<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________TO___________
COMMISSION FILE NUMBER 0-13849
RAMSAY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0857352
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
COLUMBUS CENTER
ONE ALHAMBRA PLAZA, SUITE 750 33134
CORAL GABLES, FLORIDA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 569-6993
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A-1 or any
amendment to this Form 10-K/A-1. / /
The number of shares of the registrant's Common Stock outstanding as
of October 9, 1997 was 10,835,843. The aggregate market value of Common Stock
held by non-affiliates on such date was $35,285,967.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Company's executive officers is contained
in Part I under "Item 1. Business -- Executive Officers of the Registrant."
DIRECTORS OF THE REGISTRANT
Certain information with respect to the directors of the Company is set
forth below:
Principal Occupations for Past Five
Name of Director and Age Years and Certain Other Directorships
- ------------------------ -------------------------------------
Aaron Beam, Jr. (53) Executive Vice President and Chief Financial Officer of
HEALTHSOUTH Corporation (provider of medical
rehabilitation services) since prior to 1992; Director
of HEALTHSOUTH Corporation since 1993; Director of the
Company since 1991.
Peter J. Evans (48) Financial consultant to a number of Australian
companies; Partner, P.J. Evans & Co., a chartered
accounting firm in Australia, since prior to 1992;
Director of Ramsay Health Care Pty. Limited (or its
predecessors) (owner and operator of hospitals in
Australia), and Prime Television Limited (operator of
an Australian television network); Director of the
Company since 1989.
Thomas M. Haythe (58) Partner, Haythe & Curley (attorneys) since prior to
1992; Director of Guest Supply, Inc. (provider of hotel
guest room amenities, accessories and products),
Novametrix Medical Systems Inc. (manufacturer of
electronic medical instruments), and Westerbeke
Corporation (manufacturer of marine engine products);
Director of the Company since 1987.
Luis E. Lamela (47) Vice Chairman of the Board of the Company since January
1996; Chief Executive Officer of CAC Medical Centers, a
division of United HealthCare of Florida, since May
1994; President and Chief Executive Officer of Ramsay -
HMO, Inc. from prior to 1992 to May 1994; Director of
the Company since 1996.
Paul J. Ramsay (61) Chairman of the Board of the Company since July 1988;
President of the Company from February 1988 to July
1988; Chairman of the Board of the Company from
November 1987 to February 1988; involved in the health
<PAGE>
care industry for more than 25 years; Chairman of the
Board of Ramsay Health Care Pty. Limited (or its
predecessors), and Prime Television Limited; Director
of the Company since 1987.
Steven J. Shulman (46) President and Chief Executive Officer of Prudential
Health Care, Inc. since 1997; President of the Pharmacy
and Disease Management Group of Value Health, Inc.
(provider of specialty managed care programs) from
September 1995 to 1997; Executive Vice President of
Value Health, Inc. since prior to 1992 to September
1995; Director of Value Health, Inc. and Novametrix
Medical Systems Inc.; Director of the Company since
1991.
Michael S. Siddle (48) Managing Director (Chief Executive Officer) of Ramsay
Health Care Pty. Limited (or its predecessors) since
prior to 1992; various executive positions with
corporations controlled by Paul J. Ramsay since prior
to 1992; Director of Prime Television Limited; Director
of the Company since 1987.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
- -------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
Common Stock, to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock. Executive officers, directors and greater
than ten percent stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations that no other reports were
required, during the fiscal year ended June 30, 1997, all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent stockholders were complied with, except that Dr. Lazoritz, Daniel A.
Sims and Jorge L. Rico failed to make a timely filing of an initial statement on
Form 3, Mr. Lamela failed to make a timely filing of a statement on Form 4
regarding four transactions and Ms. Lang, Mr. Rico and Mr. Shulman failed to
make a timely filing of a statement on Form 5 regarding one transaction each.
All such persons have subsequently filed the required reports.
ITEM 11. EXECUTIVE COMPENSATION.
The following table and footnotes set forth information for the fiscal years
ended June 30, 1997, 1996 and 1995 concerning the compensation paid or awarded
to the Chief Executive Officer and the other most highly compensated executive
officers of the Company.
2
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ----------
FISCAL SECURITIES
YEAR OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND ENDED SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION
PRINCIPAL POSITION(1) JUNE 30 ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bert G. Cibran(2) 1997 268,124 (5) 18,679 (7) 275,000 (8) 19,005 (10)
President & Chief 1996 --- --- --- --- ---
Operating Officer 1995 --- --- --- --- ---
Carol C. Lang(3) 1997 212,493 (5) --- 200,000 (8) 5,000 (11)
Executive Vice President 1996 --- --- --- --- ---
and Chief Financial 1995 --- --- --- --- ---
Officer
Martin Lazoritz, M.D.(4) 1997 275,857 24,000(6) --- 175,000 (8) 77,002 (12)
Executive Vice President 1996 --- --- --- --- ---
and Chief Medical 1995 --- --- --- --- ---
Officer
John A. Quinn 1997 155,598 (5) 4,800 (7) 20,000 (8) 86,366 (13)
Senior Vice President 1996 155,598 20,000 4,800 (7) 20,000 (9) ---
1995 135,156 45,000 4,800 (7) --- ---
Wallace E. Smith 1997 160,609 (5) 4,800(7) 20,000 (8) ---
Senior Vice President 1996 160,609 12,000 4,800(7) --- ---
1995 160,609 6,300 4,800(7) --- ---
</TABLE>
____________________
(1) Does not include Reynold J. Jennings, who served as Chief Executive Officer
of the Company from January 1996 to August 1996. Mr. Jennings assumed the
position of Executive Vice President in August 1996 upon the appointment of
Bert G. Cibran as President and Chief Operating Officer of the Company. Mr.
Jennings left the employment of the Company in February 1997. Mr. Jennings
received (i) salary and bonus of $155,527, $225,859 and $360,859 (including
a $135,000 bonus), (ii) other annual compensation of $4,375, $7,500 and
$7,500, (in each case representing a car allowance), (iii) options to
purchase 0, 124,830 and 50,000 shares of Common Stock and (iv) other
compensation of $0, $4,421 and $63,830 ($51,169 of which represents moving
expenses and other costs of relocation), (in each case, other than as
indicated, representing the benefits to Mr. Jennings of premiums paid by
the Company with respect to a split-dollar life insurance arrangement), for
the fiscal years ended June 30, 1997, 1996 and 1995, respectively. See
"Employment and Other Agreements" below.
(2) In August 1996, Mr. Cibran became President and Chief Operating Officer of
the Company. See "Employment and Other Agreements" below.
(3) In August 1996, Ms. Lang became Executive Vice President and Chief
Financial Officer of the Company. See "Employment and Other Agreements"
below.
(4) In February 1997, Dr. Lazoritz became Executive Vice President and Chief
Medical Officer of the Company. Throughout the 1997 fiscal year, Dr.
Lazoritz was the Executive Vice President of Ramsay Managed Care, Inc. The
compensation set forth in the table reflects the total compensation paid to
Dr. Lazoritz by the Company and Ramsay Managed Care, Inc. during the fiscal
year ended June 30, 1997. See "Employment and Other Agreements" and
"Certain Relationships and Related Transactions-The RMCI Merger" below.
(5) Bonus for the fiscal year ended June 30, 1997 has not yet been determined.
3
<PAGE>
(6) Represents a bonus paid to Dr. Lazoritz by Ramsay Managed Care, Inc. The
Company bonus for the fiscal year ended June 30, 1997 has not been
determined.
(7) Represents an automobile allowance.
(8) Represents options to purchase shares of Common Stock granted in fiscal
1997.
(9) Represents options to purchase shares of Common Stock granted in fiscal
1996. Does not include the repricing in fiscal 1996 of options to purchase
an aggregate of 60,692 shares of Common Stock.
(10) Represents premiums paid of $5,363 related to a long-term disability policy
and club membership fees of $13,643, including a $10,000 refundable
deposit.
(11) Represents consulting fees paid to Ms. Lang prior to the date she became
Executive Vice President and Chief Financial Officer of the Company.
(12) Represents premiums paid of $6,286 related to a long-term disability policy
and a pay-out of accrued but unused vacation of $70,716.
(13) During fiscal 1997, Mr. Quinn sold two houses in connection with Company
relocations. This amount represents reimbursement for losses incurred by
Mr. Quinn in connection with these sales.
The following table and footnotes set forth the grants of stock options to
the executive officers named in the Summary Compensation Table during the fiscal
year ended June 30, 1997. The amounts shown for each of the named executive
officers as potential realizable values are based on arbitrarily assumed
annualized rates of stock price appreciation of five percent and ten percent
over the exercise price of the options during the full terms of the options. No
gain to the optionees is possible without an increase in stock price which will
benefit all stockholders proportionately. These potential realizable values are
based solely on arbitrarily assumed rates of appreciation required by applicable
Securities and Exchange Commission (the "SEC") regulations. Actual gains, if
any, on option exercises and holdings of Common Stock are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the potential realizable values shown in this
table will be achieved.
STOCK OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
INDIVIDUAL PRICE APPRECIATION
GRANTS FOR OPTION TERM
----------------------------------------------------- ---------------------
% OF TOTAL EXERCISE
OPTIONS OR
GRANTED TO BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME (1) GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bert G. Cibran (2) 125,000 (3) 2.75 08/12/06 216,250 547,500
150,000 (4) 24.0% 2.75 05/08/07 259,500 657,000
Carol C. Lang 100,000 (3) 2.75 08/12/06 173,000 438,000
100,000 (4) 17.4% 2.75 05/08/07 173,000 438,000
Martin Lazoritz, M.D. (5) 100,000 (4) 8.7% 2.75 05/08/07 173,000 438,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
INDIVIDUAL PRICE APPRECIATION
GRANTS FOR OPTION TERM
----------------------------------------------------- ---------------------
% OF TOTAL EXERCISE
OPTIONS OR
GRANTED TO BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME (1) GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John A. Quinn (6) 20,000 (4) 1.7% 2.75 05/08/07 34,600 87,600
Wallace E. Smith (7) 20,000 (4) 1.7% 2.75 05/08/07 34,600 87,600
</TABLE>
____________________
(1) Does not include Reynold J. Jennings who served as Chief Executive Officer
of the Company from January 1996 to August 1996. Mr. Jennings assumed the
position of Executive Vice President in August 1996 upon the appointment of
Bert G. Cibran as President and Chief Operating Officer. Mr. Jennings did
not receive any options during fiscal 1997. Mr. Jennings left the
employment of the Company in February 1997.
(2) Does not include the following derivative securities now held by Mr. Cibran
as a result of the Merger (as defined in "Certain Relationships and Related
Transactions" below) in June 1997: options to purchase 25,000 shares of
Common Stock now held by Mr. Cibran in lieu of options granted prior to
fiscal 1997 to purchase 75,000 shares of common stock, $.01 par value
("RMCI Common Stock"), of Ramsay Managed Care, Inc. ("RMCI") and warrants
to purchase 17,499 shares of Common Stock now held by Mr. Cibran in lieu of
warrants granted prior to fiscal 1997 to purchase 52,500 shares of RMCI
Common Stock.
(3) Exercisable beginning six months prior to the expiration date, subject to
acceleration if the market value of the Common Stock equals or exceeds
$7.00 per share for 15 trading days.
(4) Exercisable in cumulative annual installments of 33 1/3% of the shares
covered thereby beginning one year from date of grant.
(5) Does not include options to purchase 75,000 shares of Common Stock received
by Dr. Lazoritz in connection with the Merger in lieu of options granted by
RMCI during fiscal 1997 to purchase 225,000 shares of RMCI Common Stock.
Does not include options to purchase 25,000 shares of Common Stock received
by Dr. Lazoritz in connection with the Merger in lieu of options granted by
RMCI prior to fiscal 1997 to purchase 75,000 shares of RMCI Common Stock.
(6) Does not include warrants to purchase 666 shares of Common Stock received
by Mr. Quinn in connection with the Merger in lieu of warrants granted by
RMCI prior to fiscal 1997 to purchase 2,000 shares of RMCI Common Stock.
(7) Does not include warrants to purchase 1,000 shares of Common Stock received
by Mr. Smith in connection with the Merger in lieu of warrants granted by
RMCI prior to fiscal 1997 to purchase 3,000 shares of RMCI Common Stock.
The following table and footnotes summarize stock options exercised during
fiscal 1997 and the number and value of options held by the executive officers
named in the Summary Compensation Table at June 30, 1997.
5
<PAGE>
STOCK OPTION EXERCISES IN FISCAL 1997 AND
STOCK OPTION VALUES AT JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT JUNE 30, 1997 (#) AT JUNE 30, 1997 ($) (1)
--------------------------- -------------------------
SHARES
ACQUIRED
ON VALUE
NAME(2) EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bert G. Cibran -- -- -- 375,000 -- 199,625
Carol C. Lang -- -- -- 200,000 -- 125,000
Martin Lazoritz, M.D. -- -- -- 200,000 -- 100,000
John A. Quinn -- -- -- 80,692 -- 65,606
Wallace E. Smith -- -- 47,853 20,000 -- 12,500
</TABLE>
___________________
(1) In-the-money options are those where the fair market value of the underlying
Common Stock exceeds the exercise price of the option. The value of in-the-
money options is determined in accordance with regulations of the Securities
and Exchange Commission by subtracting the aggregate exercise price of the
options from the aggregate year-end value of the underlying Common Stock.
(2) Does not include Reynold J. Jennings who served as Chief Executive Officer
of the Company from January 1996 to August 1996. Mr. Jennings assumed the
position of Executive Vice President in August 1996 upon the appointment of
Bert G. Cibran as President and Chief Operating Officer. Mr. Jennings did
not exercise any options during fiscal 1997. Mr. Jennings left the
employment of the Company in February 1997.
Compensation of Directors
- -------------------------
On October 28, 1996, the Company paid each of its directors $22,250 in
respect of fiscal 1997 directors' fees by the issuance of 16,000 shares of
Common Stock. Additionally, The Company reimbursed directors for out-of-pocket
expenses incurred in connection with attending meetings of the Board of
Directors and committees of the Board of Directors. For fiscal 1998, it is the
Company's policy to pay directors who are not employees of the Company an annual
fee of $12,000 and a fee of $3,000 for each of the first four meetings of the
Board of Directors attended during the year, with no additional compensation to
be paid for attendance at additional meetings.
Employment and Other Agreements
- -------------------------------
In October 1997, the Company entered into an employment agreement with Luis
E. Lamela to serve as the Company's Vice Chairman of the Board and Chief
Executive Officer, providing for the payment of an initial annual base salary of
$400,000, subject to increases determined by the Board of Directors and minimum
annual increases based on the Consumer Price Index. In addition, Mr. Lamela is
entitled to an annual bonus in an amount equal to the greater of (i) $400,000 or
(ii) five percent of any increase in operating income for the applicable fiscal
year over operating income for the 1997 fiscal year. The agreement is for an
initial term of two years with annual renewals thereafter. Pursuant to the
employment agreement, the Company agreed to provide Mr. Lamela an automobile
allowance and options to purchase 105,000 shares of Common Stock. In addition,
Mr. Lamela's employment by the Company may be terminated by either the Company
or Mr. Lamela; however, in the event the Company
6
<PAGE>
terminates Mr. Lamela's employment without due cause, the Company must continue
to pay Mr. Lamela his base salary in effect at the time of such termination for
24 months after the date of such termination and any bonus payable. The
agreement also provides for a lump sum cash payment to Mr. Lamela of his bonus
and 36 months' base salary upon termination of his employment for any reason
following certain change of control events involving the Company.
In February 1997, the Company entered into an employment agreement with
Martin Lazoritz, M.D. to serve as the Company's Executive Vice President and
Chief Medical Officer, providing for the payment of an initial annual base
salary of $275,000, subject to annual increases determined by the Board of
Directors and minimum annual increases based on the Consumer Price Index. In
addition, Dr. Lazoritz is entitled to an annual bonus to be determined by the
Board of Directors. The employment agreement is for an initial term of three
years commencing in June 1997, with annual renewals thereafter. Pursuant to the
employment agreement, the Company agreed to provide Dr. Lazoritz options to
purchase 100,000 shares of Common Stock. Dr. Lazoritz's employment by the
Company may be terminated by either the Company or Dr. Lazoritz; however, in the
event the Company terminates Dr. Lazoritz's employment without due cause, the
Company must continue to pay Dr. Lazoritz his base salary in effect at the time
of such termination for 12 months after the date of such termination and any
bonus payable. The agreement also provides for a lump sum cash payment to Dr.
Lazoritz of 12 months' base salary upon termination of his employment for any
reason following certain change of control events involving the Company.
In September 1996, the Company entered into an employment agreement with
Brent J. Bryson, Senior Vice President of the Company, providing for the payment
of an initial annual base salary of $180,000, subject to annual review by the
Board of Directors. The agreement also provides for the payment of a bonus of up
to two percent of the improvement in operating income of assigned operations,
based upon the achievement by the Company and Mr. Bryson of certain performance
targets. In addition, the agreement provides for an automobile allowance, the
reimbursement of certain relocation expenses and options to purchase 60,000
shares of Common Stock. Pursuant to the agreement, if the Company terminates
the agreement for any reason other than due cause, the Company must continue to
pay Mr. Bryson his base salary in effect at the time of such termination for six
months after the date of such termination.
In August 1996, the Company entered into an employment agreement with Bert
G. Cibran, President and Chief Operating Officer of the Company, providing for
the payment of an initial annual base salary of $300,000, subject to annual
increases determined by the Board of Directors and minimum annual increases
based on the Consumer Price Index. In addition, Mr. Cibran is entitled to an
annual bonus in an amount equal to two percent of any increase in operating
income over the preceding fiscal year. The agreement is for an initial term of
three years with annual renewals thereafter. Pursuant to the employment
agreement, the Company agreed to provide Mr. Cibran an automobile allowance and
options to purchase 125,000 shares of Common Stock. In addition, Mr. Cibran's
employment may be terminated by either the Company or Mr. Cibran; however, in
the event the Company terminates Mr. Cibran's employment without due cause, the
Company must continue to pay Mr. Cibran his base salary in effect at the time of
such termination for 24 months after the date of such termination and any bonus
payable. The agreement also provides for a lump sum cash payment to Mr. Cibran
of his bonus and 24 months' base salary upon termination of his employment for
any reason following certain change of control events involving the Company.
7
<PAGE>
In August 1996, the Company entered into a services agreement with
HealthLink Enterprises, Inc., a Florida corporation ("HealthLink"), pursuant to
which HealthLink agreed to make available to the Company the services of Carol
C. Lang, Executive Vice President and Chief Financial Officer of the Company.
Prior to entering into the services agreement, HealthLink acted as a consultant
to the Company. The services agreement provides for the payment of an initial
annual base compensation to HealthLink of $240,000, subject to annual increases
determined by the Board of Directors and minimum annual increases based on the
Consumer Price Index. The services agreement is for an initial term of two years
with annual renewals thereafter. In addition, HealthLink is entitled to a bonus
of up to 40% of the base compensation, based on the achievement of targets set
by the President of the Company or the Board of Directors. In addition, pursuant
to the services agreement, the Company agreed to provide Ms. Lang with options
to purchase 100,000 shares of Common Stock. The services agreement may be
terminated by the Company or, upon three months notice, by HealthLink; however,
in the event the Company terminates the agreement without due cause, the Company
must pay any bonus due and continue to pay the base compensation in effect at
the time of such termination until the later of the end of the term of the
services agreement or six months after the date of termination. The services
agreement also provides for a lump sum cash payment to HealthLink of any bonus
due and the greater of (a) 12 months' base compensation or (b) the base
compensation that would have been payable to HealthLink from the date of
termination to the last day of the services agreement, upon the termination of
the services agreement for any reason following certain change of control events
involving the Company.
In August 1996, the Company entered into a three-year employment agreement
with Reynold J. Jennings, at the time, an Executive Vice President of the
Company, providing for the payment of an initial annual base salary of $275,000
and an annual bonus in an amount equal to two percent of any increase in
operating income over the preceding fiscal year. The employment agreement also
gives Mr. Jennings the right to require the Company to repurchase options
covering 124,830 shares of Common Stock at a price of $3.20 per share (as
adjusted for stock dividends or splits). Mr. Jennings resigned his employment
with the Company in February 1997 to accept other employment, in breach of his
employment agreement with the Company. In such case, under the employment
agreement, the Company is required to make payments to Mr. Jennings of
approximately $400,000, less approximately $100,000 owing by Mr. Jennings to the
Company in respect of split-dollar life insurance premiums paid by the Company
and less any damages caused by Mr. Jennings' breach of his employment agreement.
In March 1997, Mr. Jennings commenced arbitration and court proceedings (in the
United States District Court for the Eastern District of Louisiana) against the
Company in which he claims his employment was wrongfully terminated by the
Company and seeks damages of approximately $2,300,000. Subsequently, the court
proceedings have been stayed pending the completion of arbitration proceedings
to be held in Coral Gables, Florida. The Company intends to vigorously defend
the proceedings.
In January 1992, the Company entered into employment agreements with Wallace
E. Smith, Senior Vice President of the Company, and John A. Quinn, Senior Vice
President of the Company, for the payment of initial annual base salaries to Mr.
Smith and Mr. Quinn of $125,000 and $115,000, respectively, subject to annual
review by the Board of Directors. The base salaries of Mr. Smith and Mr. Quinn
have been increased periodically since the inception of the agreements and, for
the fiscal year ended June 30, 1997, their base salaries were $160,000 and
$155,000, respectively. The agreements also provide for the payment to Mr. Smith
and Mr. Quinn of a bonus of up to 30% of their respective base salaries based
upon the attainment of certain performance targets, as well as a discretionary
amount based on job
8
<PAGE>
performance and approved by the Compensation Committee. In addition, the
agreements provide for an automobile allowance and the reimbursement of certain
relocation expenses. Pursuant to the agreements, if the Company terminates Mr.
Smith or Mr. Quinn for any reason other than due cause, the executive will be
entitled to continue to receive his base salary in effect at the time of such
termination for a period of six months after the date of such termination.
Compensation Committee Interlocks
and Insider Participation
- -------------------------
The members of the Compensation Committee of the Board of Directors are
Aaron Beam, Jr., Peter J. Evans and Thomas M. Haythe. Mr. Evans is a director of
Ramsay Health Care Pty. Limited, which provided management services to the
Company pursuant to the Management Agreement. Mr. Haythe is a partner of the New
York City law firm of Haythe & Curley, which firm rendered legal services to the
Company during the last fiscal year and will continue to render legal services
to the Company in the future. See "Certain Relationships and Related
Transactions" below.
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The stockholders (including any "group," as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the
Board of Directors owned beneficially more than five percent of any class of the
outstanding voting securities of the Company as of October 15, 1997 and their
respective stockholdings as of such date (according to information furnished by
them to the Company), are set forth in the following table. Except as indicated
in the footnotes to the table, all of such shares are owned with sole voting and
investment power.
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE NUMBER OF PERCENTAGE
BENEFICIAL OWNER OF CLASS SHARES OWNED (1) OF CLASS (1)
- ---------------- -------- ---------------- -----------
<S> <C> <C> <C>
Paul J. Ramsay Common 5,967,443 (2) 43.66%
Paul Ramsay Group
154 Pacific Highway Series C
St. Leonards, NSW 2065 Preferred 142,486 (3) 100.0%
Australia
Series 1996
Preferred 100,000 (3) 100.0%
Ramsay Holdings HSA Limited Common 2,301,207 (3) 19.93%
c/o Haythe & Curley
237 Park Avenue Series C
New York, New York 10017 Preferred 71,303 (3) 50.0%
Paul Ramsay Holdings Pty. Limited Common 3,876,361 (3) 30.98%
c/o Haythe & Curley
237 Park Avenue Series C
New York, New York 10017 Preferred 71,183 (3) 50.0%
Paul Ramsay Hospitals Pty. Limited Common 5,934,693 (3) 43.47%
c/o Haythe & Curley
237 Park Avenue Series 1996 100,000 (3) 100.0%
New York, New York 10017 Preferred
Brinson Holdings, Inc. Common 764,200 (4) 7.05%
Brinson Partners, Inc.
Brinson Trust Company
209 South LaSalle
Chicago, Illinois 60604
Heartland Advisors, Inc. Common 1,577,900 (5) 14.56%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Luis E. Lamela Common 771,068 (6) 6.81%
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Merrill Lynch & Co., Inc. Common 662,069 (7) 6.11%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
___________________
</TABLE>
10
<PAGE>
(1) Includes all shares that each named person is entitled to receive within 60
days, through the exercise of any option, warrant, conversion right, or
similar arrangement. Such shares are deemed to be owned and outstanding by
such person individually for purposes of calculating the number of shares
owned and the percentage of class for each such named person, but are not
deemed outstanding for purposes of such calculations for any other named
person.
(2) Mr. Ramsay's beneficial ownership of Common Stock consists of (i) 17,750
shares of Common Stock owned directly by Mr. Ramsay, (ii) 15,000 shares of
Common Stock issuable upon the exercise of exercisable options owned
directly by Mr. Ramsay, (iii) 2,301,207 shares of Common Stock beneficially
owned by Ramsay Holdings, (iv) 3,876,361 shares of Common Stock beneficially
owned by Holdings Pty., which includes all shares beneficially owned by
Ramsay Holdings, and (v) 5,934,693 shares of Common Stock beneficially owned
by Hospitals Pty., which includes all shares beneficially owned by Ramsay
Holdings and Holdings Pty. The shares beneficially owned by Ramsay Holdings
consist of 1,588,177 shares of Common Stock owned of record by Ramsay
Holdings and 713,030 shares of Common Stock issuable upon the conversion of
71,303 shares of Series C Preferred Stock owned of record by Ramsay
Holdings. The shares beneficially owned by Holdings Pty. consist of 613,324
shares of Common Stock owned of record by Holdings Pty., 250,000 shares of
Common Stock issuable upon the exercise of exercisable warrants to purchase
shares of Common Stock held by Holdings, Pty., 711,830 shares of Common
Stock issuable upon the conversion of 71,183 shares of Series C Preferred
Stock owned of record by Holdings Pty., and the 2,301,207 shares of Common
Stock beneficially owned by Ramsay Holdings. The shares beneficially owned
by Hospitals Pty. consist of 916,666 shares of Common Stock owned of record
by Hospitals Pty., 141,666 shares of Common Stock issuable upon the exercise
of exercisable warrants to purchase shares of Common Stock held by Hospitals
Pty., 1,000,000 shares of Common Stock issuable upon the conversion of
100,000 shares of Series 1996 Preferred Stock owned of record by Hospitals
Pty., and the 3,876,361 shares of Common Stock beneficially owned by
Holdings Pty. Does not include 25,000 shares of Common Stock issuable upon
the exercise of options granted to Mr. Ramsay, which are not currently
exercisable, or 533,333 shares of Common Stock issuable upon the exercise of
warrants held by Hospitals Pty., which are not currently exercisable. See
"Certain Relationships and Related Transactions-Agreements in Connection
with Refinancing" for information concerning an agreement by the Ramsay
Affiliates not to exercise exercisable options and warrants.
(3) These shares are included in the beneficial ownership of Paul J. Ramsay and
are included in footnote (2) above.
(4) Information as to the holdings of Brinson Holdings, Inc. ("BHI"), Brinson
Partners, Inc. ("BPI") and Brinson Trust Company ("BTC") is based upon a
report on Schedule 13G filed with the Securities and Exchange Commission.
Such report indicates that 764,200 shares were owned by BPI with shared
voting and shared dispositive power and 219,260 shares were owned by BTC
with shared voting and shared dispositive power. Such report indicates that
BTC is a bank and the wholly owned subsidiary of BPI, an investment adviser
registered under the Investment Advisers Act of 1940, which in turn is a
wholly owned subsidiary of BHI, a parent holding company. BHI is a wholly
owned subsidiary of SBC Holding (USA), Inc. ("SBC"), whose address is 222
Broadway, New York, New York 10038. SBC is a wholly owned subsidiary of
Swiss Bank Corporation, whose address is Aeschenplatz 6 CH-4002, Basel,
Switzerland.
(5) Information as to the holdings of Heartland Advisors, Inc. ("HAI") is based
upon a report on Schedule 13G filed with the Securities and Exchange
Commission. Such report indicates that HAI owned 1,169,600 shares with sole
voting power and 1,577,900 shares with sole dispositive power. Such report
indicates that HAI is an investment adviser registered under the Investment
Advisers Act of 1940.
(6) Includes 30,000 shares of Common Stock issuable upon the exercise of
exercisable options to purchase shares of Common Stock held by Mr. Lamela
and 450,045 shares of Common Stock issuable upon the exercise of exercisable
warrants to purchase shares of Common Stock held by Mr. Lamela. See
"Certain Relationships and Related Transactions-Agreements in Connection
with Refinancing" for information concerning an agreement by Mr. Lamela not
to exercise exercisable options and warrants.
(7) Information as to the holdings of Merrill Lynch & Co., Inc. ("Merrill") is
based upon a report on Schedule 13G filed with the Securities and Exchange
Commission. Such report indicates that 662,069 shares were owned by Merrill
and its affiliates with shared voting and dispositive power. Merrill and
its affiliates disclaim any beneficial interest in such shares, other than
shares held by Merrill and its affiliates in proprietary accounts.
11
<PAGE>
On May 3, 1996, Holdings Pty. entered into a secured demand loan facility
with Coutts & Co. AG ("Coutts") pursuant to which Holdings Pty. is entitled to
borrow an amount equal to the lesser of $7,000,000 and the collateral value of
certain assets which have been pledged to Coutts. The current collateral
includes, among other items, 1,679,898 of the shares of Common Stock held by
Holdings Pty. and Ramsay Holdings and the 142,486 shares of Series C Preferred
Stock held by Holdings Pty. and Ramsay Holdings (collectively, the "Pledged
Stock"). Holdings Pty. has the right (but is under no obligation) to pledge
additional shares of Common Stock to secure the obligations of Holdings Pty. to
Coutts.
Coutts is entitled to repayment of amounts outstanding under the loan
facility on demand. In the event that Holdings Pty. were to default on its
obligations to Coutts under the loan facility, Coutts would be entitled to
liquidate the Pledged Stock to repay the outstanding debt. In the event that
Coutts were to attempt to liquidate the Pledged Stock, the sale of the Pledged
Stock would be subject to the volume limitations pursuant to Rule 144 under the
Securities Act of 1933, as amended.
Security Ownership of Management
- --------------------------------
The following table sets forth, as of October 15, 1997, the number of shares
of Common Stock beneficially owned by each of the Company's directors and
nominees for directors, each executive officer named in the Summary Compensation
Table, and all directors and executive officers as a group, based upon
information obtained from such persons.
<TABLE>
<CAPTION>
NAME OF TITLE OF NUMBER OF PERCENTAGE
BENEFICIAL OWNER CLASS SHARES OWNED(1) OF CLASS(1)
- ---------------- -------- --------------- -----------
<S> <C> <C> <C>
Paul J. Ramsay Common 5,967,443 (2) 43.66%
Series C Preferred 142,486 (3) 100.0%
Series 1996 Preferred 100,000 (3) 100.0%
Aaron Beam, Jr. Common 35,283 (4) *
Peter J. Evans Common 32,750 (5) *
Thomas M. Haythe Common 68,083 (6) *
Luis E. Lamela Common 771,068 (7) 6.81%
Steven J. Shulman Common 32,750 (8) *
Michael S. Siddle Common 32,750 (9) *
Bert G. Cibran Common 833 (10) *
Carol C. Lang Common -- --
Martin Lazoritz, M.D. Common 28,588 *
John A. Quinn Common 3,666 (11) *
Wallace E. Smith Common 49,781 (12) *
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
All directors and executive
officers as a group
(18 persons) Common 7,036,616 (2)(4)(5) 49.29%
(6)(7)(8)
(9)(10)(11)
(12)
Series C Preferred 142,486 (3) 100.0%
Series 1996 Preferred 100,000 (3) 100.0%
- -------------------
</TABLE>
* Indicates ownership percentage of less than one percent (1%).
(1) Includes all shares that each named person is entitled to receive within 60
days, through the exercise of any option, warrant, conversion right, or
similar arrangement. Such shares are deemed to be owned and outstanding by
such person individually, and by all directors and officers as a group, for
purposes of calculating the number of shares owned and the percentage of
class for each such named person and the group, but are not deemed to be
outstanding for purposes of such calculations for any other named person.
(2) Mr. Ramsay's beneficial ownership of Common Stock consists of (i) 17,750
shares of Common Stock owned directly by Mr. Ramsay, (ii) 15,000 shares of
Common Stock issuable upon the exercise of exercisable options owned
directly by Mr. Ramsay, (iii) 2,301,207 shares of Common Stock beneficially
owned by Ramsay Holdings, (iv) 3,876,361 shares of Common Stock beneficially
owned by Holdings Pty., which includes all shares beneficially owned by
Ramsay Holdings, and (v) 5,934,693 shares of Common Stock beneficially owned
by Hospitals Pty., which includes all shares beneficially owned by Ramsay
Holdings and Holdings Pty. The shares beneficially owned by Ramsay Holdings
consist of 1,588,177 shares of Common Stock owned of record by Ramsay
Holdings and 713,030 shares of Common Stock issuable upon the conversion of
71,303 shares of Series C Preferred Stock owned of record by Ramsay
Holdings. The shares beneficially owned by Holdings Pty. consist of 613,324
shares of Common Stock owned of record by Holdings Pty., 250,000 shares of
Common Stock issuable upon the exercise of exercisable warrants to purchase
shares of Common Stock held by Holdings Pty., 711,830 shares of Common Stock
issuable upon the conversion of 71,183 shares of Series C Preferred Stock
owned of record by Holdings Pty., and the 2,301,207 shares of Common Stock
beneficially owned by Ramsay Holdings. The shares beneficially owned by
Hospitals Pty. consist of 916,666 shares of Common Stock owned of record by
Hospitals Pty., 141,666 shares of Common Stock issuable upon the exercise of
exercisable warrants to purchase shares of Common Stock held by Hospitals
Pty., 1,000,000 shares of Common Stock issuable upon the conversion of
100,000 shares of Series 1996 Preferred Stock owned of record by Hospitals
Pty., and the 3,876,361 shares of Common Stock beneficially owned by
Holdings Pty. Does not include 25,000 shares of Common Stock issuable upon
the exercise of options granted to Mr. Ramsay, which are not currently
exercisable, or 533,333 shares of Common Stock issuable upon the exercise of
warrants held by Hospitals Pty., which are not currently exercisable. See
"Certain Relationships and Related Transactions-Agreements in Connection
with Refinancing" for information concerning an agreement by the Ramsay
Affiliates not to exercise exercisable options and warrants.
(3) These shares are included in the beneficial ownership of Paul J. Ramsay and
are included in footnote (2) above.
(4) Includes 15,000 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by Mr.
Beam.
(5) Includes 15,000 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by Mr.
Evans.
(6) Includes 5,000 shares of Common Stock held in a Keough Plan for the benefit
of Mr. Haythe and 15,000 shares of Common Stock issuable upon the exercise
of currently exercisable options to purchase shares of Common Stock held by
Mr. Haythe.
(7) Includes 30,000 shares of Common Stock issuable upon the exercise of
exercisable options to purchase shares of Common Stock held by Mr. Lamela
and 450,045 shares of Common Stock issuable upon the exercise of exercisable
warrants to purchase shares of Common Stock held by Mr. Lamela. See
"Certain Relationships
13
<PAGE>
and Related Transactions-Agreements in Connection with Refinancing" for
information concerning an agreement by Mr. Lamela not to exercise
exercisable options and warrants.
(8) Includes 15,000 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by Mr.
Siddle.
(9) Includes 15,000 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by Mr.
Shulman.
(10) Represents 833 shares of Common Stock issuable upon the exercise of
currently exercisable warrants to purchase shares of Common Stock held by
Mr. Cibran.
(11) Includes 666 shares of Common Stock issuable upon the exercise of currently
exercisable warrants to purchase shares of Common Stock held by Mr. Quinn.
(12) Includes 47,853 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock and 1,000
shares of Common Stock issuable upon the exercise of currently exercisable
warrants to purchase shares of Common Stock held by Mr. Smith.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The RMCI Merger:
- ---------------
On June 10, 1997, pursuant to an Agreement and Plan of Merger dated as of
October 1, 1996 by and among the Company, RHCI Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of the Company, and Ramsay Managed Care,
Inc. ("RMCI") (the "Merger Agreement"), RHCI Acquisition Corp. merged with and
into RMCI, whereupon, RMCI became a wholly owned subsidiary of the Company (the
"Merger"). The issuance by the Company of shares of Common Stock and Series
1996 Preferred Stock contemplated by the Merger Agreement was approved by the
stockholders of the Company at a Special Meeting of Stockholders held on April
18, 1997, and the Merger Agreement was approved by the stockholders of RMCI at a
Special Meeting of Stockholders also held on April 18, 1997. Prior to the
Merger, RMCI was a publicly traded corporation controlled by Paul J. Ramsay, the
Chairman of the Board of the Company. In addition, prior to the Merger, Messrs.
Ramsay, Beam, Evans, Haythe, Lamela and Siddle were members of the Board of
Directors of RMCI, as well as members of the Board of Directors of the Company,
and Messrs. Cibran and Lazoritz served in executive officer capacities of both
companies.
The number of shares of capital stock issued by the Company pursuant to the
terms of the Merger Agreement was based on an exchange ratio calculated as
follows: (i) each share of common stock, $.01 par value ("RMCI Common Stock"),
of RMCI, outstanding as of June 10, 1997 (the "Effective Time") was converted
into the right to receive one-third (1/3) of a share of Common Stock, provided
that cash was paid in lieu of fractional shares of Common Stock and (ii) each
share of preferred stock, series 1996 of RMCI, $1.00 par value (the "RMCI Series
1996 Preferred Stock"), outstanding as of the Effective Time was converted into
the right to receive one share of Series 1996 Preferred Stock. Each share of
Series 1996 Preferred Stock is presently convertible into 10 shares of Common
Stock and votes together with the Common Stock on all matters submitted to the
vote of stockholders of the Company.
Options to acquire RMCI Common Stock outstanding immediately prior to the
Effective Time (the "RMCI Stock Options") became options to purchase a number of
whole shares of Common Stock equal to the number of shares of RMCI Common Stock
covered by the RMCI Stock Options multiplied by one-third (1/3), at an exercise
price per share of Common Stock
14
<PAGE>
equal to the option exercise price of such RMCI Stock Options multiplied by
three (3). In addition, each holder of warrants to purchase shares of RMCI
Common Stock outstanding immediately prior to the Effective Time (the "RMCI
Warrants") will, in accordance with the provisions of the RMCI Warrants, receive
upon exercise of such warrants, in lieu of the number of shares of RMCI Common
Stock provided for by such warrants, that number of whole shares of Common Stock
equal to the product of one-third (1/3) multiplied by the number of shares of
RMCI Common Stock subject to such RMCI Warrants, at an exercise price per share
of Common Stock equal to the warrant exercise price of such RMCI Warrants
multiplied by three (3).
In connection with the Merger, (i) the holders of the 6,408,315 shares RMCI
Common Stock which were issued and outstanding at the Effective Time received an
aggregate of 2,135,826 shares of Common Stock (and cash in lieu of fractional
shares), (ii) the holder of the 100,000 shares of RMCI Series 1996 Preferred
Stock which were issued and outstanding at the Effective Time received 100,000
shares of Series 1996 Preferred Stock, (iii) the holders of the 640,000 RMCI
Warrants which were outstanding at the Effective Time now hold warrants to
purchase an aggregate of 213,333 shares of Common Stock and (iv) the holders of
the 1,175,250 RMCI Stock Options which were outstanding at the Effective Time
now hold options to purchase an aggregate of 391,750 shares of Common Stock.
The Ramsay Affiliates received in connection with the Merger an aggregate of
1,162,723 shares of Common Stock (and cash in lieu of fractional shares) in
exchange for an aggregate of 3,488,173 shares of RMCI Common Stock, 100,000
shares of Series 1996 Preferred Stock in exchange for 100,000 shares of RMCI
Series 1996 Preferred Stock and warrants to purchase an aggregate of 174,999
shares of Common Stock in lieu of an aggregate of 525,000 RMCI Warrants. Mr.
Cibran holds options to purchase 25,000 shares of Common Stock in lieu of 75,000
RMCI Stock Options and warrants to purchase an aggregate of 17,499 shares of
Common Stock in lieu of 52,500 RMCI Warrants. Dr. Lazoritz received 28,353
shares of Common Stock (and cash in lieu of fractional shares) in exchange for
85,061 shares of RMCI Common Stock and options to purchase an aggregate of
100,000 shares of Common Stock in lieu of an aggregate of 300,000 RMCI Stock
Options. Mr. Smith received warrants to purchase 1,000 shares of Common Stock
in lieu of 3,000 RMCI Warrants. Mr. Quinn received warrants to purchase 666
shares of Common Stock in lieu of 2,000 RMCI Warrants. All executive officers
and directors of the Company as a group (including with respect to Mr. Ramsay,
the Ramsay Affiliates) received in connection with the Merger an aggregate of
1,198,746 shares of Common Stock (and cash in lieu of fractional shares) in
exchange for an aggregate of 3,596,246 shares of RMCI Common Stock, 100,000
shares of Series 1996 Preferred Stock in exchange for 100,000 shares of RMCI
Series 1996 Preferred Stock, options to purchase an aggregate of 259,996 shares
of Common Stock in lieu of an aggregate of 780,000 RMCI Stock Options and
warrants to purchase an aggregate of 202,828 shares of Common Stock in lieu of
an aggregate of 608,500 RMCI Warrants.
As a result of the Merger, the Company assumed all of the obligations and
liabilities of RMCI and, as a result, the amounts payable by RMCI to the
Company, which at the Effective Time totalled approximately $7,000,000, became
an intercompany payable from RMCI to the Company.
Transactions Involving RMCI Prior to the Merger:
- -----------------------------------------------
Prior to the Effective Time, Ramsay Health Care Pty. Limited (the
"Manager"), an affiliate of Paul J. Ramsay, provided managerial services to RMCI
pursuant to a management
15
<PAGE>
agreement (the "RMCI Management Agreement"). The RMCI Management Agreement
provided for the payment of an annual management fee equal to the greater of
$100,000 per annum or 0.5% of the gross revenues of RMCI and its subsidiaries
for such year. The management fee payable to the Manager under the RMCI
Management Agreement was set on the basis of a negotiated amount based on the
anticipated time to be spent and out-of-pocket costs to be incurred by personnel
of the Manager in performing its duties thereunder. Prior to the Effective
Time, during fiscal 1997, RMCI incurred management fees of $91,663 for services
performed by the Manager under the RMCI Management Agreement. The RMCI
Management Agreement terminated at the Effective Time.
In April 1995, in connection with the distribution by the Company to its
stockholders of the capital stock of RMCI held by it, the Company and RMCI
entered into various contractual arrangements governing the distribution and
related transactions, including a Distribution Agreement, Corporate Services
Agreement, Tax Sharing Agreement and Employee Benefits Agreement. As a result
of the Merger, at the Effective Time, these agreements terminated or became
intercompany obligations.
On August 13, 1996, the RMCI Board of Directors approved an offer to the
holders of stock options under RMCI's 1994 Stock Option Plan (the "RMCI
Repricing Offer") whereby each option holder could exchange existing options
with exercise prices of $2.00 per share held by such holder for amended options
to purchase the same number of shares of RMCI Common Stock at an exercise price
of $1.00 per share (which was in excess of the market price of the RMCI Common
Stock at the time); provided that the repriced options would not be exercisable
until the date which is six months prior to their expiration date and provided
further that vested repriced options would become exercisable earlier in the
event that, at the time of exercise, the average of the closing bid and asked
prices for the RMCI Common Stock as quoted on the OTC Bulletin Board equalled or
exceeded $2.333 (subject to adjustment for events affecting the RMCI Common
Stock or the capital structure of RMCI, such as the Merger) per share on at
least 15 trading days, which need not be consecutive, subsequent to August 13,
1996. All stock options which were subject to the RMCI Repricing Offer were
repriced. After giving effect to the Merger, all RMCI Stock Options became
options to purchase Common Stock on the terms described under "The RMCI Merger"
above.
At the request of RMCI, Paul J. Ramsay agreed to surrender certain stock
options granted to him under RMCI's 1994 Stock Option Plan in exchange for the
issuance to Hospitals Pty. of warrants to purchase RMCI Common Stock. RMCI made
this request in order to make additional shares of RMCI Common Stock available
for grant under RMCI's 1994 Stock Option Plan. Accordingly, on September 10,
1996, Mr. Ramsay, RMCI and Hospitals Pty. entered into an Exchange Agreement
pursuant to which Mr. Ramsay surrendered for cancellation an aggregate of
100,000 RMCI stock options in exchange for the issuance to Hospitals Pty. of
warrants (the "Exchanged Warrants") to purchase an aggregate of 100,000 shares
of RMCI Common Stock at an exercise price of $1.00 per share. The Exchanged
Warrants will be exercisable during the period April 25, 2004 through October
25, 2004. After giving effect to the Merger, the Exchanged Warrants (as was the
case for all RMCI Warrants) became warrants to purchase Common Stock on the
terms described under "The RMCI Merger" above.
In June 1996, at the request of RMCI, Hospitals Pty. agreed to loan RMCI up
to $3,000,000 for working capital and general corporate purposes (the "Hospitals
Pty. Facility"). On June 28, 1996, RMCI borrowed $1,600,000 under the Hospitals
Pty. Facility, which was evidenced by a demand promissory note (the "First
Hospitals Note") with an interest rate of 12% per annum. In addition, on August
7 and August 8, 1996, RMCI borrowed an aggregate of
16
<PAGE>
$800,000 under the Hospitals Pty. Facility, which was evidenced by a demand
promissory note (the "Second Hospitals Note") payable to Hospitals Pty. in the
principal amount of the lesser of the amount borrowed or $1,400,000, with an
interest rate of 12% per annum. On September 10, 1996, as described below, the
First Hospitals Note and the Second Hospitals Note were repaid and cancelled.
On September 10, 1996, RMCI entered into a stock purchase agreement with
Hospitals Pty., pursuant to which Hospitals Pty. purchased 100,000 shares of
RMCI Series 1996 Preferred Stock for a purchase price of $3,000,000. The
purchase price was paid by (i) offset against the outstanding principal amounts
under the First Hospitals Note and the Second Hospitals Note ($1,600,00 and
$800,000, respectively), (ii) offset against the aggregate accrued unpaid
interest on such notes through September 10, 1996 ($54,667), and (iii) $545,333
in cash. In connection with the purchase of the 100,000 shares of RMCI Series
1996 Preferred Stock by Hospitals Pty., RMCI issued warrants to Hospitals Pty.
to purchase 300,000 shares of RMCI Common Stock, at an exercise price of $1.00
per share. After giving effect to the Merger, the 100,000 shares of RMCI Series
1996 Preferred Stock became 100,000 shares of Series 1996 Preferred Stock and
the foregoing warrants became warrants to purchase Common Stock on the terms
described under "The Merger" above.
In March 1997, Hospitals Pty. agreed to lend up to an additional $2,000,000
to RMCI for working capital and general corporate purposes under the Hospitals
Pty. Facility, which amount was evidenced by a demand promissory note bearing
interest at 15% per annum. RMCI agreed to pay Hospitals Pty. a $150,000
facility fee in consideration of making the additional facility available to
RMCI. At the Effective Time, $2,750,000 was borrowed by RMCI under the
facility. On September 30, 1997, RMCI terminated the Hospitals Pty. Facility.
See "Agreements in Connection with Refinancing" below.
The Management Agreement:
- -------------------------
Pursuant to a management agreement (the "Management Agreement") dated June
25, 1992, the Manager provided managerial services to the Company. On September
10, 1996, the Company entered into a letter agreement with the Manager and
Holdings Pty. which terminated the Management Agreement effective July 1, 1997.
In consideration for this termination, the Company issued to Holdings Pty.
warrants to purchase 250,000 shares of Common Stock at an exercise price of
$2.63 per share. These warrants are fully exercisable and expire on September
10, 2006.
Prior to its termination, the Management Agreement provided for the payment
of an initial annual management fee of $677,422, subject to increases based on
increases in the Consumer Price Index. The management fee payable under the
Management Agreement was set on the basis of a negotiated amount based on the
time spent by personnel of the Manager in performing the duties pursuant to the
Management Agreement. During the fiscal year ended June 30, 1997, the Company
incurred management fees of approximately $758,000 for services performed by the
Manager under the Management Agreement. In August 1996, the Company entered
into a Stock Purchase Agreement with Holdings Pty. and the Manager pursuant to
which Holdings Pty. agreed to purchase 275,546 shares of Common Stock at a
purchase price of $2.75 per share. The purchase price of $757,752 was payable
$2,755.46 in cash and $754,996.54 as a payment by the Company of management fees
due for fiscal 1997 under the Management Agreement.
17
<PAGE>
Relationship With Ramsay Affiliates:
- ------------------------------------
The Ramsay Affiliates are corporations controlled by the Company's Chairman
of the Board, Paul J. Ramsay. At October 15, 1997, Paul J. Ramsay, Ramsay
Holdings, Holdings Pty. and Hospitals Pty. owned of record approximately 28.9%
of the issued and outstanding shares of Common Stock, 100% of the issued and
outstanding shares of Series C Preferred Stock, Series 1996 Preferred Stock and
Series 1997-A Preferred Stock, and had an approximate 41.9% voting interest in
the Company.
Agreements in Connection with Refinancing:
- ------------------------------------------
In September 1997, in connection with the refinancing of the Company's then
existing bank, institutional and certain affiliate indebtedness, the Company
entered into a Preferred Stock Purchase Agreement with Holdings Pty. pursuant to
which Holdings Pty. purchased 4,000 shares of Series 1997-A Preferred Stock at a
purchase price of $4,000,000, paid (i) $2,784,333 in cash and (ii) by offset
against amounts owed by the Company to Holdings Pty. or its corporate affiliates
as (a) accrued and unpaid dividends on Series C Preferred Stock and Series 1996
Preferred Stock ($611,085), (b) indebtedness owed to a corporate affiliate of
Holdings Pty. under the Hospitals Pty. Facility ($250,000), and (c) accrued and
unpaid interest and net commitment fees ($354,582) in respect of such
indebtedness. The Series 1997-A Preferred Stock bears cumulative dividends at
an annual rate of 9% (payable subject to certain restrictions set forth in
credit documentation to which the Company is a party), has a liquidation
preference of $1,000 per share, is optionally redeemable by the Company at any
time at a redemption price equal to $1,000 per share plus all accrued and unpaid
dividends thereon (the "Redemption Price"), and is mandatorily redeemable by the
Company following June 30, 1998 at the Redemption Price in the event that the
Company has satisfied certain financial and operational conditions in its credit
documentation.
In September 1997, in connection with a refinancing of the Company's then
existing indebtedness, the Company entered into a Subordinated Note Purchase
Agreement with Holdings Pty. pursuant to which Holding Pty. purchased $2,500,000
in principal amount of the Company's Series B Subordinated Bridge Notes due
September 30, 2005, initially bearing interest at a rate of 11% per annum. The
purchase of the Series B Subordinated Bridge Notes was funded with the proceeds
of a concurrent repayment of principal of $2,500,000 owed by RMCI to a corporate
affiliate of Holdings Pty. under the Hospitals Pty. Facility.
In September 1997, in connection with the refinancing of the Company's then
existing indebtedness, the Company entered into a Common Stock Purchase
Agreement (the "Common Stock Purchase Agreement") with Holdings Pty. pursuant to
which Holdings Pty. agreed to purchase shares of Common Stock at a purchase
price of $5.17 per share (the 30-day average of the closing price of the Common
Stock prior to the date of such Agreement) in the event that the Company incurs
obligations to make certain payments to the State of Louisiana and to the extent
that such payments are in excess of $1,300,000 in the aggregate and such excess
exceeds $500,000 in any fiscal year.
In connection with the refinancing of the Company's then existing
indebtedness in September 1997, the Ramsay Affiliates and Luis E. Lamela, Vice
Chairman of the Board of the Company, agreed not to exercise options and
warrants to purchase shares of Common Stock held by them until the earlier to
occur of certain events, including the approval by the stockholders at the
Meeting of the amendment to the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock.
18
<PAGE>
Exchange Agreement:
- -------------------
At the request of the Company, Paul J. Ramsay agreed to surrender certain
options granted to him under the Company's stock option plans in exchange for
the issuance to Hospitals Pty. of warrants to purchase Common Stock. The
Company made this request in order to make additional shares of Common Stock
available for grant under its stock option plans. Accordingly, on September 10,
1996, Mr. Ramsay, the Company and Hospitals Pty. entered into an Exchange
Agreement pursuant to which Mr. Ramsay surrendered for cancellation an aggregate
of 476,070 stock options to purchase shares of Common Stock in exchange for the
issuance to Hospitals Pty. of warrants to purchase 500,000 shares of Common
Stock at an exercise price of $2.75 per share. The warrants will be exercisable
during the period December 31, 2002 through June 30, 2003, provided that the
warrants will be exercisable earlier in the event that, at the time of exercise,
the closing price for the Common Stock as quoted on NASDAQ equalled or exceeded
$7.00 (subject to adjustment for events affecting the Common Stock or the
capital structure of the Company) per share on at least 15 trading days, which
need not be consecutive, subsequent to September 10, 1996. These warrants are
not currently exercisable.
Other Arrangements:
- -------------------
The Company and RMCI entered into indemnification agreements with their
respective directors and executive officers. These agreements provide that the
directors and executive officers will be indemnified to the fullest possible
extent permitted by Delaware law against all expenses (including attorneys'
fees), judgments, fines, penalties, taxes and settlement amounts paid or
incurred by them in any action or proceeding (including any action by or in the
right of the Company, RMCI or any of their respective subsidiaries or
affiliates) on account of their service as directors, officers, employees,
fiduciaries or agents of the Company, RMCI or any of their respective
subsidiaries or affiliates and their service at the request of the Company, RMCI
or any of their respective subsidiaries or affiliates as directors, officers,
employees, fiduciaries or agents of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise.
Thomas M. Haythe, a director of the Company (and prior to the Merger, of
RMCI), is a partner of the New York City law firm of Haythe & Curley, which firm
rendered legal services to the Company and RMCI during fiscal year 1997 and will
continue to render legal services to the Company in the future.
The Company amended its consulting agreement on February 1, 1997 with Summa
Healthcare Group, Inc. ("Summa"), a company of which Luis E. Lamela, the Vice
Chairman of the Board of the Company, is the principal stockholder. Under the
consulting agreement, Summa provided the Company with advisory and consulting
services in connection with strategic planning, business development and
investor relations for a fee of $30,000 per month, as well as a success fee to
be negotiated in good faith between the Company and Summa with respect to any
significant transactions involving the Company as to which Summa rendered
substantial consulting or advisory services. During the fiscal year ended June
30, 1997, the Company paid Summa $237,500 in connection with its advisory and
consulting services. In connection with a similar consulting agreement between
Summa and RMCI, as a result of the Merger, the Company assumed RMCI's obligation
to pay $200,000 in success fees to Summa for Summa's services in connection with
the Merger and the sale by RMCI prior to the Merger of its HMO subsidiary (the
"HMO Sale"). Prior to the Summa Merger (as defined below), Summa assigned the
right to receive these fees to Mr. Lamela. The fees are payable by the Company
following
19
<PAGE>
June 30, 1998 in the event that the Company satisfies certain financial and
operational conditions under its credit documentation.
On July 1, 1997, the Company, Ramsay Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of the Company, and Summa entered into
an Agreement and Plan of Merger, pursuant to which Summa merged with and into
Ramsay Acquisition Corp. in October 1997, whereupon Summa became a wholly owned
subsidiary of the Company (the "Summa Merger"). The aggregate consideration
paid by the Company in the Summa Merger consisted of $300,000 in cash, 250,000
shares of Common Stock and warrants to purchase an aggregate of 500,000 shares
of Common Stock at $3.25 per share (of which, Mr. Lamela received $270,027 in
cash, 225,023 shares of Common Stock and warrants to purchase 450,045 shares of
Common Stock).
As a result of the Merger, the Company assumed an obligation of RMCI to pay
$100,000 in success fees to Peter J. Evans, a director of the Company (and prior
to the Merger, of RMCI). These fees are payable to Mr. Evans for his services
to RMCI in connection with the Merger and the HMO Sale. Mr. Evans has been paid
$50,000 of these fees, and the remaining $50,000 is payable following June 30,
1998 in the event that the Company satisfies certain financial and operational
conditions under its credit documentation.
The offices of Florida Psychiatric Management, Inc. and Florida Psychiatric
Associates, Inc., both wholly owned subsidiaries of the Company, in Orlando,
Florida and certain of their clinics and other offices are leased from
partnerships of which Dr. Martin Lazoritz and other employees of the Company are
partners. Total rental expense under these leases for the fiscal year ended
June 30, 1997 was $369,369, of which $30,398 was incurred by the Company
subsequent to the Merger.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto fully authorized.
<TABLE>
<S> <C>
RAMSAY HEALTH CARE, INC.
DATED: OCTOBER 28, 1997 By/s/ Bert G. Cibran
------------------ ----------------------------------------------
BERT G. CIBRAN
PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
DATED: OCTOBER 28, 1997 By/s/ Carol C. Lang
------------------ ----------------------------------------------
CAROL C. LANG
PRINCIPAL FINANCIAL OFFICER
<CAPTION>
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<S> <C>
SIGNATURE/TITLE
---------------
DATED: OCTOBER 28, 1997 By *
------------------ ----------------------------------------------
PAUL J. RAMSAY
CHAIRMAN OF THE BOARD AND DIRECTOR
DATED: OCTOBER 28, 1997 By *
------------------ ----------------------------------------------
LUIS E. LAMELA
EXECUTIVE VICE CHAIRMAN OF THE BOARD AND
DIRECTOR
DATED: OCTOBER 28, 1997 By *
------------------ ----------------------------------------------
AARON BEAM, JR.
DIRECTOR
DATED: OCTOBER 28, 1997 By *
------------------ ----------------------------------------------
PETER J. EVANS
DIRECTOR
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
SIGNATURE/TITLE
---------------
DATED: OCTOBER 28, 1997 By *
------------------ ----------------------------------------------------------
THOMAS M. HAYTHE
DIRECTOR
DATED: OCTOBER 28, 1997 By *
------------------ ----------------------------------------------------------
STEVEN J. SHULMAN
DIRECTOR
DATED: OCTOBER 28, 1997 By *
------------------ ----------------------------------------------------------
MICHAEL S. SIDDLE
DIRECTOR
* By/s/ Bert G. Cibran
-----------------------------------------
Bert G. Cibran
Attorney-in-Fact
</TABLE>
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