satisfactory to Secured Party, to be filed in the Office of
the Secretary of State of the State of Texas.
Section 1.04 LOCATION OF COLLATERAL. The Collateral is located or
(except as set forth in Section 1.03 or as otherwise permitted by Section 4.01)
shall be located only in the places specified in SCHEDULE 1.04 (provided that
the Collateral shall be subject to the security interest created by this
Agreement irrespective of whether or not the Collateral is located in the such
places).
ARTICLE 2
DEFINITIONS
Section 2.01 TERMS DEFINED ABOVE OR IN THE CREDIT AGREEMENT. As used in
this Agreement, the terms defined above shall have the meanings respectively
assigned to them. Other capitalized terms which are defined in the Credit
Agreement but which are not defined herein shall
have the same meanings as defined in the Credit Agreement.
Section 2.02 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"ACCOUNTS" means all accounts, chattel paper, and instruments (as
such terms are defined in the Code) at any time included in the
Collateral.
"ACCOUNT DEBTOR" means any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of
any obligations included in the Collateral, whether as an account debtor
(as defined in the Code), obligor on an
-3-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
instrument, issuer of documents or securities, guarantor, or otherwise,
including, without limitation, governmental and private healthcare
insurance providers.
"AGREEMENT" means this Security Agreement, as the same may from
time to time be amended or supplemented.
"CODE" means the Uniform Commercial Code as presently in effect
in the State of Texas, Business and Commerce Code, Chapters 1 through 9.
Unless otherwise indicated by the context herein, all uncapitalized
terms herein which are defined in the Code shall have their respective
meanings as used in Chapter 9 of the Code.
"EVENT OF DEFAULT" means any event specified in Section 6.01.
"OBLIGATIONS" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and indebtedness of Debtor
to Secured Party, and any and all renewals, extensions for any period,
rearrangements or enlargements thereof, whether evidenced by any note or
other instrument or agreement, whether arising by an extension of
credit, letter of credit, overdraft, endorsement, loan, guaranty,
indemnification, or otherwise, whether direct or indirect, including,
without limitation, any of the foregoing acquired by assignment or
participation, absolute or contingent, due or to become due, including,
without limitation, Revolving Credit Loans under the Revolving Credit
Notes issued by Debtor in favor of each of the Lenders, dated August 29,
1996, each in the original principal amount of $1,500,000.00 and Term
Loans under the Term Notes issued by Debtor in favor of each of the
Lenders, dated August 29, 1996, each in the original principal amount of
$1,750,000.00. The Obligations shall also include all interest, charges,
expenses, attorneys' or other fees, and any other sums payable to or
incurred by Secured Party in connection with the execution,
administration, or enforcement of Secured Party's rights and remedies
hereunder or any other agreement with Debtor.
"OBLIGOR" means any Person, other than Debtor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker,
endorser, guarantor, accommodation party, general partner, or otherwise.
"PLEDGED SECURITIES" means all of the securities and other
property (whether or not the same constitutes a "security" under the
Code) referred to in Sections 1.02(b), (c)(i), and (c)(ii) and all
additional securities (as that term is defined in the Code), if any,
constituting Collateral under this Agreement.
-4-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Agreement, Debtor
represents and warrants to Secured Party (which representations and warranties
will survive the creation and payment of
the Obligations) that:
Section 3.01 OWNERSHIP OF COLLATERAL; ENCUMBRANCES. Debtor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other charge or encumbrance except for the
security interest created by this Agreement, and Debtor has full right, power,
and authority to assign and grant a security interest in the Collateral to
Secured Party. This Agreement constitutes a legal, valid, and binding obligation
of Debtor enforceable against Debtor in accordance with its terms (except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application relating to or affecting creditors' rights and general
principles of equity (whether considered in a proceeding in equity or at law)).
The execution, delivery and performance of this Agreement will not violate the
terms of any contract, agreement, law, regulation, order, injunction, judgment,
decree, or writ to which Debtor is subject and does not require the consent or
approval of any other Person.
Section 3.02 NO REQUIRED CONSENT. No authorization, consent, approval,
or other action by, and no notice to or filing with, any governmental authority
or regulatory body (other than the filing of financing statements) is required
for (i) the due execution, delivery, and performance by Debtor of this
Agreement, (ii) the grant by Debtor of the security interest granted by this
Agreement, (iii) the perfection of such security interest or (iv) the exercise
by Secured Party of its rights and remedies under this Agreement.
Section 3.03 FIRST PRIORITY SECURITY INTEREST. The grant of the security
interest in the Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties (except as limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws of general application
relating to or affecting creditors' rights and general principles of equity
(whether considered in a proceeding in equity or at law)) and securing payment
of the Obligations. None of the Pledged Securities are subject to any
restrictions to transfer imposed by the issuer thereof.
Section 3.04 NO FILINGS BY THIRD PARTIES. No financing statement or
other public notice or recording covering the Collateral is on file in any
public office (other than any financing statement or other public notice or
recording naming Secured Party as the secured party therein), and Debtor will
not execute any such financing statement or other public notice or recording so
long as any of the Obligations are outstanding.
-5-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
Section 3.05 PLEDGED SECURITIES. The Pledged Securities have been duly
authorized and validly issued, and are fully paid and non-assessable. The
Pledged Securities constitute one hundred percent (100%) of the issued and
outstanding shares of capital stock of the issuer
thereof.
Section 3.06 NO NAME CHANGES. Debtor has not, during the preceding five
(5) years, entered into any contract, agreement, security instrument, or other
document using a name other than, or been known by or otherwise used any name
other than "New STAT, Inc." or the name
used by Debtor herein.
Section 3.07 LOCATION OF DEBTOR AND COLLATERAL. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth in the opening paragraph hereof. The Collateral (other
than the Pledged Securities) is located a Debtor's address set forth in the
opening paragraph hereof or at the location(s), if any, specified in SCHEDULE
1.04. Any Collateral not at such location(s) nevertheless remains subject to
Secured Party's security interest.
Section 3.08 COLLATERAL. All statements or other information provided by
Debtor to Secured Party describing or with respect to the Collateral is or (in
the case of subsequently furnished information) will be when provided correct
and complete in all material respects. The delivery at any time by Debtor to
Secured Party of additional Collateral or of additional descriptions of
Collateral shall constitute a representation and warranty by Debtor to Secured
Party hereunder that the representations and warranties of this Article 3 are
correct insofar as they would pertain to such Collateral or the descriptions
thereof.
Section 3.09 ACCOUNTS.
(a) Each Account represents the genuine, valid, and legally enforceable
indebtedness of an Account Debtor (except as limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws of general application relating to
or affecting creditors' rights and general principles of equity (whether
considered in a proceeding in equity or at law)) arising from the sale, lease or
rendition by Debtor of services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account.
(b) The amount shown as to each Account on Debtor's books is or will be
the true and undisputed amount owing and unpaid thereon. Each Account arose or
shall have arisen in the ordinary course of Debtor's business; PROVIDED,
HOWEVER, that any Accounts which arose or hereafter arise outside the ordinary
course of Debtor's business shall nevertheless be included as part of the
Collateral. Debtor has no knowledge of any bankruptcy, insolvency, or other
action affecting creditors' rights with respect to any Account Debtor.
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August 29, 1996
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(c) Each invoice or agreement evidencing the Accounts is or will be due
and payable not more than one hundred twenty (120) days from the date thereof;
PROVIDED, HOWEVER, that any Accounts not so due and payable shall nevertheless
be included as part of the Collateral.
Section 3.10 DELIVERY OF LETTERS OF CREDIT. With respect to Collateral
covered by one or more certificates of title or other documents evidencing
ownership or possession thereof, and with respect to any Accounts or other
Collateral supported by letters of credit, each of such certificates, documents,
or letters of credit has been delivered to Secured Party (provided that all
letters of credit referred to in Section 1.02 shall be subject to the security
interest created by this Agreement irrespective of whether or not such delivery
shall have been made).
ARTICLE 4
COVENANTS AND AGREEMENTS
Debtor will at all times comply with the covenants and agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations are outstanding.
Section 4.01 CHANGE IN LOCATION OF DEBTOR. Except as to Pledged
Securities that are in the Possess of the Secured Party, Debtor will notify
Secured Party on or before the date of any change in location of the Collateral
to a location other than that specified in SCHEDULE
1.04.
Debtor will give Secured Party thirty (30) days' prior written notice of (i) the
opening or closing of any place of Debtor's business or (ii) any change in the
location of Debtor's chief executive
office or address.
Section 4.02 CHANGE IN DEBTOR'S NAME OR CORPORATE STRUCTURE. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation, or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least
thirty (30) days prior to the effective date of such change. Without the express
written consent of Secured Party, however, Debtor will not engage in any other
business or transaction under any name other than Debtor's name hereunder.
Section 4.03 DELIVERY OF LETTERS OF CREDIT AND INSTRUMENTS. Debtor will
deliver each letter of credit, if any, included in the Collateral to Secured
Party, in each case forthwith upon receipt by or for the account of Debtor. If
any Account becomes evidenced by a promissory note, trade acceptance, or any
other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 6.02(h)), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed and, regardless
of the form of presentment, demand, notice
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August 29, 1996
<PAGE>
of dishonor, protest, and notice of protest with respect thereto, Debtor will
remain liable thereon until such instrument is paid in full.
Section 4.04 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Debtor will
not in any way encumber any of the Collateral (or permit or suffer any of the
Collateral to be encumbered) or sell, assign, lend, or otherwise dispose of or
transfer any of the Collateral to or in favor of any Person other than Secured
Party.
Section 4.05 DIVIDENDS OR DISTRIBUTIONS. So long as no Event of Default
shall have occurred and be continuing, Debtor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the Collateral;
PROVIDED, HOWEVER, that any and all
(a) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable, or
otherwise distributed in respect of, or in exchange for (including,
without limitation, any certificate or share purchased or exchanged in
connection with a tender offer or merger agreement), any Collateral,
(b) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus, or paid-in surplus, or reclassification, and
(c) cash paid, payable, or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to Secured Party to hold as,
Collateral and shall, if received by Debtor, be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Debtor, and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with any necessary indorsement).
Section 4.06 PROCEEDS OF COLLATERAL. Except as permitted by Section
4.10, Debtor will deliver to Secured Party promptly upon receipt all proceeds
delivered to Debtor from the sale or disposition of any Collateral. If chattel
paper, documents, or instruments are received as proceeds, which are required to
be delivered to Secured Party, they will be, immediately upon receipt, properly
endorsed or assigned and delivered to Secured Party as Collateral. This Section
4.06 shall not be construed to permit sales or dispositions of Collateral except
as may be elsewhere expressly permitted by this Agreement.
Section 4.07 RECORDS AND INFORMATION. Debtor shall keep accurate and
complete records of the Collateral (including proceeds). These records shall
reflect all facts concerning each Account. Secured Party may upon reasonable
prior notice have access to, examine, audit, make extracts from, and inspect
without hindrance or delay Debtor's records, files, and the Collateral
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<PAGE>
during normal business hours. Debtor will promptly provide written notice to
Secured Party of all information known to Debtor which in any way relates to or
affects the filing of any financing statement or other public notices or
recordings, or the delivery and possession of items of Collateral for the
purpose of perfecting a security interest in the Collateral. Debtor will also
promptly furnish such information as Secured Party may from time to time
reasonably request regarding (i) the business, affairs, or financial condition
of Debtor or (ii) the Collateral or Secured Party's rights or remedies with
respect thereto.
Section 4.08 REIMBURSEMENT OF EXPENSES. Debtor will pay to Secured Party
all reasonable advances, charges, costs, and expenses (including, without
limitation, all costs and expenses of retaking, holding, preparing for sale and
selling, collecting, or otherwise realizing upon the Collateral if an Event of
Default occurs and all attorneys' fees, legal expenses and court costs) incurred
by Secured Party in connection with the exercise of Secured Party's rights and
remedies hereunder. Debtor hereby assumes all liability for the Collateral, the
security interests created hereunder and any use, possession, maintenance,
management, enforcement, or collection of any or all of the Collateral. Debtor
agrees to indemnify and hold Secured Party harmless from and against and
covenants to defend Secured Party against any and all losses, damages, claims,
costs, penalties, liabilities, and expenses, including, without limitation,
court costs and attorneys' fees, incurred because of, incident to, or with
respect to the Collateral (including, without limitation, any use, possession,
maintenance, or management thereof), but excluding any losses, damages, claims,
costs, penalties, liabilities, or expenses arising solely by reason of the gross
negligence or willful misconduct of the Secured Party or the Lenders. All
amounts for which Debtor is liable pursuant to this Section 4.08 shall be due
and payable by Debtor to Secured Party upon demand. If Debtor fails to make such
payment upon demand (or if demand is not made due to an injunction or stay
arising from bankruptcy or other proceedings) and Secured Party pays such
amount, the same shall be due and payable by Debtor to Secured Party, plus
interest thereon from the date of Secured Party's demand (or from the date of
Secured Party's payment if demand is not made due to such proceedings) at the
Default Rate.
Section 4.09 FURTHER ASSURANCES. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements, or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce, or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.10 ACCOUNTS.
(a) Prior to notification by Secured Party under Section 6.02(g), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections
(subject to Section 4.03).
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<PAGE>
(b) Debtor will not modify, extend, or substitute any contract, the
terms of which shall at any time have given rise to an Account, except in the
ordinary course of business or with the prior written consent of Secured Party.
Debtor will not re-date any invoice or sale or make sales with an extended
payment date beyond that customary in the industry, and in no event longer than
120 days. Debtor shall not adjust, settle, discount, or compromise any of the
Accounts, except in the ordinary course of business or with the prior written
consent of Secured Party.
(c) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying transactions giving
rise to the Accounts
Section 4.11 STOCK POWERS. Debtor shall furnish to Secured Party such
stock powers and other instruments as may reasonably be required by Secured
Party to assure the transferability of the Collateral when and as often as may
reasonably be requested by Secured Party.
Section 4.12 RIGHTS TO SELL. If Secured Party shall determine to
exercise its rights to sell all or any of the Collateral pursuant to its rights
hereunder, Debtor agrees that, upon request of Secured Party, Debtor will, at
its own expense:
(a) use its best efforts to qualify the Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by
Secured Party;
(b) use its best efforts to cause each such issuer to make
available to its security holders, as soon as practicable, an earnings
statement which will satisfy the provisions of Section 11(a) of the
Securities Act; and
(c) use its best efforts to do or cause to be done all such
others acts and things as may be necessary to make such sale of the
Collateral or any part thereof valid and
binding and in compliance with applicable law.
Debtor further acknowledges the impossibility of ascertaining the amount of
damages which would be suffered by Secured Party and the Lenders by reason of
the failure by Debtor to perform any of the covenants contained in this Section
4.12 and consequently agrees that if Debtor shall fail to perform any of such
covenants, it shall pay, as liquidated damages, and not as penalty, an amount
equal to the value of the Collateral on the date the Secured Party shall demand
compliance with this Section 4.12.
Section 4.13 VOTING AND OTHER CONSENSUAL RIGHTS. Except to the extent
otherwise provided in subsection 6.06(d), Debtor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the terms of this
Agreement; PROVIDED, HOWEVER, that Debtor shall not exercise or refrain
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August 29, 1996
<PAGE>
from exercising any such right if such action would have a material adverse
effect on the value of the Collateral or any part thereof; PROVIDED FURTHER that
upon request of Secured Party at any time or from time to time, Debtor shall
give Secured Party prompt written notice of the manner in which Debtor has
exercised, or the reasons for refraining from exercising, any such right.
Section 4.14 PLEDGED SECURITIES PERCENTAGE. The Pledged Securities will
at all times constitute one hundred (100) percent of the issued and outstanding
shares of capital stock of the issuer thereof.
ARTICLE 5
RIGHTS, DUTIES, AND POWERS OF SECURED PARTY
The following rights, duties, and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing (except as
such rights, duties, and powers
may otherwise be limited as specifically set forth below):
Section 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes, liens, security interests, or other encumbrances at any
time levied or placed on the Collateral, may pay for insurance on the Collateral
and may pay for the maintenance and preservation of the Collateral. Debtor
agrees to reimburse Secured Party upon demand for any payment so made, plus
interest thereon from the date of Secured Party's demand at the Highest Lawful
Rate.
Section 5.02 TRANSFER OF COLLATERAL. Secured Party may transfer any or
all of the Obligations, and upon any such transfer Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers, and remedies of Secured Party hereunder.
Section 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers, and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity.
The
exercise by Secured Party of any one or more of the rights, powers, and remedies
herein shall not be construed as a waiver of any other rights, powers, and
remedies, including, without limitation, any other rights of set-off. If any of
the Obligations are given in renewal, extension for any period, or
rearrangement, or applied toward the payment of debt secured by any lien,
Secured Party shall be, and is hereby, subrogated to all the rights, titles,
interests, and liens securing the debt so renewed, extended, rearranged, or
paid.
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<PAGE>
Section 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Agreement are to
protect its interest in the Collateral and shall not impose any duty upon
Secured Party to exercise any such powers. Debtor hereby agrees that Secured
Party shall not be liable for, nor shall the indebtedness evidenced by the
Obligations be diminished by, Secured Party's delay or failure to collect upon,
foreclose, sell, take possession of, or otherwise obtain value for the
Collateral.
(b) Secured Party shall be under no duty whatsoever to make or give any
presentment, notice of dishonor, protest, demand for performance, notice of
non-performance, notice of intent to accelerate, notice of acceleration, or
other notice or demand in connection with any Collateral or the Obligations, or
to take any steps necessary to preserve any rights against any Obligor, Account
Debtor or other Person. Debtor waives any right of marshaling in respect of any
and all Collateral, and waives any right to require Secured Party to proceed
against any Obligor, Account Debtor, or other Person, exhaust any Collateral, or
enforce any other remedy which Secured Party now has or may hereafter have
against any Obligor or other Person.
Section 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal, or extension for any period of any instrument executed by any Obligor
in connection with the Obligations and (ii) any defense of any Obligor by reason
of disability, lack of authorization, cessation of the liability of any Obligor,
or for any other reason. Debtor authorizes Secured Party, without notice or
demand and without any reservation of rights against Debtor and without
affecting Debtor's liability hereunder or on the Obligations, from time to time
to (x) take and hold other property, other than the Collateral, as security for
the Obligations, and exchange, enforce, waive, and release any or all of the
Collateral, (y) during the occurrence and continuance of an Event of Default
only, apply the Collateral in the manner permitted by this Agreement, and (z)
during the occurrence and continuance of an Event of Default only, renew, extend
for any period, accelerate, amend or modify, supplement, enforce, compromise,
settle, waive, or release the obligations of any Obligor or any instrument or
agreement of such other Person with respect to any or all of the Obligations or
Collateral.
Section 5.06 CUSTODY AND PRESERVATION OF THE COLLATERAL. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which comparable secured parties accord
comparable collateral, it being understood and agreed, however, that none of
Secured Party nor any Lender shall have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities,
tenders, or other matters relative to any Collateral, whether or not Secured
Party has or is deemed to have knowledge of such matters, or (ii) taking any
necessary steps to preserve rights against Persons or entities with respect to
any Collateral.
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August 29, 1996
<PAGE>
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS. It shall constitute an Event of Default under this
Agreement if an Event of Default occurs and is continuing under the Credit
Agreement.
Section 6.02 REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required below or in the Credit
Agreement) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same
by Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's
request Debtor shall, at Debtor's cost, assemble the Collateral and make
it available at a location to be specified by Secured Party which is
reasonably convenient to Debtor and Secured Party. Secured Party may, at
its option, render any equipment unusable that may be included in the
Collateral, or, at Secured Party's request, Debtor will render it
unusable. In any event, Debtor shall bear the risk of accidental loss or
damage to or diminution in value of the Collateral, and neither Secured
Party nor any Lender will have any liability whatsoever for failure to
obtain or maintain insurance, nor to determine whether any insurance
ever in force is adequate as to amount or as to risk insured.
(c) Sell, in one or more sales and in one or more parcels, or
otherwise dispose of any or all of the Collateral in any commercially
reasonable manner as Secured Party may elect, in a public or private
transaction, at any location as deemed reasonable by Secured Party
either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as
adopted in any applicable jurisdiction) Secured Party may be the
purchaser of any or all Collateral so sold and may apply upon the
purchase price therefor any Obligations secured hereby. Any such sale or
transfer by Secured Party either to itself or to any other Person shall
be absolutely free from any claim of right by Debtor, including any
equity or right of redemption, stay, or appraisal which Debtor has or
may have under any rule of law, regulation, or statute now existing or
hereafter adopted. Upon any such sale or transfer, Secured Party shall
have the right to deliver, assign, and transfer to the purchaser or
transferee thereof the Collateral so sold or transferred. It shall not
be necessary that the Collateral or any part thereof be present at the
location of any such sale or transfer. Secured Party may, at its
discretion, provide for a public sale, and any such public sale shall be
held at such time or times within ordinary business hours and at such
place or places as Secured Party may fix in the notice of such sale.
Secured Party shall not be obligated to make any sale pursuant
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August 29, 1996
<PAGE>
to any such notice. Secured Party may, without notice or publication,
adjourn any public or private sale by announcement at any time and place
fixed for such sale, and such sale may be made at any time or place to
which the same may be so adjourned. In the event any sale or transfer
hereunder is not completed or is defective in the opinion of Secured
Party, such sale or transfer shall not exhaust the rights of Secured
Party hereunder, and Secured Party shall have the right to cause one or
more subsequent sales or transfers to be made hereunder. In the event
that any of the Collateral is sold or transferred on credit, or to be
held by Secured Party for future delivery to a purchaser or transferee,
the Collateral so sold or transferred may be retained by Secured Party
until the purchase price or other consideration is paid by the purchaser
or transferee thereof, but in the event that such purchaser or
transferee fails to pay for the Collateral so sold or transferred or to
take delivery thereof, Secured Party shall incur no liability in
connection therewith. If only part of the Collateral is sold or
transferred such that the Obligations remain outstanding (in whole or in
part), Secured Party's rights and remedies hereunder shall not be
exhausted, waived or modified, and Secured Party is specifically
empowered to make one or more successive sales or transfers until all
the Collateral shall be sold or transferred and all the Obligations are
paid.
(d) Take possession of all books and records of Debtor pertaining
to the Collateral. Secured Party shall have the authority to enter upon
any real property or improvements thereon in order to obtain any such
books or records, or any Collateral located thereon, and remove the same
therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the
Code or otherwise permitted by law or in equity. Such application may
include, without limitation, the reasonable expenses of retaking,
holding, preparing for sale or other disposition, and the reasonable
attorneys' fees and legal expenses incurred by Secured Party.
(f) Appoint any Person as agent to perform any act or acts
necessary or incident to any sale or transfer by Secured Party of the
Collateral.
(g) Receive, change the address for delivery, open and dispose of
mail addressed to Debtor, and to execute, assign, and endorse negotiable
and other instruments for the payment of money, documents of title, or
other evidences of payment, shipment, or storage for any form of
Collateral on behalf of and in the name of Debtor.
(h) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account
Debtors to make payments on the Accounts directly to Secured Party and
take all other action as may be necessary to effectuate such assignment.
To the extent Secured Party does not so elect, Debtor shall
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August 29, 1996
<PAGE>
continue to collect the Accounts. Secured Party or its designee shall
also have the right, in its own name or in the name of Debtor, to do any
of the following: (i) to demand, collect, receipt for, settle,
compromise any amounts due, give acquittances for, prosecute or defend
any action which may be in relation to any monies due or to become due
by virtue of, the Accounts; (ii) to sell, transfer, assign or otherwise
deal in the Accounts or the proceeds thereof, as fully and effectively
as if Secured Party were the absolute owner thereof; (iii) to extend the
time of payment of any of the Accounts, to grant waivers and make any
allowance or other adjustment with reference thereto; (iv) to endorse
the name of Debtor on notes, checks, or other evidences of payments on
Collateral that may come into possession of Secured Party; (v) to take
control of cash and other proceeds of any Collateral; (vi) to sign the
name of Debtor on any invoice relating to any Collateral, or any drafts
against Account Debtors or other persons making payment with respect to
Collateral; (vii) to send a request for verification of Accounts to any
Account Debtor; and (viii) to do all other acts and things necessary to
carry out the intent of this Agreement.
(i) Exercise all other rights and remedies permitted by law or
in equity.
Section 6.03 ATTORNEY-IN-FACT. Upon the occurrence and during the
continuance of an Event of Default only, Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in
Secured Party's discretion upon the occurrence and during the continuance of an
Event of Default, but at Debtor's cost and expense and without notice to Debtor:
(a) To obtain, adjust, sell, and cancel any insurance with
respect to the Collateral, and endorse any draft drawn by insurers of
the Collateral. Secured Party may apply any proceeds or unearned
premiums of such insurance to the Obligations (whether
or not due).
(b) To take any action and to execute any assignment,
certificate, financing statement, notification, document, or instrument
which Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive,
endorse, and collect all instruments made payable to Debtor representing
any payment or other distribution in respect of the Collateral or any
part thereof and to give full discharge for the same.
Section 6.04 ACCOUNT DEBTORS. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge, and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the
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August 29, 1996
<PAGE>
termination of this Agreement or the rights of Secured Party to act hereunder,
but shall be fully protected by Debtor in making payment directly to Secured
Party.
Section 6.05 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party hereunder
results in reduction of the Obligations, such action will not release Debtor
from its liability to Secured Party for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to Secured
Party at Secured Party's address set forth in the opening paragraph hereof.
Section 6.06 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party to give reasonable notice of any sale or disposition or
other action, Debtor hereby agrees that ten days' prior written notice shall
constitute reasonable notice thereof. Such notice, in the case of public sale,
shall state the time and place fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.
Section 6.07 NON-JUDICIAL ENFORCEMENT. To the extent permitted by law,
(i) Secured Party may enforce its rights hereunder without prior judicial
process or judicial hearing, and (ii) Debtor expressly waives any and all legal
rights which might otherwise require Secured Party
to enforce its rights by judicial process.
Section 6.08 PLEDGED SECURITIES. Upon the occurrence and during the
continuance of an Event of Default:
(a) All rights of Debtor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 4.05 shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the
sole right to receive and hold as Collateral such dividends and interest
payments, but Secured Party shall have no duty to receive and hold such
dividends and interest payments and shall not be responsible for any
failure to do so or delay in so doing.
(b) All dividends and interest payments which are received by
Debtor contrary to the provisions of this Section 6.08 shall be received
in trust for the benefit of Secured Party, shall be segregated from
other funds of Debtor and shall be forthwith paid over to Secured Party
as Collateral in the same form as so received (with any necessary
indorsement).
(c) Secured Party may exercise any and all rights of conversion,
exchange, subscription, or any other rights, privileges, or options
pertaining to any of the Pledged Securities as if it were the absolute
owner thereof, including without limitation, the right to exchange at
its discretion, any and all of the Pledged Securities upon the merger,
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August 29, 1996
<PAGE>
consolidation, reorganization, recapitalization, or other readjustment
of any issuer of such Pledged Securities or upon the exercise by any
such issuer or Secured Party of any right, privilege, or option
pertaining to any of the Pledged Securities, and in connection
therewith, to deposit and deliver any and all of the Pledged Securities
with any committee, depository, transfer agent, registrar, or other
designated agency upon such terms and conditions as it may reasonably
determine, all without liability except to account for property actually
received by it, but Secured Party shall have no duty to exercise any of
the aforesaid rights, privileges, or options and shall not be
responsible for any failure to do so or delay in so doing.
(d) If the issuer of any Pledged Securities is the subject of
bankruptcy, insolvency, receivership, custodianship, or other
proceedings under the supervision of any court or governmental agency or
instrumentality, then all rights of Debtor to exercise the voting and
other consensual rights which Debtor would otherwise be entitled to
exercise pursuant to Section 4.13 with respect to the Pledged Securities
issued by such issuer shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right
to exercise such voting and other consensual rights, but Secured Party
shall have no duty to exercise any such voting or other consensual
rights and shall not be responsible for any failure to do so or delay in
so doing.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 NOTICES. Any notice required or permitted to be given under
or in connection with this Agreement shall be given in accordance with the
notice provisions of the Credit Agreement.
Section 7.02 AMENDMENTS AND WAIVERS. Secured Party's acceptance of
partial or delinquent payments or any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy hereunder shall not be deemed a
waiver of any obligation of Debtor or any Obligor, or of any right, power, or
remedy of Secured Party; and no partial exercise of any right, power, or remedy
shall preclude any other or further exercise thereof. Secured Party may remedy
any Event of Default hereunder or in connection with the Obligations without
waiving the Event of Default so remedied. Debtor hereby agrees that if Secured
Party agrees to a waiver of any provision hereunder, or an exchange of or
release of the Collateral, or the addition or release of any Obligor or other
Person, any such action shall not constitute a waiver of any of Secured Party's
other rights or of Debtor's obligations hereunder. This Agreement may be amended
only by an instrument in writing executed jointly by Debtor and Secured Party
and may be
-17-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.
Section 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; PROVIDED, HOWEVER, that Secured Party shall not be liable for
any interest, cost, or expense in connection with any delay in delivering such
proceeds to Debtor.
Section 7.06 GOVERNING LAW; JURISDICTION. This Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein Secured Party's offices are located at the address specified in the
opening paragraph hereof, and in the Federal District Courts of the district
wherein such offices of Secured Party are located. This submission to
jurisdiction is nonexclusive and does not preclude Secured Party or any Lender
from obtaining jurisdiction over Debtor or the Collateral in any court having
jurisdiction.
Section 7.07 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9.505 of
the Code, no action taken or omission to act by Secured Party hereunder,
including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in
subsection (b) below.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be
-18-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
repaid to a trustee, debtor in possession, receiver or other Person under any
bankruptcy law, common law, or equitable cause, then to such extent the
Obligations so satisfied shall be revived and continue as if such payment or
proceeds had not been received by Secured Party, and Secured Party's security
interests, rights, powers, and remedies hereunder shall continue in full force
and effect. In such event, this Agreement shall be automatically reinstated if
it shall theretofore have been terminated pursuant to Section 7.08.
Section 7.08 TERMINATION. The grant of a security interest hereunder and
all of Secured Party's rights, powers, and remedies in connection therewith
shall remain in full force and effect until Secured Party has retransferred and
delivered all Collateral in its possession to Debtor, and executed a written
release or termination statement and reassigned to Debtor without recourse or
warranty any remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations and the compliance by Debtor with all
covenants and agreements hereof, Secured Party, at the written request and
expense of Debtor, will release, reassign and transfer the Collateral to Debtor
and declare this Agreement to be of no further force or effect. Notwithstanding
the foregoing, the reimbursement and indemnification provisions of Section 4.08
and the provisions of subsection 7.07(b) shall survive the termination of this
Agreement.
Section 7.09 COUNTERPARTS, EFFECTIVENESS. This Agreement may be executed
in two or more counterparts. Each counterpart is deemed an original, but all
such counterparts taken together constitute one and the same instrument. This
Agreement becomes effective upon the execution hereof by Debtor and delivery of
the same to Secured Party, and it is not necessary for Secured Party to execute
any acceptance hereof or otherwise signify or express its acceptance hereof.
DEBTOR: STAT HEALTHCARE, INC.
By:
Ned E. Chapman
Chief Financial Officer
-19-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
FINANCING STATEMENT
This Financing Statement is presented to a filing officer for filing
pursuant to the Uniform Commercial Code.
1. The name and address of the Debtor is:
STAT HEALTHCARE, INC.
12450 Greenspoint Drive
Suite 1200
Houston, Texas 77060
2. The name and address of the Secured Party is:
SOUTHWEST BANK OF TEXAS, N.A.
1100 Louisiana
Houston, Texas 77002
3. This Financing Statement covers the following Collateral:
(a) All of Debtor's accounts, chattel paper, equipment,
documents, instruments, and general intangibles, including, without
limitation, accounts arising from governmental or private healthcare
insurances for healthcare services rendered.
(b) The following securities: all capital stock now or hereafter
owned by the Debtor in its Subsidiaries, together with stock
certificates and irrevocable stock powers in the Subsidiaries, including
but not limited to: Old STAT, Inc., STAT Dialysis Corporation and STAT
Management Corporation.
(c) (i) The certificates or instruments, if any, representing the
securities described in item (b) above, (ii) all dividends (cash, stock,
or otherwise), cash, instruments, rights to subscribe, purchase, or
sell, and all other rights and property from time to time received,
receivable, or otherwise distributed in respect of or in exchange for
any or all of such securities, (iii) any related or additional property
from time to time delivered to or deposited with Secured Party by or for
the account of Debtor; (iv) all property used or usable in connection
with any property referred to in this Paragraph 3; (v) all proceeds,
replacements, additions to and substitutions for any of the property
referred to in this Paragraph 3 and claims against third parties; and
(vi) all books and records related to any of the property referred to in
this Paragraph 3, including, without limitation, any and all books of
account, customer lists, payor lists, and other records
-1-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
relating in any way to the accounts, chattel paper, or instruments
referred to in this Paragraph 3.
(d) All general intangibles related to any property referred to
in this Paragraph 3, including, without limitation, all (i) letters of
credit, bonds, guaranties, purchase or sales agreements, and other
contractual rights (including but not limited to the Designated
Contracts), rights to performance, and claims for damages, refunds
(including tax refunds), or other monies due or to become due; (ii)
orders, franchises, permits, certificates, licenses, consents,
exemptions, variances, authorizations, or other approvals by any
governmental agency or court; (iii) business records, computer tapes,
and computer software; (iv) goodwill; and (v) other intangible personal
property, whether similar or dissimilar to the property referred to in
this Paragraph 3.
DEBTOR: STAT HEALTHCARE, INC.
By:
Ned E. Chapman
Chief Financial Officer
-2-
PLEDGE AND SECURITY AGREEMENT
August 29, 1996
<PAGE>
EXHIBIT 10.24
SUBROGATION AND CONTRIBUTION AGREEMENT
AMONG
STAT HEALTHCARE, INC.
OLD STAT, INC.
STAT DIALYSIS CORPORATION
STAT MANAGEMENT CORPORATION
STAT PHYSICIANS, P.A.
AND
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
AUGUST 29, 1996
SUBROGATION AND CONTRIBUTION AGREEMENT
August 29, 1996
1
<PAGE>
SUBROGATION AND CONTRIBUTION AGREEMENT
THIS SUBROGATION AND CONTRIBUTION AGREEMENT (this "AGREEMENT") is made
and entered into, effective as of August 29, 1996 among STAT HEALTHCARE, INC., a
Delaware corporation (the "COMPANY"), OLD STAT, INC., a Delaware corporation,
STAT DIALYSIS CORPORATION, a Delaware corporation, STAT MANAGEMENT CORPORATION,
a Delaware corporation, STAT PHYSICIANS, P.A., a Texas professional association,
and SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A., a Texas professional association
(the "GUARANTORS").
R E C I T A L S:
WHEREAS the Company, Southwest Bank of Texas, N.A., individually and as
Agent ("AGENT"), and The Boatmen's National Bank of St. Louis (together with the
Agent, the "Lenders"), made and entered into that certain Credit Agreement of
even date herewith (the "CREDIT AGREEMENT"), pursuant to which, upon the terms
and conditions stated therein, the Lenders agree to make loans to the Company;
WHEREAS, on even date herewith, the Guarantors are executing a Guaranty
Agreement in favor of the Agent (such agreement, as may from time to time be
amended or supplemented, being hereinafter call the "Guaranty");
WHEREAS the Lenders have conditioned their respective obligations under
the Credit Agreement upon the execution and delivery by the Company and the
Guarantors of this Agreement, and the Company and the Guarantors have agreed to
enter into this Agreement;
NOW, THEREFORE, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Each capitalized term used, but not defined, herein shall have the
meaning assigned such term in, or by reference in, the Credit Agreement or the
Guaranty .
2. (a) If any Guarantor makes a payment in respect of the Obligations,
it shall be subrogated to the rights of the Lenders (or any other payee) against
the Company with respect to such payment and shall have the rights of
contribution set forth below against the other Guarantors; PROVIDED that such
Guarantor shall not enforce its rights to any payment by way of subrogation or
by exercising its rights of contribution until all the Obligations shall have
been paid in full. If any Guarantor makes a payment in respect of the
Obligations so that the amount of its then current Net
SUBROGATION AND CONTRIBUTION AGREEMENT
August 29, 1996
1
<PAGE>
Payments is less than the amount of its then current Contribution Obligation,
any Guarantor making such proportionately smaller payment shall, when permitted
by the preceding sentence, pay to the other Guarantors an amount such that the
Net Payments made by the Guarantors in respect of the Obligations shall be
shared among the Guarantors pro rata in proportion to their respective
Contribution Percentage. If any Guarantor receives any payment by way of
subrogation or contribution so that the amount of its then current Net Payments
is greater than the amount of its then current Contribution Obligation, the
Guarantor receiving such proportionately greater payment shall, when permitted
by the second preceding sentence, pay to the other Guarantors an amount such
that the Net Payments received by the Guarantors shall be shared among the
Guarantors PRO RATA in proportion to their respective Contribution Percentage.
If any Guarantor makes a payment in respect of the Obligations so that the
amount of its then current Net Payments is greater than the amount of its then
current Contribution Obligation, any Guarantor making such proportionately
larger payment shall, when permitted by the third preceding sentence, receive
from the other Guarantors an amount such that the Net Payments made by the
Guarantors in respect of the Obligations shall be shared among the Guarantors
pro rata in proportion to their respective Contribution Percentage.
(b) As used herein, the term "CONTRIBUTION OBLIGATION" shall mean an
amount equal, at any time and from time to time and for each respective
Guarantor, to the product of (i) the Contribution Percentage set forth opposite
such Guarantor's name on Annex I hereto, times (ii) the sum of all payments made
previous to or at the time of calculation by all Guarantors in respect of the
Obligations (less the amount of any such payments previously returned to any
Guarantor by operation of law or otherwise, but not including payments received
by any Guarantor by way of its rights of subrogation and contribution
hereunder). Notwithstanding anything to the contrary contained in this Section
or in this Agreement, no liability or obligation of any Guarantor that shall
accrue pursuant to this Agreement shall be paid nor shall it be deemed owed
pursuant to this Agreement until all of the Obligations shall be paid in full.
(c) As used herein, the term "NET PAYMENTS" shall mean an amount equal,
at any time and from time to time and for each respective Guarantor, to the
difference of (i) the sum of all payments made previous to or at the time of
calculation by such Guarantor in respect to the Obligations and in respect of
its obligations contained in this Agreement, less (ii) the sum of all such
payments previously returned to such Guarantor by operation of law or otherwise
and including payments received by such Guarantor by way of its rights of
subrogation and contribution hereunder.
(d) As used herein, the term "CONTRIBUTION PERCENTAGE" shall mean, for
any applicable date as of which such percentage is being determined an amount
equal to the quotient of (i) the Net Worth of such Guarantor as of such date,
divided by (ii) the sum of the Net Worth of all the Guarantors as of such date.
The amount set forth opposite each Guarantor's name on Annex I hereto was
calculated and agreed to among the Company and the Guarantors to be the
Contribution Percentage in effect on the date hereof.
SUBROGATION AND CONTRIBUTION AGREEMENT
August 29, 1996
2
<PAGE>
(e) As used herein, the term "NET WORTH" shall mean for any Guarantor,
calculated on and as of any applicable date on which such amount is being
determined, the difference between (A) the sum of all such Guarantor's property,
at a fair valuation and as of such date, MINUS (B) the sum of all such
Guarantor's debts, at a fair valuation and as of such date, excluding the
Obligations.
3. Each party hereto represents and warrants to each other party hereto
and to their respective successors and permitted assigns that the execution,
delivery, and performance by such party of this Agreement are within such
party's powers, have been duly authorized by all necessary action, require no
action by or in respect of, or filing with, any Governmental Authority and do
not contravene, or constitute a default under, any provision of any applicable
law or of the organizational documents of such party or of any material
agreement, judgment, injunction, order, decree, or other instrument binding upon
such party, or result in the creation or imposition of any Lien on any asset of
such party.
4. No failure or delay by any Guarantor in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. The rights and remedies herein
provided shall be cumulative and non-exclusive of any rights or remedies
provided by law.
5. Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the parties
hereto and consented to by each of the Guarantor and the Lenders.
6. The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
7. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
8. SUBMISSION TO JURISDICTION; SERVICE. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT, THE NOTES, OR THE SECURITY INSTRUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH OF THE PARTIES HERETO
SUBROGATION AND CONTRIBUTION AGREEMENT
August 29, 1996
3
<PAGE>
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING BUT NOT LIMITED TO, ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN
SUCH RESPECTIVE JURISDICTIONS.
9. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart. This
Agreement shall become effective when a counterpart hereof shall have been
signed by all the parties hereto.
SUBROGATION AND CONTRIBUTION AGREEMENT
August 29, 1996
4
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be duly executed and delivered by its duly authorized officer on the day and
year first above written.
BORROWER: STAT HEALTHCARE, INC.
By:
Ned E. Chapman
Chief Financial Officer
GUARANTORS: OLD STAT, INC.
By:
Ned E. Chapman
Chief Financial Officer
STAT DIALYSIS CORPORATION
By:
Ned E. Chapman
Secretary
STAT MANAGEMENT CORPORATION
By:
Ned E. Chapman
Secretary
STAT PHYSICIANS, P.A.
By:
Victor Miranda, M.D.
President
SUBROGATION AND CONTRIBUTION AGREEMENT
August 29, 1996
5
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
By:
William H. Rice, M.D.
President
SUBROGATION AND CONTRIBUTION AGREEMENT
August 29, 1996
6
<PAGE>
ANNEX I
TO
SUBROGATION AND CONTRIBUTION AGREEMENT
GUARANTOR CONTRIBUTION PERCENTAGE
OLD STAT, INC. 20%
STAT DIALYSIS CORPORATION 30%
STAT MANAGEMENT CORPORATION 10%
STAT PHYSICIANS, P.A. 40%
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A. 0%
-----
100%
EXHIBIT 10.25
AMENDED AND RESTATED
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....................... 4
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................................... 10
(a) Marketing.......................................... 10
(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
i.
<PAGE>
PAGE
(a) Calculation........................................ 11
(b) Payment............................................ 13
3.2 Definitions.............................................. 13
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........... 15
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........................................ 19
7.1 Ownership of Records..................................... 19
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
ii.
<PAGE>
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................................................. 24
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
iii.
<PAGE>
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
This Amended and Restated 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.
G. Professional Association and Management Company are parties to a
certain Management Services Agreement, dated as of February 1, 1996 (the
"Original Agreement"), and Professional Association and Management Company
desire to amend and restate the Original Agreement as provided herein.
1.
<PAGE>
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,
2.
<PAGE>
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
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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
responsibility 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.
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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
deposited 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
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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 for the benefit 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 to make such payments and disbursements as set forth in this
Agreement.
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.
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(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
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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
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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.
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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
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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.
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(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
any additional cash and the fair market value of other property
contributed by the Management Company to or on behalf of Professional
Association from and after the Effective Date, and (b) decreased
dollar for dollar by any cash or the fair market value of other
property distributed to the Management
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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.
(2) Any funds which are provided by the Management Company or
its Affiliates to the Professional Association shall be deemed to be
additional cash contributions to, and not debt obligations of, the
Professional Association 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 Professional Association.
(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:
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(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 (net of Medicare,
Medicaid and other government-funded healthcare programs subject to restrictions
on the providers' ability to transfer payments (together "Adjustments")) 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 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
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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
Agreement 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:
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(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 properties 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
Agreement 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.
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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
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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
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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
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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.
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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.
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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.
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
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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 indirectly, 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
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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 including, without limitation, the Original
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
counterparts, 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 Agreement 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.
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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.
By: Ned E. Chapman
Its: Cheif Financial Officer
STAT Physicians, P.A.
By: William H. Rice, M.D.
Its: Chairman of the Board and
Vice President
25.
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
South Texas Acute Trauma Physicians, P.A.:
We consent to the use of our report included herein on the financial statements
of South Texas Acute Trauma Physicians, P.A. as of August 31, 1994 and December
31, 1993, and for the eight months ended August 31, 1994 and the year ended
December 31, 1993. We also consent to the references to our firm under the
heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
September 25, 1996
