<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE ADMAR GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
Common Stock
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2. Aggregate number of securities to which transaction applies:
8,762,602
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$2.25 cash payment for each share of Common Stock
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4. Proposed maximum aggregate value of transaction:
$19,715,854.50
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5. Total fee paid:
N/A
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE> 2
THE ADMAR GROUP, INC.
1551 North Tustin Avenue
Suite 300
Santa Ana, California 92705
January 24, 1996
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of THE ADMAR GROUP, INC. (the "Company"), to be held at 9:00 a.m. on Friday,
February 23, 1996 at 1551 North Tustin Avenue, Suite 300, Santa Ana, California
92705.
Your Board of Directors is submitting for your consideration, at the
Annual Meeting, a proposal to approve the acquisition of the Company. As part of
the proposal, you will be asked to approve and adopt an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of October 27, 1995, by and among the
Company, Principal Health Care, Inc. ("PHC"), and PHC Merging Company (the
"Acquisition Sub") under which Acquisition Sub will be merged with and into the
Company (the "Merger") and the Company will become a wholly-owned subsidiary of
PHC. If the Merger is consummated, each share of the Company's common stock, par
value $0.005 per share (the "Common Stock") (other than shares as to which
dissenters' rights have been properly exercised), will be converted into the
right to receive $2.25 in cash, without interest (the "Merger Consideration").
Enclosed with this letter is a Notice of Annual Meeting, Proxy
Statement, Proxy Card and return envelope. I urge you to read the enclosed
material carefully.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND THE MERGER
AGREEMENT AND HAS CONCLUDED THAT THE MERGER IS IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS, AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.
In arriving at its recommendation, your Board of Directors gave careful
consideration to a number of factors described in the attached Proxy Statement,
including, among other things, the opinion of its financial advisor, Cain
Brothers and Company, Incorporated, that, as of the date of the Merger
Agreement, the cash consideration per share to be received by the holders of
Common Stock pursuant to the Merger Agreement is fair to such holders from a
financial point of view. The full text of the opinion is attached as Appendix B
to the Proxy Statement and shareholders are urged to read it in its entirety.
<PAGE> 3
At the Annual Meeting, you will also be asked to consider and vote upon
several other proposals. First, the Company is submitting for your consideration
a proposal to approve the Company's 1995 Employee Stock Purchase Plan, which
authorizes the issuance to employees of the Company of up to 300,000 shares of
the Company's Common Stock, allowing eligible employees an opportunity to
purchase Common Stock through payroll deductions. Second, you will be asked to
ratify the selection of Deloitte & Touche LLP as independent auditors of the
Company for its fiscal year ending January 31, 1996. You will also be asked to
elect three directors to serve on the Company's Board of Directors until the
Merger is consummated or for the ensuing year and until their successors are
elected.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, please complete, sign and date the accompanying Proxy Card and return
it in the enclosed prepaid envelope as soon as possible. If you attend the
Annual Meeting, you may vote your shares in person, even if you have previously
submitted a Proxy Card. Approval of the Merger requires the affirmative vote of
the holders of at least a majority of the shares of the Company's Common Stock
outstanding and entitled to vote thereon and, as a result, a failure to vote
will have the same effect as a vote against the Merger. IT IS URGED THAT YOU
VOTE FOR APPROVAL OF THE MERGER AND THE OTHER PROPOSALS SUBMITTED FOR YOUR
APPROVAL.
Shareholders who have questions about the Annual Meeting can call D. F.
King & Co., Inc., the Company's proxy solicitation agent, toll free at (800)
755-3106, or collect at (212) 269- 5550.
Your continued support of and interest in The Admar Group is greatly
appreciated.
Sincerely,
Richard T. Toral
Chief Executive Officer
and Chairman of the Board
2.
<PAGE> 4
THE ADMAR GROUP, INC.
1551 North Tustin Avenue
Suite 300
Santa Ana, California 92705
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 23, 1996
TO THE SHAREHOLDERS OF THE ADMAR GROUP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of THE
ADMAR GROUP, INC., a Florida corporation (the "Company"), will be held on
Friday, February 23, 1996, at 9:00 A.M., local time at 1551 North Tustin Avenue,
Santa Ana, California 92705 for the following purposes:
1. To approve the Agreement and Plan of Merger, dated as of October
27, 1995 (the "Merger Agreement"), by and among the Company,
Principal Health Care, Inc. ("PHC"), and PHC Merging Company (the
"Acquisition Sub") under which Acquisition Sub will be merged with
and into the Company (the "Merger") and the Company will become a
wholly-owned subsidiary of PHC and each outstanding share of the
Company's Common Stock, other than shares as to which dissenters'
rights have been properly exercised, will be converted into the
right to receive $2.25 per share of Common Stock in cash, without
interest (the "Merger Consideration").
2. To approve the Company's 1995 Employee Stock Purchase Plan.
3. To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for its fiscal year ending January 31,
1996.
4. To elect three directors to serve until the Merger is completed or
for the ensuing year and until their successors are elected.
5. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
By complying with either Section 607.1320 of the Florida Business
Corporation Law or Chapter 13 of the California General Corporation Law,
shareholders are entitled to dissenters' rights as set forth therein with
respect to the Merger.
<PAGE> 5
The Board of Directors has fixed the close of business on December 27,
1995, as the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at this Annual Meeting and at any
adjournment or postponement thereof.
By Order of the Board of Directors
Virginia Pascual
Secretary
Santa Ana, California
January 24, 1996
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
2.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION CONCERNING SOLICITATION AND VOTING......................................... 1
General ..................................................................... 1
Solicitation.................................................................. 2
Voting Rights and Outstanding Shares.......................................... 2
Revocability of Proxies....................................................... 3
Shareholder Proposals......................................................... 3
SUMMARY .............................................................................. 5
PROPOSAL 1 APPROVAL OF MERGER AND ADOPTION OF MERGER
AGREEMENT..................................................................... 12
THE MERGER AND RELATED TRANSACTIONS........................................... 13
GENERAL ............................................................ 13
THE PARTIES.......................................................... 13
EFFECTS OF THE MERGER................................................ 14
BACKGROUND OF AND REASONS FOR THE MERGER............................. 15
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE
COMPANY..................................................... 21
OPINION OF FINANCIAL ADVISOR......................................... 21
THE MERGER AGREEMENT................................................. 27
Effective Time.............................................. 27
The Merger.................................................. 27
Common Stock................................................ 27
Options ................................................... 28
Warrants ................................................... 28
Employee Stock Purchase Rights.............................. 29
Payment Fund................................................ 29
Representations and Warranties.............................. 29
Conduct of Business Pending the Merger...................... 29
Other Bids.................................................. 30
Other Agreements of the Company, PHC and Acquisition Sub.... 30
Conditions to the Merger.................................... 31
Termination................................................. 33
Payments Upon Termination................................... 33
Amendment; Waiver........................................... 33
INTERESTS OF CERTAIN PERSONS IN THE MERGER; RELATED AGREEMENTS................ 34
PAYMENT FOR THE COMMON STOCK AFTER THE MERGER; SOURCE OF FUNDS................ 35
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS....................... 36
ACCOUNTING TREATMENT.......................................................... 37
DISSENTERS' RIGHTS............................................................ 37
</TABLE>
i.
<PAGE> 7
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS ..................................................................... 43
GENERAL ............................................................ 43
SERVICES OF THE COMPANY.............................................. 43
INFORMATION SYSTEMS.................................................. 47
MARKETS AND CERTAIN CLIENTS.......................................... 47
REGULATORY MATTERS................................................... 48
COMPETITION.......................................................... 48
EMPLOYEES............................................................ 50
PROPERTIES........................................................... 50
INTELLECTUAL PROPERTY................................................ 51
MANAGEMENT'S DISCUSSION AND ANALYSIS.......................................... 52
PROPOSAL 2 - APPROVAL OF 1995 EMPLOYEE STOCK PURCHASE PLAN............................. 56
PROPOSAL 3 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS......................... 63
PROPOSAL 4 - ELECTION OF DIRECTORS..................................................... 64
MARKET PRICES AND DIVIDENDS............................................................ 67
MARKET INFORMATION............................................................ 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 68
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF Section 16(a)............................ 69
EXECUTIVE COMPENSATION................................................................. 69
AVAILABLE INFORMATION.................................................................. 73
INDEPENDENT AUDITORS................................................................... 73
FORM 10-K.............................................................................. 73
OTHER MATTERS.......................................................................... 73
INDEPENDENT AUDITORS' REPORT........................................................... F-1
</TABLE>
ii.
<PAGE> 8
TABLE OF CONTENTS
(CONTINUED)
Appendix A - The Merger Agreement
Appendix B - The Fairness Opinion
Appendix C - Section 607.1320 of the Florida 1989 Business Corporation Act
Appendix D - Chapter 13 of the California General Corporation Law
iii.
<PAGE> 9
THE ADMAR GROUP, INC.
1551 North Tustin Avenue, Suite 300
Santa Ana, California 92705
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 23, 1996
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
The Admar Group, Inc., a Florida corporation ("Admar" or the "Company"), for use
at the Annual Meeting of Shareholders to be held on February 23, 1996, at 9:00
A.M. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth below and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at 1551 North Tustin Avenue,
Suite 300, Santa Ana, California 92705. The Company intends to mail this Proxy
Statement and accompanying proxy card on or about January 29, 1996, to all
shareholders entitled to vote at the Annual Meeting.
At the Annual Meeting, holders of the Common Stock (each, a
"Shareholder") on the Record Date will consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of October 27, 1995, by and among the Company, Principal Health Care,
Inc. ("PHC"), and PHC Merging Company (the "Acquisition Sub"), pursuant to
which: (a) Acquisition Sub will be merged with and into the Company (the
"Merger"), and the Company, as the surviving corporation in the Merger (the
"Surviving Corporation"), will become a wholly-owned subsidiary of PHC, and (b)
each share of Common Stock that is issued and outstanding at the effective time
of the Merger (the "Effective Time") will be converted into the right to receive
$2.25 per share of Common Stock in cash, without interest (the "Merger
Consideration"), other than shares of Common Stock in respect of which
dissenters' rights have been properly exercised. On January 22, 1996, the last
sales price of a share of Common Stock as reported on the Nasdaq Small Cap
Market was $2-1/16.
By complying with either Section 607.1320 of the Florida Business
Corporation Law or Chapter 13 of the California General Corporation Law,
Shareholders are entitled to dissenters' rights as set forth therein with
respect to the Merger. See "THE MERGER -- Dissenters' Rights."
<PAGE> 10
At the Annual Meeting, each Shareholder will also be asked to consider
and vote upon the following proposals: (i) approval of the Company's 1995
Employee Stock Purchase Plan; (ii) ratification of the selection of Deloitte &
Touche LLP as independent auditors of the Company for its fiscal year ending
January 31, 1996; and (iii) election of three directors to serve until the
Merger is consummated or for the ensuing year and until their successors are
elected.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of the accompanying
proxy, however, confers on the designated proxyholders discretionary authority
to vote the shares of Common Stock covered thereby in accordance with their best
judgment on such business, if any, that may properly come before the Annual
Meeting or any adjournments or postponements thereof.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this Proxy Statement,
the proxy and any additional information furnished to Shareholders. The Company
has engaged the firm of D.F. King & Co. to assist it in the distribution and
solicitation of proxies and has agreed to pay D.F. King & Co. a fee of $2,500,
plus out-of-pocket expenses for its services. Copies of solicitation materials
will be furnished to banks, brokerage houses, fiduciaries and custodians holding
in their names shares of Common Stock beneficially owned by others to forward to
such beneficial owners. The Company may reimburse persons representing
beneficial owners of Common Stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other regular employees of the Company. No additional
compensation will be paid to directors, officers or other regular employees for
such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
December 27, 1995 (the "Record Date") will be entitled to notice of and to vote
at the Annual Meeting. At the close of business on the Record Date, the Company
had outstanding and entitled to vote 8,762,602 shares of Common Stock. Each
Shareholder on the Record Date will be entitled to one vote for each share held
on all matters to be voted upon at the Annual Meeting, except as otherwise
provided herein.
All votes will be tabulated by the inspector of election appointed for
the Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
towards determining whether a quorum is present. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the Shareholders
and will have the same effect as negative votes. Except for the proposal to
approve the Merger and adopt the Merger Agreement, broker non-votes are not
counted for any purpose in determining whether a matter has been approved.
2.
<PAGE> 11
Consummation of the Merger is conditioned upon, among other things,
approval and adoption of the Merger Agreement by the requisite vote of the
Shareholders. The Annual Meeting may be postponed or adjourned until the
requisite vote is obtained. If a motion to adjourn or postpone the Annual
Meeting is made for the purpose of allowing additional time to obtain votes or
proxies to approve the Merger Agreement and the Merger, no proxy which is voted
against approval of the Merger Agreement and the Merger will be voted in favor
of adjournment or postponement. There can be no assurance that the conditions to
the Merger will be satisfied or, where permissible, waived or that the Merger
will be consummated. For further information concerning the terms and conditions
of the Merger, see "THE MERGER AND RELATED TRANSACTIONS -- The Merger
Agreement."
Only Shareholders at the Record Date will be entitled to vote on the
Merger and, accordingly, except to the extent that holders of outstanding
warrants are also Shareholders of the Company, warrant holders will not have an
opportunity to vote on the Merger or to exercise dissenters' rights. See
"DISSENTERS' RIGHTS."
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
All information contained in this Proxy Statement relating to PHC,
Acquisition Sub and their respective affiliates has been supplied by PHC for
inclusion herein and has not been independently verified by Admar.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 1551
North Tustin Avenue, Suite 300, Santa Ana, California 92705, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of Shareholders that are intended to be presented at the
Company's next Annual Meeting of Shareholders (which will be held if the Merger
is not completed) must be received by the Company not later than October 1,
1996 in order to be included in the related proxy statement and proxy relating
to that Annual Meeting.
3.
<PAGE> 12
*********************
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT. THE PROPOSED MERGER IS A COMPLEX TRANSACTION.
SHAREHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER
CAREFULLY THIS PROXY STATEMENT IN ITS ENTIRETY.
*********************
The date of this Proxy Statement is January 24, 1996.
4.
<PAGE> 13
SUMMARY
The following is a summary of certain information contained elsewhere
in the Proxy Statement. This summary does not purport to be complete, and is
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement and the Appendices hereto.
Capitalized terms used but not defined in this Summary shall have the meanings
ascribed to them elsewhere in this Proxy Statement. Shareholders are urged to
read this Proxy Statement and the Appendices attached hereto in their entirety.
THE ANNUAL MEETING
DATE, TIME AND PLACE. The Annual Meeting will be held on Friday,
February 23, 1996 at 9:00 a.m. local time, at 1551 North Tustin Avenue, Suite
300, Santa Ana, California 92705.
PROPOSALS PRESENTED. At the Annual Meeting, holders of the shares of
Common Stock will be asked to consider and vote upon the following proposals:
(i) approval of the Merger Agreement and the Merger; (ii) approval of the
Company's 1995 Employee Stock Purchase Plan; (iii) ratification of the selection
of Deloitte & Touche LLP as independent auditors of the Company for its fiscal
year ending January 31, 1996; and (iv) election of three directors to serve
until the Merger is completed or for the ensuing year and until their successors
are elected. By requesting that Shareholders vote in favor of the Merger, the
Company is seeking Shareholder ratification of the Merger. A Shareholder that
votes in favor of the Merger would not be able to exercise dissenters' rights,
and the Company or PHC may, if appropriate, use a Shareholder's favorable vote
as a defense to any subsequent challenge such Shareholder may make to the
Merger. See "DISSENTERS' RIGHTS."
RECORD DATE; SHARES ENTITLED TO VOTE. Only holders of record of the
shares of Common Stock at the close of business on December 27, 1995 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting and
any adjournment thereof. On the Record Date, there were issued and outstanding
8,762,602 shares of Common Stock entitled to vote on the matters brought before
the Annual Meeting, held of record by approximately 594 Shareholders. Except as
otherwise provided, each share of Common Stock outstanding on the Record Date is
entitled to one vote at the Annual Meeting. See "PROXY STATEMENT FOR ANNUAL
MEETING OF SHAREHOLDERS -- INFORMATION CONCERNING SOLICITATION AND VOTING --
General" and "-- Voting Rights and Outstanding Shares."
VOTES REQUIRED. Under the Florida Business Corporation Act (the
"FBCA"), the affirmative vote of the holders of (A) at least a majority of the
outstanding shares of Common Stock as of the Record Date is required to approve
and adopt the Merger and the Merger Agreement; (B) at least a majority of the
shares represented and entitled to vote at the Annual Meeting, either in person
or by proxy, is required (i) to approve the Company's 1995 Employee Stock
Purchase Plan; and (ii) to ratify the selection of Deloitte & Touche LLP as
independent auditors of the Company for its fiscal year ending January 31, 1996;
and (C) at least a plurality of the votes represented and entitled to vote at
the Annual Meeting, either in person or by proxy,
5.
<PAGE> 14
is required to elect three directors to serve until the Merger is completed or
for the ensuing year and until their successors are elected.
PROXIES; REVOCATION. A proxy card is enclosed for use at the Annual
Meeting. The proxy may be revoked at any time prior to its exercise at the
Annual Meeting.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT. A FAILURE TO VOTE, EITHER BY NOT
RETURNING THE ENCLOSED PROXY OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
SHAREHOLDERS SHOULD NOT FORWARD THEIR SHARE CERTIFICATES WITH THE
ENCLOSED PROXY CARD. IF THE MERGER AGREEMENT IS APPROVED AND ADOPTED AND THE
MERGER IS CONSUMMATED, TRANSMITTAL MATERIALS AND INSTRUCTIONS RELATING TO
CERTIFICATES WILL BE MAILED TO SHAREHOLDERS PROMPTLY AFTER CONSUMMATION OF THE
MERGER.
THE MERGER
The Company, PHC and Acquisition Sub entered into the Merger Agreement
dated as of October 27, 1995, a copy of which is attached to this Proxy
Statement as Appendix A. The Merger Agreement provides that, subject to the
approval and adoption of the Merger Agreement by the Shareholders, and
compliance with certain other covenants and conditions, Acquisition Sub, a
wholly-owned subsidiary of PHC, will be merged with and into the Company, the
separate corporate existence of Acquisition Sub will cease and the Company will
continue as the surviving corporation of the Merger (the "Surviving
Corporation"). Upon consummation of the Merger, each share of Common Stock
outstanding immediately prior to the Merger (other than as described below under
"The Merger Agreement") will be converted into the right to receive $2.25 in
cash, without interest. After the Effective Time, the Shareholders will cease to
have any further rights as holders of shares of Common Stock, and the Company's
Common Stock will cease to be publicly traded. See "THE MERGER AND RELATED
TRANSACTIONS -- The Merger Agreement."
THE PARTIES. The parties to the Merger Agreement are the Company, PHC
and Acquisition Sub.
THE COMPANY. The Company develops, markets and administers managed
health care services that facilitate the delivery and manage the cost of health
care services. The Company contracts primarily with insurance carriers, as well
as with third-party administrators and self- funded employers, which agree to
provide Admar's services as an adjunct to their health care benefit plans for
covered employees. The Company's services include: (i) alternative delivery
systems, which are composed of Preferred Provider Organizations ("PPOs") and
Exclusive Provider Organizations ("EPOs"); (ii) a utilization management program
marketed as "HealthWatch," which consists principally of the Company's review of
utilization of health care services; (iii) third-party administration provided
through a subsidiary, Benefit Plan Administrators ("BPA") and (iv) a medical
bill negotiation service marketed as "HealthWatch
6.
<PAGE> 15
Advantage," which, through individual negotiations, offers cost saving
opportunities when medical services are provided outside of preferred provider
networks. See "Business."
PHC. PHC owns and operates managed care businesses across the country.
It is a member of The Principal Financial Group, a diversified family of
insurance and financial services companies with more than $52 billion in assets
under management. Principal Mutual Life Insurance Company, the flagship company
of The Principal Financial Group, is the tenth largest United States life
insurer in assets.
ACQUISITION SUB. Acquisition Sub is a Florida corporation, which
currently is a direct, wholly-owned subsidiary of PHC. Acquisition Sub was
recently formed by PHC solely to facilitate PHC's acquisition of the Company
and, prior to the consummation of the Merger, will not perform any activities
other than of an organizational nature and as required by the Merger Agreement.
RECOMMENDATION OF BOARD OF DIRECTORS. The Board of Directors of the
Company has determined that the Merger and the Merger Agreement are advisable
and in the best interests of the Company and its Shareholders, and has approved
the Merger Agreement. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT AND THE
OTHER PROPOSALS PRESENTED IN THIS PROXY STATEMENT.
In determining to approve the Merger and the Merger Agreement and to
recommend that Shareholders approve the Merger and the Merger Agreement, the
Board of Directors considered a number of factors, as more fully described under
"THE MERGER AND RELATED TRANSACTIONS -- Background of and Reasons For the Merger
- -- Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR. Cain Brothers, financial advisor to the
Company, delivered its written opinion, dated as of October 27, 1995, to the
Board of Directors of the Company that, as of the date of such opinion, the cash
consideration of $2.25 per share to be received by the Shareholders pursuant to
the Merger Agreement is fair to such holders from a financial point of view. The
full text of the written opinion of Cain Brothers, dated as of October 27, 1995,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached hereto as Appendix
B. Shareholders should read such opinion in its entirety. See "THE MERGER AND
RELATED TRANSACTIONS -- Opinion of Financial Advisor."
THE MERGER AGREEMENT. The Merger shall become effective at the time and
on the date that Articles of Merger ("Articles of Merger") are filed as required
by section 607.1105 of the FBCA or on such other date and time as may be
specified in such Articles of Merger ("Effective Time"). See "THE MERGER AND
RELATED TRANSACTIONS -- The Merger Agreement -- Effective Time."
At the Effective Time, (i) each share of Common Stock that is issued
and outstanding immediately prior to the Effective Time (other than shares of
Common Stock owned by Shareholders who have properly exercised their dissenters'
rights under California or Florida
7.
<PAGE> 16
law) will be converted into the right to receive $2.25 per share of Common Stock
in cash, without interest (the "Merger Consideration").
COVENANTS. The Merger Agreement contains various covenants of the
Company regarding the conduct of the business of the Company between October 27,
1995 (the date of execution of the Merger Agreement) and the Effective Date. In
this regard, the Company generally is required to conduct its business only in
the ordinary course and to use all reasonable efforts to preserve intact its
business organizations and relationships with third parties and to keep
available the services of the present officers and key employees, as well as to
forbear from taking certain actions without the consent of PHC. See "THE MERGER
- -- The Merger Agreement -- Conduct of Business Pending the Merger."
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains certain
representations and warranties of the Company, PHC and Acquisition Sub,
including, among other things, representations and warranties regarding their
respective due organization, good standing, authority to enter into the Merger
Agreement, the absence of conflict between transactions contemplated by the
Merger Agreement and other agreements and documents. In addition, under the
Merger Agreement, the Company has made representations regarding its
capitalization; adequacy of filings with the Securities and Exchange Commission;
consents and approvals; subsidiaries; absence of certain violations and
defaults; licenses and permits; title to properties; federal, state, foreign,
county and local taxes; governmental authorization and compliance with laws;
provider relationships and contracts; provider activities and liability for the
cost of health care services; actions and proceedings; labor matters; certain
contracts; employee benefit plans; and the lack of material adverse changes
since July 31, 1995. PHC's sole remedy for breach of a representation and
warranty by the Company, absent fraud by the Company, is termination of the
Merger Agreement.
CONDITIONS TO THE MERGER. Consummation of the Merger is subject to
various conditions, including, among others: (i) the approval and adoption of
the Merger Agreement and the Merger by the requisite vote of the Shareholders;
(ii) the procurement of necessary governmental and third-party approvals; (iii)
the receipt of certain legal opinions by the respective counsel for the parties;
(iv) execution of (A) the employment agreement between the Company and Richard
T. Toral (the "Employment Agreement") and (B) the Escrow Agreements among
Richard T. Toral, PHC and the Escrow Agent (collectively, the "Escrow
Agreements"), and (v) waiver by Humana, Inc. of its right of first refusal to
acquire shares of the Common Stock held by Richard T. Toral.
The respective obligations of PHC and Acquisition Sub to consummate the
Merger are further subject to, among other things, the satisfaction of the
following conditions, prior to or at the Effective Time: (i) that the Company
shall have complied with and performed in all material respects all of the
terms, covenants and conditions of the Merger Agreement to be complied with and
performed by it at or prior to the Closing; (ii) the Company shall not have
received written notice from Shareholders representing more than 7 1/2% of all
of the outstanding shares of Common Stock immediately prior to the Effective
Time, indicating an intention to exercise dissenters' rights of appraisal; (iii)
prior to the Effective Time, the Company shall not
8.
<PAGE> 17
have approved any Takeover Proposal other than the Merger Agreement; and (iv)
the representations and warranties made by the Company in the Merger Agreement
shall be true and correct in all respects at and as of the Closing, with the
same force and effect as though such representations and warranties had been
made at and as of the Closing, except for changes expressly contemplated by the
Merger Agreement; provided, however, that with respect to certain of the
representations and warranties made by the Company in the Merger Agreement,
inaccuracies will not constitute a breach of the Merger Agreement unless such
inaccuracies (A) would result in the violation of any law or order for which
there is a substantial risk of a criminal penalty; (B) could reasonably be
expected to invalidate the Merger Agreement or any of its contemplated
transactions, or (C) can reasonably be expected to have both an individual Gross
Adverse Effect (as hereinafter defined) of $25,000 or more and a cumulative
Gross Adverse Effect of $500,000 or more when combined with other inaccuracies
individually having a Gross Adverse Effect of $25,000 or more.
The obligations of the Company to consummate the Merger are further
subject to, among other things, the satisfaction of the following conditions,
prior to or at the Effective Time: (i) that PHC and Acquisition Sub shall have
complied with and performed in all material respects all of the terms, covenants
and conditions of the Merger Agreement to be complied with and performed by them
at or prior to the closing, (ii) that PHC shall have, at Closing, repaid the
outstanding loan owed by the Company to Humana, Inc. in the sum of $1,000,000,
plus all accrued interest, provided that Humana, Inc. at the Closing shall have
surrendered all warrants of the Company and waived its right of first refusal to
purchase Common Stock held by Richard T. Toral, and (iii) that the
representations and warranties made by PHC and Acquisition Sub in the Merger
Agreement shall be true and correct in all respects at and as of the Closing,
with the same force and effect as though such representations and warranties had
been made at and as of the Closing, except for changes contemplated by the
Merger Agreement.
Any of the conditions to consummation of the Merger, including
conditions relating to the accuracy of the various representations and
warranties as of the Closing Date, may be waived by the party in whose favor the
condition is intended to operate. Although the parties do not currently intend
to waive or modify any conditions (other than the modification of certain
exhibits to the Merger Agreement to be delivered at closing), there can be no
assurance that any condition will not be waived or modified in the future and it
is possible, if the Company elects to waive any condition to its obligation to
consummate the Merger, that such waiver would have an adverse effect on the
Shareholders. See "THE MERGER AGREEMENT -- Waiver."
OPTIONS. Under the Merger Agreement, the Board of Directors of the
Company will cause the acceleration of the vesting, conditioned upon the closing
of the Merger (the "Closing"), of each outstanding option to purchase shares of
the Company's Common Stock under the Company's 1992 Non-Employee Directors'
Stock Option Plan, the 1992 Officers' Stock Option Plan, the 1992 Stock Option
Plan, and any other stock option plan adopted by the Company (collectively, the
"Option Plans"). Each holder of an outstanding option under the Option Plans
will, immediately prior to the Effective Time, be entitled to exercise such
option in full, which exercise may be conditioned upon the Closing. All options
outstanding under such
9.
<PAGE> 18
Plans will terminate at the Effective Time if not exercised prior to the
Effective Time. See "THE MERGER AGREEMENT -- Options."
WARRANTS. In lieu of rights to acquire Common Stock of the Company
which a holder of an outstanding warrant may have upon exercise prior to the
Effective Time, at and after the Effective Time, each warrant holder (except
Humana, Inc., which shall, as a condition to the Merger, have waived its right
of first refusal and surrendered all warrants held by it to purchase Common
Stock) shall be entitled to receive, upon exercise, for the remaining term of
such warrant, only the product of (i) the number of shares subject to such
warrant and (ii) the positive difference between $2.25 less the exercise price
per share of such warrant. See "THE MERGER AGREEMENT -- Warrants."
EMPLOYEE STOCK PURCHASE RIGHTS. The Merger Agreement provides that
participants in the Company's 1995 Employee Stock Purchase Plan (the "Purchase
Plan") may use any payroll deductions that have accumulated as of the Effective
Time to purchase shares of the Company's Common Stock under rights then
outstanding under the Purchase Plan. Any remaining rights held by participants
under the Purchase Plan shall be terminated as of the Effective Time. See "THE
MERGER AGREEMENT -- Employee Stock Purchase Rights."
PAYMENT FUND. The Merger Agreement provides that, as of the Effective
Time, PHC will deposit with a paying agent reasonably acceptable to PHC and the
Company (the "Paying Agent") funds equal to the aggregate Merger Consideration
payable to the Shareholders pursuant to the Merger Agreement. See "THE MERGER
AGREEMENT -- Payment Fund."
AMENDMENT. The Merger Agreement may be amended in writing by agreement
of the parties at any time. However, subsequent to approval of the Merger
Agreement by the Shareholders, no amendment may be made that, under applicable
law, would require Shareholder approval without such further approval. In the
event of an amendment requiring Shareholder approval under applicable law, the
Company undertakes to resolicit the approval of its Shareholders. See "THE
MERGER AGREEMENT -- Amendment."
TERMINATION. The Merger Agreement may be terminated at any time prior
to the Effective Time: (i) by mutual written consent of the Company, PHC and
Acquisition Sub; (ii) by either the Company or PHC if the Effective Time shall
not have occurred on or before June 30, 1996; (iii) by PHC or Acquisition Sub,
if the Company has breached the Merger Agreement and such breach is not cured
within 10 days after written notice of the breach to the Company (or 45 days
with respect to breaches relating to certain regulatory matters); (iv) by the
Company, if PHC or Acquisition Sub has breached the Merger Agreement and such
breach has not been cured within 10 days after written notice by the Company;
and (v) by either the Company or PHC under certain other circumstances. See "THE
MERGER AGREEMENT -- Payments Upon Termination."
PAYMENTS UPON TERMINATION. In the event that the Company accepts a
Superior Proposal (as defined below), the Company will pay PHC a break-up fee,
not to exceed $250,000, equal to PHC's reasonable out-of-pocket expenses
(including, but not limited to,
10.
<PAGE> 19
attorneys' fees) incurred in connection with all negotiations with the Company
and the investigation and analysis of the Company in connection with the Merger.
Upon payment of the break-up fee, the Merger Agreement will be deemed
automatically terminated by mutual consent. See "THE MERGER AGREEMENT --
Payments Upon Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of the
Company's management and the Board of Directors may receive economic benefits as
a result of the Merger. For additional information concerning these benefits and
other interests of certain persons in the Merger, see "THE MERGER -- Interests
of Certain Persons in the Merger; Related Agreements."
PAYMENT FOR THE SHARES OF COMMON STOCK AFTER THE MERGER. Pursuant to
the Merger Agreement, PHC is obligated to deposit with the Paying Agent, as of
the Effective Time, the aggregate Merger Consideration to be paid in exchange
for the outstanding shares of Common Stock entitled to receive payment therefor
under the Merger Agreement. See "THE MERGER -- Payment for the Common Stock
After the Merger; Source of Funds."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO COMMON STOCK HOLDERS. The
receipt of cash in exchange for Common Stock pursuant to the Merger (and the
receipt of cash by a Shareholder who exercises dissenters' rights) will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local and foreign tax laws. Shareholders
will generally recognize gain or loss for federal income tax purposes in an
amount equal to the difference between the amount of cash received and their
adjusted tax basis in their shares of Common Stock. Such gain or loss will
generally be a capital gain or loss if such shares of Common Stock are held as a
capital asset, and shall be long-term capital gain or loss if, on the date of
the Merger, such shares of Common Stock were held for more than one year. See
"THE MERGER AND RELATED TRANSACTIONS -- Certain Federal Income Tax Consequences
to Shareholders".
ACCOUNTING TREATMENT. The Merger will be accounted for under the
"purchase" method of accounting whereby the purchase price will be allocated
among the Company's assets and liabilities based on the fair value of the assets
acquired and liabilities assumed. See "THE MERGER -- Accounting Treatment."
DISSENTERS' RIGHTS. If the Merger is consummated, Shareholders who do
not vote in favor of approval of the Merger Agreement and who otherwise comply
with the requirements of Chapter 13 of the California General Corporation Law or
Section 607.1320 of the FBCA will be entitled to statutory appraisal rights. See
"THE MERGER -- Dissenters' Rights."
PRICE RANGE OF THE COMMON STOCK. The Common Stock is traded on the
Nasdaq Small Cap Market. On September 6, 1995, the day prior to the announcement
of the proposed Merger, the high and low bid of the Common Stock on the Nasdaq
Small Cap Market were, respectively, $1-9/16 and $1-13/32 per share. On January
22, 1996, the last sale price of the Common Stock as reported on the Nasdaq
Small Cap Market was $2-1/16 per share. For additional information about prices
of the Common Stock, see "MARKET PRICES AND DIVIDENDS."
11.
<PAGE> 20
PROPOSAL 1
APPROVAL OF MERGER AND ADOPTION OF MERGER AGREEMENT
At the Annual Meeting, the Shareholders will be asked to consider and
vote upon a proposal to approve the Merger and adopt the Merger Agreement. If
the requisite votes in favor of the Merger Agreement and the Merger are obtained
and certain conditions are satisfied or, where permissible, waived, the terms of
the Merger Agreement provide, among other things, that: (i) the Acquisition Sub
will be merged with and into the Company; and (ii) each share of Common Stock
that is issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive $2.25 per share of Common Stock, in cash,
without interest, other than Common Stock held by Shareholders who have properly
exercised dissenters' rights under Florida or California law. It is currently
anticipated that the Merger will occur as promptly as practicable after the
approval and adoption of the Merger and the Merger Agreement by the Shareholders
at the Annual Meeting and the satisfaction or, where permissible, waiver, of the
other conditions to the consummation of the Merger. There can be no assurance
that, even if the requisite Shareholder approval is obtained, the other
conditions to the Merger will be satisfied or waived or that the Merger will be
consummated. By requesting that Shareholders vote in favor of the Merger, the
Company is seeking Shareholder ratification of the Merger. A Shareholder that
votes in favor of the Merger would not be able to exercise dissenters' rights,
and the Company or PHC may, if appropriate, use a Shareholder's favorable vote
as a defense to any subsequent challenge such Shareholder may make to the
Merger. See "DISSENTERS' RIGHTS."
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock as of the Record Date is required to approve and adopt
the Merger and the Merger Agreement. Abstentions and broker non-votes will be
counted toward the tabulation of votes cast on the proposal to approve and adopt
the Merger and the Merger Agreement, and will have the same effect as negative
votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 1
12.
<PAGE> 21
THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the Merger of Acquisition Sub with
and into the Company, with the Company surviving as a wholly-owned subsidiary of
PHC, and the conversion of each share of Common Stock into the right to receive
the Merger Consideration. The discussion in this Proxy Statement of the Merger
and the description of the principal terms of the Merger Agreement are subject
to, and qualified in their entirety by reference to the Merger Agreement, a copy
of which is attached to this Proxy Statement as Appendix A and incorporated
herein by reference.
THE PARTIES
THE COMPANY. The Company develops, markets and administers managed
health care services that facilitate the delivery and manage the cost of health
care services. The Company contracts primarily with insurance carriers, as well
as with third-party administrators and self- funded employers, which agree to
provide Admar's services as an adjunct to their health care benefit plans for
covered employees. The Company's services include: (i) alternative delivery
systems, which are composed of PPOs and EPOs; (ii) a utilization management
program marketed as "HealthWatch", which consists principally of the Company's
review of utilization of health care services; (iii) third-party administration
provided through a subsidiary, Benefit Plan Administrators ("BPA") and (iv) a
medical bill negotiation service marketed as "HealthWatch Advantage," which,
through individual negotiations, offers cost saving opportunities when medical
services are provided outside of preferred provider networks. See "Business."
Admar's principal executive offices are located at 1551 N. Tustin
Avenue, Suite 300, Santa Ana, CA 92705. Its telephone number is (714) 953-9600.
PHC. PHC owns and operates managed care businesses across the country.
It is a member of The Principal Financial Group, a diversified family of
insurance and financial services companies with more than $52 billion in assets
under management. Principal Mutual Life Insurance Company ("PMLIC"), the
flagship company of The Principal Financial Group, is the tenth largest United
States life insurer in assets.
PHC's principal executive offices are located at 1801 Rockville Pike,
Suite 601, Rockville, Maryland, 20852. Its telephone number is (301) 881-1033.
ACQUISITION SUB. Acquisition Sub is a Florida corporation, which
currently is a direct, wholly-owned subsidiary of PHC. Acquisition Sub was
recently formed by PHC solely to facilitate PHC's acquisition of the Company
and, prior to the consummation of the Merger, will not perform any activities
other than of an organizational nature and as required by the Merger Agreement.
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<PAGE> 22
Acquisition Sub's principal executive offices are located at 1801
Rockville Pike, Suite 601, Rockville, MD 20852. Its telephone number is (301)
881-1033.
EFFECTS OF THE MERGER
The Merger will be consummated promptly following approval of the
Merger by the Shareholders and the satisfaction or waiver of all other
conditions to consummation of the Merger. The Merger will become effective at
the time of filing of Articles of Merger with the Florida Secretary of State. At
the Effective Time, Acquisition Sub will merge with and into the Company, and
the Company will be wholly owned by PHC. Each share of Common Stock (other than
shares as to which dissenters' rights have been properly exercised under
California or Florida law), will be converted into the right to receive $2.25 in
cash, without interest (the "Merger Consideration"). After the Effective Time,
the Shareholders will cease to have any further rights as holders of shares of
Common Stock.
As of the Record Date, the Company had outstanding 8,762,602 shares of
Common Stock. An additional 5,000 shares of Common Stock are issuable pursuant
to a vested option held by one individual under the Option Plans (as defined
herein), which vested option has an exercise price of less than the Merger
Consideration. The holder of this vested option will receive Merger
Consideration in the net amount of $2,200 in exchange for shares acquired upon
exercise of such vested option. At the Effective Time, holders of Accelerated
Options (as defined herein) to purchase an aggregate of 202,727 shares of Common
Stock will receive Merger Consideration in the net amount of $219,127 in
exchange for shares acquired upon exercise of such Accelerated Options. In
addition, the net amount of approximately $31,371 would be payable to the
holders of rights outstanding under the Company's Employee Stock Purchase Plan.
In addition, there are currently outstanding warrants to purchase 1,638,580
shares of Common Stock. Only the entity holding a warrant to purchase 30,780
shares of Common Stock will receive Merger Consideration, however, because the
remaining warrants have exercise prices greater than the Merger Consideration.
Such entity will receive Merger Consideration in the amount of $23,085 in
exchange for the warrant held by it at the Effective Time. Accordingly, the
aggregate Merger Consideration (including amounts payable with respect to
options, rights and warrants) is approximately $20 million. See "THE MERGER
AGREEMENT -- Options; Warrants" and "INTERESTS OF CERTAIN PERSONS IN THE MERGER;
RELATED AGREEMENTS -- Acceleration of Options Held by Directors and Named
Executive Officers."
At the Effective Time, the Admar Common Stock will cease trading on the
Nasdaq Small Cap Market, and there will no longer be any public trading market
for Admar Common Stock. In addition, Admar intends to take action, promptly
following the Effective Time, to terminate the registration of the Admar Common
Stock under the Exchange Act. As a result, at prescribed dates thereafter, Admar
will not be required to continue to file reports, proxy statements and other
information required under the Exchange Act with the Securities and Exchange
Commission (the "Commission").
14.
<PAGE> 23
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. In response to continuing pressure from major
purchasers of health care services to reduce health care expenditures, industry
participants, including payors and other managed care companies, have
increasingly looked to corporate consolidation as a way to achieve significant
economies of scale and associated leverage in contracting for more economic
health care services. During fiscal 1995 and 1996, the Company's executive
officers held several meetings to evaluate the appropriate strategic response to
this rapid consolidation taking place in the managed health care industry.
Following extensive discussions, management concluded that the pace of industry
consolidation would require a significant acceleration of the Company's plans to
implement Exclusive Health, its new generation of managed care products.
Admar developed Exclusive Health to enable its indemnity insurance
company clients to offer a health care insurance plan that would compete
effectively with managed health care plans offered by HMOs. With the growth of
managed health care, HMOs have captured a significant portion of the indemnity
insurer's traditional health care business, requiring insurance companies to
respond rapidly, and creating a window of opportunity for Admar to aggressively
market Exclusive Health to indemnity carriers. Historically, Admar's ability to
implement and expand Exclusive Health has been constrained by its limited
ability to fund the start-up working capital costs associated with both the
development of local health care provider networks and the extensive marketing
required to introduce the product, as well as by the necessity of attracting
insurance company partners to the product. The need to accelerate the expansion
of Exclusive Health, however, increased the need for such working capital during
a period when increased competition was depressing the Company's profitability
ratios (by 23.5% from fiscal 1994 to fiscal 1995) and, accordingly, its ability
to generate capital internally. To address these issues, management's focus
turned to potential sources of capital and corporate partners to assist in the
development of Exclusive Health and the expansion of its other products.
As a result of these discussions, management decided to engage an
investment banker to assist in its evaluation of financial and strategic
alternatives. The Company consulted with Salomon Brothers, which had previously
acted as financial advisor to the Company from time to time. After determining
that Admar's interests would be better served by an investment banking firm
specializing in the representation of health care and smaller companies, Salomon
Brothers recommended Cain Brothers and Company, Incorporated ("Cain Brothers")
and several other firms. Management interviewed the recommended investment
bankers and selected Cain Brothers.
On February 24, 1995, Richard T. Toral, President, Chief Executive
Officer and Chairman of the Board of Directors of Admar, received a proposal
from Cain Brothers to act as exclusive financial advisor to the Company in
connection with reviewing the Company's strategic alternatives and representing
the Company in efforts to raise outside capital or to enter into a merger or
acquisition with a third-party. The agreement to retain Cain Brothers was signed
by the Company on March 16, 1995.
15.
<PAGE> 24
After a series of information-gathering and analytical meetings with
Cain Brothers, management concluded that, at prevailing per-share market prices,
raising capital from outside investors would prove prohibitively expensive and
dilutive to existing shareholders. Management made this determination after
consulting with Cain Brothers about the valuation of comparable companies in the
public marketplace and in comparable acquisitions. Based on their discussions,
management concluded that the Company's stock was trading at a low price-to-
earnings ratio when compared to comparable companies, and was therefore
undervalued in the marketplace, possibly due to the thin trading market or the
lack of institutional research support. After consulting with Cain Brothers, and
based upon conversations with existing and potential strategic investors,
management concluded that the Company was unlikely to command a premium above
prevailing market prices from a minority investor. Thus, it was determined that
value to shareholders would be maximized by a sale of the Company to a managed
care company with a sufficiently significant presence in the industry to gain
strategic leverage from Admar's experience and product range, and with capital
sufficient to permit the Company to rapidly develop Exclusive Health.
By mid-May, 1995, Cain Brothers had identified with the Board a list of
appropriate candidates. Cain Brothers and the Company considered as potential
merger partners those companies with a demonstrated interest in managed health
care that offered a client base compatible with that of Admar or that operated
in geographic regions complementary to Admar's geographic markets. Generally,
nationally-based HMOs, insurance companies, including administrative service
companies and certain hospital companies, as well as significant clients of the
Company, were considered. Following exploratory telephone interviews by Cain
Brothers, eight companies requested and received certain confidential
information concerning the Company. The Company's management, after consultation
with Cain Brothers, had concluded that a variety of factors in the Company's
business, including a heavy concentration of its business activity with two core
clients, would necessarily limit the target group of potential acquirors to a
narrow group with a high probability of interest, in order to avoid potential
conflicts with the key clients upon which the Company was dependent.
Initial contact with PMLIC, PHC's ultimate parent (which accounted for
approximately 35.6% of Admar's revenues in fiscal 1995), was made by the Company
early in this exploratory process. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER; RELATED AGREEMENTS." A confidentiality agreement with PHC was entered
into on May 10, 1995.
During the second half of May and through June, Cain Brothers
maintained contact with a number of parties, including PHC, in order to assess
their continuing interest in Admar and to evaluate the potential value to them
of an affiliation with the Company. The Company made available to all interested
parties detailed financial information on Admar to assist in their evaluation.
Cain Brothers provided regular reports of progress to Company management.
On July 6, a conference call was held with the Company's Board of
Directors and Edward K. Evans, Chief Financial Officer of the Company, to assess
the status of the various discussions. Cain Brothers advised the Board at that
time that, of the initial eight interested parties, six had either declined to
pursue negotiations further or had indicated an interest at
16.
<PAGE> 25
offering prices below a price that management believed was attainable based upon
a review of comparable transactions provided to management by Cain Brothers. One
party, PHC, had submitted a letter of interest. The Board of Directors
deliberated and discussed alternatives with Cain Brothers, including the merits
of remaining an independent company, such as the ability to maintain control and
direct the growth of the Company and the opportunity for the Company's
shareholders to participate in any appreciation in the value of the Company. The
Board then concluded that a merger on acceptable terms with PHC was the most
attractive alternative and authorized management to continue negotiations with
PHC while attempting to obtain a firm competing proposal from any other
potential suitors.
Further discussions with PHC culminated in a letter of interest from
PHC on July 16 summarizing the terms and conditions under which PHC would
consider acquiring the Company at $2.50 per share for the Common Stock. Because
PHC is an indirect wholly-owned subsidiary of PMLIC, a mutual company, payment
of the consideration in equity or other securities was not considered or
discussed.
On July 18, a meeting between Mr. Toral, Cain Brothers and the last
remaining interested party (other than PHC) took place, but failed to produce
any written expression of interest or any proposed valuation for the Company.
Subsequently, in accordance with the Board's direction, negotiations
focused on the PHC letter of interest, and a series of meeting were held with
managers of both PHC and its affiliated entities to further explore the
strategic value of Admar to PHC in order to allow PHC to proceed to memorialize
its letter of interest to Admar in a definitive agreement. During the second
half of July and through August, PHC continued to conduct its preliminary due
diligence inquiry with respect to Admar, evaluating, among other things, Admar's
client base and detailed financial information. Over the next several weeks, the
Company continued to provide confidential strategic and other information to
PHC, as the Company, PHC and their respective advisors continued to assess the
benefits of a merger. In addition, counsel for PHC, Epstein, Becker & Green,
P.C., and counsel for Admar discussed by telephone various issues relating to
the structure of the transaction.
On August 10 and 11, PHC staff and its legal counsel conducted a site
visit at Admar's offices, interviewing Admar managers and reviewing key
documentation. In the weeks that followed, additional confidential information
was provided to PHC for review and analysis.
Based upon this review of financial and other data, PHC reduced the
price at which it was willing to consider acquiring the Common Stock from $2.50
per share to $2.25 per share. At that time, PHC advised the Company that the
reduction in price was attributable primarily to the approximately $2.2 million
of indebtedness of the Company required to be assumed by PHC, including $1.0
million due to Humana, which Humana insisted be repaid at the Closing as a
condition to, among other things, waiving its right of first refusal to purchase
Mr. Toral's stock.
17.
<PAGE> 26
On August 25, 1995, counsel to PHC distributed to the Company, its
legal counsel and representatives of Cain Brothers the first draft of the Merger
Agreement. On August 30, 1995, counsel to the Company provided PHC and its
counsel with the Company's comments on the draft of the Merger Agreement.
Negotiations commenced among PHC and PHC's counsel, on the one hand, and the
Company and the Company's legal and financial advisors, on the other hand,
regarding the terms of the Merger Agreement. Key issues included, among other
things, discussions regarding the nature and extent of the representations and
warranties and the related standard of materiality applicable to changes in the
business that could permit PHC to elect not to consummate the Merger, the
addition of certain conditions to the Company's obligations to consummate the
Merger, the Company's ability to terminate the Agreement in the event of a
Superior Offer for the Company, the amount of, and events triggering, the
break-up fee and the terms of Mr. Toral's compensation and escrow arrangements
with PHC. As discussions continued, compromise was reached on these outstanding
issues. With respect to the condition that the representations regarding the
Company be true at the Closing, however, management was able to achieve only a
limited modification of the applicable materiality standard, with the result
that PHC has greater flexibility to terminate the Merger Agreement than was
desired by management of the Company.
On September 7, 1995, the Company announced that it was in discussions
with PHC regarding a potential acquisition of the Company.
On September 8, 1995, Mr. Toral notified Humana of the offer by PHC and
on October 24, 1995, Humana delivered to Mr. Toral a waiver of Humana's right of
first refusal, contingent on the repayment at the Closing of its outstanding
loan to the Company.
On October 24, at a special meeting of the Board of Directors, the
Board heard and discussed extensively a presentation by representatives of Cain
Brothers, describing the process used to enable them to conclude that the Merger
Consideration was fair to the Shareholders from a financial point of view and to
deliver their formal fairness opinion. At the same meeting, counsel to Admar
gave a detailed review of the terms and conditions of the definitive Merger
Agreement, the acceleration and cashing out of all outstanding stock options
(including those held by affiliates), the Escrow Agreements and the Employment
Agreement, (pursuant to which Mr. Toral would receive compensation and be
eligible for a bonus), as well as of the roles and duties of directors in
connection with the acquisition. The Board voted unanimously to approve the
execution of the Merger Agreement and to proceed with the Merger. In light of
Mr. Toral's economic interest in the proposed Employment Agreement, the Merger
Agreement and attached exhibits were also approved separately by a unanimous
vote of the disinterested directors. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER; RELATED AGREEMENTS."
The Merger Agreement was executed on October 27, 1995. On October 30,
1995, a press release was issued announcing the execution of the Merger
Agreement.
18.
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REASONS FOR THE MERGER.
THE COMPANY. In determining to approve the Merger and the Merger
Agreement and to recommend that the Shareholders approve the Merger and the
Merger Agreement, the Board of Directors considered a number of factors,
including the following:
- The Board considered that the trend toward consolidation in the
managed care industry has required the Company to accelerate its
plans for future growth in order to remain competitive, while at
the same time increasing pressure on operating profits.
- The Board considered the availability of other financing
alternatives, taking into account the Board's concern that outside
financing could not be obtained on terms that were as favorable to
the Company as the terms of the Merger and the Merger Agreement,
or terms that would not otherwise be excessively dilutive to
Shareholders.
- The Board considered the Company's prospects as an independent
entity, including the impact of the limitation of available funds
on the Company's growth strategy, financial performance and
competitiveness. Specifically, the Board considered that the
Company's ability to achieve its strategic plan, including its
capacity to accelerate the expansion of its new product, Exclusive
Health, would be adversely affected if additional capital were not
obtained.
- The Board considered the likelihood that other companies would
desire to enter into a business combination with Company. The
Board was advised that, following the solicitation by its
financial advisor of potential acquirors, no written offer to
acquire control of the Company was received, other than that of
PHC. The Board also considered that, following the public
announcement of its negotiations with PHC, the Company was not
approached by any other interested parties. The Board then
concluded that further solicitation was not likely to result in a
more attractive offer.
- The Board analyzed information relating to the financial
condition, results of operations, capital levels, asset quality
and prospects of the Company and current and prospective industry,
economic and market conditions, with particular emphasis on the
competitive environment in the managed care industry generally.
- The Board considered that the Company presented a strong strategic
fit for PHC. As a result, the Board believed that, although
Shareholders would not be able to participate in the ongoing
benefits of the combined company, the potential benefits of the
Merger to PHC should provide PHC with incentive to offer terms
that represent an attractive opportunity for Shareholders.
19.
<PAGE> 28
- The Board considered the opinion of Cain Brothers that, as of
October 27, 1995 the Merger Consideration to be received by the
Shareholders is fair to such Shareholders from a financial point
of view (see "-- Opinion of Financial Advisor").
- The Board reviewed valuation multiples of comparable PPO and other
managed care company acquisitions as provided by Cain Brothers and
the purchase price (defined as Enterprise Value) for the acquired
companies as a multiple of the LTM revenues, net income, EBIT and
EBITDA. Based on those analyses and the opinion by Cain Brothers,
the Board concluded that PHC's offer represented an attractive
offer for Shareholders. See " - Opinion of Financial Advisor" for
a definition of the terms "Enterprise Value," "LTM," "EBIT" and
"EBITDA."
- The Board considered that PHC's offer of $2.25 per share compared
favorably to the Company's July 31, 1995 book value per share of
$0.55 and its tangible book value per share of ($0.05).
- The Board considered the terms of the Merger Agreement, including
the Company's ability to consider and approve other proposals for
the sale of the Company if a Superior Offer (as hereinafter
defined) were made.
The Company's Board of Directors also considered a variety of
potentially negative factors in its deliberations concerning the Merger,
including the following:
- The Board considered the terms of the Merger, including the
significant conditions to Closing and the risks that the Merger
might not occur.
- The Board considered that, because the Merger Consideration
consists of cash, the Shareholders would not be able to
participate in any appreciation in the value of the Company that
might result from the combined enterprise, including the further
development of Exclusive Health.
- The Board considered the possibility that the covenants regarding
alternative acquisition proposals and the break-up fee provision
contained in the Merger Agreement could have the effect of
discouraging other offers, although the Board recognized that such
provisions were a prerequisite to PHC's willingness to enter into
the Merger Agreement and that, in the Board's view, the benefits
to the Shareholders of the Merger Agreement outweighed this
potential risk, particularly as the Board retained the ability to
negotiate with potential third-party acquirors.
- The Board considered the financial interests of certain persons in
the Merger, including the fact that Mr. Toral, who holds
approximately 36.3% of the Company's outstanding Common Stock and
is the Chief Executive Officer and Chairman of the Board of the
Company will, as a condition of the Merger, enter into an
employment agreement, pursuant to which he will serve as President
and
20.
<PAGE> 29
Chief Executive Officer of the Surviving Corporation and receive
certain economic benefits. See "INTERESTS OF CERTAIN PERSONS IN
THE MERGER; RELATED AGREEMENTS -- Interests of Mr. Toral." The
Board weighed this concern, however, against the fact that, as a
prerequisite to PHC's willingness to enter into the Merger
Agreement, PHC required that Mr. Toral place, at the Effective
Time, $2,169,350 in cash into two escrow accounts for a term of
five years. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER;
RELATED AGREEMENTS -- Escrow Agreements"
Based on these matters and such other matters as were deemed relevant,
the Board of Directors of the Company approved the Merger as being in the best
interests of the Shareholders at a meeting on October 24, 1995.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors of the Company is not intended to be
exhaustive, but is believed to include the material factors considered by the
Company's Board. In addition, in reaching the determination to approve and
recommend the Merger, in view of the wide variety of factors considered in
connection with its evaluation of the Merger, the Company's Board did not find
it practical to, and did not, quantify or otherwise attempt to assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors.
PHC. In determining to approve the Merger and the Merger Agreement, the
Board of Directors of PHC considered that the acquisition of Admar would
complement and supplement PHC's national managed care provider network and
products.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors of the Company has determined that the Merger
and the Merger Agreement are advisable and in the best interests of the Company
and its Shareholders and has approved the Merger Agreement. ACCORDINGLY, THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated February 24, 1995 (the
"Engagement Letter") and an amended engagement letter dated November 9, 1995
(the "Amended Engagement Letter"), which was amended in order to extend the term
of the Engagement Letter, the Company retained Cain Brothers to act as its
financial advisor in connection with the consideration of the Merger by the
Company's Board of Directors. Cain Brothers is a nationally recognized firm and,
as part of its investment banking business, is frequently engaged in the
valuation of health care related businesses in connection with mergers,
acquisitions and private placements.
21.
<PAGE> 30
At the October 24, 1995 meeting of the Company's Board of Directors,
Cain Brothers delivered its oral opinion (subsequently confirmed in writing as
of October 27, 1995) that the Merger Consideration is fair to the Shareholders
from a financial point of view. No limitations were imposed by the Company on
Cain Brothers with respect to the investigations made or procedures followed in
rendering its opinion. The full text of Cain Brothers' written opinion to the
Company's Board of Directors (the "Fairness Opinion") is attached hereto as
Appendix B and is incorporated herein by reference. The Fairness Opinion should
be read carefully and in its entirety in connection with this Proxy Statement.
The Fairness Opinion was prepared for the Company's Board of Directors and does
not constitute a recommendation to any Shareholder as to how such Shareholder
should vote on the Merger.
In connection with the Fairness Opinion, Cain Brothers reviewed, among
other things, the Agreement and Plan of Merger, Richard T. Toral's Employment
Agreement and Escrow Agreements 1 and 2, and certain financial and other
information with respect to the Company that was publicly available or furnished
to Cain Brothers by or on behalf of the Company, including certain internal
analyses, financial projections, reports and other information prepared by the
Company's management and employees. Cain Brothers also held discussions with the
Company's senior management concerning the Company's historical and current
operations, financial condition and prospects. In addition, Cain Brothers
considered recent merger and acquisition transactions involving selected
enterprises deemed reasonably comparable to the Company; analyzed certain
publicly available information, including financial information, relating to
selected public companies whose operations were deemed reasonably comparable to
those of the Company; performed a discounted cash flow analysis of the Company's
projected cash flows (which were based on projections provided by the Company's
management); and considered other factors deemed appropriate in rendering the
Fairness Opinion, such as the Company's recent Nasdaq Small Cap Market bid and
asked prices relative to the cash-out price per share of $2.25, the dynamics of
the managed care market, including the consolidation of payors and providers,
increasingly competitive premium levels and the increasing awareness of
purchasers regarding the cost of health care services.
In rendering the Fairness Opinion, Cain Brothers relied, without
independent verification, on the accuracy and completeness of all financial and
other information reviewed that was publicly available or furnished to Cain
Brothers by or on behalf of the Company or other parties, including the
projections provided by the Company's management. Cain Brothers assumed, based
on discussions with and the verbal representations of management, that the
financial projections that were reviewed were reasonably prepared on bases
reflecting the currently available estimates and current good faith judgments of
the management of the Company. In addition, Cain Brothers has not made,
requested or received any independent appraisal of the assets or liabilities of
the Company. The Fairness Opinion is necessarily based on economic, market,
financial and other conditions as they existed, and on the information made
available to Cain Brothers, as of the date of the Fairness Opinion. It should be
understood that, although subsequent developments may affect the Fairness
Opinion, Cain Brothers does not have any obligation to update, review or
reaffirm the Fairness Opinion.
22.
<PAGE> 31
COMPARABLE PUBLICLY TRADED COMPANIES ANALYSIS. Cain Brothers compared
certain financial information of the Company to the corresponding publicly
available financial information of certain other publicly-traded managed health
care service companies. Cain Brothers deemed six managed health care companies
to be reasonably comparable to the Company, due primarily to the business
orientation of such other companies as either PPOs or other managed care
administrative service companies: Core, Inc. (formerly Peer Review Analysis,
Inc.), CorVel Corporation, GMIS Cost Containment Corporation, Healthcare
Compare, Inc., Medical Control, Inc. and National Healthcare Alliance, Inc. Cain
Brothers believes that business orientation is a more relevant factor in
determining the comparability of health care companies than are market
capitalizations, revenue levels or other factors. For each of these companies,
Cain Brothers calculated multiples of enterprise value ("Enterprise Value")
(defined for this purpose as total equity market capitalization, plus long-term
debt, minus cash and equivalents) to latest twelve months' ("LTM") revenues; LTM
earnings before interest expense, income taxes, depreciation and amortization
("EBITDA"); and LTM earnings before interest expense and income taxes ("EBIT").
An analysis of the multiples for the comparable publicly traded companies
yielded the following ranges of multiples: Enterprise Value to LTM revenues of
0.87x to 5.91x (with a median of 2.19x); Enterprise Value to LTM EBITDA of
(73.60x) to 452.25x (with a median of 10.54x); Enterprise Value to LTM EBIT of
(40.83x) to 17.15x (with a median of 12.10x); equity market capitalization to
tangible book value of (33.35x) to 15.62x (with a median of 4.70x); equity
market capitalization to LTM net income of (49.59x) to 23.25x (with a median of
18.56x); and equity market capitalization to projected net income for the next
fiscal year end of 18.59x to 26.82x (with a median of 19.58x).
Cain Brothers then applied the median of the multiples from their
analyses to certain actual and projected results provided by the Company in
order to determine implied equity values for each multiple. To arrive at implied
equity values from the Enterprise Value indicators, Cain Brothers subtracted
long-term debt and added cash and equivalent amounts. Enterprise Value is used
as an estimate of the unleveraged value of an ongoing business enterprise at a
point in time and represents a theoretical aggregate valuation of the entity
before adjustments for long-term debt and cash and equivalent amounts, and as
such, does not represent the value to an equity shareholder. Therefore,
adjustments for long-term debt and cash and equivalent amounts were needed to
make the indicators in Cain Brothers' analysis comparable to the $2.25 per share
offer for the equity of the Company. No adjustments were necessary for the
equity market capitalization multiples. Implied equity value was viewed as the
relevant value indicator for comparison purposes because it is comparable to the
value the shareholders receive for their equity holdings.
Based upon the application of the median multiples to the Company's
results, Cain Brothers calculated implied values for the Company ranging from
$7.2 million (based on the median of equity market capitalization as a multiple
of LTM net income) to $35.9 million (based on the median of Enterprise Value as
a multiple of LTM revenues), with a mean implied equity value of $15.7 million
and a median of $13.7 million. Due to the wide variance in the range of the
implied equity values ($7.2 million to $35.9 million), Cain Brothers considered
the median value of $13.7 million to be the most appropriate indicator of value
for the following reasons: 1) the median minimizes the impact of the outliers in
the range, 2) the median value
23.
<PAGE> 32
of $13.7 million was produced by applying the multiple for the median equity
market capitalization to projected net income for the next fiscal year end to
the Company's results, (Cain Brothers believes this approach to be a generally
accepted method in the valuation of public companies), and 3) Cain Brothers
noted nothing unique about the Company which would necessitate an adjustment in
the Company's value toward either the low or high end of the range.
COMPARABLE ACQUISITIONS ANALYSIS. Cain Brothers also reviewed the
financial terms of five managed health care acquisition transactions for which
Cain Brothers determined the acquired companies to be reasonably comparable to
the Company, due mainly to the acquired companies' business orientation as
either PPOs or other managed care administrative service companies. Cain
Brothers' review included the following transactions: Right Choice Managed Care
Inc.'s acquisition of HealthLink, Inc.; Value Health. Inc.'s acquisition of
Community Care Networks, Inc.; Value Health, Inc.'s acquisition of Preferred
Health Care Ltd.; and the acquisitions of two privately held PPOs, one in the
northern United States and one in the southern United States, for which public
information is not available. Cain Brothers calculated multiples for such
acquired companies of purchase price (defined as Enterprise Value) to the most
recently available twelve months' revenues, net income, EBIT and EBITDA. Based
on this methodology, Cain Brothers estimated a valuation range of $8.3 million
to $37.0 million for the equity of the Company.
The Comparable Acquisitions Analysis attempts to determine a valuation
range for the subject company by applying a variety of financial multiple
indicators derived from selected, completed comparable company acquisitions.
This methodology is similar to the Comparable Publicly Traded Companies Analysis
in that it attempts to draw upon a universe of comparable companies to quantify
certain valuation statistics to be applied in determining value. The Comparable
Acquisitions Analysis is more pragmatic in addressing valuation, however,
because it considers premiums and multiples actually paid by buyers to sellers
in recent transactions. However, a limitation of the Comparable Acquisitions
Analysis is that available data is often times limited and/or dated. The five
transactions which Cain Brothers reviewed in its analysis occurred between
December 1993 and August 1995.
An analysis of the multiples for the comparable acquired companies
yielded the following ranges of multiples: Enterprise Value to most recently
available twelve months' revenues of 1.71x to 3.78x (with a median of 2.26x);
Enterprise Value to most recently available twelve months' net income of 16.05x
to 38.44x (with a median of 26.16x); Enterprise Value to most recently available
twelve months' EBIT of 8.11x to 24.70x (with a median of 12.98x); and Enterprise
Value to most recently available twelve months' EBITDA of 8.23x to 16.49x (with
a median of 9.88x).
Cain Brothers then applied the median multiples from its analysis to
the actual results provided by the Company in order to determine implied equity
values from each multiple. As in the Comparable Publicly Traded Companies
Analysis, in order to arrive at the implied equity values from the implied
Enterprise Values, long-term debt was subtracted and cash and equivalent amounts
were added back. The resulting implied equity value could then be
24.
<PAGE> 33
compared to the $2.25 per share being offered to the common equity shareholders
of the Company.
Based upon the application of the median multiples to the Company's
results, Cain Brothers calculated implied equity values for the Company ranging
from $8.3 million (based on the median of Enterprise Value as a multiple of most
recently available twelve months' EBIT) to $37.0 million (based on the median of
Enterprise Value as a multiple of most recently available twelve months'
revenues), with a mean implied equity value of $17.1 million and a median of
$11.5 million. Due to the variance in the range of the implied equity values
($8.3 million to $37.0 million), Cain Brothers considers the median value of
$11.5 million to be the most appropriate indicator of value primarily because
the median minimizes the impact of the outliers in the range and Cain Brothers
noted nothing unique about the Company which would necessitate an adjustment in
the Company's value toward either the low or high end of the range.
DISCOUNTED CASH FLOW ANALYSIS. Cain Brothers performed a discounted
cash flow analysis to calculate the present value of the future cash flows that
the Company would produce through fiscal year end January 31, 2000. The analysis
was based on income statement, capital expenditure and working capital
projections provided by the Company's management (and assumed by Cain Brothers
to have been reasonably prepared by the Company's management on bases reflecting
Company management's currently available estimates and good faith judgments),
which were adjusted by Cain Brothers to create projections of current after-tax
free cash flow. Assumptions for the projections for the Company were based on
management's expectations of the number of market areas in which the Company's
products were offered, the number of enrollees in or customers for each of the
Company's products or services, the pricing levels for each of the products or
services, the expense levels associated with each of the Company's products or
services, including administrative overhead, customer service, claims and other
costs, and the capital structure necessary to finance the Company's planned
growth. Cain Brothers estimated an Enterprise Value range for the Company based
upon the sum of the aggregate discounted value of the unleveraged after-tax free
cash flows of the Company through January 31, 2000, plus the present value of
the January 31, 2000 terminal value of the Company, using a weighted average
cost of capital for the Company of 28% and terminal year free cash flow
multiples of 6.0x to 7.0x.
The terminal value represents the value of those cash flows for the
indefinite period beyond the projected time horizon. We have based the terminal
value estimates on conservative multiples (6.0x to 7.0x) of after-tax free cash
flow. Our analysis discounted the projected free cash flow and terminal year
value at a discount rate (28%) which we deemed appropriate for the industry and
company risk inherent in the Company's business. The discount rate represents
the weighted average return demanded by both debt and equity holders of the
Company, and is commonly known as the after-tax Weighted Average Cost of Capital
("WACC"). The WACC is derived using the Capital Asset Pricing Model, a common
financial model utilized in the derivation of the cost of capital. The discount
rate of 28% reflects the facts that the Company is a small capitalization public
company and the free cash flows in the projections are heavily dependent on the
success of a new product (Exclusive Health). Based on the Discounted Cash
25.
<PAGE> 34
Flow Analysis, Cain Brothers estimated a valuation range of $11.2 million to
$13.3 million for the equity of the Company.
In reaching its Fairness Opinion conclusion, Cain Brothers placed more
emphasis on the Comparable Publicly Traded Companies Analysis and the Comparable
Acquisitions Analysis than the Discounted Cash Flow Analysis. The Discounted
Cash Flow methodology is based upon a theoretical model which employs multiple
assumptions about an enterprise's future activity levels, market and economic
conditions, competitive forces and regulatory changes, whereas both the
Comparable Publicly Traded Companies and Comparable Acquisitions methodologies
are based upon actual valuations assigned to enterprises by investors. While
Cain Brothers did not rely upon the Discounted Cash Flow methodology as heavily
in reaching its Fairness Opinion conclusion, it noted that this methodology does
suggest a value for the Company which is generally supportive of the value
conclusions produced by the other two analyses.
In arriving at the Fairness Opinion, and in presenting its findings to
the Company's Board of Directors, Cain Brothers performed certain financial
analyses, the material portions of which are summarized above. The summary set
forth above does not purport to be a complete description of Cain Brothers'
analyses. Cain Brothers believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses
could create an incomplete view of the process underlying the analyses set forth
in the Fairness Opinion and in the presentation to the Company's Board of
Directors. In arriving at its fairness determination, Cain Brothers considered
the results of all such analyses.
No company or transaction used in the comparable publicly-traded
companies analysis or the comparable acquisitions analysis summarized above is
identical to the Company or the proposed Merger. With respect to comparable
company analyses, a particular analysis performed by Cain Brothers is not
necessarily indicative of actual values, which may be significantly higher or
lower than suggested by such analysis. The analyses are not appraisals and do
not necessarily reflect the prices for which businesses actually could be sold
or actual values or future results that might be achieved.
Pursuant to the Engagement Letter and Amended Engagement Letter, the
terms of which were negotiated at arm's length between the Management of Admar
and representatives of Cain Brothers, the Company engaged Cain Brothers to act
as its exclusive financial advisor in connection with the consideration of the
Merger contemplated by the Merger Agreement. The Company will pay Cain Brothers
a fee (calculated in part as a percentage of the total consideration involved in
the Merger with Acquisition Sub) of $487,500 for its services pursuant to the
terms of the Engagement Letter and has agreed to reimburse Cain Brothers for its
reasonable out-of-pocket expenses. The Company also has agreed to indemnify Cain
Brothers, its affiliates, and their respective partners, directors, officers,
agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
26.
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THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is
attached hereto as Appendix A. All references to and summaries of the Merger
Agreement in this Proxy Statement are qualified in their entirety by reference
to the Merger Agreement, which is incorporated herein by reference.
EFFECTIVE TIME. The Merger will become effective when articles of
merger of Acquisition Sub and the Company (the "Articles of Merger") are filed
with the Secretary of State of Florida in accordance with the provisions of
Section 607.1105 of the Florida 1989 Business Corporation Act. The Articles of
Merger are expected to be filed on the second business day after satisfaction
or, where permissible, waiver of the conditions contained in the Merger
Agreement (the "Closing"). The date and time when the Merger becomes effective
is referred to herein as the "Effective Time."
THE MERGER. The Merger Agreement provides that, at the Effective Time,
Acquisition Sub, a wholly-owned subsidiary of PHC, will be merged with and into
the Company, the separate corporate existence of Acquisition Sub will cease and
the Company will continue as the surviving corporation of the Merger (the
"Surviving Corporation"), with the Articles of Incorporation and Bylaws of
Acquisition Sub becoming the Articles of Incorporation and Bylaws of the
Surviving Corporation and directors and officers of Acquisition Sub becoming the
directors and officers of the Surviving Corporation. Following consummation of
the Merger, the Company, as the Surviving Corporation, will be a wholly-owned
subsidiary of PHC. As a result of the Merger, all of the properties, rights,
privileges and franchises of the Company and Acquisition Sub will vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Acquisition Sub will become the debts, liabilities and duties of the Surviving
Corporation.
COMMON STOCK. At the Effective Time, each share of Common Stock that is
issued and outstanding immediately prior to the Effective Time will be converted
into the right to receive $2.25 per share in cash, without interest (the "Merger
Consideration"), other than Common Stock (i) owned by or held in the treasury of
the Company or any subsidiary of the Company, which will be canceled without
payment, and (ii) in respect of which dissenters' rights have been properly
exercised, and the Common Stock will cease to be publicly traded. Each share of
common stock of Acquisition Sub issued and outstanding immediately prior to the
Effective Time will be converted into and exchanged for one share of Common
Stock of the Surviving Corporation.
Under the terms of the Merger Agreement, the per share Merger
Consideration is fixed and will not be adjusted to reflect any change in the
market price of the Common Stock. The market price of the Common Stock may vary
from the price on the date hereof, or on the date on which the Shareholders vote
on the Merger, as a result of changes in the business, operations, financial
results or prospects of Admar, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, general market and economic
conditions and other factors.
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OPTIONS. Under the Merger Agreement, the Board of Directors of the
Company will cause the acceleration of the vesting, conditioned upon the closing
of the Merger (the "Closing"), of each outstanding option to purchase shares of
Common Stock under the Company's 1992 Directors' Stock Option Plan, the 1992
Officers' Stock Option Plan, the 1992 Stock Option Plan, and any other stock
option plan adopted by the Company (collectively, the "Option Plans"). Each
holder of an outstanding option under the Option Plans will, immediately prior
to the Effective Time, be entitled to exercise such option in full, which
exercise may be conditioned upon the Closing. All options outstanding under such
Plans will terminate at the Effective Time if not exercised prior thereto. In
lieu of receiving certificates representing the shares acquired upon exercise,
the optionee will receive the full cash amount to which the optionee would
otherwise be entitled under the Merger Agreement with respect to such shares.
WARRANTS. In lieu of rights to acquire Common Stock of the Company
which a holder of an outstanding warrant may have upon exercise prior to the
Effective Time, at and after the Effective Time, each warrant holder (except for
Humana, Inc., which shall, as a condition to the Merger, have waived its right
of first refusal and surrendered all warrants held by it to purchase Common
Stock) shall be entitled to receive, upon exercise, for the remaining term of
such warrant, only the product of (i) the number of shares subject to such
warrant and (ii) the positive difference between $2.25 less the exercise price
per share of such warrant. Such amount will be payable upon delivery to the
Paying Agent of the warrant and appropriate exercise documents, properly
executed and otherwise completed. Holders of warrants with exercise prices of
$2.25 or more would not receive any Merger Consideration with respect to such
warrants and, if not exercised, such warrants would terminate according to their
terms on February 1, 1996, unless extended. The entity acting as market maker in
a public offering of the warrants holds a warrant, having an exercise price of
$1.50, to purchase 30,780 shares of Common Stock and would therefore receive
Merger Consideration equal to $23,085 with respect to such warrant. All other
warrants have exercise prices in excess of $2.25, and therefore the holders of
such warrants will not receive any benefit with respect to such warrants if the
Merger is consummated.
In December 1991, the Company entered into an agreement with Humana
Inc. pursuant to which Humana acquired 200,000 shares of the Company's Common
Stock and a warrant to acquire up to 1,800,000 shares of Common Stock (which,
together with the Common Stock acquired, represented approximately 20% of the
Common Stock outstanding at that time). The warrants expire ratably from
December 17, 1995 through December 17, 1996 and have varying exercise prices
based on the market price of the Common Stock, with a minimum exercise price of
$2.50 per share. At the same time, Richard T. Toral, president of the Company,
granted to Humana, in the event Mr. Toral proposed to sell his Common Stock, a
right of first refusal to acquire such Common Stock, from Mr. Toral on terms
comparable to those proposed. On August 31, 1992, Humana made a loan to the
Company of $1,000,000 in principal amount, with interest at the rate of 6% per
annum. In connection with the Merger, Humana elected to waive its right of first
refusal, provided that the loan was repaid in full at the Closing.
28.
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EMPLOYEE STOCK PURCHASE RIGHTS. The Merger Agreement provides that
participants in the Company's 1995 Employee Stock Purchase Plan (the "Purchase
Plan") may use any payroll deductions that have accumulated as of the Effective
Time to purchase shares of the Company's Common Stock under rights then
outstanding under the Purchase Plan. Any remaining rights held by participants
under the Purchase Plan shall be terminated as of the Effective Time. In lieu of
issuing stock certificates representing the shares acquired upon such purchase,
a participant will receive the full cash amount to which such participant would
be entitled under the Merger Agreement with respect to such shares.
PAYMENT FUND. The Merger Agreement provides that, as of the Effective
Time, PHC will deposit with a payment agent reasonably acceptable to PHC and the
Company (the "Paying Agent") funds equal to the aggregate Merger Consideration
payable to the Shareholders pursuant to the Merger Agreement. Any funds
remaining with the Paying Agent one year after the Effective Time will be
delivered to the Surviving Corporation upon demand, to be held for the benefit
of the former Shareholders of the Company until they surrender their respective
certificates in accordance with the Merger Agreement, or until such funds shall
otherwise escheat pursuant to applicable laws, whichever occurs first.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains certain
representations and warranties of the Company, PHC and Acquisition Sub
including, among other things, representations and warranties regarding their
respective due organization, good standing, authority to enter into the Merger
Agreement, absence of conflict between transactions contemplated by the Merger
Agreement and other agreements and documents. In addition, under the Merger
Agreement, the Company has made representations regarding its capitalization;
adequacy of filings with the Securities and Exchange Commission; consents and
approvals; subsidiaries; absence of certain violations and defaults; licenses
and permits; title to properties; federal, state, foreign, county and local
taxes; governmental authorization and compliance with laws; provider
relationships and contracts; provider activities and liability for the cost of
health case services; actions and proceedings; labor matters; certain contracts;
employee benefit plans; and the lack of material adverse changes since July 31,
1995. PHC's sole remedy for breach of a representation and warranty by the
Company, absent fraud by the Company, is termination of the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER. The Company has agreed that it
will conduct its business and that of its subsidiaries prior to the Effective
Time only in the ordinary course and will use all commercially reasonable
efforts to preserve intact its business organization and relationships with
third parties and to keep available the services of its present officers and key
employees. The Company also has agreed to certain specific restrictions on its
and its subsidiaries' ability to, among other things, take the following
actions, with specified exceptions, without PHC's consent; (i) declare or pay
any dividends on or make other distributions in respect of any of its capital
stock; (ii) split, combine or reclassify any of its capital stock or issue or
authorize other securities in respect of, shares of its capital stock; (iii)
repurchase or otherwise acquire any shares of its capital stock; (iv) issue any
securities; (v) acquire any business or any corporation, partnership,
association or other business organization or division thereof; (vi) sell, lease
or otherwise dispose of, any of its assets equal to or in excess
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of $25,000 per transaction; (vii) incur any indebtedness for borrowed money or
guarantee any such indebtedness, other than under the Company's existing line of
credit for purposes consistent with past practice; (viii) increase the
compensation of any director, officer or employee or hire employees with annual
salaries of $50,000 or more; (ix) execute, renew or extend any lease obligations
which individually or in the aggregate equal or exceed $25,000 per annum; (x)
settle any litigation or arbitration, including any administrative agency
matter; (xi) amend certain existing agreements or enter into new agreements;
(xii) take any deliberate action other than actions expressly permitted or
required by the Merger Agreement that would result in any of the representations
and warranties of the Company set forth in the Merger Agreement becoming untrue,
or in any of the conditions of the Merger set forth in the Merger Agreement not
being satisfied; or (xiii) adopt or propose any change to the Articles of
Incorporation, By-Laws, or other organizational documents of the Company or its
subsidiaries.
OTHER BIDS. In the Merger Agreement, the Company has agreed that,
except as described below, it would not, nor would any of its affiliates or any
of its or their respective officers, employees, agents and representatives
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal or offer with respect to a merger or other business
combination or any proposal to acquire a substantial equity interest in the
Company, or any purchase of any substantial portion of the assets of the Company
or any of its subsidiaries (a "Takeover Proposal"). However, the Board of
Directors may furnish information or engage in negotiations or discussions with
respect to a Takeover Proposal or endorse, approve, recommend or enter into an
agreement with respect to an unsolicited "Superior Proposal." A Superior
Proposal is a Takeover Proposal that the Board of Directors, in the good faith
exercise of its fiduciary duty after consultation with outside financial
advisors, has determined is more favorable to the Shareholders than the Merger.
In addition, the Company has agreed to promptly notify PHC if any such inquiries
or proposals are received by the Company. In the event a Takeover Proposal is
deemed a Superior Proposal by the Company's Board of Directors, its acceptance
shall be subject to the same fiduciary duty conditions as is the Company's
acceptance and execution of the Merger Agreement.
If the Company accepts a Superior Proposal that was not accepted in
violation of the Merger Agreement as described above, it will be deemed a
termination of the Merger Agreement by mutual consent, provided the Company pays
PHC the break-up fee required by the Merger Agreement (the "Break-Up Fee"). See
"-- Payments Upon Termination."
The combined effect of these provisions could be to render more
difficult or otherwise to discourage an attempt by a party other than PHC to
obtain control of the Company by means of a merger or otherwise.
OTHER AGREEMENTS OF THE COMPANY, PHC AND ACQUISITION SUB. In the Merger
Agreement, the Company, PHC and Acquisition Sub have agreed to use all
commercially reasonable efforts, and to reasonably cooperate with the other in
such efforts, to obtain approvals of any regulatory authority required to be
obtained by the Company, any subsidiary of the Company, PHC or Acquisition Sub
in order to consummate the transactions contemplated by the Merger Agreement.
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Between the date of the Merger Agreement and Closing, the Company and
its subsidiaries will afford the officers, employees, counsel, accountants and
other authorized representatives of PHC and its representatives reasonable
access to the properties, books, contracts, commitments and records of the
Company and its subsidiaries, and furnish promptly to PHC all information
concerning its business, properties and personnel as PHC or its representatives
may reasonably request.
The Merger Agreement provides that on commercially reasonable terms,
the specific aspects of which shall require the review and consent of PHC (which
consent shall not be unreasonably withheld), the Company may secure policies of
insurance from reputable licensed insurers to cover the costs and expenses that
may be incurred by the Company or any of its subsidiaries, or any of their
respective officers or directors, in connection with claims against officers or
directors which may be brought on or after the Effective Time, but which arise
from actions or omissions alleged to have occurred prior to the Effective Time.
The Merger Agreement provides that the Company, PHC and Acquisition Sub
will each act in good faith and use their reasonable best efforts to consummate
the transactions contemplated by the Merger Agreement.
CONDITIONS TO THE MERGER. The respective obligations of the Company,
PHC and Acquisition Sub to consummate the Merger are subject to the satisfaction
or waiver of the following conditions: (i) the approval and adoption of the
Merger Agreement and the Merger by the requisite vote of the Shareholders; (ii)
the procurement of necessary governmental and third-party approvals; (iii) the
receipt of certain legal opinions by respective counsels for the parties; (iv)
execution of (A) the employment agreement between the Company and Richard T.
Toral (the "Employment Agreement") and (B) the Escrow Agreements among Richard
T. Toral, PHC and the Escrow Agent (collectively, the "Escrow Agreements"), and
(v) waiver by Humana, Inc. of its right of first refusal to acquire shares of
the Common Stock held by Richard T. Toral.
The respective obligations of PHC and Acquisition Sub to consummate the
Merger are further subject to, among other things, the satisfaction of the
following conditions, prior to or at the Effective Time: (i) that the Company
shall have complied with and performed in all material respects all of the
terms, covenants and conditions of the Merger Agreement to be complied with and
performed by it at or prior to the Closing; (ii) the Company shall not have
received written notice from Shareholders representing more than 7 1/2% of all
of the outstanding shares of Common Stock immediately prior to the Effective
Time, indicating an invention to exercise dissenters' rights of appraisal; (iii)
prior to the Effective Time, the Company will not have approved any Takeover
Proposal other than the Merger Agreement; and (iv) the representations and
warranties made by the Company in the Merger Agreement shall be true and correct
in all respects at and as of the Closing, with the same force and effect as
though such representations and warranties had been made at and as of the
Closing, except for changes expressly contemplated by the Merger Agreement;
provided, however, that with respect to certain of the representations and
warranties made by the Company in the Merger Agreement, inaccuracies will not
constitute a breach of the Merger Agreement unless such inaccuracies (A)
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would result in the violation of any law or order for which there is a
substantial risk of a criminal penalty; (B) could reasonably be expected to
invalidate the Merger Agreement or any of its contemplated transactions, or (C)
can reasonably be expected to have both an individual Gross Adverse Effect (as
hereinafter defined) of $25,000 or more and a cumulative Gross Adverse Effect of
$500,000 or more when combined with other inaccuracies individually having a
Gross Adverse Effect of $25,000 or more.
As defined in the Merger Agreement, "Gross Adverse Effect" means the
cost, expense or loss of revenue actually suffered or incurred, or which can be
reasonably expected to be suffered or incurred, by the Company and its
subsidiaries taken as a whole (less any recovery reasonably expected from
insurance policies) as a consequence of the facts or circumstances which
constitute such omission or inaccuracy, without accounting for offsetting
benefits or savings related to such consequence, except as otherwise expressly
stated in the Merger Agreement. An omission or inaccuracy will not be deemed to
have a Gross Adverse Effect if it is the consequence of any action or inaction
by PHC or its affiliates, the consequence of actions or inactions contemplated
or permitted by the Merger Agreement or referred to in the schedules to the
Merger Agreement, the consequence of actions or inactions to which PHC consents,
the consequence of expenses of the Merger Agreement and the transactions
contemplated thereby, or is otherwise reflected in the Company's Second Quarter
10-QSB. In addition, the obligations of PHC and Acquisition Sub to consummate
the Merger are also subject to the condition that there has not been a material
adverse change in the Company's business condition, results of operation or
liabilities; however, a change is not deemed to be a material adverse change if
the change is (A) the consequence of any action or inaction by PHC or its
affiliates, (B) the consequence of actions or inactions contemplated or
permitted by the Merger Agreement or reflected in the schedules to the Merger
Agreement, (C) the consequence of actions or inactions to which PHC consents,
(D) the consequence of expenses of the Merger Agreement and the transactions
contemplated thereby, or (E) is otherwise reflected in the Company's Second
Quarter 10-QSB.
There can be no assurance that all of the conditions to PHC's
obligations to consummate the Merger will be satisfied. In such event, even if
the Shareholders vote to approve the Merger and the Merger Agreement, it is
possible that the Merger would not be consummated and that the Merger Agreement
would be terminated.
The obligations of the Company to consummate the Merger are further
subject to, among other things, the satisfaction of the following conditions,
prior to or at the Effective Time: (i) that PHC and Acquisition Sub shall have
complied with and performed in all material respects all of the terms, covenants
and conditions of the Merger Agreement to be complied with and performed by them
at or prior to the closing, (ii) that PHC shall have, at Closing, repaid the
outstanding loan owed by the Company to Humana, in the sum of $1,000,000, plus
all accrued interest, provided that Humana, Inc. at the Closing surrenders all
warrants of the Company and waives its right of first refusal to purchase Common
Stock held by Richard T. Toral, and (iii) that the representations and
warranties made by PHC and Acquisition Sub in the Merger Agreement shall be true
and correct in all respects at the Closing, with the same force and effect
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as though such representations and warranties had been made at and as of the
Closing, except for changes contemplated by the Merger Agreement.
Any of the conditions to consummation of the Merger, including
conditions relating to the accuracy of the various representations and
warranties as of the Closing Date, may be waived by the party in whose favor the
condition is intended to operate. Although the parties do not currently intend
to waive or modify any conditions (other than the modification of certain
exhibits to the Merger Agreement to be delivered at Closing), there can be no
assurance that any condition will not be waived or modified in the future and it
is possible, if the Company elects to waive any condition to its obligation to
consummate the Merger, that such waiver would have an adverse effect on the
Shareholders.
TERMINATION. The Merger Agreement may be terminated at any time prior
to the Effective Time: (i) by mutual written consent of the Company, PHC and
Acquisition Sub; (ii) by either the Company or PHC if the Effective Time shall
not have occurred on or before June 30, 1996; (iii) by PHC or Acquisition Sub,
if the Company has breached the Merger Agreement and such breach is not cured
within 10 days after written notice of the breach to the Company (or 45 days
with respect to breaches relating to certain regulatory matters); (iv) by the
Company, if PHC or Acquisition Sub has breached the Merger Agreement and such
breach has not been cured within 10 days after written notice by the Company of
such breach, and (v) by either the Company or PHC under certain other
circumstances.
PAYMENTS UPON TERMINATION. In the event that the Company accepts a
Takeover Proposal that constitutes a Superior Proposal, the Company will pay PHC
the Break-Up Fee equal to PHC's reasonable out-of-pocket expenses (including but
not limited to attorneys' fees) incurred in connection with all negotiations
with the Company and the investigation and analysis of the legal, financial and
business affairs of the Company and its subsidiaries and other activities
related to consummating the transactions contemplated by the Merger Agreement.
The Break-Up Fee shall not exceed $250,000 and will not include fees paid or
owed by PHC to Goldman Sachs. Upon payment of the Break-Up Fee, the Merger
Agreement will be deemed automatically terminated by mutual consent.
AMENDMENT; WAIVER. The Merger Agreement provides that it may be amended
in writing by agreement of the parties thereto at any time. However, subsequent
to any Shareholder approval of the Merger, no amendment may be made that, under
applicable law would require Shareholder approval without such further approval.
The Merger Agreement further provides that at any time prior to the Effective
Time, any party to the Merger Agreement may, by action of the Board, in a
writing signed by the party to be bound (i) extend the time for the performance
of any of the obligations or other acts of the other party thereto, (ii) waive
any inaccuracies in the representations and warranties of any other party
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement or (iii) waive compliance by any other party with any of the
conditions and agreements contained in the Merger Agreement.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER; RELATED AGREEMENTS
In considering the Merger, Shareholders should be aware that certain
members of the Company's management and the Board of Directors may receive
economic benefits as a result of the Merger and may have other interests in the
Merger. The Board of Directors was aware of these interests and considered them
along with the other matters described above under "-- Background of and Reasons
for the Merger--Reasons for the Merger."
SHARE OWNERSHIP. As of the Record Date, executive officers and
directors of the Company owned of record or beneficially an aggregate of
3,788,924 shares of Common Stock of the Company. Richard T. Toral, Chief
Executive Officer and Chairman of the Board, owns approximately 36.3% of the
Company's Common Stock. See "Security Ownership Of Certain Beneficial Owners And
Management."
ACCELERATION OF OPTIONS HELD BY DIRECTORS AND NAMED EXECUTIVE OFFICERS.
Virginia Pascual, a Director and named Executive Officer of the Company, and
Edward Evans and Stephen Goodell, Named Executive Officers of the Company, each
hold options to purchase Common Stock that may be accelerated immediately prior
to the Effective Time (collectively, the "Accelerated Options"). The Accelerated
Options held by Ms. Pascual, Mr. Evans, and Mr. Goodell have exercise prices of
$2.375. Given the Merger Consideration of $2.25 per share, these Directors and
Named Executive Officers will not receive any benefit with respect to their
Accelerated Options if the Merger is consummated. John Tillotson, a Director of
the Company, holds an option to purchase 25,000 shares of Common Stock, of which
5,000 shares is vested and 20,000 shares will be accelerated under the terms of
the 1992 Directors' Stock Option Plan. Such option has an exercise price of
$1.81. Mr. Tillotson may therefore receive aggregate Merger Consideration in the
amount of $11,000 if the Merger is consummated.
EMPLOYMENT AGREEMENT. Under the Employment Agreement, which will be
executed at Closing, Mr. Toral will become the President and Chief Executive
Officer of the Surviving Corporation. Mr. Toral will devote all of his time,
energy and skill during regular business hours to the affairs of the Company,
and will receive a base salary of $210,000 per annum, plus an annual success
sharing bonus as the Board of Directors shall determine, as well as other
benefits. In addition, if Mr. Toral is employed by the Surviving Corporation on
December 31, 2000, he will receive a special bonus, not to exceed $271,170,
based on the Surviving Corporation's performance for the five years ended
December 31, 2000.
ESCROW AGREEMENTS. As an inducement to PHC to enter into the Merger
Agreement, Mr. Toral will enter into an Escrow Agreement with PHC and an Escrow
Agent ("Escrow Agreement 1") to be executed at Closing, pursuant to which Mr.
Toral will deposit, from his Merger Consideration, the sum of $1,084,675.00 in
an escrow account to be paid over to (A) Mr. Toral if (i) he is continuously
employed by the Surviving Corporation through December 31, 2000; or (ii) if
employment with the Surviving Corporation is terminated without cause or
terminated as a result of an involuntary resignation, prior to December 31,
2000; or (iii) Mr. Toral dies or is terminated as a result of his disability; or
(B) to PHC if (i) Mr. Toral resigns or voluntarily leaves the employ of the
Surviving Corporation prior to December 31,
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2000 (other than an involuntary resignation); or (ii) if Mr. Toral's employment
with the Surviving Corporation is terminated for cause prior to December 31,
2000.
As a further inducement to consummate the Merger, Mr. Toral will enter
into a second escrow agreement with PHC and an escrow agent ("Escrow Agreement
2") to be executed at Closing, pursuant to which Mr. Toral will deposit from his
Merger Consideration, the sum of $1,084,675.00 in an escrow account to be paid
to Mr. Toral in the following manner: (A) 75% of the escrowed amount shall be
paid on December 31, 2000, to Mr. Toral regardless of: (i) the length of Mr.
Toral's employment with the Surviving Corporation; (ii) whether Mr. Toral is
employed with the Surviving Corporation on December 31, 2000; and (iii) the
reason for the termination of Mr. Toral's employment with the Surviving
Corporation, if any; and (B) the remaining 25% of the escrowed amount shall be
paid to Mr. Toral or to PHC, depending upon the performance of the Surviving
Corporation, as determined on December 31, 2000, relative to a business plan to
be agreed upon by the parties.
RELATIONSHIPS WITH PMLIC AND PHC. PMLIC, the indirect parent of PHC,
accounted for approximately 35.6% of Admar's revenues in fiscal 1995. Admar
provides PMLIC with access to its PPO provider networks, including Med Network
and Med Select, as well as to its Exclusive Health and HealthWatch products. For
Med Select, the Company receives a portion of the discount received by its
customer for using Admar's networks, which discount is paid to the Company
directly by PMLIC. For the remainder of these products, PMLIC pays Admar a
per-member-per-month fee. PMLIC has been a customer of Admar for approximately
14 years.
In addition, in January 1994, the Company entered into an acquisition
agreement with PHC, pursuant to which the Company acquired PHC's health care
provider network located in southern California in consideration of $35,000 in
cash and an interest-free note in the principal amount of $90,000, payable in
two installments.
OUTSTANDING LOANS. The Company has two outstanding loans from PMLIC,
the ultimate parent of PHC, in the principal amounts of $400,000 and $1,000,000
in connection with the Company's Exclusive Health product. See "BUSINESS."
OTHER INTERESTS. Pursuant to the Merger Agreement, at the Effective
Time, the officers of the Company will be elected as the officers of the
Surviving Corporation. See "THE MERGER -- The Merger Agreement."
PAYMENT FOR THE COMMON STOCK AFTER THE MERGER; SOURCE OF FUNDS
EXCHANGE OF CERTIFICATES. PHC shall enter into an agreement, in form
and substance reasonably acceptable to PHC and the Company (the "Paying Agent
Agreement"), with the Paying Agent. As soon as practicable after the Effective
Time, the Surviving Corporation shall mail to each holder of record of Common
Stock other than the Company, PHC and any subsidiary of the Company or PHC,
including Acquisition Sub, (i) a letter of transmittal which will specify that
delivery shall be effected, and risk of loss and title to the certificates
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representing such holder's Common Stock (the "Certificates") will pass, only
upon delivery of the Certificates to the Paying Agent, which letter of
transmittal shall be in such form and have such other provisions as shall be
required for the surrender of the Certificates in exchange for the amount of
cash to be received for the Certificates. Upon surrender of a Certificate,
together with the letter of transmittal, duly executed, the holder of a
Certificate will be entitled to receive in exchange the Merger Consideration
represented by the Certificate, and the Certificate will be canceled. Any funds
deposited with the Paying Agent that remain unclaimed by the former Shareholders
of the Company one year after the Effective Time will be paid to the Surviving
Corporation upon demand to be held for the benefit of the former Shareholders of
the Company until they surrender their respective certificates in accordance
with the Merger Agreement, or until such funds shall otherwise escheat pursuant
to applicable laws, whichever occurs first.
After the Effective Time, the Shareholders of the Company will cease to
have any further rights as holders of Common Stock, other than the right to
payment from the Paying Agent upon the surrender of their Certificate(s). There
will be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Common Stock which were outstanding
immediately prior to the Effective Time.
PHC's source of funds for the Merger Consideration will be a capital
contribution from PMLIC, PHC's ultimate parent.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
The following is a summary of certain of the material United States
federal income tax consequences of the Merger that are generally applicable to
the holders of Common Shares. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed treasury regulations and current administrative rulings
and court decisions, all of which are subject to change. Any such change,
which may or may not be retroactive, could alter the tax consequences as
described herein.
The receipt of cash in exchange for shares of Common Stock pursuant to
the Merger, and the receipt of cash by a Shareholder who exercises his
dissenters' rights under California or Florida law, will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local and foreign tax laws. A Shareholder
will generally recognize gain or loss for federal income tax purposes in an
amount equal to the difference between such Shareholder's adjusted tax basis in
the Common Stock, and the amount of cash received in exchange therefor (other
than amounts received pursuant to a Shareholder's statutory rights of appraisal
that are denominated as interest, which amounts would be taxable as ordinary
income). Such gain or loss will be a capital gain or loss if such shares of
Common Stock are held as a capital asset, and shall be long-term capital gain or
loss if, on the date of the Merger, such shares of Common Stock were held for
more than one year.
The foregoing discussion may not apply to Shareholders who acquired
their Common Stock pursuant to the exercise of employee stock options, the
Company's 1995 Employee Stock Purchase Plan or other compensation arrangements
with the Company, or who are not citizens
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or residents of the United States, or who hold their shares of Common Stock
other than as a capital asset, or who are otherwise subject to special tax
treatment. EACH SHAREHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF THE MERGER, INCLUDING THE EFFECTS OF
APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of
accounting whereby the purchase price will be allocated among the Company's
assets and liabilities based on the fair value of the assets acquired and
liabilities assumed.
DISSENTERS' RIGHTS
Shareholders who do not vote in favor of the Merger Agreement and the
Merger will have the right to seek to obtain payment in cash of the fair value
of their shares of Common Stock by complying with the requirements of Section
607.1320 of the Florida 1989 Business Corporation Act (the "FBCA"). In addition,
Section 2115 of the California Law makes applicable to the Company certain
provisions of the California Law, including provisions regarding dissenters'
rights. As a result, Shareholders may, in lieu of complying with Section
607.1320 of the FBCA, comply with Chapter 13 of the California Law.
FLORIDA LAW. Pursuant to Florida Law, Shareholders are entitled to
dissenters' rights under Sections 607.1301, 607.1302 and 607.1320 of the FBCA. A
person having a beneficial interest in Common Stock held of record in the name
of another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect such dissenters' rights. The following discussion is not a
complete statement of the law pertaining to dissenters' rights under the FBCA
and is qualified in its entirety by the full text of Sections 607.1301, 607.1302
and 607.1320 which are attached hereto as Appendix C.
Under the FBCA, a Shareholder who follows the procedures set forth in
Section 607.1320 will be entitled to receive an offer from the Company to pay
the dissenting Shareholder an amount estimated by the Company to be the "fair
value" for such Shareholder's shares. Any Shareholder who wishes to exercise
dissenters' rights, or who wishes to preserve such rights, should review the
following discussion carefully, because failure to comply timely and properly
with the procedures specified will result in the loss of dissenters' rights
under the FBCA. Admar's estimate of the "fair value" of the shares may be more
or less than the Merger Consideration.
A Shareholder wishing to exercise his dissenters' rights must deliver
to Admar before the vote at the Annual Meeting, a written notice of his, her or
its intent (a "Notice of Intent")
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to demand payment if the Merger is effected. Such Shareholder must not vote in
favor of approval of the Merger. A proxy which does not contain voting
instructions will, unless revoked, be voted for approval of the Merger. A
Shareholder who votes by proxy and who wishes to exercise his, her or its
dissenters' rights must (i) vote against the approval of the Merger or (ii)
abstain from voting with respect to the Merger. However, a vote against approval
of the Merger will not, in and of itself, constitute a written demand for
dissenters' rights satisfying the requirements of Section 607.1320.
Any Notice of Intent should be addressed to the Admar Group, Inc., 1551
North Tustin Avenue, Suite 300, Santa Ana, California 92705, Attention:
Secretary, and should be executed by, or on behalf of, the holder of record. The
Notice of Intent must reasonably inform the Company of the identity of the
Shareholder and that such Shareholder is thereby objecting to the Merger and
demanding payment for his, her or its shares.
Under Section 607.1320, within 10 days of Shareholder approval of the
Merger the Company must provide written notification (a "Notice of Approval") of
such approval to each Shareholder who gave the Company a Notice of Intent.
Within 20 days after the Notice of Approval, the dissenting Shareholder must
file with the Company a written notice of election to dissent stating his, her
or its name and address, the number of shares of Common Stock as to which he,
she or it dissents, and a demand for payment of the fair value of the shares of
Common Stock. Any Shareholder filing an election to dissent must deposit his,
her or its Admar Common Stock certificates with the Company at the time of
filing of the election to dissent. The Company may restrict the transfer of
uncertificated shares from the date the election to defend is filed with the
Company.
Within 10 days after the expiration of the period in which Shareholders
may file their notice of election to dissent or within 10 days after
consummation of the Merger, whichever is later, but in no event more than 90
days after the date Shareholders approve the Merger, the Company must make a
written offer to each Shareholder who has filed a notice of election to dissent
to pay an amount the Company estimates to be the "fair value" of the shares of
the Common Stock. The FBCA defines fair value ("Fair Value") with respect to
dissenter's shares to mean the value of the shares as of the close of business
on the day prior to the date the shareholders' authorize the Merger, excluding
any appreciation or depreciation in anticipation of the Merger unless exclusion
would be inequitable.
If the dissenting Shareholder accepts the Company's offer within 30
days after such offer was made, payment must be made within 90 days after the
offer is made or upon consummation of the Merger, whichever is later. If the
Company fails to make an offer, or if the dissenting Shareholder does not accept
the offer within 30 days after the offer is made, then the Company, within 30
days after receipt of written demand from any dissenting Shareholder must bring
an action in a court of competent jurisdiction requesting that the Fair Value of
the shares of the Common Stock be determined. The judgment may, at the
discretion of the Court, include a fair rate of interest to be authorized by the
court. If the Company fails to bring such an action, any dissenting Shareholder
may do so in the name of the Company.
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The Court may appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of Fair Value. The appraisers
shall have such power and authority as is specified in their order of
appointment.
The costs and expenses of any such action shall be determined by the
court and shall be assessed against the Company, but all or any part of such
costs and expenses may be apportioned and assessed as the court may deem
equitable against any or all of the dissenting Shareholders who are parties to
the action, to whom the Company shall have made an offer to pay for the shares,
if the court finds that such Shareholders' failure to accept such offer was
arbitrary, vexatious or not in good faith. Such expenses shall include
reasonable compensation for, and reasonable expenses of, appraisers appointed by
the court, but shall exclude the fees and expenses of counsel for, and experts
employed by, any party. If the Fair Value of the shares, as determined,
materially exceeds the amount the Company offered to pay therefor, or if no
offer was made, the court may award to any Shareholder who is a party to the
proceeding such sum as the court may determine to be reasonable compensation to
any attorneys or experts employed by the Shareholder in the action.
Shareholders who consider seeking dissenters' rights should be aware
that the Fair Value of their shares of Common Stock as determined under FBCA
could be more than, the same as, or less than, the consideration they would
receive pursuant to the Merger Agreement if they did not seek dissenters'
rights.
Only a holder of record of Common Stock as of the Record Date is
entitled to assert dissenters' rights for the shares of Common Stock registered
in that holder's name. The demand for dissenters' rights should be executed by
or on behalf of the holder of record fully and correctly, as his, her or its
name appears on his, her or its respective stock certificates. If the shares of
Common Stock are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity,
and if the shares of Common Stock are owned of record by more than one person,
as a joint tenancy or in common, the demand should be executed by or on behalf
of all joint owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a holder of record; however the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for such owner or
owners. A record holder such as a broker who holds shares of Common Stock as
nominee for several beneficial owners may exercise dissenters' rights with
respect to the shares of Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the shares of Common Stock held
for other beneficial owners. In such case, the written demand should set forth
the number of shares of Common Stock as to which dissenters' rights are sought.
Where no number of shares of Common Stock is expressly mentioned, the demand
will be presumed to be with respect to all shares of Common Stock held in the
name of the record owners. Shareholders who hold their shares of Common Stock in
brokerage accounts or other nominee forms and who wish to exercise dissenters'
rights are urged to consult with their brokers or determine the appropriate
procedures for making a demand.
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If any Shareholder who demands dissenters' rights with respect to his,
her or its shares of Common Stock fails to perfect, or effectively withdraws or
loses his, her or its right to dissent, he, she or it will be entitled to
receive the Merger Consideration in accordance with the terms of the Merger
Agreement. A Shareholder will fail to perfect, or effectively withdraw or lose,
his right to dissent if he fails to deliver a Notice of Intent to the Company
prior to the vote on the Merger at the Annual Meeting, fails to vote against the
approval of the Merger or fails to abstain with respect to the Merger, fails to
file a notice of election to dissent with the Company, or delivers to the
Company a written withdrawal of his notice to dissent before an offer is made by
the Company under Section 607.1320. After such offer is made by the Company, no
notice of election to dissent may be withdrawn except with the written consent
of the Company.
Failure to follow the steps required by Sections 607.1302, 607.1302 and
607.1320 of the FBCA for perfecting dissenters' rights will result in the loss
of such rights. Consequently, any Shareholder who desires to exercise his, her
or its dissenters' rights is urged to consult with his, her or its legal advisor
before attempting to exercise such rights.
CALIFORNIA LAW. Pursuant to Chapter 13 of the California Law, holders
of shares of Admar Common Stock are entitled to rights of dissent and appraisal
of the value of their shares of Common Stock in connection with the Merger. The
failure of a dissenting Shareholder to follow the appropriate procedures may
result in the termination or waiver of such dissenters' rights.
Pursuant to the terms of the Merger Agreement, if holders of Common
Stock of Admar have exercised dissenters' rights in connection with the Merger
under Chapter 13 of the California Law, any Dissenting Shares (as defined below)
will not be converted into the right to receive the Merger Consideration, but
will become entitled to receive such consideration as may be determined to be
due with respect to such Dissenting Shares pursuant to the laws of the State
of California.
If the Merger is approved by the required vote of the Shareholders and
is not abandoned or terminated, each Shareholder who has not voted in favor of
the Merger and who follows the procedures set forth in Chapter 13 will be
entitled to have his shares of Common Stock purchased by Admar for cash at their
fair market value. The fair market value of shares of Common Stock will be
determined as of the date before the first announcement of the terms of the
proposed Merger, excluding any appreciation or depreciation in consequence of
the proposed Merger. The shares of Common Stock with respect to which holders
have perfected their purchase demand in accordance with Chapter 13 and have not
effectively withdrawn or lost such dissenters' rights are referred to in this
Proxy Statement as the "Dissenting Shares."
Within 10 days after approval of the Merger by the Shareholders, Admar
must mail a notice of such approval (the "Approval Notice") to all Shareholders
who have not voted in favor of approval and adoption of the Merger Agreement,
together with a statement of the price determined by Admar to represent the fair
market value of the applicable Dissenting Shares (determined in accordance with
the immediately preceding paragraph), a brief description of the
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procedures to be followed in order for the Shareholder to pursue his or her
dissenters' rights, and a copy of Sections 1300-1304 of the California Law. The
statement of price by Admar constitutes an offer by Admar to purchase all
Dissenting Shares at the stated amount. Only a holder of record of shares of
Common Stock of Admar on the Record Date (or his duly appointed representative)
is entitled to assert a purchase demand for the shares registered in that
holder's name. Admar's determination of the fair market value of the Dissenting
Shares may be more or less than the Merger Consideration.
A Shareholder electing to exercise dissenters' rights must demand in
writing from Admar the purchase of his shares of Common Stock and payment to the
Shareholder of their fair market value and must submit the certificate
representing the Dissenting Shares to Admar for endorsement as Dissenting
Shares. A holder who elects to exercise dissenters' rights should mail or
deliver his or her written demand to Admar at 1551 North Tustin Avenue, Suite
300, Santa Ana, California 92701, directed to the attention of Richard T. Toral,
Chief Executive Officer. The demand should specify the holder's name and mailing
address, the number of shares of Common Stock owned by such Shareholder and
state that such holder is demanding purchase of his shares and payment of their
fair market value and must also contain a statement as to what the Shareholder
claims to be the fair market value of such shares, determined in accordance with
the second preceding paragraph. Such statement of the fair market value of the
shares constitutes an offer by the Shareholder to sell the shares to Admar at
that price. The demand must be received by Admar not later than 30 days after
the date the Approval Notice was mailed to the Shareholder. The certificate
representing the Dissenting Shares must be submitted for endorsement within 30
days after the date of the Approval Notice.
If Admar and the Shareholder agree that the shares are Dissenting
Shares and agree upon the purchase price of the shares, the dissenting
Shareholder is entitled to the agreed upon price with interest thereon at the
legal rate on judgments from the date of such agreement. Payment for the
Dissenting Shares must be made within 30 days after the later of the date of
such agreement or the date on which all statutory and contractual conditions to
the Merger are satisfied, and is subject to surrender to Admar of the
certificates for the Dissenting Shares.
If Admar denies that the shares are Dissenting Shares, or if Admar and
the Shareholder fail to agree upon the fair market value of the shares, then
within six months after the date of the Approval Notice was mailed to
Shareholders, any Shareholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the Merger Agreement may
file a complaint in the Superior Court of Alameda County (the "Court")
requesting a determination as to whether the shares are Dissenting Shares or as
to the fair market value of such holder's shares of Common Stock, or both, or
may intervene in any pending action brought by any other Shareholder.
In a trial of the action, the Court will determine first whether the
shares are Dissenting Shares, if their status is an issue. If the fair market
value of the Dissenting Shares is an issue, the Court will determine, or appoint
one or more impartial appraisers to determine, the fair market value of the
shares.
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If appraisers are appointed, they must file a report in the time fixed
by the Court and, on motion of any party, the report will be submitted to and
considered by the Court on such evidence as the Court considers relevant. The
Court may confirm the report if it finds the report to be reasonable. If the
report is not timely filed or is not confirmed by the Court, the Court will
determine the fair market value of the shares. Except as set forth below,
judgment will be rendered in an amount equal to the fair market value of such
shares, which judgment shall be payable only upon endorsement and delivery to
the Company of the certificates representing the Dissenting Shares. Any party
may appeal from the judgment. The costs of the action, including compensation of
the appraisers, may be assessed as the Court considers equitable but, if the
appraisal exceeds the price offered by the Company, the Company shall pay the
costs (including attorneys' fees, expert witness fees and interest if the value
awarded is more than 125% of the price offered by the Company).
If any holder of shares of Common Stock who demands the purchase of his
shares under Chapter 13 of the California Law fails to perfect, or effectively
withdraws or loses his or her right to such purchase, the shares of such holder
will be converted into a right to receive the Merger Consideration multiplied by
the number of shares of Common Stock held by such person in accordance with the
Merger Agreement. Dissenting Shares lose their status as Dissenting Shares if
(a) the Merger is abandoned; (b) the shares are transferred prior to their
submission for the required endorsement; (c) the dissenting Shareholder fails to
make a timely written demand for purchase, along with a statement of fair market
value; (d) the dissenting Shareholder votes in favor of the Merger Agreement;
(e) the dissenting Shareholder and Admar do not agree upon the status of the
shares as Dissenting Shares or do not agree on the purchase price, but neither
Admar nor the Shareholder files a complaint or intervenes in a pending action
within six months after mailing of the Approval Notice; or (f) with Admar's
consent, the Shareholder delivers to Admar a written withdrawal of such
Shareholder's demand for purchase of his shares.
To the extent that the provisions of Chapter 5 of the California Law
prevent the payment to any holders of Dissenting Shares of their fair market
value, such Shareholders shall become creditors of the Surviving Corporation for
the amount that they otherwise would have received in repurchase of their
dissenting shares, plus interest at the legal rate on judgments until the date
of payment, but subordinate to all other creditors in any liquidation
proceeding, such debt to be payable when permissible under the provisions of
Chapter 5 of the California Law.
The foregoing summary does not purport to be a complete statement of
the provisions of Chapter 13 of the California Law and is qualified in its
entirety by reference to such Chapter, a copy of which is attached hereto as
Appendix D. Shareholders who are considering dissenting should consult legal
counsel.
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BUSINESS
GENERAL
As the costs of health care have increased, many employers, insurers,
governmental entities and physicians, hospitals and other health care providers
have sought cost-effective approaches to the delivery of and payment for quality
health care services. This demand has led to the development of new forms of
managed care, such as health maintenance organizations ("HMOs") and preferred
provider organizations ("PPOs"), designed to offer both high quality care and
cost containment.
SERVICES OF THE COMPANY
The Company, a Florida corporation, was incorporated in 1985. The
Company develops, markets and administers managed health care services that
facilitate the delivery and manage the cost of health care services. The Company
contracts primarily with insurance carriers, as well as with third-party
administrators and self-funded employers, which agree to provide Admar's
services as an adjunct to their health care benefit plans for covered employees.
The Company's services, which are discussed more fully below, include
the following:
1. Alternative delivery systems, which are composed of PPOs and
Exclusive Provider Organizations ("EPOs"). The Company establishes and
administers PPOs and EPOs on behalf of payors of employee medical benefits, such
as insurance carriers, third-party administrators ("TPAs") and employers that
administer their own medical insurance claims. Admar is paid either a fee based
on the number of covered employees per month or a percentage of the savings
achieved for these networks.
2. A utilization management program marketed as "HealthWatch."
This program, consisting principally of the Company's review of the utilization
of health care services, allows the Company to monitor the nature and extent of
the care to be provided. The Company's utilization review services are provided
in conjunction with PPO and EPO products.
3. Third-party administration provided through a subsidiary,
Benefit Plan Administrators ("BPA"). The services provided by the Company's TPA
include administering the payment of benefits, assisting employers in
determining the eligibility of covered employees and reviewing claims for
validity and coverage. The Company's TPA also often assist companies in
selecting and structuring health care benefit programs.
4. A medical bill negotiation service, marketed as "HealthWatch
Advantage," which, through individual negotiations, offers cost saving
opportunities when medical services are provided outside of preferred provider
networks. The Company receives its fees on a percentage-of-savings basis.
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ALTERNATE DELIVERY SYSTEMS
PREFERRED PROVIDER ORGANIZATIONS. A PPO is a network of physicians,
hospitals and other health care providers that offers health care services to
employer groups and other PPO participants according to a prescribed contractual
fee structure. PPOs may be offered in conjunction with specialty benefit
programs or with full scale programs offering comprehensive health care
benefits. Employer groups utilizing PPOs typically pay a fee to access the PPO
network and then pay for the cost of health care provided to the employer's
members based on the fee structure agreed to by the providers and the PPO.
In light of their large patient populations and directed patient flow,
PPOs usually receive significant discounts from hospitals' and physicians'
charges. Generally, PPOs apply an agreed-upon fee schedule to reduce the amount
payable under submitted claims. PPOs thus achieve a level of savings for the
client when compared to the standard charges of the provider. The PPO is
compensated by receiving a specified percentage of the savings achieved, or a
fixed dollar fee per employee per month. In establishing its PPOs, Admar either
contracts with providers directly or offers access to providers through
arrangements with affiliated networks. The Company's PPO networks are Med
Network and Med Select.
Med Network. The Company's Med Network PPO was introduced in 1978. It
is a broad-based PPO that offers a network of primary care physicians,
specialists, hospitals and pharmacies. Med Network is marketed both to insurers
as well as to self-funded employers. The network is available in 35 states.
Med Select. Med Select is a preferred hospital network. It offers
discounted rates at contracted hospitals and medical and surgical centers. Med
Select is offered as a supplement to existing insured health plans. It is
designed to appeal to payors of medical benefits that are not seeking a
comprehensive physician-based PPO, but nevertheless desire to realize cost
benefits in connection with surgeries or hospitalizations where costs are often
the highest.
EXCLUSIVE PROVIDER ORGANIZATIONS. Similar in structure to a PPO, an EPO
is a provider network that offers participants substantial savings if the
participant uses the services of "exclusive providers," but only limited savings
if the participant uses the services of other providers. As a result, EPOs
generally offer greater cost containment but less flexibility than PPOs. The
Company's EPO networks implement stringent utilization management and
reimbursement procedures. The Company's EPO networks are Med$ENSE(R) and
Exclusive Health.
Med$ENSE(R). Med$ENSE(R) is an EPO that offers unlimited access to the
network's primary care providers ("PCPs"). However, it requires participants to
obtain a referral from a network PCP prior to seeking any specialty care
service. Providers are then reimbursed on a fee-for-service basis.
Exclusive Health. Exclusive Health is the Company's EPO providing the
highest degree of managed care offered by the Company. Exclusive Health employs
strict utilization review and
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quality assurance mechanisms, and offers additional payments from "bonus pools"
to those providers who comply with established budgets. As a result of these
features, Exclusive Health offers the type of functional efficiency that was
previously associated only with HMOs. Exclusive Health reduces the economic risk
to providers by offering a provider reimbursement plan at a reduced
fee-for-service, rather than a capitated plan under which reimbursement is based
upon payment of a monthly fee per member. Such capitation plans, which are
utilized by HMOs, increase the risk to the provider if the degree of care
required is substantial. The Company believes that these features and the
reduced economic risk to providers permits Exclusive Health to attract more high
quality providers. Currently, Exclusive Health is available through insurance
carriers in California and Arizona.
The Company announced on November 1, 1995 that PMLIC had agreed to loan
the Company $1,000,000 in connection with the Exclusive Health product to assist
in deferring the costs of new contracting personnel, travel, legal work, and
establishing a local office in the area to complete the network development and
to assist the insurance companies to market the product in the local market, all
costs associated with building Exclusive Health networks.
HEALTHWATCH
Utilization review services are intended to reduce the cost of medical
expenses by proactively monitoring the nature and extent of health care services
to be provided. HealthWatch Medical Review System ("HealthWatch"), Admar's
utilization review system, is provided in conjunction with its PPO and EPO
products. HealthWatch includes the following four levels of utilization
management programs, with each level reflecting a progressively increased degree
of utilization management: Medical/Surgical Utilization Management, Case
Management, Substance Abuse and Mental Health Case Management and Prenatal
Partners. Each level begins with hospital pre-admission review and continues
through discharge and alternative site planning. The Company's revenues from
this program are derived either on a per-employee, per-month basis, or a
per-hour rate, with fees set relative to the level of utilization management.
MEDICAL/SURGICAL UTILIZATION MANAGEMENT. The Medical/Surgical
Utilization Management program monitors hospitalization and expenses associated
with the diagnosis and treatment of medical problems. This program consists of
pre-admission review for necessity and length of stay, telephone concurrent
review, managed surgical second opinions, discharge planning, home health care
or implementation and retrospective review. Hospital pre-admission review is
implemented when HealthWatch receives notification of an impending
hospitalization from the attending physician, the insured or the hospital.
HealthWatch staff physicians and nurses then work with attending physicians and
patients to develop appropriate treatment and discharge plans where
hospitalization or surgery is required.
CASE MANAGEMENT. The Case Management Program is intended to monitor the
high costs associated with severe injuries and catastrophic diseases, such as
cancer, head injury and AIDS. This program was developed to address the
disproportionately high number of claims
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being paid on behalf of a small minority of insureds. This program monitors
inpatient and outpatient treatment, home health care and rehabilitation programs
to address the specialized needs related to catastrophic illness.
SUBSTANCE ABUSE AND MENTAL HEALTH CASE MANAGEMENT. The Substance Abuse
and Mental Health Case Management program was developed in response to the
increase in cost and treatment of, and the national resolve to eliminate, drug
and alcohol abuse. This program is designed to reduce the cost of acute
psychiatric and substance abuse inpatient care through an individualized
treatment plan developed for each patient. The plan stresses the use of lower
cost alternative sources of treatment where appropriate, with the physician's
approval. The program's protocols and cost containment programs have been
adapted from those currently being utilized by HealthWatch's Medical/Surgical
Utilization Management. The program is designed to accept referrals both from
Admar's programs as well as from other utilization review programs and carriers
that do not market the HealthWatch program.
PRENATAL PARTNERS. The Prenatal Partners program manages high risk
maternity cases by developing a prenatal and post-natal treatment plan. Prenatal
Partners is a specialized case maternity management program dedicated to the
wellness of expectant mothers and their babies. Through a partnership with
employers, Prenatal Partners assists expectant mothers throughout their
pregnancy by early recognition of potential high-risk pregnancies, monitoring
the quality of care and providing educational information as a guide through
each trimester of pregnancy.
THIRD-PARTY ADMINISTRATION
TPAs provide administrative services without assuming financial risk
for the cost of the medical services. The services provided by TPAs include
administering the payment of benefits, assisting employers in determining the
eligibility of covered employees and reviewing claims for validity and coverage.
TPAs also often assist companies in selecting and structuring health care
benefit programs. Admar's TPA services are provided through Benefit Plan
Administrators, Inc. ("BPA"). The Company offers third-party administration of
benefit plans for self-insured employers and fully-insured group plans,
including payment of benefits from funds provided by these employers or
insurance carriers. As one of the few TPAs offering its own PPOs and utilization
review programs, Admar believes BPA is in an advantageous position relative to
other TPAs and claims-paying services.
BPA begins its relationship with an employer by helping it to structure
a managed care medical benefit package. Establishing an employee medical benefit
plan involves assisting the employer in determining the nature and level of
benefits to be offered to the employees, the level of reinsurance needed and the
selection of reinsurance carriers, as well as providing assistance in the
education of employees with respect to the claims process.
After the medical plan is established, BPA administers the plan by
providing services both to the employer and to the employee. Its administrative
responsibilities include billing employers for the funds required under their
benefit programs and accounting for these funds to the employer. It also
provides the data processing services necessary to analyze historical
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data in order to allow the employer to understand how its health care dollar was
spent and to identify any necessary modifications of employee benefit plans or
additional programs. BPA also provides additional services to employers in the
areas of government compliance and reporting, primarily under ERISA. In addition
to providing these general services, BPA also offers special cost containment
capabilities through the application of PPOs, EPOs and HealthWatch for client
employees. Services rendered to employees include verification of eligibility
and benefits when requested by providers, processing of the claims and payment
to the providers. BPA is paid a fee based on the number of covered employees per
month or on a percentage of insurance premium.
MEDICAL BILL NEGOTIATION SERVICES
HealthWatch Advantage is a service that offers cost saving
opportunities when medical services are provided outside of preferred provider
networks as a consequence, for example, of emergency needs, absence of a
geographically convenient provider or patient selection. HealthWatch Advantage
is focused on reducing the cost of such health care services through individual
negotiation, on behalf of the patient and payor, with hospitals, surgeons and
other providers. The Company is paid on a percentage-of-savings basis.
INFORMATION SYSTEMS
The Company uses an information management system to integrate its
managed care and managed benefit operations. The system permits Admar to perform
a variety of services, including provider profiling, claims payment, electronic
claims submission, utilization review management and claims repricing.
MARKETS AND CERTAIN CLIENTS
The clients for the Company's Alternate Delivery Systems, HealthWatch
and HealthWatch Advantage are insurance carriers, TPAs and self-funded and
self-administered corporations. BPA customers are primarily businesses that
choose to cover their medical and dental benefits through a self-funding
mechanism and require outside assistance in connection with the administration
of those benefit programs. In addition, BPA also serves insurance carriers that
desire to engage a third-party to administer benefit programs for their own
insured employers.
The Company's programs are marketed by insurance carriers and other
payors offering Admar's services. The Company's clients have the option to
market the programs either individually or in combination with other programs,
depending on their particular needs. The Company works with its clients to
develop marketing materials and to educate them as to the policies and
procedures of the programs. The Company's marketing and development staff locate
and contract with new carriers and TPAs, both of which, in turn, market the
Company's programs to their clients.
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Admar's contracts with PMLIC (a member of the Principal Financial Group
and an affiliate of PHC), and National Insurance Services, Inc. accounted for
approximately 35.6% and 15.1%, respectively, of Admar's revenue for the fiscal
year ended January 31, 1995. Contracts generally have a term of one year and
contain provisions which allow termination upon 90 days' notice. Even if the
contracts are not terminated, the number of covered employees can change. The
loss of either of these customers or a significant decrease in the number of
covered employees could have a material adverse effect on the Company's results
of operations.
REGULATORY MATTERS
The Company is subject to regulation with respect to its activities in
the areas of utilization review and quality assurance, third-party
administration on behalf of payors of employee medical benefits, and management
of PPO and EPO contracting and administration. Requirements vary from state to
state, and may be administered by various departments of public health,
departments of insurance, departments of commerce, and, in some states, the
department of corporations. Many states require that the Company obtain
licenses, permits, or other certifications.
The California Department of Corporations, which regulates HMOs under
California's Knox-Keene Health Care Service Plan Act of 1975, as amended
("Knox-Keene"), has recently requested certain information from the Company with
respect to the potential application of Knox-Keene to the Company's Exclusive
Health program. Knox-Keene requires licensure as an HMO by any person or entity
who undertakes to arrange for the provision of health care services to
subscribers or enrollees in exchange for a prepaid or periodic charge paid by or
on behalf of such subscribers or enrollees. While Admar receives periodic
charges, the Company believes that it does not arrange for the provision of
health care services within the meaning of Knox-Keene. Admar has submitted
documentation to the Department of Corporations in an effort to demonstrate that
it is acting in an administrative capacity for the Exclusive Health Program,
which should be an insurance product governed by the Department of Insurance and
not by the Department of Corporations.
Although no assurance can be given as to the outcome of this matter,
the Company is currently engaged in ongoing discussions with the Department of
Corporations in an effort to resolve the matter through remedial action without
the necessity of obtaining a license for Exclusive Health under Knox-Keene.
COMPETITION
The managed health care services industry is highly competitive.
Admar's competitors include companies with substantially greater management,
financial and marketing resources than Admar, as well as emerging companies that
provide services for specialized markets such as those addressed by Admar. Admar
is subject to competition in each of the areas in which it offers services. The
sources of competition for these products can be segmented into payor- based,
provider-based and entrepreneurial-based provider networks of various types. The
high level of customer concentration is due in part to the competitive
environment in the industry,
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including competition from former customers that elect to perform in-house those
services that were previously provided by Admar. There can be no assurance that
competitive factors will not adversely affect Admar's future business.
ALTERNATE DELIVERY SYSTEMS AND EXCLUSIVE HEALTH. The largest
payor-based PPO is provided through the Blue Cross plans. Due to the market
impact of Blue Cross and its history of contracting with providers, Blue Cross
has rapidly established both HMOs and PPOs across the country. Other payors,
primarily insurance carriers, have also entered into the managed care (HMO and
PPO) arena. However, the market for insurance carriers is extremely fragmented,
and most payors do not command a large percentage of the market except in a few
locations. As a result, only the large insurance carriers have established their
own systems on a national basis.
Provider-based cost containment programs are the most rapidly-growing
segment of the PPO industry. In some cases, the primary goal of provider-based
organizations is the retention of their own business, and many of these
organizations have established cost containment programs as a defensive measure.
They have normally affiliated with other provider organizations in the same
market in order to complete their system. As a result, even though
provider-based organizations are common and widespread, the Company believes
that they are typically more successful on a local rather than a national level.
In addition, provider-based cost containment programs monitor their own
providers; however, the Company believes that many payors prefer that costs be
monitored by an independent party to optimize cost savings.
In addition, there are several entrepreneurial organizations that
compete with Admar in the PPO arena. These organizations are generally regional
and do not offer services nationally. Admar's client base includes those
insurance carriers that find it more practical to join an established PPO,
offering services nationally, than to establish their own system.
HEALTHWATCH MEDICAL REVIEW SYSTEM (MEDICAL/SURGICAL UTILIZATION
MANAGEMENT, EXCEPTIONAL CASE MANAGEMENT, AND SUBSTANCE ABUSE AND MENTAL HEALTH
CASE MANAGEMENT). Entrepreneurial organizations are more prevalent in the
utilization review area than in the PPO segment of the business. A fundamental
characteristic of the hospital utilization review industry is that there are
very few barriers to entry and, therefore, a large number of local providers
have been established. There are, however, only a few independent organizations,
such as HealthWatch, offering services nationally.
The marketplace for utilization review programs appears to be maturing
rapidly. During the last four years, provider-sponsored and insurance
carrier-sponsored utilization review programs have grown rapidly. The programs
have been created for the carriers' own use as well as for marketing to other
entities. Payors without their own programs are rapidly entering into agreements
with program sponsors and often wish to work with those entities that have
established systems, offering economies of scale and a proven record of
effectiveness. The Company believes that the rate of increase of sales of the
utilization review program will increase more slowly in future years than in the
past.
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In addition, other types of organizations are positioned to compete
with Admar's Substance Abuse and Mental Health Case Management and Exceptional
Case Management programs. These include employee assistance programs,
provider-based psychiatric hospitals and other utilization review programs, all
of which may be expected to aggressively promote their own programs in the
future.
BPA. BPA encounters competition from insurance carriers, HMOs and from
other third-party administrators. Insurance carriers provide medical claims
administration services in connection with their own medical and dental benefit
programs marketed through those insurance carriers.
In recent years, the number of individuals covered by plans
administered by third-party administrators and employers has grown significantly
faster than the number covered by other types of payors. Changes in the benefits
marketplace over the last 10 years have improved the third-party administrators'
competitive position, since third-party administrators are sometimes perceived
as providing lower costs and more personalized service than traditional
administrators such as insurance companies.
Admar considers its primary competitors for its TPA business to be the
insurance carriers and HMOs that are providing many different funding mechanisms
which are advantageous to the employers in the 100 to 500-employee marketplace.
Admar is also able to provide many different funding mechanisms in the
marketplace and believes its services generally compete favorably with those of
its competitors.
HEALTHWATCH ADVANTAGE. HealthWatch Advantage encounters competition
from a small number of independent organizations which provide negotiation
services of a similar nature. More significant competition, however, derives
principally from insurance company claims departments that decide to negotiate
using their own staff.
EMPLOYEES
Admar currently employs approximately 197 persons. Admar has employees
in the following areas: 28 in network development, 9 in network operations, 13
in claims processing, 24 in HealthWatch administration, 15 in HealthWatch
Advantage administration, 19 in Admar's BPA, 30 in sales and client and support,
25 in management information systems and 34 in administrative support functions.
No employees are members of a union. Management believes that relations between
Admar and its employees are good.
PROPERTIES
The Company's principal administrative offices are located in Santa
Ana, California. These offices consist of approximately 40,000 square feet,
occupied under a lease expiring in 1996. The Company also maintains leased
offices located in Arizona, Colorado, Florida and Louisiana.
50.
<PAGE> 59
INTELLECTUAL PROPERTY
The Company has proprietary rights to a number of trademarks used in
its business, including Med$ENSE(R), which is registered with the U.S. Patent
and Trademark Office for an initial period of 10 years, and is renewable for as
long as the Company continues to use the trademark. The Company considers its
trademarks to be important to its business plans.
51.
<PAGE> 60
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
In the past year, the public and the federal government have focused
significant attention on reforming the health care system in the United States.
A range of options were proposed by the current administration and Congress.
Although none of the proposals were implemented at the federal level, reforms
could still be implemented at the State level. Such proposed reforms could have
an impact on the Company. Although the Company believes its organizational model
responds to the concerns of the proposals being put forth, concerns about such
proposals have been reflected in the volatility of stock prices of companies in
the health care and related industries. Although the Company cannot predict
which, if any, of the reform proposals will be adopted, when they may be adopted
or what impact they may have on the Company, adoption of certain elements of the
proposals could have a material adverse effect on the Company's operations and
could cause volatility of the Company's stock price.
Admar's two largest contracts accounted for approximately 50.7% of its
revenues for the fiscal year ended January 31, 1995. These same two contracts
were Admar's largest for the six months ended July 31, 1995 and represented
56.9% of its revenues. One of the contracts represented 35.6% of revenue in the
fiscal year ended January 31, 1995 and 39.0% of revenues for the six months
ended July 31, 1995. The term of the contracts are one year and they contain
provisions which allow termination upon ninety days notice. Even if the
contracts are not terminated, the number of covered employees can change. The
loss of these clients or a significant decrease in the number of employees
covered by them could have a material adverse effect on the Company's results of
operations.
In fiscal 1995, the Company spent approximately $1,460,000 to develop
Exclusive Health networks in a number of market areas located in southern
California and the Phoenix, Arizona market area, although, to date, no revenue
has been recognized by the Company in connection with sales of its Exclusive
Health product. The Company is currently developing three additional market
areas located in northern California, central California and Arizona, using the
proceeds of a $1,000,000 loan from PMLIC. The Company does not expect to
recognize revenue from any of these market areas for at least nine months. The
Company plans to develop Exclusive Health networks (in conjunction with
insurance company partners to be identified) in approximately five additional
market areas at a cost ranging between $200,000 and $400,000 per market area
over the next two years if relationships with appropriate insurance company
partners can be established and additional working capital can be obtained by
the Company to finance such development. This paragraph contains forward-looking
statements that involve risks and uncertainties. The Company may not implement
such plans for a number of reasons, including without limitation, the failure of
the Company to obtain working capital necessary to finance further development,
regulatory requirements which may limit or preclude the development of Exclusive
Health in certain areas, the inability to identify or establish relationships
with appropriate insurance company partners, the lack of market acceptance of
the Exclusive Health product in the market areas identified by the Company for
development, a material adverse
52.
<PAGE> 61
change in the managed care industry as a result of health care reform measures
or otherwise, or a material adverse change in the Company's operations or
business.
REVENUE TRENDS BY PRODUCT LINE
The following table sets forth the revenue derived from each product
line and the percentage that each line bears to total revenue for the fiscal
year ended January 31, 1995.
<TABLE>
<CAPTION>
Revenue Comparison by Product
-----------------------------------------------
Fiscal 1995 % Fiscal 1994 %
----------- - ----------- -
<S> <C> <C> <C> <C>
Alternate Delivery Systems
(PPO's & EPOs) $10,977,115 65.7 $10,774,884 61.4
Healthwatch (U.M. products) 2,302,706 13.8 2,379,883 13.6
Image Financial and Insurance
Services, Inc. 396,650 2.4 813,576 4.6
Third-party Administration 2,569,318 15.4 3,262,856 18.6
Healthwatch Advantage 421,034 2.5 287,893 1.6
Miscellaneous 36,777 0.2 33,408 0.2
----------- ----- ----------- -----
TOTAL $16,703,600 100.0% $17,552,500 100.0%
=========== ===== =========== =====
</TABLE>
There can be no assurance that the Company's clients will continue to
use the Company's services on favorable terms or at all, or that the number of
participants in the Company's programs will not decrease. Loss of clients, less
favorable terms or a decline in the number of participants could have a material
adverse effect on the Company's results of operations.
1995 COMPARED TO 1994
The Company's total revenue in fiscal 1995 decreased 4.8% to
$16,703,600 from $17,552,500 in fiscal 1994. The decrease in total revenue was
primarily the result of a decrease in revenue from the Managed Benefits
Division. Offsetting this decrease in part was an increase in revenues from the
PPO and HealthWatch Advantage businesses from both new and current clients.
In fiscal 1995, total expenses decreased 3.2% to $16,228,900 from
$16,768,600 for fiscal 1994, due primarily to additional costs that were
capitalized in fiscal 1995. Salaries and benefits decreased to $10,739,900 in
fiscal 1995 from $10,764,900 in fiscal 1994, a decrease of $25,000 or .2%,
primarily due to fewer staff. Facilities and telephone expenses increased
$72,700 or 4.9% to $1,542,200 in fiscal 1995 from $1,469,500 in fiscal 1994 due
to the addition of two new field offices.
Depreciation and amortization expenses in fiscal 1995 increased 10.1%
to $782,600 from $710,800 in fiscal 1994, due to additional amortization of
preopening expenses. Operating
53.
<PAGE> 62
expenses decreased 17.6% in fiscal 1995 to $3,007,100 from $3,649,100 in fiscal
1994, due primarily to the implementation of cost controls. Interest expenses
decreased 9.9% in fiscal 1995 to $157,100 from $174,300, due to a decrease in
the Company's debt. As a result of the decrease in revenue and decrease in
expenses, the Company recognized net income before taxes of $474,400 for fiscal
1995, compared to a net income of $783,900 for fiscal 1994.
The after-tax net income in fiscal 1995 was $308,700 compared to
$403,700 in fiscal 1994. The effective tax rate for fiscal 1995 was 35% compared
to 48.6% in fiscal 1994. The difference is primarily due to the reduction in the
Company's valuation allowance.
The Company capitalizes incremental costs for developing new networks
(pre-opening costs) which aggregated $1,460,600 for fiscal 1995. The Company
believes that the preopening costs are recoverable based on projected revenues
which have been derived from the estimated number of lives which are included in
the Company's exclusivity contracts from contracted insurance carriers and the
assumed profit therefrom.
- -----------
The following table sets forth the revenue derived from each product
line and the percentage that each line bears to total revenue for the quarter
ended October 31, 1995.
<TABLE>
<CAPTION>
Revenue Comparison by Product
Quarter Ended Quarter Ended
October 31, 1995 % October 31, 1994 %
---------------- - ---------------- -
<S> <C> <C> <C> <C>
Alternate Delivery Systems (PPOs & $2,603,000 60.8 $2,765,000 66.1
EPOs)
HealthWatch (U.M. products) 629,000 14.7 562,000 13.4
Image Financial and Insurance Services, 137,000 3.2 116,000 2.8
Inc.
Benefit Plan Administrators, Inc./ 266,000 6.2 608,000 14.5
Wm. G. Hofgard & Company, Inc.
Managed Benefits
HealthWatch Advantage 645,000 15.1 124,000 3.0
Miscellaneous -- -- 8,000 .02
---------- ----- ---------- ------
TOTAL $4,280,000 100.0 $4,183,000 100.00
========== ===== ========== ======
</TABLE>
THE NINE MONTHS ENDED OCTOBER 31, 1995 COMPARED
WITH THE NINE MONTHS ENDED OCTOBER 31, 1994
Revenues increased 3.4% to $13,251,000 for the nine months ended
October 31, 1995, from $12,818,000 for the nine months ended October 31, 1994
primarily because of an increase
54.
<PAGE> 63
in revenue from the Advantage and HealthWatch products. Total costs and
expenses increased by 2.7% to $12,556,000 for the nine months ended October 31,
1995 from $12,232,000 for the nine months ended October 31, 1994 and decreased
as a percentage of revenue from 95.4% to 94.7%. The increase was due
primarily to additional costs in administrative and sales. Depreciation,
amortization and interest increased by 8.1% to $777,000 for the nine months
ended October 31, 1995 from $719,000 for the nine months ended October 31,
1994, and increased as a percentage of revenues from 5.6% to 5.9% due primarily
to the commencement of amortization of preopening costs for Exclusive Health
costs in the current period as well as an increase in debt to be serviced.
Earnings before provision for income taxes for the nine months ended
October 31, 1995 increased by 18.6% to $695,000 as compared to $586,000 for the
nine months ended October 31, 1994. Net income increased 22.4% for the nine
months ended October 31, 1995 to $432,000 from $353,000 for the nine months
ended October 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash of $1,290,000 from its operating activities
in fiscal 1995, compared with $1,439,500 in fiscal 1994. The change was due
primarily to the lower net income and reduction in accounts receivable-trade.
Offsetting this decrease in part was an increase in accounts payable. In fiscal
1995, the Company's investing activities used cash of $1,886,000 compared with
$1,150,500 in 1994, primarily as a result of purchases of property and equipment
and additions to pre-opening costs. In fiscal 1995, the Company's financing
activities generated cash of $525,000 compared with using cash of $704,100 in
fiscal 1994. The increase in fiscal 1995 was primarily due to proceeds from the
sale of the Company's Common Stock and additional borrowing on the Company's
$500,000 bank credit line.
Cash increased approximately $910,000 for the nine month period ended
October 31, 1995 primarily due to the receipt of the proceeds of a loan from
PMLIC in the principal amount of $1,400,000 to fund the development of Exclusive
Health networks. The Company continued to fund its cash requirements from
internal operations. Cash flows from operating activities were $578,000 due
primarily to net income. Cash flows used by investing activities totaled
$839,000 due to the purchase of new equipment and furniture and additional
preopening costs. Net cash flows from financing increased by $1,171,000 due to
proceeds generated by increasing long-term debt.
Management believes that existing working capital and the funds
generated from operations will continue to provide sufficient funds to meet its
current operational requirements for the foreseeable future; however, additional
capital will be required to further expand its Exclusive Health networks.
55.
<PAGE> 64
PROPOSAL 2
APPROVAL OF 1995 EMPLOYEE STOCK PURCHASE PLAN
In May 1995, the Board of Directors adopted the Company's 1995 Employee
Stock Purchase Plan (the "Purchase Plan") authorizing the issuance of up to
300,000 shares of Common Stock pursuant to the terms of the Purchase Plan.
In anticipation of the Merger, the Board at its October 24, 1995
meeting took action suspending the Purchase Plan effective as of December 31,
1995 and terminating the Purchase Plan effective as of the Closing of the
Merger. The Purchase Plan provides that suspension or termination of the
Purchase Plan shall not impair any rights or obligations with respect to rights
outstanding under the plan at the time of such event. Under the terms of the
Purchase Plan, Shareholder approval of the Purchase Plan is required prior to
exercise of any rights granted. Because rights are currently outstanding under
the Purchase Plan, the Company is seeking Shareholder approval in order to
permit exercise of those rights (as well any rights that might be granted in the
future in the event that the Merger were not consummated for any reason).
Purchases of shares of Common Stock pursuant to outstanding rights, which
otherwise were to be effective as of December 31, 1995, have been deferred and
will be completed upon approval of the Purchase Plan by Shareholders in
accordance with this Proposal. Under the current terms of the Purchase Plan, in
the event that the Purchase Plan is not approved by the Shareholders,
outstanding rights under the Purchase Plan would not become exercisable.
Shareholders are requested in this Proposal to approve the Purchase
Plan. The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Purchase Plan. Abstentions will be counted toward the
tabulation of votes cast on this proposal and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Purchase Plan are outlined below.
PURPOSE
The purpose of the Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary (an "affiliate") of the
Company designated by the Board of Directors to participate in the Purchase
Plan) may be given an opportunity to purchase Common Stock of the Company
through payroll deductions, to assist the Company in retaining the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
56.
<PAGE> 65
Approximately 144 of the Company's approximately 197 employees are eligible to
participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors. The Board
has the power to construe and interpret the Purchase Plan and, subject to the
provisions of the Purchase Plan, to determine when and how rights to purchase
Common Stock will be granted, the provisions of each offering of such rights (an
"Offering"), which need not be identical, and whether the employees of any
affiliate of the Company shall be eligible to participate. The Board is
authorized to delegate administration of the Purchase Plan to a committee
composed of not less than two members of the Board. As used herein with respect
to the Purchase Plan, the term "Board" refers to such a committee as well as to
the Board of Directors itself.
OFFERINGS
The Purchase Plan is implemented by Offerings of rights to all eligible
employees from time to time by the Board. The initial Offering commenced on June
1, 1995 and ended on December 31, 1995. In connection with the suspension of the
Purchase Plan pending the Merger, the Board has determined that no additional
Offerings will occur, except that in the event the Merger is not consummated the
Board may activate the Purchase Plan and authorize new Offerings in the future.
Rights granted under the initial Offering are subject to approval of the
Purchase Plan by the Shareholders, and completion of purchases of Common Stock
pursuant to the initial Offering is currently being deferred until Shareholder
approval is obtained as requested in this Proposal. See "Purchase of Stock"
below.
ELIGIBILITY
The Purchase Plan provides that any person whose customary employment
with the Company or an affiliate designated by the Board is at least 20 hours
per week and at least five months per calendar year, and who has been employed
by the Company or an affiliate for such continuous period preceding an Offering
as the Board may require (which period may not be more than two years), is
eligible to participate in such Offering under the Purchase Plan. The continuous
period of employment required for eligibility to participate in the Initial
Offering was set at one year.
Notwithstanding the foregoing, no employee is eligible for the grant of
any rights under the Purchase Plan if, immediately after such grant, the
employee would own, directly or indirectly, stock possessing five percent or
more of the total combined voting power or value of all classes of stock of the
Company or of any affiliate of the Company (including any stock which such
employee may purchase under all outstanding rights and options), nor will any
57.
<PAGE> 66
employee be granted a right that would permit him or her to buy more than
$25,000 worth of stock (determined at the fair market value of the shares at the
time such rights are granted) under all employee stock purchase plans of the
Company for each calendar year in which such right is outstanding at any time.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by
delivering to the Company, prior to the date selected by the Board for the
Offering, an agreement authorizing payroll deductions of up to 10% of such
employee's base salary during the period of the Offering.
PURCHASE PRICE
The price per share at which shares are sold in an Offering under the
Purchase Plan is the lower of (1) 85% of the fair market value of a share of
Common Stock on the date of commencement of the Offering, or (2) 85% of the fair
market value of a share of Common Stock on the date designated for the purchase
to occur (the "Purchase Date"). The Purchase Date under the initial Offering was
December 31, 1995.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
during the period of the Offering. After the beginning of any Offering, a
participant may change or terminate his or her payroll deductions or begin such
payroll deductions only to the extent specified by the Board for such Offering.
Participants were not permitted to increase or reduce their payroll deductions
during the initial Offering but could discontinue their participation by
withdrawing. See "Withdrawal" below. All payroll deductions made for a
participant are credited to his or her account under the Purchase Plan and
deposited with the general funds of the Company. A participant may not make any
additional payments into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, an
employee is entitled to purchase shares under such plan. In connection with the
initial Offering made under the Purchase Plan, the Board specified a limit of
4,000 shares as the maximum number of shares any employee may purchase and a
limit of 120,000 shares as the maximum aggregate number of shares which may be
purchased pursuant to such Offering by all participants. If the aggregate number
of shares to be purchased upon exercise of rights granted in an Offering would
exceed the maximum aggregate number, the Board would make a pro rata allocation
of shares available in a uniform and equitable manner. Unless the employee's
participation is discontinued, his or her right to purchase shares is exercised
automatically on the relevant Purchase Date at the applicable price. See
"Withdrawal" below.
58.
<PAGE> 67
Upon approval of the Purchase Plan by Shareholders in accordance with
this Proposal 2, and prior to the Merger, payroll deductions that had
accumulated under the Purchase Plan as of December 31, 1995 pursuant to the
initial Offering will be applied to purchase shares of Common Stock on behalf of
participants under the terms of the Purchase Plan. Such shares of Common Stock
will be issued and outstanding at the time of the Merger, and participants
holding such shares at the Effective Time of the Merger will be entitled to
receive the same Merger Consideration as other shareholders of the Company.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from an
Offering, including the initial Offering, by terminating his or her payroll
deductions and by delivering to the Company a notice of withdrawal from the
Purchase Plan. Such withdrawal may be elected at any time up to 10 days
immediately preceding the Purchase Date.
Upon any withdrawal from an Offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, and such employee's interest in the Offering is automatically
terminated. The employee is not entitled to again participate in such Offering.
An employee's withdrawal from an Offering will not have any effect upon such
employee's eligibility to participate in subsequent Offerings under the Purchase
Plan, if any.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to an Offering under the Purchase Plan
terminate immediately upon cessation of an employee's employment for any reason,
and the Company will distribute to such employee all of his or her accumulated
payroll deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Purchase Plan provides that the Board may suspend or terminate the
Purchase Plan at any time. Pursuant to such authority, the Board has taken
action to suspend the Purchase Plan as of December 31, 1995 and to cause the
Purchase Plan to terminate effective as of the Closing of the Merger.
The Purchase Plan also provides that the Board may amend the Purchase
Plan at any time. Any amendment of the Purchase Plan must be approved by the
shareholders of the Company if the amendment would (i) modify the requirements
as to eligibility for participation to the extent such modification requires
shareholder approval in order for the Purchase Plan to
59.
<PAGE> 68
obtain employee stock purchase plan treatment under Section 423 of the Code or
to comply with the requirements of Rule 16b-3 under the Securities Exchange Act
of 1934 ("Rule 16b-3"); (ii) increase the number of shares reserved for rights
under the Purchase Plan; or (iii) modify the Purchase Plan in any other way if
such modification requires shareholder approval in order for the Purchase Plan
to obtain employee stock purchase plan treatment under Section 423 of the Code
or to comply with the requirements of Rule 16b-3.
Rights granted before amendment or termination of the Purchase Plan
will not be altered or impaired by any amendment or termination of such plan
without consent of the person to whom such rights were granted.
ADJUSTMENT PROVISIONS
The Purchase Plan provides that, if there is a change in the stock
subject to the Purchase Plan or subject to any rights granted under the Purchase
Plan (through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, change in corporate structure or otherwise), the Purchase
Plan and rights outstanding thereunder will be appropriately adjusted as to the
class and the maximum number of shares subject to such plan and the class,
number of shares and price per share of stock subject to such outstanding
rights.
EFFECT OF CERTAIN CORPORATE EVENTS
The Purchase Plan provides that, if the Company dissolves or liquidates
or there occurs a specified type of merger, consolidation or reorganization of
the Company, including a transaction such as the Merger described in Proposal 1,
the Board may determine either that outstanding rights under the Purchase Plan
will be assumed or substituted for similar rights by any surviving corporation,
that such rights will continue in effect, or that accumulated payroll deductions
will be applied to purchase Common Stock under the Purchase Plan immediately
prior to such transaction, after which such rights will be terminated.
As a result of the suspension of the Purchase Plan as of December 31,
1995, and assuming the approval of the Shareholders of the Purchase Plan
pursuant to this Proposal, no rights under the Purchase Plan will be outstanding
at the time of the Merger.
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Common Stock not purchased under such
rights again becomes available for issuance under the Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under the provisions of Section 423
of the Code.
60.
<PAGE> 69
A participant will be taxed on amounts withheld for the purchase of
shares as if such amounts were actually received. Other than this, no income
will be taxable to a participant until disposition of the shares acquired, and
the method of taxation will depend on the holding period of the purchased
shares.
If the stock is disposed of at least two years after the beginning of
the Offering and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the price paid for the stock or (ii)
the excess of the fair market value of the stock as of the beginning of the
Offering over the purchase price (determined as of the beginning of the
Offering) will be treated as ordinary income. Any further gain or any loss will
be taxed as a long-term capital gain or loss. Long- term capital gains currently
are generally subject to lower tax rates than ordinary income. The maximum
long-term capital gains rate for federal income tax purposes is currently 28%,
while the maximum ordinary rate is effectively 39.6% at the present time.
If the stock is sold or disposed of before the expiration of either of
the holding periods described above, including in the Merger, then the excess of
the fair market value of the stock on the date of purchase over the purchase
price paid will be treated as ordinary income at the time of such disposition.
The Company may, in the future, be required to withhold income taxes relating to
such ordinary income from other payments made to the participant. The balance of
any gain will be treated as capital gain. Even if the stock is later disposed of
for less than its fair market value on the date of purchase, the same amount of
ordinary income is attributed to the participant, and a capital loss is
recognized equal to the difference between the sales price and the fair market
value of the stock on such date of purchase. Any such capital gain or loss will
be long-term or short-term depending on whether the stock has been held for more
than one year.
There are no federal income tax consequences to the Company by reason
of the grant or exercise of rights under the Purchase Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation).
The following table presents certain information with respect to shares
purchased under the Purchase Plan by (i) the Named Executive Officers, (ii) all
executive officers as a group, (iii) all non-executive officer directors as a
group, and (iv) all non-executive officer employees as a group. Non-employee
directors are not eligible to purchase shares under the Purchase Plan.
61.
<PAGE> 70
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF DOLLAR
NAME AND POSITION SHARES VALUE(1)
- ---------------------------------------------- ------------- --------
<S> <C> <C>
Richard T. Toral 0 shares 0
Chief Executive Officer
Virginia Pascual 0 shares 0
Chief Administrative Officer
Edward K. Evans 0 shares 0
VP Finance, Chief Financial Officer
Stephen B. Goodell 0 shares 0
President, BPA
All Executive Officers as a group 0 shares 0
All Non-Executive Officer Directors as a group 0 shares 0
All Non-Executive Officer employees as a group 21,700 shares $48,825
</TABLE>
- --------------
(1) Estimated fair market value on the date of purchase (based on an
assumed market value of $2.25 per share) multiplied by the number of
shares.
62.
<PAGE> 71
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending January 31, 1996 and
has further directed that management submit the selection of independent
auditors for ratification by the Shareholders at the Annual Meeting. Deloitte &
Touche LLP has audited the Company's financial statements since 1989.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Shareholder ratification of the selection of Deloitte & Touche LLP as
the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Deloitte & Touche
LLP to the Shareholders for ratification as a matter of good corporate practice.
If the Shareholders fail to ratify the selection, the Board will reconsider
whether or not to retain that firm. Even if the selection is ratified, the Board
in its discretion may direct the appointment of different independent auditors
at any time during the year if the Board determines that such a change would be
in the best interests of the Company and its Shareholders.
The affirmative vote of the holders of a majority of the shares present
or represented at the Annual Meeting and entitled to vote will be required to
ratify the selection of Deloitte & Touche LLP. Abstentions will be counted
toward the tabulation of votes cast on the proposal and will have the same
effect as negative votes. Broker non-votes are counted toward a quorum, but are
not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
63.
<PAGE> 72
PROPOSAL 4
ELECTION OF DIRECTORS
There are three nominees for the three Board of Directors positions
presently authorized in the Company's Bylaws. Each director to be elected will
hold office until the Effective Time or, if the Merger is not consummated, until
the next annual meeting of shareholders and until his or her successor is
elected and has qualified, or until such director's earlier death, resignation
or removal. Each nominee listed below is currently a director of the Company.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the three nominees named below. In
the event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve. Directors are elected by a plurality of the
votes present in person or represented by proxy and entitled to vote at the
Annual Meeting.
In addition, under Section 2115 of the California Law, the Company is
required to permit Shareholders to exercise cumulative voting rights with
respect to the election of directors. Accordingly, if at least one Shareholder
has given notice at the meeting, prior to the voting, of his or her intention to
cumulate votes, an additional vote will be taken pursuant to California Law in
which Shareholders will be entitled to cumulate votes. Under cumulative voting,
each Shareholder will be entitled to three votes for each share held. Each
Shareholder may give one candidate, so long as such candidate's name has been
placed in nomination prior to the voting, all the votes such Shareholder is
entitled to cast or may distribute such votes among as many candidates as such
Shareholder chooses. Unless proxyholders are otherwise instructed, Shareholders,
by means of the accompanying proxy, will grant the proxyholders discretionary
authority to cumulate votes. Under cumulative voting, the three candidates
receiving the highest number of affirmative votes cast will be elected directors
of the Company. If cumulative voting is invoked and there is a conflict between
the results of the voting on a cumulative and non-cumulative basis, management
anticipate that they will vote their shares so as to resolve the conflict or
otherwise adjourn the meeting until a satisfactory resolution has been achieved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
64.
<PAGE> 73
NOMINEES
The names of the nominees and certain information about them are set
forth below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
<S> <C> <C>
Richard T. Toral.......................... 52 Chairman of the Board of Directors and
Chief Executive Officer of the Company
Virginia Pascual.......................... 44 Chief Administrative Officer and Secretary
of the Company
John K. Tillotson, M.D.................... 43 President, Wentworth Services, Inc.
</TABLE>
Richard T. Toral is the Company's Chief Executive Officer and Chairman
of the Board of Directors. For the past 22 years, Mr. Toral has been President
of Admar Corporation, which, since 1986, has been a wholly owned subsidiary of
the Company. He received a B.A. degree in Business Administration from the
University of California, Los Angeles (UCLA) in 1968.
Virginia Pascual is the Company's Chief Administrative Officer,
Secretary and a member of the Board of Directors. Ms. Pascual was elected a
director of the Company in 1986. In 1987 she was appointed Secretary of the
Company. She was appointed Chief Administrative Officer of the Company in
January 1992. Ms. Pascual has served in various positions at Admar Corporation,
a wholly owned subsidiary of the Company, since its incorporation in 1973.
John K. Tillotson, M.D., has been the Chief Executive Officer and
President of Wentworth Services, Inc., a health care consulting company, since
November 1991. In addition, Dr. Tillotson is the owner of Wentworth Insurance
Services, Inc., an insurance agency. Dr. Tillotson was elected a director of the
Company on August 1, 1994. He served as consultant for Community Psychiatric
Centers, Inc., an organization of psychiatric hospitals and a New York Stock
Exchange company, from May 1991 to July 1994. From January 1987 to June 1990, he
served as President, Chief Executive Officer and Chairman of Managed Health
Network, a managed mental health care company. Dr. Tillotson received a B.A.
degree in Zoology from the University of California at Berkeley in 1973 and an
M.D. from the University of Minnesota at Minneapolis in 1977.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended January 31, 1995, the Board of Directors
held two meetings and acted by unanimous written consent on three occasions.
65.
<PAGE> 74
The Board has a Compensation Committee. The Compensation Committee
makes recommendations concerning salaries and incentive compensation, awards
stock options to employees and consultants under the Company's stock option
plans and otherwise determines compensation levels and performs such other
functions regarding compensation as the Board may delegate. The Compensation
Committee was composed of two directors: Messrs. Toral and Douglas; however, Mr.
Douglas resigned on April 1, 1995. The Compensation Committee met once during
the fiscal year ended January 31, 1995.
66.
<PAGE> 75
MARKET PRICES AND DIVIDENDS
MARKET INFORMATION
The Company's Common Stock is traded over the counter and is quoted on
the Nasdaq Small Cap Market under the symbol "ADMR." Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
The high and low bid prices for the Common Stock are as follows:
<TABLE>
<CAPTION>
Quarter Ended Bid High Bid Low
- ------------------------- -------- -------
<S> <C> <C>
April 30, 1993 1-7/8 1-11/16
July 30, 1993 1-7/8 1-13/16
October 29, 1993 1-3/4 1-3/4
January 31, 1994 2-1/4 2-1/8
<CAPTION>
Bid High Bid Low
-------- -------
<S> <C> <C>
April 29, 1994 2 2
July 29, 1994 1 1/2 1 1/2
October 38, 1994 1 3/8 1 1/4
January 31, 1995 1 1/4 7/8
<CAPTION>
Bid High Bid Low
-------- -------
<S> <C> <C>
April 28, 1995 31/32 31/32
July 31, 1995 1 7/32 1 3/16
October 31, 1995 2 1/32 1 25/32
</TABLE>
The trading information contained herein is based on the National
Association of Securities Dealers, Inc. Monthly Statistical Report. As of the
Record Date, there were approximately 8,762,602 Shareholders of record, as shown
on the records of the Company's transfer agent, The Trust Company of New Jersey,
35 Journal Square, Jersey City, New Jersey 07306.
The Company has never declared or paid any dividends on its Common
Stock. The Company does not intend to pay dividends on the Common Stock in the
foreseeable future. The Company intends to utilize any earnings to expand the
Company's business.
67.
<PAGE> 76
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as
December 27, 1995, for (i) the Chief Executive Officer and each of the Named
Executive Officers (as defined under "Summary of Compensation" below), (ii) each
nominee for director, (iii) all directors and executive officers of the Company
as a group, and (iv) all those known to the Company to be beneficial owners of
more than five percent of the Company's voting securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
---------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------- ---------------- ----------------
<S> <C> <C>
Humana Inc. (2)
The Humana Building
500 West Main Street
P.O. Box 1438
Louisville, Kentucky 40201-1438 1,500,000 14.9%
Richard T. Toral (3)
The Admar Group, Inc.
1551 North Tustin Avenue
Suite 300
Santa Ana, CA 92705 3,181,986 36.3%
Virginia Pascual (4) 348,818 4.0%
Edward K. Evans (5) 150,173 1.7%
Stephen B. Goodell (6) 116,545 1.3%
John K. Tillotson, M.D. (7) 5,000 *
All directors and executive
officers as a group (5 persons) (8) 3,903,559 44.5%
</TABLE>
* Less than one percent
- -----------------------------------------
(1) Based on information supplied by executive officers and directors of
the Company. Unless otherwise indicated in footnotes to this table and
subject to community property laws where applicable, each of the
Shareholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentage of ownership is based on 8,762,602 shares of Common Stock
outstanding on December 27, 1995.
(2) Includes 1,300,000 shares of Common Stock issuable upon exercise of
warrants issued to Humana, Inc. in December 1991. The warrants are
currently exercisable and expire at various times between December 17,
1995 and December 17, 1996. Excluding the warrants, Humana is the
beneficial owner of 200,000 shares of Common stock, representing
approximately 2.3% of the Company's outstanding shares.
68.
<PAGE> 77
(3) Includes 169,000 shares held by the Toral Family Charitable Trust. Mr.
Toral is the sole voting trustee of the trust.
(4) Includes 36,545 shares subject to options exercisable by Ms. Pascual
within 60 days of December 27, 1995, excluding any acceleration as a
result of the Merger.
(5) Includes 36,545 shares subject to options exercisable by Mr. Evans
within 60 days of December 27, 1995, excluding any acceleration as a
result of the Merger.
(6) Includes 36,545 shares subject to options exercisable by Mr. Goodell
within 60 days of December 27, 1995, excluding any acceleration as a
result of the Merger.
(7) Includes 5,000 shares subject to options exercisable by Mr. Tillotson
within 60 days of December 27, 1995, excluding any acceleration as a
result of the Merger.
(8) Includes 142,044 shares subject to options exercisable by the Company's
directors and executive officers within 60 days of December 27, 1995,
excluding any acceleration as a result of the Merger.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of the Company. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 1995, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that one
report, covering an aggregate of one transaction, was filed late by Mr. Toral.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
For the fiscal year ended January 31, 1995, each management member of
the Board of Directors of the Company received $1,000 per board meeting
attended. All of the members of the Board of Directors are eligible for
reimbursement for their expenses incurred in connection with attendance at Board
meetings in accordance with Company policy.
Each non-employee director of the Company receives a one-time stock
option grant under the 1992 Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company or an affiliate of the
Company (as defined in the Code) are eligible to receive options under the
Directors' Plan. Options granted under the Directors' Plan are intended by the
Company not to qualify as incentive stock options under the Code.
69.
<PAGE> 78
Option grants under the Directors' Plan are non-discretionary. Pursuant
to the terms of the Directors' Plan, each person who is elected for the first
time as a director of the Company or an affiliate of the Company and who is not
otherwise employed by the Company or an affiliate of the Company (a
"Non-employee Director") will automatically be granted an option to purchase
25,000 shares of Common Stock (subject to adjustment as provided in the
Directors' Plan) upon the date of his or her election to the Board. In addition,
each person who was serving as a Non-employee Director on the date the
Directors' Plan was adopted by the Board was granted an option to purchase
25,000 shares of Common Stock (subject to adjustment as provided in the
Directors' Plan) in November 1992. No other options may be granted at any time
under the Directors' Plan.
No option granted under the Directors' Plan may be exercised after the
expiration of 10 years from the date it was granted. Options granted under the
Directors' Plan will vest with respect to each optionee in five equal annual
installments commencing on the date that is one year after the date of grant of
the option, provided that the optionee has, during the entire period prior to
such vesting date, continuously served as Non-employee Director or as an
employee of or consultant to the Company or any affiliate of the Company. The
exercise price of options granted under the Directors' Plan is 100% of the fair
market value of the Common Stock subject to the option on the date of the option
grant. Options granted under the Directors' Plan are generally non-transferable.
Unless otherwise terminated by the Board of Directors, the Directors'
Plan automatically terminates in November 2002. On August 1, 1994, an option to
purchase 25,000 shares of the Company's Common Stock was granted to John K.
Tillotson, M.D. at an exercise price of $1.81 per share. As of December 31,
1995, no options had yet been exercised under the Directors' Plan.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION. The following table shows, for the fiscal
years ended January 31, 1995, 1994 and 1993, compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and each of its other most
highly compensated executive officers earning at least $100,000 in salary and
bonus at January 31, 1995 (the "Named Executive Officers"):
70.
<PAGE> 79
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------
Other Annual All Other
Compensation Compensation
Salary (1)(2) (3)
Name and Principal Position Year ($) ($) ($)
- -------------------------------- ---- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Richard T. Toral 1995 $205,209(4) $25,326(5) $20,876(6)
Chief Executive Officer and 1994 $214,385 $21,953 $ 2,962
Chairman of the Board 1993 $169,760 $21,953 $ 2,917
Virginia Pascual 1995 $149,837(4) - $ 2,974
Chief Administrative Officer and 1994 $158,144 - $ 2,197
Secretary 1993 $137,267 - $ 2,207
Edward K. Evans 1995 $133,407 - $ 2,556
Vice President, Finance and 1994 $130,919 - $ 2,384
Chief Financial Officer 1993 $115,301 - $ 1,177
Stephen B. Goodell, 1995 $113,304 - $ 2,160
President, BPA 1994 $113,764 - $ 1,170
1993 $109,700 -
</TABLE>
- --------------------------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown with
respect to certain "perquisites," where such amounts do not exceed the
lesser of 10% of bonus plus salary or $50,000.
(2) The Company has no stock appreciation rights. During the fiscal year
ended January 31, 1995, the Company did not grant any stock options to
the Named Executive Officers.
(3) Consists of amounts earned pursuant to matching contributions to the
Company 401(k) Plan.
(4) Includes $3,000 paid by the Company as directors' fees.
(5) Consists of $25,326 in automobile expense reimbursement.
(6) Includes $12,800 paid by the Company in key-man term life insurance.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1992
Officers' Stock Option Plan (the "Officers' Plan"). As of December 31, 1995,
options to purchase a total of 425,227 shares had been granted and were
outstanding under the Officers' Plan, the Directors' Plan and the 1992 Stock
Option Plan (the "Plan"), and options to purchase 413,173 shares remained
available for grant thereunder. During the fiscal year ended January 31, 1995,
the Company did not grant options to purchase shares of the Company's Common
stock to any of the Named Executive Officers.
71.
<PAGE> 80
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Jan. 31, 1995 at Jan. 31, 1995
Shares Acquired Value Exercisable/ Exercisable/
on Exercise (#) Realized ($) Unexercisable (#) Unexercisable(1)($)
--------------- ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Richard T. Toral - - - -
Virginia Pascual - - 36,545/24,364 -0-/-0-
Edward K. Evans - - 36,545/24,364 -0-/-0-
Stephen B. Goodell - - 36,545/24,364 -0-/-0-
</TABLE>
- ------------------
(1) Based on the fair market value of the Company's Common Stock at January
31, 1995 minus the exercise price of the options multiplied by the
number of shares underlying the option. As of January 31, 1995, none of
the options to purchase Common Stock held by Named Executive Officers
were in-the-money to purchase such Common Stock.
72.
<PAGE> 81
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934
Act, and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of January 31,
1995 and for the years ended January 31, 1995 and 1994 included in this Proxy
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein.
Deloitte & Touche LLP serves as the Company's independent auditors. A
representative of Deloitte & Touche LLP will be at the Annual Meeting to answer
questions by Shareholders and will have the opportunity to make a statement if
so desired.
FORM 10-K
The Company will mail without charge, upon written request, a copy of
its annual report on Form 10-K. Requests should be sent to the Company at 1551
North Tustin Avenue, Suite 300, Santa Ana, California, Attention: Secretary.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
Virginia Pascual
Secretary
Santa Ana, California
January 24, 1996
73.
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of The Admar Group, Inc.:
We have audited the accompanying consolidated balance sheet of The Admar Group,
Inc. and its subsidiaries (the "Company") as of January 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended January 31, 1995. 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, such financial statements present fairly, in all material
respects, the financial position of The Admar Group, Inc. and its subsidiaries
as of January 31, 1995 and the results of their operations and their cash flows
for each of the two years in the period ended January 31, 1995 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Costa Mesa, California
May 9, 1995
F-1
<PAGE> 83
THE ADMAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JANUARY 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 314,800
Accounts receivable - trade, net of allowance 1,550,200
for doubtful accounts of $100,000
Income tax refund receivable 62,700
Notes receivable from related parties 76,000
Accounts receivable - other 68,600
Other current assets 350,800
----------
Total current assets 2,423,100
PROPERTY AND EQUIPMENT, Net 1,130,400
PREOPENING COSTS - Net of accumulated
amortization of $2,263,700 2,440,400
GOODWILL - Net of accumulated
amortization of $735,400 2,409,700
OTHER ASSETS 24,300
----------
TOTAL ASSETS $8,427,900
==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 84
THE ADMAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JANUARY 31, 1995
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 475,000
Accounts payable 579,200
Accrued salaries and benefits 356,000
Other accrued liabilities 495,600
Current portion of long-term debt and
obligations under capital leases 446,000
----------
Total current liabilities 2,351,800
DEFERRED RENT 179,600
DEFERRED INCOME TAXES 93,600
NOTE PAYABLE TO STOCKHOLDER 1,000,000
LONG-TERM DEBT 236,800
OBLIGATIONS UNDER CAPITAL LEASES 78,700
STOCKHOLDERS EQUITY:
Common stock, $.005 par value, 20,000,000
shares authorized; 8,762,602 issued
and outstanding 43,700
Paid-in capital 3,046,300
Retained earnings 1,397,400
----------
Total stockholders equity 4,487,400
----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $8,427,900
==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 85
THE ADMAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES $16,703,600 $17,552,500
EXPENSES:
Salaries and benefits 10,739,900 10,764,900
Facilities and telephone 1,542,200 1,469,500
Depreciation and amortization 782,600 710,800
Operating expenses 3,007,100 3,649,100
Interest 157,100 174,300
----------- -----------
Total expenses 16,228,900 16,768,600
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 474,700 783,900
PROVISION FOR INCOME
TAXES 166,000 380,200
----------- -----------
NET INCOME $ 308,700 $ 403,700
=========== ===========
NET INCOME PER COMMON
SHARE $ .04 $ .05
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,665,092 8,483,656
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 86
THE ADMAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PAID IN RETAINED STOCKHOLDERS
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 31, 1993 8,483,656 $42,300 $2,469,400 $ 685,000 $3,196,700
Net income 403,700 403,700
---------- ------- ---------- ---------- ----------
BALANCES AT JANUARY 31, 1994 8,483,656 42,300 2,469,400 1,088,700 3,600,400
Common stock issuances 278,946 1,400 576,900 578,300
Net income 308,700 308,700
---------- ------- ---------- ---------- ----------
BALANCES AT JANUARY 31, 1995 8,762,602 $43,700 $3,046,300 $1,397,400 $4,487,400
========== ======= ========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 87
THE ADMAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 308,700 $ 403,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 782,600 710,700
Changes in operating assets and liabilities,
net of the effect of acquisition:
Decrease in accounts
receivable - trade 171,200 99,300
(Increase) decrease in accounts
receivable - other (59,300) 40,000
(Increase) decrease in other current assets (66,800) 27,900
(Increase) decrease in income tax receivable (62,700) 443,100
Increase (decrease) in accounts payable
and accrued liabilities 160,300 (104,300)
Decrease in unearned revenue (15,000)
(Decrease) increase in income tax payable (1,600) 1,600
Decrease in deferred rent (101,600) (66,400)
Increase (decrease) in deferred income taxes 160,700 (100,000)
Increase in other assets (1,500) (1,100)
---------- ----------
Net cash provided by
operating activities 1,290,000 1,439,500
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 88
THE ADMAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions net of cash
acquired $ -- $ 35,000
Purchases of property and equipment (425,500) (369,600)
Additions to preopening costs (1,460,500) (799,900)
Disbursement to stockholder (16,000)
----------- -----------
Net cash used
in investing activities (1,886,000) (1,150,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (313,800) (396,200)
Principal payments on obligations under
capital leases (64,500) (62,900)
Proceeds from note payable to bank 825,000 553,100
Repayments of note payable to bank (500,000) (798,100)
Proceeds from issuance of common stock 578,300
----------- -----------
Net cash provided by (used in) financing
activities 525,000 (704,100)
----------- -----------
NET DECREASE IN CASH (71,000) (415,100)
CASH AT BEGINNING OF YEAR 385,800 800,900
----------- -----------
CASH AT END OF YEAR $ 314,800 $ 385,800
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 97,100 $ 114,300
=========== ===========
Income taxes paid $ 70,000 $ 7,200
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE> 89
THE ADMAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
In connection with the fiscal 1994 purchase of a managed care network from
Principal Health Care Inc., the Company made a cash payment of $35,000 and
assumed liabilities as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $125,000
Cash paid in fiscal 1994 (35,000)
--------
Liabilities assumed $ 90,000
========
</TABLE>
In connection with the fiscal 1994 purchase of new equipment, the Company
entered into a capital lease for an additional $67,000.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE> 90
THE ADMAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994
- -------------------------------------------------------
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - The Admar Group, Inc. and its subsidiaries ("Admar" or the
"Company") provides managed health care programs to insurance carriers and
self-insured organizations. Three areas of service comprise substantially
all of the Company's revenues: Med Network, Med $ense, Med $ense Plus, Med
Select, and Exclusive Health, which establish and administer preferred
provider organizations on behalf of payors of employee medical benefits;
HealthWatch Medical Review System and Med Check, which are medical cost
containment programs; and Advantage Benefits Company, a third-party
administrator program that manages health care benefit programs on behalf
of self-insured employers and fully insured group plans.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of The Admar Group, Inc. and its
wholly-owned subsidiaries. All intercompany balances and transactions have
been eliminated.
Goodwill - Goodwill represents the excess of cost of purchased businesses
over the fair value of the net assets acquired at the date of acquisition
and is amortized using the straight-line method over periods generally
ranging from 20 to 25 years. Management has and will continue to
periodically evaluate any impairment of goodwill. Such evaluation is and
will be based on applicable undiscounted expected future cash flows.
Preopening Costs - Costs relating to the development of medical networks
are deferred and amortized on a straight-line basis over three years which
historically is the time frame necessary to recover such costs.
Amortization commences when the related network begins to recognize
revenues. Costs capitalized during the year ended January 31, 1995
aggregated $1,460,600. Management has and will continue to periodically
evaluate any impairment of pre-opening costs. Such evaluation will be based
on projected revenues and assumed profit there from.
Property and Equipment - Property and equipment are stated at cost and
consist of the following at January 31, 1995:
<TABLE>
<S> <C>
Furniture and office equipment $ 2,054,000
Computer equipment 2,274,800
Leasehold improvement 116,400
-----------
4,445,200
Less accumulated depreciation
and amortization (3,314,800)
-----------
Property and equipment, net $ 1,130,400
===========
</TABLE>
Included in property and equipment at January 31, 1995 are assets under
capital leases with net book values of approximately $101,900.
F-9
<PAGE> 91
THE ADMAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
Depreciation and amortization are provided on the straight-line method over
the estimated useful lives of the related assets, generally five years, and
over the term of the related lease for leasehold improvements.
Revenues - Revenues are based primarily on a contractual rate per enrolled
employee or a percentage of savings realized by the client at the time
services are rendered.
Net Income Per Common Share - The computations of net income (loss) per
common share are based on the weighted average number of common shares
outstanding and the dilutive effects, if applicable, of common stock
options and warrants.
Reclassification - Certain reclassification have been made to prior year
amounts to conform to the current year's presentation.
2. ACQUISITIONS
Admar and Principal Health Care, Inc. entered into an Agreement of
Acquisition, dated January 7, 1994, pursuant to which Admar acquired 100%
of the Southern California network of Principal Health Care, Inc. in
exchange for cash of $35,000 and a note for $90,000 payable in two annual
installments with no interest.
F-10
<PAGE> 92
THE ADMAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
3. LONG TERM DEBT
Long-term debt is as follows at January 31, 1995:
<TABLE>
<S> <C>
Note payable in connection with an acquisition,
unsecured, payable in monthly installments of
$27,100 plus interest at 7% per annum $ 533,800
Note payable to bank, collateralized by accounts receivable and equipment,
payable in monthly principal installments of $3,087 plus interest at the
bank's prime rate (8.5% at January 31, 1995)
plus 1% per annum 24,700
Note payable in connection with an acquisition,
unsecured, payable in annual installments of
$45,000, non-interest-bearing 90,000
---------
Total long term debt 648,500
Less current portion (411,700)
---------
$ 236,800
=========
</TABLE>
Principal maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending January 31:
<S> <C> <C>
1995 411,700
1996 236,800
---------
Total $ 648,500
=========
</TABLE>
The Company has a line of credit arrangement with a bank for borrowings up
to $500,000 which expires on August 31, 1995. Borrowings bear interest at
the prime rate (8.5% at January 31, 1995) plus 1% per annum with interest
payable monthly. The line of credit arrangement is collateralized by the
Company's accounts receivable and equipment. At January 31, 1995, the
Company had $475,000 outstanding under such line of credit. Interest
expense in conjunction with this line of credit was $24,737 and $4,023 for
the years ended January 31, 1995 and 1994 respectively.
F-11
<PAGE> 93
THE ADMAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
At January 31, 1995, the Company had an unsecured note payable to a
stockholder in the principal amount of $1,000,000. The note bears interest
at 6% per annum. Interest is payable semi-annually on each December 31 and
June 30, the principal balance of $1,000,000 is due August 31, 1997.
4. LEASES
The Company leases certain office equipment and facilities under various
non-cancelable operating lease agreements. Future minimum rent payments
required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of January 31, 1995 are
as follows:
Year ending January 31:
<TABLE>
<S> <C>
1996 $1,104,200
1997 641,200
1998 51,800
1999 13,100
----------
$1,810,300
==========
</TABLE>
Total rent expense for the years ended January 31, 1995 and 1994 for all
operating leases aggregated $1,117,500 and $1,097,000, respectively.
The Company leases various other equipment under lease agreements that have
been capitalized for financial reporting purposes. Future minimum
commitments under capital leasing arrangements are as follows:
Year ending January 31:
<TABLE>
<S> <C>
1996 $ 45,300
1997 37,400
1998 37,400
1999 15,600
--------
Future minimum commitments 135,700
Less portion representing interest (22,700)
--------
Present value of net minimum lease payments 113,000
Less portion due within one year (34,300)
--------
$ 78,700
</TABLE>
F-12
<PAGE> 94
THE ADMAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
5. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). In connection with the adoption of SFAS 109 in 1994 deferred tax
assets decreased $316,700.
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1995 1994
--------- ---------
<S> <C> <C>
Current income taxes:
Federal $ -- $ --
State 5,300 7,200
--------- ---------
5,300 7,200
Deferred income taxes 160,700 373,000
--------- ---------
Total provision $ 166,000 $ 380,200
========= =========
</TABLE>
A reconciliation of the income tax expense that would result from applying
the federal statutory rate of 35% is as follows:
<TABLE>
<CAPTION>
1995 % 1994 %
--------- ---- --------- ----
<S> <C> <C> <C> <C>
Income taxes
at Federal statutory rate $ 166,000 35.0 $ 274,365 35.0
State taxes net of federal
benefit 3,500 .7 69,500 8.9
Goodwill amortization 49,000 10.3 20,900 2.7
Change in valuation allowance (61,300) (12.9) -- --
Other 8,800 1.9 15,435 2.0
--------- ---- --------- ----
$ 166,000 35.0 $ 380,200 48.6
========= ==== ========= ====
</TABLE>
F-13
<PAGE> 95
THE ADMAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
At January 31, 1995, the Company's deferred tax liability was $1,164,000 and
deferred tax asset was $1,070,400. The major components of the Company's net
deferred tax liability of $93,600 at January 31, 1995 are as follows:
<TABLE>
<S> <C>
Accumulated depreciation $ (81,400)
Accumulated amortization (25,800)
Net operating loss carryforward-
SRLY 305,800
Net operating loss carryforward-
Non-SRLY 630,500
Reserve for bad debt 43,300
Accrued vacation 84,600
Pre-opening costs (1,057,700)
Other 7,100
-----------
$ (93,600)
===========
</TABLE>
The Company's SRLY net operating loss carryforwards, for federal purposes,
approximate $900,000 and expire through the year 2001. The remaining
non-SRLY net operating loss carryforwards for federal income tax purposes
of approximately $1,750,000 expire through the year 2008. The Company also
has approximately $374,000 of state net operating loss carryforwards that
expire through the year 2001.
6. CAPITAL TRANSACTIONS
In December 1991, the Company entered into an agreement to sell up to 20%
of its outstanding Common Stock to Humana Inc. of Louisville, Kentucky and
issued warrants to purchase 1,800,000 shares of the Company's Common Stock
at various prices based on the market price of the Company's Common Stock,
not to be less than $2.50 per share. At January 31, 1995, warrants to
purchase 1,300,000 shares of the Company's Common Stock were exercisable.
These warrants expire ratably from December 17, 1995 through December 17,
1996. Humana Inc. also has a right of first refusal to purchase 3,317,986
shares of the Company's Common Stock held by Richard T. Toral, the
Company's Chief Executive Officer, President and Chairman of the Board.
On April 4, 1994, the Company entered into an Employment Agreement with an
outside consultant and issued 7,986 shares of its Common Stock. In
connection with such stock issuance, the Company recorded $15,000 of
compensation expense which reflects the fair value of such stock on date
of issuance.
On April 22, 1994, the Company entered into a Stock Purchase Agreement
with Pan American Life Insurance Company, Inc., ("Pan American") pursuant
to which the Company issued 235,960 worth of Admar Common Stock in
exchange for $500,000.
On August 26, 1994, the Company entered into an Employment Agreement with
an outside consultant and issued 35,000 shares of its Common Stock. In
connection with such stock issuance, the Company recorded $48,350 of
compensation expense which reflects the fair value of such stock on date
of issuance.
F-14
<PAGE> 96
THE ADMAR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (CONTINUED)
Stock Option Plans - In November 1992, the Company adopted the 1992
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), the
1992 Officers' Stock Option Plan (the "Officers' Plan") and the 1992 Stock
Option Plan (the "Option Plan"). The Company has reserved 838,400 shares
of Common Stock related to these plans. As of January 31, 1995, options to
purchase a total of 364,318 shares had been granted and are exercisable.
These options have exercise prices ranging from $2.375 to $1.81 and
130,728 options were exercisable as of January 31, 1995.
Under the plans, options to purchase shares of Common Stock may be granted
to employees or non-employee directors, in the case of incentive stock
options ("ISO") at not less than the fair market value at the date of
grant and not less than 85% of fair market value at the date of grant in
the case of non-qualified options. Options generally become exercisable in
annually installments over a period of five years, and expire after ten
years. In the event of a change in control, options granted under the
Directors' Plan and the Officers' Plan become fully vested and exercisable
immediately prior to the change of control and terminate upon the change
of control.
Other Warrants - In connection with its organization, the Company issued
307,800 units consisting of one share of common stock and one warrant to
purchase one share of common stock at $3.75 per share. The warrants were
to expire on May 31, 1990. In addition, 30,780 warrants to purchase one
share of common stock at $1.50 per share were issued to Anthony Investment
Company, the Company's underwriters, for $100. These warrants were to
expire in January 1991. As of January 31, 1995, the expiration of the
warrants were extended to August 1, 1995 and all were exercisable.
7. BENEFIT PLAN
The Company has a tax savings plan (401-K) for the benefit of all
full-time employees. Participants contribute a percentage of their
compensation and the Company contributes a matching amount equal to 50% of
the participant's contribution up to a maximum of 4% of the participant's
compensation. Expenses related to this plan for the years ended January
31, 1995 and 1994 were $112,000 and $98,000 respectively.
8. MAJOR CUSTOMERS
The Company operates in one industry segment, that of providing medical
cost containment programs to employer groups represented by insurance
carriers and to self-insured organizations. As of January 31, 1995,
substantially all of the Company's accounts receivable were from customers
in such industry segment.
The Company has two major customers who accounted for revenues as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------------
Customer 1995 1994
----------- -----------
<S> <C> <C>
A $ 5,945,556 $ 6,509,400
B $ 2,525,345 $ 1,970,400
</TABLE>
F-15
<PAGE> 97
THE ADMAR GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
October 31, 1995 January 31,
(Unaudited) 1995
---------------- -----------
<S> <C> <C>
Current assets:
Cash $1,225 $ 315
Accounts receivable - trade, net of allowance
for doubtful accounts of $100,000 1,733 1,550
Income tax refund receivable -- 63
Notes receivable from related parties 76 76
Accounts receivable - other 28 69
Other current assets 377 351
------ ------
Total current assets 3,439 2,424
Property and equipment, net 988 1,130
Preopening costs - net of accumulated
amortization of $2,434,400 at October 31,
1995 and $2,263,700 at January 31, 1995 2,889 2,440
Costs in excess of net assets acquired,
net of accumulated amortization of
$839,300 at October 31, 1995 and $735,400
at January 31, 1995 2,306 2,410
Other assets 11 24
------ ------
Total assets $9,633 $8,428
====== ======
</TABLE>
SEE ACCOMPANYING NOTES.
F-16
<PAGE> 98
THE ADMAR GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, 1995 January 31,
(Unaudited) 1995
---------------- -----------
<S> <C> <C>
Current liabilities:
Note payable to bank $ 500 $ 475
Accounts payable 474 579
Accrued salaries and benefits 407 356
Other accrued liabilities 41 496
Income taxes payable 200 --
Current portion of long-term debt and
obligations under capital leases 433 446
------ ------
Total current liabilities 2,055 2,352
Deferred rent 90 179
Deferred income taxes 94 94
Note payable to stockholder 1,000 1,000
Long-term debt 1,370 237
Obligations under capital leases 105 79
Stockholders' equity:
Common stock, $.005 par value, 20,000,000
shares authorized; 8,762,602 issued
and outstanding at October 31, 1995 44 44
Paid-in capital 3,046 3,046
Retained earnings 1,829 1,397
------ ------
Total stockholders' equity 4,919 4,487
------ ------
Total liabilities and sockholders' equity $9,633 $8,428
====== ======
</TABLE>
SEE ACCOMPANYING NOTES
F-17
<PAGE> 99
THE ADMAR GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
----------------- -----------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 4,280 $ 4,183 $ 13,251 $ 12,818
Cost and expense
General, administration and selling 3,825 3,838 11,779 11,513
Depreciation and amortization 300 205 636 603
Interest expense 47 40 141 116
---------- ---------- ---------- ----------
Total costs and expenses 4,172 4,083 12,556 12,232
---------- ---------- ---------- ----------
Earnings before provision for income
taxes 108 100 695 586
Provision for income taxes 46 40 263 233
---------- ---------- ---------- ----------
Net income $ 62 $ 60 $ 432 $ 353
========== ========== ========== ==========
Per share information:
Net income per common share $ .007 $ .007 $ .049 $ .041
========== ========== ========== ==========
Weighted average number of common
shares outstanding 8,762,602 8,728,000 8,762,602 8,633,470
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
F-18
<PAGE> 100
THE ADMAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 432 $ 353
Adjustment to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 636 603
Changes in assets and liabilities:
Increase in accounts receivable - trade (183) (261)
Decrease (increase) in receivables - other 41 (12)
Decrease in income tax receivable 63 67
Increase in prepaid expenses (26) (112)
Decrease in accounts payable & accrued liabilities (509) (88)
Increase in unearned revenue -- 11
Decrease in deferred rent (89) (73)
Decrease (increase) in other assets 13 (1)
Increase in income tax payable 200 96
----- -----
Net cash flows from operating activities $ 578 $ 583
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to pre-opening $(620) $(826)
Purchase of property and equipment (219) (338)
Increase in Common Stock from sale of
stock -- 1
Increase in capital in excess of par value from
sale of stock -- 2 499
----- -----
Net cash flow (used by) from investing activities $(839) $(664)
----- -----
</TABLE>
SEE ACCOMPANYING NOTES
F-19
<PAGE> 101
THE ADMAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt $ (276) $ (233)
Proceeds from issuance of long-term debt 1,400 --
Principal payments of obligations under
capital leases (31) (54)
Proceeds from obligation under capitalized lease 53 --
Proceeds on note payable to bank 1,500 825
Principal payments of note payable to bank (1,475) (500)
------- -------
Net cash flows from financing activities 1,171 38
------- -------
Net increase (decrease) in cash 910 (43)
Cash at beginning of period 315 386
------- -------
Cash at end of period $ 1,225 $ 343
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid $ 96 $ 116
======= =======
Income taxes paid $ -- $ 70
======= =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
There were no dividends declared or unpaid for the nine month period ended
October 31, 1995 and October 31, 1994.
SEE ACCOMPANYING NOTES
F-20
<PAGE> 102
THE ADMAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(UNAUDITED)
1. BUSINESS
The Admar Group, Inc. ("Admar" or the "Company") develops, markets and
administers managed care products and services which facilitate the
delivery and manage the cost of health care services. Admar provides a
complete array of managed health care programs and services to insurance
companies, self-funded employers and health care providers.
Admar was one of the first Preferred Provider Organizations ("PPOs") in
the nation and provides managed health care delivery systems nationally
through customized programs, including extensive Preferred Provider and
Exclusive Provider organizations, complete Utilization Management
services, Catastrophic Case Management and Managed Care Administration
services for employers and insurance carriers.
Admar provides the following managed care programs and services:
EXCLUSIVE HEALTH is Admar's health maintenance organization ("HMO")
alternative program which provides self-funded employers and insurance
companies the ability to have the same cost-containment benefits and
features of HMO's while still offering the flexibility of self-funded
and insured health benefit plans. The program creates a financial and
quality care partnership between medical providers, patients and
insurors, all of whom have the incentive to work together to contain
medical costs while maintaining the quality of care.
MED NETWORK is Admar's hospital and physician PPO which was developed
in 1978. Med Network offers a comprehensive network consisting of
primary care physicians, specialists, hospitals and pharmacies. Admar
maintains and carefully selects health care providers in order for
network participants to receive the highest quality health care
programs available at the lowest cost.
MED$ELECT is a hospital-only PPO available in all of the Med Network
areas and in additional states. Med$elect enables employers and
patients to save on their health care costs when they access care at
contracted hospitals, regional medical centers and outpatient surgical
centers.
MED NETWORK EPO is Admar's national Exclusive Provider Organization
("EPO") which offers the same quality as Med Network PPO providers. Med
Network EPO maintains stronger health care cost-containment features
than a PPO due to aggressive utilization management controls, plan
design incentives and referrals to the most cost-effective network
providers and primary care physicians.
HEALTHWATCH MEDICAL REVIEW SYSTEM ("HealthWatch") is designed to ensure
that hospitalizations, the most expensive component of the nation's
health care budget, are prescribed and utilized appropriately without
compromising health care. Within the HealthWatch utilization management
system, medical/surgical, psychiatric, substance abuse, catastrophic
illnesses/diseases and maternity management are monitored beginning
with hospital pre-admission review through discharge and alternate site
planning. In addition, HealthWatch provides complete Ambulatory Care
Management, including authorization for all physician to physician
referrals and all high cost ancillary services.
F-21
<PAGE> 103
HEALTHWATCH ADVANTAGE is a program that provides cost savings
opportunities outside of the formalized preferred provider networks.
HealthWatch Advantage identifies surgical and hospitalization cases
which are being treated outside the employer's contracted PPO network
and negotiates with attending hospitals and physicians to reduce their
costs and defray some of the expenses associated with providing non-
contracted health care services.
Admar also operates a third party administrator in Boulder Colorado,
Benefit Plan Administrators, Inc., which provides medically managed
claims payment services to self-insured employers. The division also
provides all required medical benefits consulting.
2. RECENT DEVELOPMENTS
On February 1, 1995, Admar received a loan payable in the principal amount
of $400,000 from Principal Mutual Insurance Company ("Principal") in
connection with Principal's agreement to use Admar's Exclusive Health
product in the Southern California area. The loan accrues interest at the
rate of 9.25% and is due in September, 2002.
Admar reserved for the issuance of three hundred thousand (300,000) shares
of the Company's Common Stock in connection with the adoption of its
Employee Stock Purchase Plan ("ESPP") on May 15, 1995.
On October 27, 1995, Admar entered into an Agreement and Plan of Merger
providing for the acquisition of Admar by Principal Health Care, Inc.,
("PHC") a privately held managed health care company which is a member of
The Principal Financial Group. Pursuant to the Agreement and Plan of
Merger, a wholly owned subsidiary of PHC, Inc. will be merged with and
into Admar and Admar will survive the merger as a wholly-owned subsidiary
of PHC. If the merger is approved by the shareholders of Admar, each share
of Admar's Common Stock (other than shares as to which dissenters' rights
have been properly exercised) will be converted into the right to receive
$2.25 in cash, without interest.
On October 31, 1995, Admar received three loans payable totaling
$1,000,000 from Principal in connection with Principal's agreement to use
Admar's Exclusive Health product in networks to be developed in Central
and Northern California and also in parts of Arizona.
3. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of
the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Form
10-KSB for the year ended January 31, 1995. The accompanying financial
statements have not been examined by independent accountants in accordance
with generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the nine months ended October 31, 1995 may not be
indicative of the results that may be expected for the year ending January
31, 1996.
4. PRE-OPENING COSTS
Costs relating to the development of medical networks are deferred and
amortized on a straight-line-basis over three years. Amortization
commences as the revenues from the networks are recognized. Costs
aggregating $620,000 have been capitalized for the nine month period
ending October 31, 1995 compared to $826,000 being capitalized for period
ending October 31, 1994.
F-22
<PAGE> 104
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PRINCIPAL HEALTH CARE, INC.,
PHC MERGING COMPANY
AND
THE ADMAR GROUP, INC.
-------------------------------------------------------
OCTOBER 27, 1995
-------------------------------------------------------
<PAGE> 105
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER.................................................. 1
1.1 Effective Time of the Merger........................................ 1
1.2 Closing............................................................. 2
1.3 Effects of the Merger............................................... 2
1.4 Effect on Capital Stock............................................. 3
1.5 Exchange of Certificates............................................ 4
1.6 No Further Ownership Rights in Common Stock......................... 5
1.7 Transfer Taxes...................................................... 5
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF THE COMPANY............................................... 6
2.1 Organization, Standing and Power.................................... 7
2.2 Subsidiaries........................................................ 7
2.3 No Breach........................................................... 7
2.4 Title to Properties................................................. 8
2.5 Governmental Authorization and Compliance with Laws................. 9
2.6 Leasehold Interests................................................. 10
2.7 Accounts Receivable................................................. 11
2.8 Capital Structure................................................... 11
2.9 Authority........................................................... 12
2.10 No Consents......................................................... 12
2.11 SEC Documents....................................................... 13
2.12 Information Supplied................................................ 14
2.13 Absence of Changes.................................................. 14
2.14 Trademarks, Patents and Other Rights................................ 16
2.15 Proprietary Information of Third Parties............................ 17
2.16 Actions and Proceedings............................................. 18
2.17 Tax Matters......................................................... 18
2.18 Employee Compensation............................................... 19
2.19 Insurance........................................................... 20
2.20 Provider Relationships, Contracts and Agreements.................... 20
2.21 Conflicts of Interest............................................... 21
2.22 Medicare/Medicaid................................................... 22
2.23 Activities of Providers............................................. 22
2.24 Employee Benefits................................................... 22
2.25 Construction in Progress............................................ 26
2.26 No Liability For The Cost of Health Care Services................... 26
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION SUB................................ 26
3.1 Organization, Standing and Power.................................... 26
3.2 Authority........................................................... 27
3.3 No Breach........................................................... 27
</TABLE>
i.
<PAGE> 106
<TABLE>
<CAPTION>
<S> <C>
3.4 No Consent.......................................................... 28
3.5 Information Supplied................................................ 28
3.6 Company Common Stock................................................ 28
3.7 Financing........................................................... 28
ARTICLE IV COVENANTS.................................................... 29
4.1 Covenants of the Company............................................ 29
(a) Ordinary Course............................................ 29
(b) Dividends; Changes in Stock................................ 29
(c) Issuance of Securities..................................... 29
(d) Governing Documents........................................ 30
(e) No Other Bids.............................................. 30
(f) No Acquisitions............................................ 31
(g) No Dispositions............................................ 31
(h) Indebtedness............................................... 31
(i) Benefit Plans, Etc......................................... 31
(j) Employee Compensation...................................... 32
(k) Lease Obligations.......................................... 32
(l) Litigation................................................. 32
(m) Provider and Payor/Customer Arrangements................... 32
(n) Other Actions.............................................. 32
(o) Legal Fee Billing Reports.................................. 33
(p) Business Activity Involving Certain Provider
Contracts.................................................. 33
4.2 Covenants of Parent and Acquisition Sub............................. 33
ARTICLE V ADDITIONAL AGREEMENTS........................................ 35
5.1 Preparation of Proxy Statement...................................... 35
5.2 Shareholder Approval................................................ 36
5.3 Legal Conditions to Merger.......................................... 36
5.4 Options, Warrants................................................... 37
5.5 Break-Up Fee; Fees and Expenses..................................... 38
5.6 Brokers or Finders.................................................. 39
5.7 Access to Information............................................... 39
5.8 Additional Agreements............................................... 40
5.9 Solicitation and Hiring Employees of the Company.................... 40
5.10 Directors and Officers Liability Insurance.......................... 41
ARTICLE VI CONDITIONS PRECEDENT......................................... 41
6.1 Conditions to Each Party's Obligation to Effect the Merger.......... 41
(a) Shareholder Approval....................................... 41
(b) Hart-Scott-Rodino Act...................................... 41
(c) Other Approvals............................................ 41
(d) No Injunctions or Restraints............................... 42
6.2 Conditions to Obligation of Parent and Acquisition
Sub to Effect the Merger............................................ 42
</TABLE>
ii.
<PAGE> 107
<TABLE>
<CAPTION>
<S> <C>
(a) Representations and Warranties and Performance
of Agreements.............................................. 42
(b) Officers' Certificate...................................... 44
(c) Secretary's Certificate.................................... 45
(d) Consents................................................... 45
(e) Opinion of Counsel for the Company......................... 45
(f) Additional Certificates and Documents...................... 46
(g) Resignations............................................... 46
(h) Limited Dissenting Shares.................................. 46
(i) Employment Agreement....................................... 47
(j) Escrow Agreements.......................................... 47
(k) Surrender of Options and Warrants.......................... 47
(l) Waiver of Humana Right of First Refusal and
Surrender of Warrants...................................... 47
(m) Receipt of Interim Financial Statements.................... 47
(n) Absence of Certain Changes................................. 47
(o) No Acquisitions............................................ 48
(p) DISCorp License............................................ 48
(q) Sunwest Waiver............................................. 48
(r) Amended Provider Contracts................................. 49
(s) Release of Security Interest in Image Financial............ 49
(t) Florida Qualification...................................... 49
(u) Louisiana Qualification.................................... 49
6.3 Conditions to Obligation of the Company to Effect
the Merger.......................................................... 49
(a) Representations and Warranties and Performance
of Agreements.............................................. 50
(b) Officers' Certificate...................................... 50
(c) Secretary's Certificate.................................... 50
(d) Additional Certificates and Documents...................... 50
(e) Opinion of Counsel for Parent and Acquisition
Sub........................................................ 51
(f) Ancillary Agreements....................................... 51
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................ 52
7.1 Termination......................................................... 52
7.2 Effect of Termination............................................... 52
7.3 Amendment........................................................... 53
7.4 Extension; Waiver................................................... 53
7.5 Procedure for Termination, Amendment, Extension or
Waiver.............................................................. 53
ARTICLE VIII GENERAL PROVISIONS........................................... 54
8.1 Nonsurvival of Representations, Warranties and
Agreements.......................................................... 54
8.2 Notices............................................................. 54
8.3 Interpretation...................................................... 55
</TABLE>
iii.
<PAGE> 108
<TABLE>
<CAPTION>
<S> <C>
8.4 Counterparts........................................................ 55
8.5 Entire Agreement; No Third Party Beneficiaries...................... 55
8.6 Governing Law....................................................... 55
8.7 Publicity........................................................... 55
8.8 Assignment.......................................................... 56
8.9 Gross Adverse Effect................................................ 56
8.10 Knowledge of the Company............................................ 56
</TABLE>
SCHEDULE OF EXHIBITS
A-1 ESCROW AGREEMENT I
A-2 ESCROW AGREEMENT II
B MANAGEMENT LEVEL EMPLOYEES
C EMPLOYMENT AGREEMENT (RICHARD TORAL)
D-1 OPINION (COOLEY GODWARD)
D-2 OPINION (GREENBERG TRAURIG)
E OPINION (ROBERT MRIZEK)
iv.
<PAGE> 109
LIST OF DISCLOSURE SCHEDULES
<TABLE>
<CAPTION>
Schedule Title
- -------- -----
<S> <C>
2.1 Organization, Standing and Power
2.2 Subsidiaries
2.3 No Breach
2.4 Title to Properties
2.5 Governmental Authorization and Compliance with Laws
2.6 Leasehold Interest
2.7 Accounts Receivable
2.8 Capital Structure
2.10 No Consents
2.13 Absence of Changes
2.14 Summary of Intellectual Properties
2.15 Proprietary Information of Third Parties
2.16 Actions and Proceedings
2.17 Taxes
2.18 Employee Compensation (with Annual Salary over $50,000)
2.19 Insurance
2.20(A) Provider Relationships
2.20(B) List of Contracts and Agreements
2.20(C) Contracts and Agreements
2.21 Conflicts of Interest
2.24 Employee Benefits
2.26 No Liability for the Cost of Health Care Services
</TABLE>
v.
<PAGE> 110
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of October 27,
1995, among PRINCIPAL HEALTH CARE, INC., an Iowa corporation ("PARENT"), PHC
MERGING COMPANY, a Florida corporation ("ACQUISITION SUB") and THE ADMAR GROUP,
INC., a Florida corporation (the "COMPANY").
R E C I T A L
WHEREAS, the Boards of Directors of Parent, Acquisition Sub and the
Company have approved the merger of Acquisition Sub with and into the Company
(the "MERGER"), on the terms and conditions of this Agreement.
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. The Merger shall become effective
upon the filing of articles of merger of Acquisition Sub and the Company (the
"ARTICLES OF MERGER") with the Department of State of the State of Florida (the
"EFFECTIVE TIME"). Acquisition Sub and the Company shall execute, and if
necessary re-execute, the Articles of Merger (which shall be in form and
substance reflective of the terms of this Agreement and reasonably acceptable to
the Company, Parent and Acquisition Sub and approved by the Company's Florida
counsel as consistent with the opinion set forth in Section 6.2(e)) and such
other certificates and documents as are necessary to effect the filing of the
Articles of Merger with the Department
<PAGE> 111
of State of Florida. Promptly after the Closing described in Section 1.2, Parent
and Acquisition Sub shall cause the Articles of Merger to be filed with the
Department of State of Florida as provided in Section 607.1105 of the Florida
1989 Business Corporation Act.
1.2 Closing. The closing of the Merger (the "CLOSING") shall take
place at 10:00 a.m. on the second business day after the date on which all of
the conditions set forth in Sections 6.1, 6.2 and 6.3 shall have been satisfied
or waived, at the offices of Epstein Becker & Green, P.C., 1227 25th Street,
N.W., Washington, D.C. 20037, or at such other place and time or on such other
date, as the parties shall mutually agree in writing (the "CLOSING DATE").
Subject to the provisions of Article VII hereof, the failure to consummate the
transactions contemplated hereby on the dates and times or at the places
indicated in this Section 1.2 will not result in the termination of this
Agreement and will not relieve any party of any of its obligations hereunder.
1.3 Effects of the Merger.
(a) At the Effective Time, (i) Acquisition Sub shall be merged
with and into the Company (which shall hereinafter sometimes be referred to as
the "SURVIVING CORPORATION"), with the Articles of Incorporation of Acquisition
Sub becoming the Articles of Incorporation of the Surviving Corporation, amended
to provide that Article First shall read in its entirety, "FIRST: The name of
the corporation is The Admar Group, Inc.," (ii) the By-Laws of Acquisition Sub
in effect immediately before the Effective Time shall be the By-Laws of the
Surviving Corporation and (iii) the directors and officers of Acquisition Sub
holding such positions immediately before the Effective Time shall be the
directors and officers of the Surviving Corporation.
(b) From and after the Effective Time, the Merger shall have all
the effects provided by applicable law.
2.
<PAGE> 112
1.4 Effect on Capital Stock. (a) At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Common Stock, $.005 par value, of the Company ("COMMON STOCK"),
(i) each share of Common Stock owned directly or indirectly
by Parent or the Company or by any subsidiary of Parent (including Acquisition
Sub) or the Company shall be canceled and no consideration shall be paid for
such Common Stock;
(ii) each issued and outstanding share of the capital stock
of Acquisition Sub shall be converted into one fully paid and nonassessable
share of the same class and series of capital stock of the Surviving
Corporation; and
(iii) subject to Sections 1.4(b) and 1.4(c), each issued and
outstanding share of Common Stock (other than shares to be canceled or issued in
accordance with Sections 1.4(a)(i)or 1.4(a)(ii)) shall be converted into the
right to receive $2.25 per share in cash, in immediately available funds,
without interest.
(b) If, between the date of this Agreement and the Effective
Time, the outstanding shares of Common Stock shall be changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a dividend on the Common Stock shall be declared and payable in Common Stock,
the conversion ratio of Section 1.4(a)(iii) shall be correspondingly adjusted.
(c) Any issued and outstanding shares of Common Stock held by a
shareholder of the Company who duly objects to the Merger and demands payment of
the fair value of his Common Stock and otherwise duly perfects his dissenters'
rights under Section 607.1320 of the 1989 Florida Business Corporation Law or
Chapter 13 under the California General Corporation Law (a "DISSENTING
SHAREHOLDER") shall not be converted as described in Section 2.4(a)(iii) but
shall become the right to receive such consideration as may be determined
3.
<PAGE> 113
to be due to such Dissenting Shareholder pursuant to the laws of the State of
Florida or California. If a Dissenting Shareholder shall, after the Effective
Time, withdraw his demand for appraisal or lose his right of appraisal, his
shares of Common Stock shall be converted, as of the Effective Time, into the
right to receive the amount specified in Section 1.4(a)(iii).
1.5 Exchange of Certificates. At the Closing, Parent shall enter into
an agreement, in form and substance reasonably acceptable to Parent and the
Company (the "PAYING AGENT AGREEMENT"), with a paying agent reasonably
acceptable to the Company (the "PAYING AGENT"). As soon as practicable after the
Effective Time, the Surviving Corporation shall mail to each holder of record of
Common Stock other than the Company, Parent and any subsidiary of the Company or
Parent, including Acquisition Sub, (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates representing such holder's Common Stock (the "CERTIFICATES") shall
pass, only upon delivery of the Certificates to the Paying Agent, which letter
of transmittal shall be in such form and have such other provisions as shall be
required for the surrender of the Certificates in exchange for the amount of
cash specified in Section 1.4(a)(iii). Upon surrender of a Certificate(s) for
cancellation to the Surviving Corporation or the Paying Agent, together with
such letter of transmittal, duly executed, and/or such other documents as may be
required by the Paying Agent, the holder of such Certificate(s) shall be
entitled to receive in exchange the amount of cash into which the shares of
Common Stock theretofore represented by the Certificate(s) shall have been
converted, and the Certificate(s) so surrendered shall be canceled. No interest
will be paid or will accrue on the cash payable upon surrender of any
Certificate(s). If a transfer of ownership of Common Stock is not registered in
the transfer records of the Company, payment of the proper amount of cash may be
issued to a transferee if the Certificate(s) representing such Common Stock is
presented to the Paying Agent, accompanied by all
4.
<PAGE> 114
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section, each Certificate shall at any time after the
Effective Time represent only the right to receive upon such surrender the
amount of cash specified in Section 1.4(a)(iii). Any funds deposited with the
Paying Agent that remain unclaimed by the former shareholders of the Company one
year after the Effective Time shall be paid to the Surviving Corporation upon
demand to be held for the benefit of the former shareholders of the Company
until they surrender their respective certificates in accordance with this
Section 1.5, or until such funds shall otherwise escheat pursuant to applicable
laws, whichever shall first occur.
1.6 No Further Ownership Rights in Common Stock. After the Effective
Time, the shareholders of the Company shall cease to have any further rights as
holders of such shares of Common Stock, other than the right to payment from the
Paying Agent pursuant to the terms of this Agreement upon the surrender of their
Certificate(s). There shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Common Stock which
were outstanding immediately prior to the Effective Time.
1.7 Transfer Taxes. At the Effective Time, any transfer taxes, stamp
duties, filing fees, registration fees, recordation expenses, escrow fees or
other similar taxes, fees, charges or expenses, related to the securities of the
Company and incurred by the Company or its shareholders and necessary to effect
the Merger shall be borne and paid exclusively by Parent, except as otherwise
provided by the escrow agreements annexed hereto as Exhibits A-1 and A-2
("ESCROW AGREEMENT I" and "ESCROW AGREEMENT II", respectively, or the "ESCROW
AGREEMENTS", collectively) or the Paying Agent Agreement.
ARTICLE II
5.
<PAGE> 115
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to Section 6.2(a) of this Agreement, the following enumerated
provisions of this Article II constitute representations and warranties made by
the Company to Parent and Acquisition Sub, as modified by the documents
delivered contemporaneously herewith, each of which is initialed and dated by
the representatives of Parent and Acquisition Sub executing this Agreement, and
each of which is labelled as a "Schedule" which is further identified by a
number corresponding to the section number of the representation and warranty it
is intended to modify (the "COMPANY SCHEDULES(S)"). Company Schedules initialled
and dated as of the date of this Agreement (the "ORIGINAL SCHEDULES"), may be
amended, and additional Schedules incorporated in this Agreement as Company
Schedules (all such amendments and additional Company Schedules to be
hereinafter referred to as "SUBSEQUENT COMPANY SCHEDULES"), only by the written
consent of Parent and Acquisition Sub. Parent and Acquisition Sub agree to give
such written consent, provided that the Closing Date shall be delayed for such
time as may be requested by Parent to allow Parent and Acquisition Sub a
reasonable period of time before the Closing in which to evaluate the effect of
the proposed Subsequent Company Schedules and their compliance with Section
6.2(a), below, and provided further that no proposed Subsequent Company
Schedule, individually, or when aggregated with all previously adopted
Subsequent Company Schedules, if treated as inaccuracies or omissions in the
Company's representations and warranties, as modified by the Original Company
Schedules, would result in a breach under Section 6.2(a). Unless the
representations and warranties of the Company which are set forth below
expressly provide to the contrary, they shall be deemed given as of the date of
this Agreement.
6.
<PAGE> 116
2.1 Organization, Standing and Power. Each of the Company and its
Subsidiaries (as defined in Section 2.2 hereof) (a) is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, has all requisite power and authority under corporate law to own,
lease and operate its properties and to carry on its business as now being
conducted, and (b) is duly qualified and in good standing in each and every
jurisdiction in which the operation of its business or the ownership or leasing
of its properties makes such qualification necessary, and (c) has delivered to
Parent and Acquisition Sub complete and correct copies of the Articles of
Incorporation and By-Laws of the Company and each of its Subsidiaries as amended
to the date hereof, and (d) conducts its business(es) only within states of the
United States of America.
2.2 Subsidiaries. Schedule 2.2 identifies each subsidiary of the
Company, its State of incorporation, the States in which it is qualified to do
business as a foreign corporation and the percentage ownership by the Company
thereof (each a "SUBSIDIARY" and together, the "SUBSIDIARIES") and, except as
set forth in Schedule 2.2, neither the Company nor any Subsidiary (i) owns of
record or beneficially, directly or indirectly, any shares of capital stock or
securities convertible into capital stock of any other corporation or any
participating interest in any partnership, joint venture or other business
enterprise; or (ii) controls, directly or indirectly, any other entity.
2.3 No Breach. Except as set forth on Schedule 2.3, the execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, (i)
violate any provision of the Articles of Incorporation or by-laws of the Company
or any Subsidiary; (ii) violate, conflict with or result in the breach or
termination of, or constitute an amendment to, or otherwise give any person or
entity the right to terminate, or constitute (or with due notice or lapse of
time or both
7.
<PAGE> 117
would constitute) a default (by way of substitution, novation or otherwise)
under the terms of, any contract, mortgage, lease, bond, indenture, agreement,
franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
respective assets or properties are bound or affected; (iii) result in the
creation of any lien, mortgage, claim, charge, security interest, encumbrance,
restriction or limitation upon the properties or assets of the Company or any
Subsidiary pursuant to the terms of any contract, mortgage, lease, bond,
indenture, agreement, franchise or other instrument or obligation; (iv) violate
any judgment, order, injunction, decree or award of any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign (a "GOVERNMENTAL ENTITY"), or any arbitrator, against, or
binding upon, the Company; (v) constitute a violation by the Company or any
Subsidiary of any statute, law, rule or regulation of any jurisdiction as such
statute, law, rule or regulation relates to the Company or any Subsidiary or any
of their respective securities, properties, assets or business or to any of
their respective securities, properties, assets or businesses; or (vi) violate
any Permit (as defined in Section 2.5).
2.4 Title to Properties. The Company and its Subsidiaries have good
and marketable title to their respective properties and assets reflected as
owned by them on the unaudited consolidated financial statements included in the
Company's Form 10-QSB for the quarter ended July 31, 1995 (the "SECOND QUARTER
10-QSB") or acquired since the date of such financial statements (other than
properties and assets disposed of in the ordinary course of business since the
date of such financial statements and individually having a value or sales price
of less than $25,000), and all such properties and assets are free and clear of
any and all liens, mortgages, claims, charges, security interests or other
encumbrances, except for liens reflected in the Second Quarter 10-QSB and liens
for current taxes not yet due and payable (collectively,
8.
<PAGE> 118
"LIENS"). Schedule 2.4 sets forth a list of all items of real and personal
property owned by the Company and each Subsidiary having a net book value of
Twenty-Five Thousand Dollars ($25,000) or more.
2.5 Governmental Authorization and Compliance with Laws. Except as set
forth in Schedule 2.5, to the Company's knowledge the businesses of the Company
and its Subsidiaries have been operated in compliance with all laws, ordinances,
regulations and orders of all Governmental Entities, including without
limitation, state insurance and other laws regulating preferred provider
organizations and third party administrators. Except as set forth in Schedule
2.5, to the Company's knowledge the Company and its Subsidiaries have all
permits, certificates, licenses, approvals and other authorizations necessary
for the operation of their businesses as currently conducted (collectively,
"PERMITS"), all of which are listed on Schedule 2.5, including without
limitation, Permits required under state insurance and other laws regulating
exclusive provider organizations, preferred provider organizations, medical
utilization review organizations, third party administrators, insurance
agencies, brokers and telemarketers, and no notice has been received, no
investigation or review is pending and, to the knowledge of the Company, no
investigation or review is threatened explicitly by any Governmental Entity (i)
with respect to any alleged violation by the Company or any of its Subsidiaries
of any law, ordinance, regulation, order, published policy or guideline of any
Governmental Entity, or (ii) with respect to any alleged failure to have all
Permits. Except as set forth in Schedule 2.5 hereto, no proceeding is pending
or, to the Company's knowledge, threatened explicitly, which can be reasonably
expected to result in a suspension, revocation or denial to renew any Permit. To
the Company's knowledge, all of the outstanding shares of the Company and its
Subsidiaries have been issued in compliance with the registration requirements
(or exemptions therefrom) of the Securities Act of 1933, as amended, and all
applicable state securities laws. The parties
9.
<PAGE> 119
hereto agree that should Parent learn of and inform any of the Management Level
Employees of the Company identified in Exhibit B, prior to the Effective Time,
of a fact previously not known by the Company and relevant to this
representation and warranty, the Company shall be deemed to have knowledge of
such fact for purposes of this representation and warranty as of the date it was
so informed by Parent. Should a Governmental Entity, prior to the Effective
Time, explicitly assert to the Company or any Subsidiary that an act or omission
has occurred, or a fact exists, which would otherwise constitute a breach of
this representation and warranty, then the Company shall be deemed to have
knowledge thereof for purposes of this Section 2.5 as of the time of such
notification. Should the Company acquire knowledge from any third party source,
regarding information that is relevant to the accuracy of this representation
and warranty, then the Company shall be deemed to have knowledge of such
information for purposes of this Section 2.5 as of the date of such receipt.
With respect to matters as to which the Company obtains knowledge (as the
Company's knowledge is defined in Section 8.10, below) subsequent to the date of
this Agreement and prior to the Effective Time, as described above, application
of the knowledge standard in this Section 2.5 is not intended to give the
Company a defense against a claim of breach hereof merely because the Company
did not have such knowledge at the time of this Agreement's execution.
2.6 Leasehold Interests. Schedule 2.6 sets forth a list identifying
all real and personal property leased by the Company and each Subsidiary. Each
lease or agreement to which the Company or any Subsidiary is a party under
which it is a lessee of any property, real or personal, is a valid and
subsisting agreement without any default of the Company or any Subsidiary and,
to the knowledge of the Company, without any default thereunder of any other
party thereto. No event has occurred and is continuing which, with due notice
or lapse of time or both, would constitute a default or event of default by the
Company or any Subsidiary under
10.
<PAGE> 120
any such lease or agreement or, to the knowledge of the Company, by any other
party thereto. The possession by the Company or its Subsidiaries of such
property is not being disturbed and no claim is being asserted against the
Company or any Subsidiary adverse to their respective rights in such leasehold
interests.
2.7 Accounts Receivable. The accounts receivable of the Company
reflected on its consolidated balance sheet dated July 31, 1995 set forth in the
Second Quarter 10-QSB are actual and bona fide accounts receivable which arose
in the ordinary and usual course of the business of the Company and its
Subsidiaries, and represent valid obligations due to the Company and its
Subsidiaries.
2.8 Capital Structure. The authorized capital stock of the Company
consists solely of 20,000,000 shares of Common Stock. At the close of business
two (2) business days preceding the date of this Agreement, 8,762,602 shares of
Common Stock were outstanding (exclusive of treasury shares), and there were no
other shares of capital stock or any bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which the Company's
shareholders may vote ("VOTING DEBT") issued or outstanding. All outstanding
shares of Common Stock are validly issued, fully paid and nonassessable and free
of preemptive rights. Except for (i) employee stock options to purchase 436,136
shares of Common Stock, (ii) warrants to purchase 1,300,000 shares of Common
Stock held by Humana Inc. and expiring ratably from December 17, 1995 through
December 17, 1996, (iii) warrants to purchase 338,580 shares of Common Stock
held by persons or entities other than Humana Inc., (iv) Humana Inc.'s right of
first refusal to purchase 3,181,986 shares of Common Stock held by Richard H.
Toral (the "RIGHT OF FIRST REFUSAL") and (v) the outstanding rights to purchase
Common Stock under the Company's Employee Stock Purchase Plan, there are no
options, warrants, calls, rights, commitments of agreements of any character to
which the Company or any Subsidiary is a party
11.
<PAGE> 121
or by which it is bound obligating the Company or any Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or any Voting Debt of the Company or of any Subsidiary obligating
the Company or any Subsidiary to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Schedule 2.8 sets forth a true
and complete list, as of the date immediately preceding the date of this
Agreement, of the holders of outstanding options or warrants (exclusive of
publicly traded options or warrants), together with the exercise prices and
expiration dates thereof. The outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid, nonassessable and free of preemptive
rights and are owned by the Company free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever. No shares of Common Stock or warrants or options to purchase Common
Stock are in escrow or held as security for any obligation of the Company or, to
the Company's knowledge, any beneficial owner thereof.
2.9 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of this
Agreement by the shareholders of the Company, to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, subject to such approval by the shareholders of the Company,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought.
2.10 No Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect
12.
<PAGE> 122
to the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except for (i) the filing of a proxy
statement with the Securities and Exchange Commission (the "SEC") in connection
with the Merger and (ii) the consents and/or filings set forth on Schedule 2.10.
2.11 SEC Documents. The Company has furnished Parent and Acquisition
Sub with a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by the Company with the SEC since
February 1, 1994 (the "SEC DOCUMENTS"), which are all the documents (other than
preliminary materials) that the Company was required to file with the SEC since
that date. The SEC Documents, as of their respective dates, complied in all
material respects with the applicable requirements of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT") and the rules and regulations of
the SEC thereunder and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of the unaudited
statements, for the absence of notes thereto or as permitted by Form 10-QSB of
the SEC) and fairly present (subject, in the case of the unaudited statements,
to normal, recurring audit adjustments) the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. The Company has not
received any management letters or draft
13.
<PAGE> 123
management letters from its independent accountants regarding the internal
operations of the Company with respect to any fiscal year since 1990.
2.12 Information Supplied. None of the information supplied by the
Company for inclusion in the proxy statement to its shareholders for the
adoption of the Merger (the "PROXY STATEMENT") will, at the date such
information is filed with the SEC or mailed to holders of Common Stock or at the
time of the shareholder vote on the Merger or at the Effective Time, contain any
untrue statement of a material fact, and the Proxy Statement will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder, and shall otherwise comply with all applicable federal and state
law.
2.13 Absence of Changes. Except as set forth on Schedule 2.13, since
the date of the financial statements contained in the Second Quarter 10-QSB, (i)
no customer or payor agreements have terminated or failed to renew, nor has any
explicit notice been received by the Company or given by the Company that
terminations or failures to renew will occur, which, singly or in the aggregate,
have, had or can reasonably be expected to have, the effect of causing any
single month's revenues of the Company and its Subsidiaries, taken as a whole,
to decline five percent (5%) or more below the average monthly revenue reflected
in the Second Quarter 10-QSB; (ii) neither within any of the counties of San
Diego, Los Angeles or Orange of the State of California, nor within the
aggregate of the remaining jurisdictions in which the Company or its
Subsidiaries do business, has the Company's and its Subsidiaries', taken as a
whole, roster of participating primary care physicians decreased by five percent
(5%) or more, or by any number of primary care physicians who singly or in the
aggregate generated more than five
14.
<PAGE> 124
percent (5%) of the dollar amount of claims submitted by all participating
primary care physicians within the applicable area during the first two quarters
of the Company's current fiscal year, nor has the Company or any Subsidiary
received explicit notice that either of such decreases is likely to occur; (iii)
neither within any of the counties of San Diego, Los Angeles or Orange of the
State of California, nor within the aggregate of the remaining jurisdictions in
which the Company or its Subsidiaries do business, has the Company's and its
Subsidiaries', taken as a whole, roster of participating specialists decreased
by ten percent (10%) or more, or by any number of specialist physicians who
singly or in the aggregate generated more than ten percent (10%) of the dollar
amount of claims submitted by all participating specialist physicians within the
applicable area during the first two quarters of the Company's current fiscal
year, nor has the Company or any Subsidiary received explicit notice that either
of such decreases is likely to occur; (iv) neither within any of the counties of
San Diego, Los Angeles or Orange of the State of California, nor within the
aggregate of the remaining jurisdictions in which the Company or its
Subsidiaries do business, has the Company's and its Subsidiaries', taken as a
whole, roster of participating hospitals decreased by any number of hospitals
which singly or in the aggregate generated more than five percent (5%) of the
dollar amount of claims submitted by all participating hospitals within the
applicable area during the first two quarters of the Company's current fiscal
year, nor has the Company or any Subsidiary received explicit notice that any
such decrease is likely to occur; and (v) none of the Company's or any
Subsidiary's provider contracts ("PROVIDER CONTRACTS") have been amended except
consistent with past practices and in the ordinary course of business. For the
purposes of this Agreement, the term "Provider Contracts" shall mean any and all
agreements, including oral agreements known to the Company, by and between the
Company or any Subsidiary and health care providers, including, but not limited
to, physicians, hospitals, professional corporations, independent
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practice associations, medical groups, preferred provider organizations,
physician-hospital organizations or provider networks, by which such health care
providers agree to provide their services at negotiated rates to the Company's
or any of its Subsidiary's customers or customer's covered individuals. The
Company may avoid a breach under items (ii) through (iv), above, by
demonstrating to the reasonable satisfaction of Parent that the loss of primary
care physicians, specialist physicians or hospitals surpassing the limits set
forth above have been offset by the addition of like providers who will, on
terms equally advantageous to the Company or its Subsidiaries, serve the same
geographic areas and population as the terminated providers and are reasonably
likely to produce substantially the same dollar value of claims as those
produced by the terminated providers.
2.14 Trademarks, Patents and Other Rights. Neither the Company nor any
of its Subsidiaries owns any patents or patent applications. Schedule 2.14 sets
forth a list of all trademarks, trademark applications, service marks, service
mark applications, trade names and copyrights, and all applications for such
which are in the process of being prepared, are owned by, or are registered in
the name of the Company and each Subsidiary, or of which the Company or any
Subsidiary is a licensor or licensee (except for "off-the-shelf" computer
software available at retail consumer stores), or in which the Company or any
Subsidiary has any right, and in each case a brief description of the nature of
such right. The Company and each Subsidiary owns or possesses adequate licenses
or other rights to use all trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, trade secrets, and know how
necessary to the conduct of their respective businesses as currently conducted
(collectively, "INTELLECTUAL PROPERTY"). No claim is pending or, to the
Company's knowledge, threatened explicitly, to the effect that the operations of
the Company or any Subsidiary infringe upon or conflict with the asserted rights
of any other person under any
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Intellectual Property, and, to the Company's knowledge, there is no basis for
any such claim (whether or not pending or threatened). To the knowledge of the
Company, there is no infringement by others of the Intellectual Property of the
Company or any Subsidiary. No claim is pending or, to the Company's knowledge,
threatened, to the effect that any such Intellectual Property owned or licensed
by the Company or any Subsidiary or which the Company or any Subsidiary
otherwise has the right to use, is invalid or unenforceable by the Company or
any Subsidiary, and the Company knows of no basis for any such claim (whether or
not pending or threatened). Neither the Company nor any Subsidiary has granted
or assigned to any other person or entity any right to sell or produce the
products or proposed products or provide the services or proposed services of
the Company or any Subsidiary. No officer, director, shareholder, or employee of
the Company or any Subsidiary has an ownership interest in any of the trademarks
or other rights set forth in Schedule 2.14.
2.15 Proprietary Information of Third Parties. To the Company's
knowledge, no third party has claimed or has any reason to claim that any person
employed by or serving as a consultant to the Company or any Subsidiary has: (i)
violated or is violating any of the terms or conditions of his or her
employment, non-competition, or non-disclosure agreement with such third party;
(ii) disclosed or is disclosing or utilized or is utilizing any trade secret or
proprietary information or documentation of such third party; or (iii)
interfered or is interfering in the employment relationship between such third
party and any of its current or former employees. To the Company's knowledge, no
third party has stated explicitly to the Company or any Subsidiary that such a
claim is being contemplated. To the Company's knowledge, no person employed by
or serving as a consultant to the Company or any Subsidiary has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, client, or other person to whom he/she owed
a duty of confidentiality, in
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connection with the development or sale of any product or proposed product or
the development or sale of any service or proposed service of the Company or any
Subsidiary.
2.16 Actions and Proceedings. Except as provided on Schedule 2.16,
there are no claims, actions, suits, arbitrations, proceedings, investigations
or inquiries, whether at law or in equity and whether or not before any
Governmental Entity or arbitrator (collectively, "ACTIONS"), pending or, to the
knowledge of the Company, threatened explicitly against, the Company or any
Subsidiary or any of their respective officers, directors or employees in
connection with their acts or omissions as employees, directors or officers,
whether or not fully or partially covered by insurance, or which would give any
person a right to indemnification by the Company or any Subsidiary, and there
are no outstanding orders, writs, injunctions, awards, sentences or decrees of
any Governmental Entity or arbitrator against the Company or any Subsidiary.
Except as set forth on Schedule 2.16, there is no action or suit by the Company
or any Subsidiary pending or contemplated against others. Other than as they
relate to explicit threats that derive from customer complaints that were, at
the time, subject only to the Company's or Subsidiaries' internal review and
resolution process, the representations and warranties of this Section 2.16 are
given as of July 31, 1995 and as of the date of this Agreement.
2.17 Tax Matters. The Company and each Subsidiary have timely filed
all federal, state, county and local tax returns, estimates and reports
(collectively, "RETURNS") required to be filed by them through the date hereof,
copies of which have been delivered to Parent, which Returns accurately reflect
the taxes the Company, based upon the advice of its tax experts, believes to
have been due for the periods indicated, and have paid in full all income, gross
receipts, value added, excise, property, franchise, sales, use, employment,
payroll and other taxes of any kind whatsoever (collectively, "TAXES") shown to
be due by such Returns,
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or adequate reserves have been established with respect to any liabilities for
Taxes accrued through July 31, 1995 and are reflected on the Company's unaudited
consolidated balance sheet contained in the Second Quarter 10-QSB. The Company
has no knowledge of any deficiency for Taxes proposed or threatened against the
Company or any Subsidiary, and no taxing authority has raised any issue in
writing with respect to the Company or any Subsidiary which, if adversely
determined, would result in a liability for any Tax which has not been reserved
against on the balance sheet contained in the Second Quarter 10-QSB for 1995.
There are not in force any extensions with respect to the dates on which any
Return was or is due to be filed by the Company or any Subsidiary or any waivers
or agreements by the Company or any Subsidiary for the extension of time for the
assessment or payment of any Taxes. Neither the Company nor any Subsidiary is
currently being audited by any federal, state or local tax authority. The
representations and warranties of this Section 2.17 are given as of July 31,
1995 and as of the date of this Agreement.
2.18 Employee Compensation. Schedule 2.18 lists all employees of the
Company and each Subsidiary who receive an annual salary of $50,000 or more,
setting forth their respective titles and/or job classifications, salaries,
deferred or bonus compensation arrangements, employee benefit plan enrollments,
whether they are employed under contract or at will, and listing all employment
contracts, including all oral employment contracts known to the Company,
together with their respective expiration dates. Neither the Company nor any
Subsidiary has at any time during the past five years nor, to the Company's
knowledge, is there now threatened, a strike, picket, work stoppage, work
slowdown, or other labor trouble or dispute, and the Company has no knowledge of
any "Management Level Employee's" proposed resignation, as "Management Level
Employee" is defined in Section 8.10, below. No employees are subject to any
collective bargaining agreement with the Company or any Subsidiary. The
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representations and warranties of this Section 2.18 are given as of July 31,
1995 and as of the date of this Agreement.
2.19 Insurance. Schedule 2.19 lists all policies of property, theft,
fire, liability, workers' compensation, title, professional liability or life
insurance or reinsurance or any other insurance owned or maintained by the
Company or any Subsidiary or in which the Company or any Subsidiary is a named
insured or on which the Company or any Subsidiary is paying any premiums, and
also sets forth the coverage level, expiration date, premium and name of insurer
and agent/broker. All such policies, except as set forth on Schedule 2.19, are
in full force and effect at the date hereof and were, without lapse, in full
force and effect on July 31, 1995 and as of the date of this Agreement, and each
of the insured parties thereunder is not in default with respect to any
provision contained in any such insurance policy nor failed to give any notice
or present any claim thereunder in due and timely fashion for an event of loss
not fully reflected on the Second Quarter 10-QSB. Schedule 2.19 sets forth a
summary of the claims history for the Company and each Subsidiary under such
policies since January 1, 1993 and, except as set forth on Schedule 2.19, there
are no claims outstanding under any such policies.
2.20 Provider Relationships, Contracts and Agreements.
(a) Schedule 2.20(a) lists all physicians, hospitals and
ancillary health care providers ("PROVIDERS") that have generated claims for
payment pursuant to a Provider Contract during the first two quarters of the
fiscal year ending January 31, 1996. The list comprises both Providers that
contract directly with the Company and Providers that generate claims pursuant
to a contract between the Company and an intermediary entity.
(b) Schedule 2.20(b) lists all contracts (including oral
contracts of which the Company has knowledge), agreements and commitments to
which the Company or any Subsidiary is a party or is bound, in the following
categories: customer or payor contracts,
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management agreements, third party administrator agreements, services contracts,
joint venture agreements, guarantees and indemnifications, consulting agreements
and instruments of indebtedness, excluding Provider Contracts and recurring
purchase orders for routine office supplies (collectively and, together with the
Provider Contracts pursuant to which the claims referred to in (a), above, were
made, the "CONTRACTS").
(c) True and correct copies of the Contracts have been made
available to Parent. All Contracts constitute legal, valid and binding
obligations of the Company or the Subsidiary, as applicable, and, to the
knowledge of the Company, of the other parties thereto, and are in full force
and effect as of the date of this Agreement, except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court. The Company and
the Subsidiaries have paid in full all amounts due thereunder which are due and
payable as of the date of this Agreement, and are not in default under any of
such Contracts, nor, to the Company's knowledge, is any other party to such
Contract in default thereunder, nor does any condition exist that, with notice
or lapse of time or both, would constitute a default or event of default
thereunder by the Company or any Subsidiary or, to the Company's knowledge, by
any other person or entity. Except as set forth in Schedule 2.20, no Contract
requires the consent or approval of a third party in connection with the
performance by the Company of this Agreement or the transactions contemplated by
this Agreement to be performed by the Company or any of its Subsidiaries.
2.21 Conflicts of Interest. Except as disclosed in Schedule 2.21 or as
reflected in the SEC Documents, to the best of the Company's knowledge, no
director or officer of the Company or any Subsidiary (i) is a lessor, lessee,
competitor, Provider or customer of the Company or any Subsidiary or otherwise
has business dealings with the Company or any
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Subsidiary or (ii) controls or is an employee, officer, director, agent, 5%
stockholder or partner (except such ownership as may arise through ownership of
mutual equity or bond funds or similar funds which do not make investments at
the direction or vote of their owners) of any corporation, firm, association,
partnership or other business entity which is a lessor, lessee, competitor,
Provider or customer of the Company or any Subsidiary or which otherwise has
business dealings with the Company or any Subsidiary.
2.22 Medicare/Medicaid. Neither the Company, nor any Subsidiary
conducts any business activity that involves payments to the Company or any of
its Subsidiaries from the Federal Medicare Program or the combined Federal/State
Medicaid Program.
2.23 Activities of Providers. Providers and organizations of providers
of hospital and/or medical services with whom the Company and/or its
Subsidiaries contract are not, to the best of the Company's knowledge,
attempting to organize any entity (whether or not incorporated) for the purpose
of bargaining or otherwise dealing with the Company or any Subsidiary on a
collective basis, other than to the extent such providers and organizations
represented a collective of individual providers as disclosed at the time of
their respective contracts with the Company or its Subsidiaries.
2.24 Employee Benefits. For purposes of this Agreement, the term
"Employee Plan" includes any pension, retirement, savings, disability, medical,
dental or other health plan, life insurance (including any individual life
insurance policy as to which the Company or any of its Subsidiaries makes
premium payments whether or not either the Company or any of its Subsidiaries is
the owner, beneficiary or both of such policy) or other death benefit plan,
profit sharing, deferred compensation, stock option, bonus or other incentive
plan, vacation benefit plan, severance plan or other employee benefit plan,
including any employee pension benefit plan ("PENSION PLAN") as defined in
Section 3(2) of the Employee Retirement Income Security
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Act of 1974, as amended ("ERISA"), and any employee welfare benefit plan as
defined in Section 3(1) of ERISA ("WELFARE PLAN"), whether or not any of the
foregoing is funded, (i) to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary (or any of their respective rights,
properties or assets) is bound or (ii) with respect to which the Company or any
Subsidiary has made payments, contributions or commitments or may otherwise have
any liability (including any such plan or arrangement formerly maintained by the
Company or any Subsidiary).
(a) There are no Employee Plans other than those listed in
Schedule 2.24.
(b) Except as disclosed in Schedule 2.24, no Pension Plan is a
"defined benefit plan" as defined in Section 3(35) of ERISA or a "multi-employer
plan" as defined in Section 4001(a) of ERISA.
(c) Except as disclosed in Schedule 2.24, each Employee Plan, the
Company and each Subsidiary and, to the knowledge of the Company, the
administrator and fiduciaries of each Employee Plan when other than the Company
or a Subsidiary, have at all times complied with the applicable requirements of
ERISA, as it relates to them, including, but not limited to the fiduciary
responsibilities imposed by Part 4 of Title 1, Subtitle B of ERISA, and any
other applicable law (including regulations and rulings thereunder) governing
each Employee Plan, including, without limitation, the Internal Revenue Code of
1986, as amended (the "CODE"), and each Employee Plan has at all times been
properly administered in accordance with all such requirements of law, and in
accordance with its terms and the terms of any applicable collective bargaining
agreement to the extent consistent with all such requirements of law. No
lawsuits or formal complaint proceedings to, or by, any person or Governmental
Entity have been filed or are pending and, to the Company's knowledge, no state
of facts known to the
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Company or event contemplated by the Company is reasonably likely to give rise
to any such lawsuit or formal complaint proceeding with respect to any Employee
Plan. Without limiting the foregoing and except as disclosed in Schedule 2.24,
the following are true, with respect to each Employee Plan:
(i) the Company and each Subsidiary have filed or
caused to be filed on a timely basis each and every return, report, statement,
notice, declaration and other document required by any government agency,
federal, state and local (including, without limitation, the Internal Revenue
Service and the Department of Labor), with respect to each Employee Plan.
(ii) the Company and each Subsidiary have delivered or
caused to be delivered to every participant, beneficiary and other party
entitled to such material, all plan descriptions, returns, reports, schedules,
notices, statements and similar materials, including, without limitation,
summary descriptions and reports, as are required under Title 1 of ERISA or the
Code, or under both.
(iii) Neither the Company nor any Subsidiary is now,
and neither, at any time since September 2, 1974, has been, a "substantial
employer" as defined in Section 4001(a)(2) of ERISA in a multiple-employer plan.
(iv) Neither the Company nor any Subsidiary has
contributed at any time to any multi-employer pension plan, as defined in
Section 4001(a)(3) of ERISA, and the Company is not presently a party to any
multi-employer pension plan. The Company is not liable for any withdrawal
liability under the Multi-employer Pension Plan Amendments Act of 1980 (the
"MPPA ACT"), after application of any de minimis rule under the MPPA Act.
(d) Except as disclosed in Schedule 2.24, the benefits under each
Employee Plan that is a Welfare Plan are provided exclusively from the assets of
the Company
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or a Subsidiary, through insurance contracts or through employee contributions.
Except as disclosed in Schedule 2.24, each insurance contract through which
benefits under a Welfare Plan are provided provides benefits only for employees
and dependents covered under that Welfare Plan, except to the extent otherwise
required to comply with the Code. Except as disclosed in Schedule 2.24, the
assets of each Pension Plan are held in a separate trust exempt from tax under
Section 501(a) of the Code, under insurance contracts, or are provided
exclusively through the assets of the Company or a Subsidiary.
(e) Except as disclosed in Schedule 2.24, with respect to each
Employee Plan, there has not occurred, nor is any person or entity contractually
bound to enter into, any transaction giving rise to any tax or liability under
Section 4975 of the Code or Section 406 or Section 502(i) of ERISA.
(f) the Company has delivered to Parent true and correct copies
of all financial statements, if any, and annual reports on Form 5500 for each
Employee Plan, if any, and, except as disclosed in Schedule 2.24, no change
which has an adverse effect on the financial condition of the Company or any
Employee Plan has occurred with respect to the financial condition or funding of
the Employee Plans since the date of such financial statements.
(g) the Company and all of the Subsidiaries have in all material
respects complied with the requirements, to the extent applicable, of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") with respect to
the continuation of employer- provided health benefits following a "qualifying
event' which would otherwise terminate such benefits, as provided in Section
4980(b) of the Code and applicable regulations and Internal Revenue Service
rulings, notices, and other pronouncements.
(h) Except as disclosed in Schedule 2.24, neither the Company nor
any Subsidiary has any unfunded obligation with respect to any Employee Plan.
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(i) Except as disclosed in Schedule 2.24, and except for the
requirements of any applicable provisions of ERISA, the Code, COBRA, and any
regulations promulgated thereunder, there is no agreement or other promise
(including, to the knowledge of the Company, oral agreements or promises), of
the Company or any Subsidiary, to the effect that any Employee Plan may not be
terminated at the Company's discretion at any time.
(j) Neither the Company nor any Subsidiary has ever offered, or
currently offers, retiree medical coverage to any employee of the Company or any
Subsidiary, except to the extent required by COBRA.
2.25 Construction in Progress. There are no material construction
projects or construction in progress at the Company.
2.26 No Liability For The Cost of Health Care Services. No Provider
Contract or other contract requires the Company or any of its Subsidiaries to
compensate health care providers or to otherwise assume any obligation or
liability to pay for the cost of health care services, other than pursuant to
the health benefit plan covering the employees of the Company and its
Subsidiaries. The representations and warranties of this Section 2.26 are given
as of July 31, 1995 and as of the date of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub, jointly and severally, represent and
warrant to the Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Acquisition
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its state
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of incorporation and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
3.2 Authority. Each of Parent and Acquisition Sub has all requisite
corporate power and authority to enter into this Agreement, the Paying Agent
Agreement, the Escrow Agreements and the employment agreement with Richard Toral
annexed hereto as Exhibit C (the "EMPLOYMENT AGREEMENT"), and to consummate the
transactions contemplated hereby and thereby. This Agreement, the Paying Agent
Agreement, the Employment Agreement and the Escrow Agreements have been duly
executed and delivered by each of Parent and Acquisition Sub and constitute the
valid and binding obligations of each of Parent and Acquisition Sub enforceable
against them in accordance with their respective terms except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
3.3 No Breach. The execution and delivery of this Agreement, the
Paying Agent Agreement, the Employment Agreement and the Escrow Agreements do
not, and the consummation of the transactions contemplated hereby and thereby,
and the compliance with the provisions hereof and thereof will not (i) violate
any provision of the Articles of Incorporation or By-Laws of Parent or
Acquisition Sub; (ii) violate any judgment, order, injunction, decree or award
of any court, arbitrator, administrative agency or governmental or regulatory
body against, or binding upon, Parent or Acquisition Sub; or (iii) constitute a
violation by Parent or Acquisition Sub of any statute, law, rule or regulation
of any jurisdiction as such statute, law, rule or regulation relates to Parent
or Acquisition Sub.
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3.4 No Consent. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Parent or Acquisition Sub in connection with the execution
and delivery of this Agreement, the Paying Agent Agreement, the Employment
Agreement and the Escrow Agreements by Parent or Acquisition Sub or the
consummation by Parent or Acquisition Sub of the transactions contemplated
hereby and thereby.
3.5 Information Supplied. None of the information supplied by Parent
or Acquisition Sub regarding Parent or Acquisition Sub for inclusion in the
Proxy Statement will, at the date such information is filed with the SEC or
mailed to holders of Common Stock or at the time of the Shareholder vote on the
Merger or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.6 Company Common Stock. None of Parent or Acquisition Sub (or any
other subsidiary or affiliate of Parent, with Parent's knowledge) owns, directly
or indirectly, or has any right to acquire (except such rights as may arise
pursuant to this Agreement) any shares of Common Stock of the Company.
3.7 Financing. Parent and Acquisition Sub have available internal
corporate funds sufficient to pay the consideration payable in the Merger, in
accordance with the terms of this Agreement, in respect of all of the
outstanding shares of Common Stock of the Company, as well as all outstanding
options and warrants up to a maximum amount of $20,000,000, and to pay
anticipated expenses in connection with this Agreement and the transactions
contemplated hereby.
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ARTICLE IV
COVENANTS
4.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees (except as
expressly otherwise provided by this Agreement, or to the extent that Parent
shall otherwise consent in writing) as follows:
(a) Ordinary Course. The Company and its Subsidiaries shall carry
on their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such businesses, use all reasonable efforts to preserve intact
their present business organizations, keep available the services of their
present officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with them.
(b) Dividends; Changes in Stock. The Company shall not and shall
not propose to (i) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of capital
stock of the Company or (iii) repurchase or otherwise acquire, or permit any
subsidiary of the Company to purchase or otherwise acquire any shares of its
capital stock.
(c) Issuance of Securities. The Company shall not, nor shall it
permit any Subsidiary to, issue, deliver or sell, or authorize or propose the
issuance, or delivery or sale of, any shares of its capital stock of any class,
any Voting Debt or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, Voting Debt or convertible securities,
except upon exercise of rights under the Employee Stock Purchase Plan of May 15,
1995 (such rights not to exceed 21,700 shares), options and warrants outstanding
on the date of
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this Agreement or shares issued in connection with the rounding of fractional
shares otherwise issuable in connection with the Company's stock split effected
in 1991.
(d) Governing Documents. The Company shall not amend or propose
to amend the Articles of Incorporation or By-Laws of the Company or any of its
Subsidiaries.
(e) No Other Bids. The Company shall not, nor shall it permit any
Subsidiary to, nor shall it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant or other
representative retained by the Company or any Subsidiary to solicit, encourage
or otherwise induce any proposal which constitutes, or may reasonably be
expected to lead to, any "Takeover Proposal" (as defined below). The Company
shall immediately advise Parent orally and in writing of any such inquiries or
Takeover Proposals, including all of the terms thereof. As used in this
Agreement, "TAKEOVER PROPOSAL" means any proposal (except a proposal by the
Parent, any of its shareholders or any of their affiliates) for a merger or
other business combination involving the Company or any Subsidiary or any
proposal or offer to acquire in any manner a substantial equity interest in the
Company or any Subsidiary or a substantial portion of the assets of the Company
or any Subsidiary. A Takeover Proposal received by the Company that did not
result from or involve a breach of the foregoing prohibition may be given
consideration by the Company's Board of Directors as necessary to fulfill its
fiduciary duties under applicable law to determine whether it is a Superior
Proposal. As used in this Agreement, "SUPERIOR PROPOSAL" means a Takeover
Proposal that the Board of Directors of the Company, in good faith, in the
exercise of their fiduciary duty, and based upon the advice of the Company's
outside financial advisors, determines is more favorable to the Company's
shareholders than the Merger. In the event a Takeover Proposal is deemed a
Superior Proposal by the Company's Board of Directors, its acceptance shall be
subject to the same fiduciary duty conditions as is the Company's acceptance and
execution of this Agreement.
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Nothing herein shall be construed to prevent or restrict the Company or the
Board of Directors from engaging in discussions or negotiations with, or
furnishing or causing to be furnished any information (other than documents
produced by Parent or other confidential information provided by Parent under
the Non-Disclosure Agreement) relating to the Company or any Subsidiary or
affording access to the properties, books or records of the Company or any
Subsidiary to, any person or entity relating to a Takeover Proposal, or
endorsing, approving or recommending or entering into a letter of intent or
other agreement with respect to a "Superior Proposal" (as defined below);
provided that such Takeover Proposal or Superior Proposal did not result from a
breach of the foregoing prohibition.
(f) No Acquisitions. The Company shall not, and shall not permit
any Subsidiary to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof.
(g) No Dispositions. The Company shall not, and shall not permit
any Subsidiary to, sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of its assets equal to or in excess of $25,000 per
transaction.
(h) Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or any
Subsidiary or guarantee any debt of others; provided, however, that the Company
is permitted to draw on its existing bank lines of credit of $800,000 with
Sunwest Bank in amounts and for purposes consistent with past practices if
Parent is notified in writing prior to each such proposed draw.
(i) Benefit Plans, Etc. The Company shall not, and shall not
permit any Subsidiary to, adopt or amend any collective bargaining agreement or
Employee Plan.
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(j) Employee Compensation and New Hires. Except for regularly
scheduled increases consistent with an existing compensation program and past
practices (which program or practices are set forth in Schedules 2.18 or 2.20)
for non-Management Level Employees (as defined in Section 8.10), or as may be
required under employment or termination agreements in effect on the date of
this Agreement and set forth in Schedule 2.18 or 2.20, the Company shall not,
and shall not permit any Subsidiary to, increase the compensation of any
director, officer or employee. The Company shall not, and shall not permit any
Subsidiary to, hire employees with annual salaries of $50,000 or more. Parent
shall not unreasonably withhold its consent to the Company or a Subsidiary
requesting permission to hire an individual at an annual salary of $50,000 or
more, when it is for the purpose of replacing an employee whose employment ended
after the date of this Agreement and who performed services and received
compensation comparable to that of the proposed new hire.
(k) Lease Obligations. The Company shall not, and shall not
permit any Subsidiary to, execute, renew or extend any lease obligations which
individually or in the aggregate equal or exceed $25,000 per annum.
(l) Litigation. The Company shall not, and shall not permit any
Subsidiary to, settle any litigation or arbitration, including any
administrative agency matter. Parent shall not unreasonably withhold its consent
to any such settlement.
(m) Provider and Payor/Customer Arrangements. The Company shall
not, and shall not permit any Subsidiary to, (i) amend any Provider Agreement,
or (ii) enter into any new customer or payor agreement or renew any existing
customer or payor agreement, except, in either case, as is consistent with the
past practices of the Company or its Subsidiaries.
(n) Other Actions. The Company shall not, and shall not permit
any Subsidiary to, take any deliberate action (other than an action expressly
permitted or required
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by this Agreement) that would result in any of the representations and
warranties of the Company set forth in Article II of this Agreement becoming
untrue, or in any of the conditions of the Merger set forth in Article VI of
this Agreement not being satisfied.
(o) Legal Fee Billing Reports. The Company shall provide Parent
with copies of all monthly billing reports submitted by the law firm of Cooley
Godward Castro Huddleson & Tatum ("COOLEY GODWARD") that are not otherwise
reflected on the Second Quarter 10-QSB. Such billing reports shall be forwarded
to Parent as soon as reasonably practical after receipt by the Company, and may
be reviewed by the Company to redact descriptions of services (but not charges
therefor) that may reasonably be determined to contain attorney-client
privileged information.
(p) Business Activity Involving Certain Provider Contracts. The
Company shall not, and shall not permit any Subsidiary to, engage in any
business which involves the use of Provider Contracts that require the Company
or any of its Subsidiaries to compensate health care providers or to otherwise
assume any obligation or liability to pay for the cost of health care services.
4.2 Covenants of Parent and Acquisition Sub.
(a) Neither Parent nor Acquisition Sub shall take any action
(other than an action required expressly by this Agreement) that would result in
any of the representations and warranties of Parent or Acquisition Sub set forth
in Article III of this Agreement becoming untrue, or in any of the conditions of
the Merger set forth in Article VI of this Agreement not being satisfied.
(b) Parent shall promptly furnish to the Company all information
concerning Parent and Acquisition sub as may be required and requested in
connection with the Proxy Statement to be furnished to the Company's
shareholders and shall otherwise reasonably
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cooperate with the Company in the Company's preparation and filing with the SEC
of such Proxy Statement.
(c) Prior to the Effective Time, none of Parent or Acquisition
Sub (or any of its or their affiliates or representatives at Parent's or
Acquisition Sub's direction) will, in any manner, directly or indirectly,
acquire beneficial ownership of any securities of the Company.
(d) Parent will provide benefits to employees of the Company who
continue to be employed by Parent or the Surviving Corporation or any of their
affiliates immediately following the Effective Time, which benefits shall be
generally comparable to the benefits which Parent and its affiliates provide to
their other employees holding like positions and performing like duties. Such
former Company employees will be credited with a maximum of three (3) years of
time during which they were employed by the Company or Subsidiaries for the
purpose of determining the nature and the extent of such benefits, including
full coverage under health insurance policies for pre-existing conditions
covered by policies currently applicable to employees of the Company and
Subsidiaries.
(e) Parent and Acquisition Sub shall comply in all respects with
the provisions of the Nondisclosure Agreement between the Company and Parent,
dated as of May 10, 1995 (the "NONDISCLOSURE AGREEMENT"), which shall continue
in full force and effect.
(f) In conducting its investigation of the business, operations
and legal affairs of the Company, Parent shall cooperate with the Company to
avoid disruption of the business or operations of the Company or the performance
of any of the Company's employees.
(g) Parent shall take all steps necessary to provide to the
Paying Agent immediately prior to the Effective Time, funds necessary to pay
for the shares of Company Common Stock as part of the Merger pursuant to
Section 1.4.
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(h) Provided that Humana Inc., at the Closing, surrenders all
warrants of the Company held by Humana Inc. and waives its Right of First
Refusal to purchase the Common Stock held by Richard Toral, Parent shall, at
Closing, repay, or cause the repayment of, the outstanding loan amount of One
Million Dollars ($1,000,000) plus all interest accrued as of the Closing Date
owed by the Company to Humana Inc. pursuant to that certain loan agreement dated
August 31, 1992.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement. As promptly as practicable after
the execution and delivery of this Agreement, and in accordance with the
Exchange Act, the Company will (a) prepare and file a preliminary Proxy
Statement with the SEC and (b) will use its best efforts to respond to any
comments of the SEC and to cause the Proxy Statement to be mailed to the
Company's shareholders. The Company will notify Parent promptly of the receipt
of any comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger;
provided, however, that Cain Brothers & Company shall not be required to provide
Parent with a copy of its presentation to the Company's Board of Directors as it
relates to the Cain Brothers & Company fairness opinion. If at any time before
the Effective Time any event shall occur which should be set forth in an
amendment of, or a supplement to, the Proxy Statement, the Company will promptly
prepare and mail such an amendment or supplement. The Company will not mail the
Proxy Statement, or any amendment thereof or supplement
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thereto, to the Company's shareholders unless it has first provided Parent with
a reasonable opportunity to review such documents, and obtained the consent of
Parent to such mailing, which consent shall not be unreasonably withheld. In the
event the Proxy Statement, or any amendment or supplement thereto, reflects a
recommendation by the Company's Board of Directors to abandon the Merger or to
pursue a Superior Proposal, the Company shall have no obligation to provide
Parent with a copy for review or to obtain Parent's consent prior to mailing.
5.2 Shareholder Approval. If the conditions set forth in Sections
6.1(b) and 6.1(c) are satisfied or waived, then the Company shall promptly call
a meeting of its shareholders for the purpose of approving the Merger and
adopting this Agreement and approving related matters. The Board of Directors of
the Company shall recommend to the shareholders of the Company approval of the
Merger and adoption of this Agreement, except that if the Board of Directors of
the Company determines, after receiving a Superior Proposal and upon
consultation with counsel and financial advisors that, given the receipt of the
Superior Proposal, such recommendation of approval is not consistent with the
Board's fiduciary duties to the Company, the Board of the Company may determine
not to recommend approval, or to withdraw such recommendation if already given,
without such action being deemed a breach of this Agreement, provided that the
Company complies with Section 5.5.
5.3 Legal Conditions to Merger. The Company will take all commercially
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on the Company with respect to the Merger and will promptly
cooperate with and furnish information to Parent in connection with any such
requirements imposed upon Parent and its Subsidiaries in connection with the
Merger. The Company will take, and will cause its Subsidiaries to take, all
commercially reasonable actions necessary to obtain, and will cooperate
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with Parent and its Subsidiaries in obtaining, any consent, authorization, order
or approval of, or any exemption by, any Governmental Entity, or other third
party, required to be obtained or made by the Company or any of its Subsidiaries
(or by Parent) in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
Parent and Acquisition Sub will take all actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
the Merger and will promptly cooperate with and furnish information to the
Company in connection with all such requirements imposed upon the Company or any
subsidiary of the Company in connection with the Merger. Parent and Acquisition
Sub will take all actions necessary to obtain, and will cooperate with the
Company and its subsidiaries in obtaining, any consent, authorization, order or
approval of, or exemption by, any Governmental Entity, or third party, required
to be obtained or made by Parent or Acquisition Sub (or by the Company or any of
its subsidiaries) in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
5.4 Options, Warrants and Employee Stock Purchase Rights.
(a) Options. The Board of Directors of the Company shall cause
the acceleration of the vesting, conditioned upon the Closing of the Merger, of
each outstanding option to purchase shares of the Company's Common Stock under
the Company's 1992 Non- Employee Director's Stock Option Plan, the 1992
Officers' Stock Option Plan, the 1992 Stock Option Plan, and any other stock
option plan adopted by the Company (collectively, the "OPTION PLANS"). Each
holder of an outstanding option under the Option Plans shall, immediately prior
to the Effective Time, be entitled to exercise such option in full, which
exercise may be conditioned upon the Closing of the Merger. All options
outstanding under such Plans shall terminate at the Effective Time if not
exercised prior thereto. In lieu of issuing stock certificates
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representing the shares acquired upon exercise, the Paying Agent shall be
authorized to deliver to such holder the full cash amount to which such holder
would otherwise be entitled under this Agreement with respect to such shares.
(b) Warrants. In lieu of any and all rights to acquire Common
Stock of the Company which a holder of an outstanding warrant may have upon
exercise of such warrant prior to the Effective Time, at and after the Effective
Time, each such holder shall be entitled to receive, upon exercise thereof, for
the remaining term of such warrant, nothing other than the product of (i) the
number of shares subject to such warrant and (ii) the positive difference
between $2.25 less the exercise price per share of such warrant. Such amount
shall be payable upon delivery to the Paying Agent of the warrant and
appropriate exercise documents, properly executed and otherwise completed.
(c) Employee Stock Purchase Rights. Pursuant to the Company's
1995 Employee Stock Purchase Plan (the "PURCHASE PLAN"), at the Effective Time,
(i) each Purchase Plan participant may use such participant's payroll deductions
that have accumulated as of the Effective Time to purchase shares of the
Company's Common Stock and (ii) any remaining rights held by such participant
under the ongoing offering, as defined in the Purchase Plan, shall be
terminated. In lieu of issuing stock certificates representing the shares
acquired upon such purchase, the Paying Agent shall be authorized to deliver to
such participant the full cash amount to which such participant would be
entitled under this Agreement with respect to such shares.
5.5 Break-Up Fee; Fees and Expenses. In the event the Company accepts
a Takeover Proposal that constitutes a Superior Offer, and such was not obtained
or received in violation of Section 4.1(e) of this Agreement, then, provided
that the Company pays Parent the break-up fee set forth below, such event shall
be deemed a termination by mutual consent pursuant to Section 7.1(a), below. The
break-up fee to be paid by the Company to Parent shall
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equal the Parent's reasonable out-of-pocket expenses (including but not limited
to attorneys' fees) incurred in connection with all negotiations with the
Company and the investigation and analysis of the legal, financial and business
affairs of the Company and Subsidiaries and other activities related to
consummating the transactions contemplated by this Agreement; provided, however,
that such break-up fee shall not exceed $250,000 and shall not include fees paid
or owed to Goldman Sachs. Except as provided in this Section, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
5.6 Brokers or Finders. Each of Parent, Acquisition Sub and the
Company represents that it has not and will not employ any broker or finder or
incur any liability for any brokerage fee, commission or finder's fee in
connection with the transactions contemplated by this Agreement except that
Cain Brothers & Company, Incorporated shall be entitled to fees and expenses
payable by the Company, pursuant to the contract between such parties dated
February 24, 1995 and previously provided to Parent.
5.7 Access to Information. Prior to Closing, following notice to the
Company of at least 24 hours, the Company shall permit Parent and its counsel,
accountants, and other representatives reasonable access during normal business
hours to all of the properties, books, contracts, commitments, and records of
the Company and its Subsidiaries and the Company and its Subsidiaries shall
furnish such statements (financial and otherwise), records, reports, documents
and other information concerning the operations of the Company and its
Subsidiaries as Parent and its counsel reasonably request from time to time. To
the extent reasonably requested by Parent, the Company and its Subsidiaries
shall request its accountants, attorneys and other representatives to cooperate
with the representatives of Parent in connection with the right of access
granted hereby.
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5.8 Additional Agreements. If at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either
Acquisition Sub or the Company, the officers and directors of each corporation
that is a party to this Agreement shall take all such necessary action.
5.9 Solicitation and Hiring Employees of the Company.
(a) Parent hereby agrees that, for a period of three (3) years
from the date of this Agreement, neither Parent nor any subsidiary of Parent
shall directly, or indirectly through an agent, solicit or induce away from the
Company any person who is now an officer, manager, or other employee of the
Company (each an "EMPLOYEE") whether or not such person would commit a breach of
any employment contract by reason of leaving service; provided, however, that
neither Parent nor any subsidiary of Parent shall be considered to have breached
this Section if an Employee approaches Parent or any subsidiary of Parent, or
their agent, for the purpose of seeking employment.
(b) The foregoing provisions shall be null and void and of no
further force and effect in the event that the Merger is consummated in
accordance with the terms of this Agreement.
(c) Parent and Company recognize that each Employee's services
and knowledge are special, unique and of extraordinary character, and that any
breach of this Section at any time would result in irreparable damage to the
Company in an amount difficult to ascertain. Accordingly, in addition to any
other relief to which the Company may be entitled, the Company shall be
entitled, if it so elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity, to obtain damages for
such breach of this Section, to enforce the specific performance of the terms
and conditions of this Section by
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Employee, or to enjoin Employee from performing services for any such person,
firm or corporation.
5.10 Directors and Officers Liability Insurance. On commercially
reasonable terms, the specific aspects of which shall require the review and
consent of Parent (which consent shall not be unreasonably withheld), the
Company may secure policies of insurance from reputable licensed insurers to
cover the costs and expenses that may be incurred by the Company or any of its
Subsidiaries, or any of their respective officers or directors, in connection
with claims against such officers or directors which may be brought on or after
the Effective Time, but which arise from actions or omissions alleged to have
occurred prior to the Effective Time.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligation of each party to effect the Merger is subject to the satisfaction, or
waiver by it, prior to the Closing Date of all the following conditions:
(a) Shareholder Approval. The Merger shall have been validly
approved and adopted by the affirmative vote or consent of the holders of at
least a majority of the outstanding shares of Common Stock of the Company.
(b) Hart-Scott-Rodino Act. The waiting period applicable to the
Merger under the Hart-Scott-Rodino Act shall have expired or shall have been
terminated, or the Merger shall be found, by counsel for each of the parties
hereto, to not require governmental review under the Hart-Scott-Rodino Act.
(c) Other Approvals. All other permits, approvals and consents of
any Governmental Entity described in Section 2.10 shall have been filed or
obtained which are
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necessary to consummate this Agreement and the transactions contemplated herein,
or necessary to continue the operation of the businesses of the Company and
Subsidiaries (subject to the standards of Section 6.2(a)).
(d) No Injunctions or Restraints. After a commercially reasonable
effort by the party(ies) to whom it applies to have it rescinded, a temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect.
6.2 Conditions to Obligation of Parent and Acquisition Sub to Effect
the Merger. The obligation of each of Parent and Acquisition Sub to effect the
Merger is further subject to the satisfaction or waiver by it prior to or on the
Closing Date of all of the following conditions:
(a) Representations and Warranties and Performance of Agreements.
The representations and warranties of the Company contained in Article II shall
be true in all respects as of the Closing Date as though made on and as of the
Closing Date; provided, however, that, except for representations and warranties
set forth in Sections 2.1(a), (c) and (d); 2.2; 2.3(i) and (iv); 2.7; 2.8; 2.9;
2.11; 2.12; 2.13; 2.21; 2.22; and 2.23, the inaccuracy of a representation or
warranty set forth in Article II hereof, on the date given originally or on the
Closing Date, shall not constitute a breach of this Agreement unless such
inaccuracy(ies) consist of items or matters omitted or stated inaccurately
(i) which would result in the violation of any law or order
of a Governmental Entity for which there is a substantial risk of a criminal
penalty,
(ii) which could reasonably be expected to invalidate this
Agreement or any of its contemplated transactions, or
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(iii) which can reasonably be expected to have both an
individual Gross Adverse Effect (as defined in Section 8.9) of $25,000 or more
and a cumulative Gross Adverse Effect of $500,000 or more when combined with
other inaccuracies individually having a Gross Adverse Effect of $25,000 or
more, in any of which events (i) through (iii), above, absent fraud by the
Company, the sole remedy of Parent and Acquisition Sub shall be the right to
terminate this Agreement pursuant to Section 7.1(b), below. Likewise,
notwithstanding any provision hereof to the contrary, absent fraud by the
Company, the sole remedy of Parent and Acquisition Sub in the event of a breach
by the Company of any of its representation and warranties in Sections 2.1(a),
(c) and (d); 2.2; 2.3(i) and (iv); 2.7; 2.8; 2.9; 2.11; 2.12; 2.13; 2.21; 2.22;
or 2.23; or in the event of a breach by the Company of any of the covenants
contained in Section 4.1(a), (g) or (k), shall be the right to terminate this
Agreement pursuant to Section 7.1(b), below. The following examples demonstrate
how the parties intend for the Gross Adverse Effect of inaccuracies in the
representations and warranties to be calculated:
Example (A) - A contract with a five (5) year term
remaining and requiring a payment by the Company or a
Subsidiary of $5,000 per year would be deemed to have
a Gross Adverse Effect of $25,000, regardless of the
value of goods or services received for such payments.
Example (B) - A contract with a customer of the
Company or a Subsidiary that provides revenue to the
Company or a Subsidiary would have a Gross Adverse
Effect only if such contract had been listed or
scheduled by the Company as being in effect, when, in
fact, it was not, and only to the extent of the
cumulative gross revenue that would accrue over the
remaining term of such contract.
Example (C) - The failure to have a license or other
governmental consent that can reasonably be expected
to require the cessation of a current business
activity of the Company or Subsidiary would have a
Gross Adverse Effect equal to the
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loss of gross revenue attributable to such business
activity, plus the cost of obtaining the required
license or consent.
Example (D) - Failure to disclose a pending or
threatened termination of a Permit when disclosure is
required by a representation and warranty under
Article II, above, shall be deemed a failure to
disclose the termination of such Permit for purposes
of determining the Gross Adverse Effect of the
inaccuracy, as described in Example (C), above, but
only to the extent that it can be reasonably expected
that such Permit will be terminated.
In calculating the term of a contract for purposes of determining its
Gross Adverse Effect, a contract that can be terminated with some notice period
of less than one year, and that has no specific expiration date, will be deemed
to have a remaining term of one year in calculating the Gross Adverse Effect of
its loss. A contract with a specific term will be deemed to have the remainder
of such term to expiration.
The Company shall have duly performed and complied, in all material
respects, with all agreements and covenants contained in Articles IV and V of
this Agreement to be performed or complied with by it prior to or at the Closing
Date.
(b) Officers' Certificate. The Company shall have delivered to
Parent a certificate, dated as of the Closing Date and signed by Richard H.
Toral and Edward K. Evans (in their capacities as officers of the Company), to
the effect that, subject to the limitations established for breach by Section
6.2(a), the representations and warranties of the Company contained in Article
II are true and correct in all respects as of the Closing Date as though made on
and as of the Closing Date, and that the Company has duly performed and
complied, in all material respects, with all agreements, covenants and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing Date.
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(c) Secretary's Certificate. The Company shall have delivered to
Parent a Certificate of the Secretary of the Company, dated as of the Closing
Date, certifying (i) that the authorized, issued and outstanding capital stock
of the Company (including capital stock held in its treasury) on the Closing
Date is as set forth in Section 2.8 of the Agreement (except for changes which
are attributable to issuance of shares of Company Common Stock upon the exercise
of options or warrants, which issuances shall be identified and described in
detail in such certificate), which certification may be based on a certificate
of the Company's transfer agent which the Secretary has no reason to believe to
be inaccurate, (ii) that the attached copies of the Company's and each of its
Subsidiaries' Articles of Incorporation and By-Laws are true and correct and
(iii) as to the names and genuine signatures of the officers of the Company
authorized to execute this Agreement and the documents contemplated hereby. Such
Certificate of the Secretary of the Company shall not indicate a number of
outstanding shares of capital stock, options or warrants of the Company which,
at the rate of $2.25 per share, would require Parent or Acquisition Sub, taken
together, to pay an aggregate of more than $20,000,000 to the Paying Agent, or
to holders of such shares, options and warrant to consummate the Merger.
(d) Consents. All consents specified in Sections 2.10 and 2.20,
as necessary to prevent a breach within the limits described in Section 6.2(a),
shall have been obtained.
(e) Opinion of Counsel for the Company. The Parent shall have
received from the law firm of Cooley Godward Castro Huddleson & Tatum ("COOLEY
GODWARD"), counsel for the Company, an opinion dated as of the Closing Date,
which shall state, without change as to substance, the opinions set forth in
Exhibit D-1, annexed hereto and made a part hereof, and such opinion shall be,
in its complete form, without change as to
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substance, as set forth in the draft dated October 26, 1995 and initialled, for
purposes of identification only, by Parent and the Company and provided to
Parent.
The Parent shall have received from the law firm of Greenberg Traurig
Hoffman Lipoff Rosen & Quentel, P.A. ("GREENBERG TRAURIG"), counsel for the
Company, an opinion dated as of the Closing Date, which shall state, without
change as to substance, the opinions set forth in Exhibit D-2, annexed hereto
and made a part hereof, and such opinion shall be, in its complete form, without
change as to substance, as set forth in the draft dated October 26, 1995 and
initialled, for purposes of identification only, by Parent and the Company and
provided to Parent.
In rendering such opinions, unless such counsel has actual knowledge to
the contrary, such counsel may rely as to matters of fact to the extent
specified therein upon certificates of officers of the Company or any of its
Subsidiaries, public officials and the Company's transfer agent, copies of which
shall be attached to such opinion, without further inquiry as to such matters of
fact.
(f) Additional Certificates and Documents. The Company shall have
furnished to Parent such additional certificates and other documents as Parent
may have reasonably requested; provided that such certificates or documents
shall not impose covenants or conditions, or require representation or
warranties beyond those provided in this Agreement.
(g) Resignations. Parent shall have received the resignation,
effective as of the Effective Time, of each director of the Company and
Subsidiaries.
(h) Limited Dissenting Shares. The Company shall not have
received written notice from shareholders representing more than seven and
one-half percent (7 1/2%) of all of the outstanding shares of Common Stock
immediately prior to the Effective Time, indicating an intention to exercise
dissenters' rights of appraisal.
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(i) Employment Agreement. Richard H. Toral shall have executed
and delivered the Employment Agreement with the Company, (a copy of which is
annexed hereto as Exhibit C).
(j) Escrow Agreements. Richard H. Toral shall have executed and
delivered Escrow Agreement I and Escrow Agreement II with the Company (copies of
which are annexed hereto as Exhibits A-1 and A-2, respectively) and an
independent escrow agent.
(k) Surrender of Options and Warrants. All outstanding warrants
and options shall have been duly surrendered or exercised for a net payment to
holders of no more than $2.25 per share represented by such options and
warrants, or deemed by the opinion of counsel for the Company not to be entitled
after the Effective Time and until their expiration to anything other than cash,
such cash not to exceed a positive net payment of $2.25 per share represented by
such options and warrants.
(l) Waiver of Humana Right of First Refusal and Surrender of
Warrants. Humana Inc. shall have waived its Right of First Refusal and
surrendered all warrants held by Humana Inc. to purchase Common Stock.
(m) Receipt of Interim Financial Statements. Parent shall have
received from the Company unaudited financial statements for the Company and
Subsidiaries for the period ending the last day of the month immediately
preceding the month of the Closing Date.
(n) Absence of Certain Changes. From the date of this Agreement
through the Effective Time, there shall not have been any material adverse
change in the business condition (financial and otherwise) or results of
operation or liabilities of the Company and its Subsidiaries, taken as a whole.
This provision is intended only to supplement and complement Section 6.2(a), and
shall under no circumstances be interpreted to contradict or diminish the terms
set forth therein. It shall not be deemed a failure to satisfy this Section
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6.2(n) if a material adverse change is (a) the consequence of any action or
inaction by Parent or its affiliates, (b) the consequence of actions or
inactions contemplated or permitted by this Agreement or matters referred to in
the Schedules hereto, (c) the consequence of actions or inactions to which
Parent consents, (d) the consequence of expenses of this Agreement and the
transactions contemplated hereby, or (e) is otherwise reflected in the Second
Quarter 10-QSB.
(o) No Acquisitions. Prior to the Effective Time, the Company,
any of its executive officers, its Board of Directors or any committee of its
Board of Directors shall not have approved, authorized or endorsed any Takeover
Proposal (other than this Agreement), or have withdrawn its approval of the
Merger, nor shall the Company have entered into any agreement, letter of intent,
memorandum or other understanding relating to any Takeover Proposal.
(p) DISCorp License. The Company shall have provided written
confirmation from Digital Insurance Systems Corporation ("DISCORP") that the
Company's subsidiary, Admar Corporation, has a perpetual non-exclusive license
to use the management information system known as Health Claims Processing
System ("HCPS"), including all modifications and enhancements thereto (whether
designed and installed by DISCorp or the Company or any of its Subsidiaries) and
that the HCPS can be used by the Company, Admar Corporation, or any of their
respective subsidiaries or affiliates or successors by virtue of merger,
consolidation or other form of acquisition.
(q) Sunwest Waiver. The Company shall have provided a written
waiver or consent, as appropriate, from Sunwest Bank, to the effect that
consummation of the Merger shall not result in a default under any of the
outstanding lines of credit from Sunwest Bank.
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(r) Amended Provider Contracts. The Company shall have provided
written amendments to contracts between the Company or any of its Subsidiaries
and each of Corporate Health Services, Inc., Cleveland Clinic Florida Health
Plan, Florida Health Choice, Inc., Managed Care, Inc. and Universal Health
Network, to the effect that, from and after the original date of such contracts,
neither the Company nor any of its Subsidiaries will have any obligation to
compensate such organizations or to have any liability or obligation to pay such
organizations for health care services pursuant to any of such contracts. As to
the contract between Admar Corporation and Arizona Health Care Alliance, Inc.,
the President of the Company shall certify in writing to Parent that neither the
Company nor any of its Subsidiaries has engaged in any business involving the
performance of such contract.
(s) Release of Security Interest in Image Financial. The Company
shall have provided written evidence reasonably satisfactory to Parent of the
release of the security interest of Jack H. Hunn and Elsie Hunn in the issued
and outstanding stock of Image Financial & Insurance Services, Inc.
(t) Florida Qualification. The Company shall provide written
certification from the State of Florida to the effect that Admar Corporation is
authorized to transact business in Florida.
(u) Louisiana Qualification. The Company shall provide written
certification from the State of Louisiana to the effect that Admar Corporation
is licensed to transact business in Louisiana and that Admar Corporation is in
compliance with the Office of Workers Compensation Administration.
6.3 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is further subject to the
satisfaction or waiver by it prior to or on the Closing Date of all of the
following conditions:
49.
<PAGE> 159
(a) Representations and Warranties and Performance of Agreements.
The representations and warranties of the Parent and Acquisition Sub contained
in Article III shall be true in all respects as of the Closing Date as though
made on and as of the Closing Date, and the Parent and Acquisition Sub shall
have duly performed and complied, in all material respects, with all agreements
and covenants contained in Articles IV and V of this Agreement to be performed
or complied with by it prior to or at the Closing Date.
(b) Officers' Certificate. The Parent and Acquisition Sub shall
have delivered to the Company a certificate, dated as of the Closing Date and
signed by their respective Presidents and CEOs, to the effect that the
representations and warranties of the Parent and Acquisition Sub contained in
Article III are true and correct in all respects as of the Closing Date as
though made on and as of the Closing Date, and that the Parent and Acquisition
Sub have duly performed and complied, in all material respects, with all
agreements, covenants and conditions required by this Agreement to be performed
or complied with by them prior to or on the Closing Date.
(c) Secretary's Certificate. The Parent and Acquisition Sub shall
each have delivered to the Company Certificates of their respective Secretaries,
dated as of the date Closing Date, certifying the names and genuine signatures
of the officers of the Parent and Acquisition Sub authorized to execute this
Agreement and the documents contemplated hereby.
(d) Additional Certificates and Documents. The Parent and
Acquisition Sub shall have furnished to the Company such additional certificates
and other documents as the Company may have reasonably requested; provided that
such certificates or documents shall not impose covenants or conditions, or
require representation or warranties beyond those provided in this Agreement.
50.
<PAGE> 160
(e) Opinion of Counsel for Parent and Acquisition Sub. The
Company shall have received from Robert J. Mrizek, Vice President and Counsel,
Principal Health Care, Inc., an opinion dated as of the Closing Date, which
shall state, without change as to substance, the opinions set forth in Exhibit
E, annexed hereto and made a part hereof, and such opinion shall be, in its
complete form, without change as to substance, as set forth in the draft dated
October 26, 1995 and initialled, for purposes of identification only, by Parent
and the Company and provided to the Company.
(f) Ancillary Agreements. Parent and/or Acquisition Sub, as
necessary and appropriate, shall have executed the Paying Agent Agreement, the
Employment Agreement, and the Escrow Agreements annexed hereto, all to be
effective at the Effective Time.
(g) Payment of Purchase Price. Parent shall have transferred
cash, in immediately available funds, to the Paying Agent in an amount
sufficient to pay for the Common Stock pursuant to Section 1.4, and to pay for
all options and warrants, but in no event shall such amount be required to
exceed $20,000,000.
(h) Satisfaction of Humana Inc. Loan. Parent shall have fulfilled
its obligation under Section 4.2(h).
(i) Waiver of Right of First Refusal. Humana Inc. shall have
waived the Right of First Refusal referenced in Section 2.8.
(j) Payment of Certain Transaction Costs. Cain Brothers & Company
shall have received payment of the fees and expenses to which it is entitled
under its contract with the Company dated February 24, 1995.
51.
<PAGE> 161
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time before
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the shareholders of the Company:
(a) by mutual consent of Parent, Acquisition Sub and the Company;
(b) by Parent or Acquisition Sub, by notice to the Company, if
the Company shall breach this Agreement and such breach shall not have been
cured within ten (10) days (or within 45 days in the case of a breach of
Section 2.5) after written notice of such breach;
(c) by the Company, by notice to Parent and Acquisition Sub, if
Parent or Acquisition Sub shall breach this Agreement and such breach shall not
have been cured within ten (10) days after written notice of such breach;
(d) automatically upon the payment of the Break-Up Fee pursuant
to the requisite conditions set forth in Section 5.5 of this Agreement; or
(e) by any party to this Agreement if the Merger has not been
effected by June 30, 1996.
7.2 Effect of Termination. If this Agreement shall be terminated as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, or Acquisition Sub or
the Company or their respective officers or directors, except as may apply by
the terms of Sections 4.2(e), 5.5 (relating to fees and expenses), and 5.9, and
except to the extent that such termination results from the willful breach by a
party hereto of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
52.
<PAGE> 162
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their Boards of Directors (subject to Section 7.5), at any time
before or after any required approval by the shareholders of the Company of
matters presented in connection with the Merger but, after any such approval, no
amendment shall be made which by law requires further approval by the
shareholders of the Company without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4 Extension; Waiver. At any time before the Effective Time, the
parties hereto, by action taken by their Boards of Directors (subject to Section
7.5), may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
7.5 Procedure for Termination, Amendment, Extension or Waiver. An
effective termination of this Agreement pursuant to Section 7.1, an effective
amendment of this Agreement pursuant to Section 7.3 or an effective extension or
waiver pursuant to Section 7.4 shall require, for each party, action by its
Board of Directors.
53.
<PAGE> 163
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 8.1 shall not limit any covenant or agreement of the parties
that by its terms contemplates performance after the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be effective when received at the address of the party set
forth below (or at such other address as such party shall specify by notice):
(a) If to Parent, to
Principal Health Care, Inc.
1801 Rockville Pike
Rockville, MD 20852
Attention: Robert J. Mrizek, Esquire
(b) If to PHC Merging Company, Inc., to
PHC Merging Company
c/o Principal Health Care, Inc.
1801 Rockville Pike
Rockville, MD 20852
Attention: Robert J. Mrizek, Esquire
(c) If to the Company, to
The Admar Group, Inc.
1551 N. Tustin Avenue, Suite 300
Santa Ana, CA 92701
Attention: Richard Toral
(d) Copies of all notices and other communications hereunder shall
be received by:
Epstein Becker & Green, P.C.
54.
<PAGE> 164
1227 25th Street
Washington, D.C. 20037
Attention: Thomas M. Farah, Esq.
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza
20th Floor
San Francisco, California 94111-3580
Attention: Cydney S. Posner, Esq.
8.3 Interpretation. The headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of this
Agreement. The words "include," "includes," or "including" are without
limitation.
8.4 Counterparts. The parties may execute this Agreement on separate
counterparts, all of which shall be considered one agreement.
8.5 Entire Agreement; No Third Party Beneficiaries. This Agreement,
including the Schedules and Exhibits hereto which are incorporated herein by
reference thereto, and the Nondisclosure Agreement, constitute the entire
agreement and supersede all prior agreements and understandings, written and
oral, among the parties with respect to the subject matter hereof. This
Agreement does not confer upon any person other than the parties hereto any
rights or remedies hereunder.
8.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Florida.
8.7 Publicity. The Company and Parent (and Acquisition Sub) shall
consult with each other before issuing or causing the publication of any press
release or any public announcement with respect to the transactions contemplated
by this Agreement. So long as this Agreement shall be in effect, neither the
Company nor Parent shall, or shall permit any of its subsidiaries (including
Acquisition Sub) to issue or cause the publication of any such press
55.
<PAGE> 165
release or other public announcement before such consultation, except as may be
required by law.
8.8 Assignment. Neither this Agreement nor any of the rights,
interests and obligations hereunder shall be assigned by either party without
the prior written consent of the other. Subject to the preceding sentence, this
Agreement shall bind, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
8.9 Gross Adverse Effect. As used in this Agreement, "Gross Adverse
Effect" shall mean the cost, expense or loss of revenue actually suffered or
incurred, or which can be reasonably expected to be suffered or incurred, by the
Company and its Subsidiaries taken as a whole (less any recovery reasonably
expected from insurance policies) as a consequence of the facts or circumstances
which constitute such omission or inaccuracy, without accounting for offsetting
benefits or savings related to such consequence, except as otherwise expressly
stated herein. An omission or inaccuracy shall not constitute a Gross Adverse
Effect if it is (a) the consequence of any action or inaction by Parent or its
affiliates, (b) the consequence of actions or inactions contemplated or
permitted by this Agreement or matters referred to in the Schedules hereto, (c)
the consequence of actions or inactions to which Parent consents, (d) the
consequence of expenses of this Agreement and the transactions contemplated
hereby, or (e) is otherwise reflected in the Second Quarter 10-QSB.
8.10 Knowledge of the Company. For purposes of this Agreement, the
Company shall be deemed to have knowledge of a fact to the extent that any of
the "Management Level Employees" (which term refers to those persons and their
corresponding titles listed on Exhibit B, annexed hereto and made a part hereof)
have actual knowledge of such fact.
56.
<PAGE> 166
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
Attest: PRINCIPAL HEALTH CARE, INC.
/s/ Robert J. Mrizek By: /s/ Kenneth J. Linde
- -------------------- ------------------------
Name: Kenneth J. Linde
Title: President and Chief Executive
Officer
Attest: PHC MERGING COMPANY
/s/ Robert J. Mrizek By: /s/ Kenneth J. Linde
- -------------------- ------------------------
Name: Kenneth J. Linde
Title: President and Chief Executive
Officer
Attest: THE ADMAR GROUP, INC.
/s/ V. Pascual By: /s/ Richard H. Toral
- -------------- ------------------------
Name: Richard H. Toral
Title: Chief Executive Officer
57.
<PAGE> 167
[CAIN BROTHERS LETTERHEAD]
APPENDIX B
October 27, 1995
Board of Directors
The Admar Group, Inc.
1551 North Tustin Avenue, Suite 300
Santa Ana, California 92701
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view of the consideration to be paid to The Admar Group, Inc. ("Admar" or the
"Company") shareholders in the proposed merger of Admar (the "Merger") with and
into PHC Merging Company, Inc. ("Acquisition Sub"), a subsidiary of Principal
Health Care, Inc. ("Principal") pursuant to the Agreement and Plan of Merger,
dated October 27, 1995, between Admar, Principal and Acquisition Sub (the
"Agreement and Plan of Merger"). Pursuant to the terms of the Agreement and
Plan of Merger, at the Effective Date (as defined in the Agreement and Plan of
Merger), Acquisition Sub will be merged with and into Admar and each
outstanding share of common stock, $0.005 par value per share, of Admar will be
converted into the right to receive $2.25 per share in cash (the "Offered
Consideration"). The terms and conditions of the Merger are more fully set
forth in the Agreement and Plan of Merger.
Cain Brothers & Company, Incorporated, as part of its investment banking
business, is frequently engaged in the valuation of healthcare related
businesses in connection with mergers, acquisitions and private placements. We
are currently acting as financial advisor to Admar in connection with the
Merger and will receive a fee for our services, including the rendering of this
opinion.
In connection with our opinion, we have reviewed among other things: the
Agreement and Plan of Merger, pursuant to which Acquisition Sub will be merged
with and into Admar; Richard Toral's Employment Agreement and Escrow
Agreements 1 and 2; and certain financial and other information with respect
to Admar that was publicly available or furnished to us by or on behalf of
Admar, including certain internal analyses, financial projections, reports and
other information prepared by Admar's management and employees. We held
discussions with various other members of Admar's senior management concerning
the Company's historical and current operations, financial condition and
prospects. In addition, we have: considered recent merger and acquisition
transactions involving selected enterprises which we deemed reasonably
comparable to Admar; analyzed certain publicly available information, including
financial information, relating to selected public companies whose operations
we deemed reasonably comparable to those of Admar; performed a discounted cash
flow analysis of Admar's projected cash flows (which were based on projections
provided by Admar management); and considered such other factors as we deemed
appropriate in rendering this opinion.
<PAGE> 168
The Admar Group, Inc.
October 27, 1995
Page 2
In rendering this opinion, we have relied, without independent verification, on
the accuracy and completeness of all financial and other information reviewed
by us that was publicly available or furnished to us by or on behalf of Admar
or other parties, including the projections provided by Admar management. We
have assumed that the financial projections that we reviewed were reasonably
prepared on bases reflecting the currently available estimates and good faith
judgments of the management of Admar. We have not made, requested or received
any independent appraisal of the assets or liabilities of Admar. Our opinion
herein is based upon market, economic and other circumstances existing and
disclosed to us as of the date hereof.
This opinion is furnished to the Board of Directors of Admar as to the fairness
of the Offered Consideration from a financial point of view to assist the Board
of Directors in its evaluation of the Merger. The opinion is not intended to
and does not constitute a recommendation as to how any shareholder should vote
with respect to the Merger; however, this letter may be disclosed in the Proxy
Statement to be filed with the Securities and Exchange Commission with respect
to the proposed Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Offered Consideration is fair to Admar shareholders from a
financial point of view.
Very truly yours,
/s/ Cain Brothers & Company, Incorporated
CAIN BROTHERS & COMPANY, INCORPORATED
<PAGE> 169
APPENDIX C
SECTION 607.1320 OF THE FLORIDA 1989 BUSINESS CORPORATION ACT
607.1301 DISSENTERS' RIGHTS; DEFINITIONS.-
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value
of the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of
the plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.-
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is
a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with
its parent under s. 607.1104, and the shareholders would have been entitled to
vote on action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation, other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange pursuant to s. 607.1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(II), the approval of a
control-share acquisition;
1.
<PAGE> 170
(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be acquired,
if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached
to any of his shares;
2. Altering or abolishing the voting rights pertaining to
any of his shares, except as such rights may be affected by the voting rights
of new shares then being authorized of any existing or new class or series of
shares;
3. Effecting an exchange, cancellation, or
reclassification of any of his shares, when such exchange, cancellation, or
reclassification would alter or abolish his voting rights or alter his
percentage of equity in the corporation, or effecting a reduction or
cancellation of accrued dividends or other arrearages in respect to such
shares;
4. Reducing the stated redemption price of any of his
redeemable shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his shares, or making any of his
shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of
any of his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his
preferred shares; or
7. Reducing any stated preferential amount payable on any
of his preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered
in his name. In that event, his rights shall be determined as if the shares as
to which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled
to vote at the meeting of shareholders at which such action is to be acted
2.
<PAGE> 171
upon or to consent to any such action without a meeting, were either registered
on a national securities exchange OR DESIGNATED AS A NATIONAL MARKET SYSTEM
SECURITY ON AN INTERDEALER QUOTATION SYSTEM BY THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC., or held of record by not fewer than 2,000
shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.-
(1) (a) If a proposed corporate action creating dissenters' rights
under s. 607.1302 is submitted to a vote at a shareholders' meeting, the
meeting notice shall state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of ss. 607.1301, 607.1302, and
607.1320. A shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated, and
2. Not vote his shares in favor of the proposed action. A
proxy or vote against the proposed action does not constitute such a notice of
intent to demand payment.
(b) If proposed corporate action creating dissenters' rights
under s. 607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to
each shareholder simultaneously with any request for his written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder
who elects to dissent shall file with the corporation a notice of such
election, stating his name and address, the number, classes, and series of
shares as to which he dissents, and a demand for payment of the fair value of
his shares. Any shareholder failing to file such election to dissent within
the period set forth shall be bound by the terms of the proposed corporate
action. Any shareholder filing an election to dissent shall deposit his
certificates for certificated shares with the corporation simultaneously with
the filing of the election to dissent. The corporation may restrict the
transfer of uncertificated shares from the date the shareholder's election to
dissent is filed with the corporation.
3.
<PAGE> 172
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall
not be entitled to vote or to exercise any other rights of a shareholder. A
notice of election may be withdrawn in writing by the shareholder at any time
before an offer is made by the corporation, as provided in subsection (5), to
pay for his shares. After such offer, no such notice of election may be
withdrawn unless the corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his shares shall cease, and he shall
be reinstated to have all his rights as a shareholder as of the filing of his
notice of election, including any intervening preemptive rights and the right
to payment of any intervening dividend or other distribution or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or
the shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by
a court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the corporation
shall make a written offer to each dissenting shareholder who has made demand
as provided in this section to pay an amount the corporation estimates to be
the fair value for such shares. If the corporate action has not been
consummated before the expiration of the 90-day period after the shareholders'
authorization date, the offer may be made conditional upon the consummation of
such action. Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and `
(b) A profit and loss statement of such corporation for the
12-month period ended on the date of such balance sheet or, if the corporation
was not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the
4.
<PAGE> 173
consummation of the proposed action, whichever is later. Upon payment of the
agreed value, the dissenting shareholder shall cease to have any interest in
such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the
period of 30 days thereafter, then the corporation, within 30 days after
receipt of written demand from any dissenting shareholder given within 60 days
after the date on which such corporate action was effected, shall, or at its
election at any time within such period of 60 days may, file an action in any
court of competent jurisdiction in the county in this state where the
registered office of the corporation is located requesting that the fair value
of such shares be determined. The court shall also determine whether each
dissenting shareholder, as to whom the corporation requests the court to make
such determination, is entitled to receive payment for his shares. If the
corporation fails to institute the proceeding as herein provided, any
dissenting shareholder may do so in the name of the corporation. All
dissenting shareholders (whether or not residents of this state), other than
shareholders who have agreed with the corporation as to the value of their
shares, shall be made parties to the proceeding as an action against their
shares. The corporation shall serve a copy of the initial pleading in such
proceeding upon each dissenting shareholder who is a resident of this state in
the manner provided by law for the service of a summons and complaint and upon
each nonresident dissenting shareholder either by registered or certified mail
and publication or in such other manner as is permitted by law. The
jurisdiction of the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court may, if
it so elects, appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall have
such power and authority as is specified in the order of their appointment or
an amendment thereof. The corporation shall pay each dissenting shareholder
the amount found to be due him within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair
rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined
by the court and shall be assessed against the corporation, but all or any part
of such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the
shares, if the court finds that the action of such shareholders in failing to
accept such offer was arbitrary, vexatious, or not in good faith. Such expenses
shall include reasonable compensation for, and reasonable expenses of, the
appraisers, but shall exclude the fees and expenses of counsel for, and experts
employed by, any party. If the fair value of the shares, as determined,
materially exceeds the amount which the corporation offered to pay therefor or
if no offer was made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court determines to be
reasonable compensation to any attorney or expert employed by the shareholder
in the proceeding.
5.
<PAGE> 174
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized by unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of
such dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
6.
<PAGE> 175
APPENDIX D
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
Section 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES;
CORPORATE PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market value shall
be determined as of the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares
which come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does
not apply to any shares with respect to which there exists any restriction on
transfer imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
1.
<PAGE> 176
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
Section 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS;
DEMAND FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation
to purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any
purpose unless it is received by the corporation or any transfer agent thereof
(1) in the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held
of record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement of
the proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT;
UNCERTIFICATED SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer
2.
<PAGE> 177
agent thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the
shares are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
Section 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
Section 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR
FAIR MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION;
DETERMINATION OF ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market value of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares
are dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or
be joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the
issues. If the status of the shares as dissenting shares is in issue, the
court shall first determine that issue. If the fair market value of the
dissenting shares is in issue, the court shall determine, or shall appoint one
or more impartial appraisers to determine, the fair market value of the shares.
3.
<PAGE> 178
Section 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the
time fixed by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and considered
on such evidence as the court considers relevant. If the court finds the
report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and
file a report within 10 days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at
the legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to
the appraisers to be fixed by the court, shall be assessed or apportioned as
the court considers equitable, but, if the appraisal exceeds the price offered
by the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301).
Section 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
4.
<PAGE> 179
Section 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
Section 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION;
WITHDRAWAL OF DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
Section 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment
of the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree
upon the status of the shares as dissenting shares or upon the purchase price
of the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the
corporation, withdraws the shareholder's demand for purchase of the dissenting
shares.
Section 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
5.
<PAGE> 180
Section 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
Section 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION;
CONDITIONS
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter, but if the shareholder
institutes any action to attack the validity of the reorganization or
short-form merger or to have the reorganization or short-form merger set aside
or rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
(c) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
6.
<PAGE> 181
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<PAGE> 182
THE ADMAR GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 23, 1996
The undersigned hereby appoints RICHARD T. TORAL and VIRGINIA PASCUAL, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of The Admar Group, Inc. (the
"Company") which the undersigned may be entitled to vote at the Annual Meeting
of Shareholders of the Company to be held at 1551 NORTH TUSTIN AVENUE, SUITE
300, SANTA ANA, CALIFORNIA 92705, ON FRIDAY, FEBRUARY 23, 1996 AT 9:00 A.M.,
local time, and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all other
matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3 AND FOR ALL NOMINEES LISTED IN PROPOSAL 4 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
PROPOSAL 1: To approve and adopt the Agreement and Plan of Merger, dated as of
October 27, 1995, by and among the Company, Principal Health Care,
Inc. and PHC Merging Company and to approve the Merger provided for
therein (the "Merger") (check one box).
FOR / / AGAINST / / ABSTAIN / /
PROPOSAL 2: To approve the Company's 1995 Employee Stock Purchase Plan (check
one box).
FOR / / AGAINST / / ABSTAIN / /
PROPOSAL 3: To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for its fiscal year ending January 31, 1996
(check one box).
FOR / / AGAINST / / ABSTAIN / /
(Continued and to be signed on other side)
<PAGE> 183
(Continued from other side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED
BELOW.
PROPOSAL 4: To elect directors, whether by cumulative voting or otherwise, to
hold office until the Merger is consummated or until the next Annual
Meeting of Shareholders and until their successors are elected
(check one box).
<TABLE>
<S> <C>
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to
(except as marked to the contrary below). vote for all nominees listed below.
</TABLE>
NOMINEES: Richard T. Toral, Virginia Pascual and John K. Tillotson, M.D.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
Dated: , 19
----------------
--------------------------
--------------------------
SIGNATURE(S)
Please sign exactly as
your name appears hereon.
If the stock is registered
in the names of two or
more persons, each should
sign. Executors,
administrators, trustees,
guardians and
attorneys-in-fact should
add their titles. If
signer is a corporation,
please give full corporate
name and have a duly
authorized officer sign,
stating title. If signer
is a partnership, please
sign in partnership name
by authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
