<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
REGISTRATION NO. 333-26207
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
PHP HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C>
DELAWARE 54-1023168
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
</TABLE>
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11440 COMMERCE PARK DRIVE
RESTON, VIRGINIA 20191
(703) 758-3600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
BEN ROSENBAUM III
SECRETARY AND GENERAL COUNSEL
11440 COMMERCE PARK DRIVE, RESTON, VIRGINIA 20191
(703) 758-3600
(Name, address, including zip code, and telephone number, including area code,
of registrant's agent for service)
------------------------------
Please send copies of all communications to:
ANDREW P. VARNEY, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVENUE, N.W., SUITE 800
WASHINGTON, D.C. 20004-2505
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after the effective date of the Registration Statement.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
(SEE FOLLOWING PAGE.)
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share, and
associated
Preferred Stock Purchase 7,532,266 $5.75-
Rights (3)................... shares (1) $12.6875(2) $95,373,437.38(2) $25,485.24(2)
</TABLE>
(1) Represents (i) 100,000 shares issuable upon the exercise of options that may
be granted under the PHP Healthcare Corporation 1998 Physicians' Stock
Option Plan (the "Plan"), (ii) 45,000 shares issuable upon the exercise of
an outstanding Warrant, dated November 1, 1992 (the "Warrant"), issued by
the Company, (iii) 500,150 shares issuable upon exercise of a warrant issued
by the Company to NationsBank, N.A., (iv) 1,825,858 shares held by Charles
H. Robbins, Ellen E. Robbins, Ellen E. Robbins, Trustee under Trust
Indenture dated October 1, 1985, FBO Caroline H. Robbins, Charles H.
Robbins, Grantor, Ellen E. Robbins, Trustee under Trust Indenture dated
October 1, 1985, FBO Lee S. Robbins, Charles H. Robbins, Grantor and Charles
B. Robbins (collectively, the "Robbins Family"), (v) 500,000 shares held by
Chase Manhattan Bank, John W. Kluge and Stuart Subotnick Trustees U/A DTD
5/30/84 As Amended made by and for John W. Kluge, and (vi) 4,561,258 shares
issuable upon conversion of (A) 70,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock") issued in a private
placement in December 1997 and (B) 700 shares of Series B Preferred Stock
issuable upon the exercise of warrants granted to the placement agents
(clauses (A) and (B) together, the "Conversion Shares"). The Conversion
Shares do not include fractional shares of Common Stock that the Company is
not required to issue upon conversion of the Series B Preferred Stock.
Although the number of Conversion Shares is currently indeterminable, for
purposes of calculating the number of shares of Common Stock included in
this Registration Statement, the Company calculated the number of Conversion
Shares based a conversion price of $15.50, which is the closing market price
on February 26, 1998. In accordance with Rule 416, this Registration
Statement also covers that number of additional shares of Common Stock that
may be offered or issued pursuant to terms which provide for a change in the
amount of shares of Common Stock being offered or issued to prevent dilution
resulting from stock splits, stock dividends or similar transactions.
(2) The registration fee for the 45,000 shares issuable upon the exercise of the
Warrant is based on exercise prices of $5.75, $7.50 and $12.00 per share, in
each case with respect to 15,000 shares. Pursuant to Rule 457(c), the
registration fee for the remaining 7,487,266 shares is based upon a price of
$12.6875 per share, the average of the high and low reported sales prices of
the Registrant's Common Stock, par value $.01 per share, as reported on the
NYSE on February 20, 1998. The registration fee paid hereby reflects the
total registration fee of $28,135.17 adjusted for the registration fee of
$2,649.93 paid by the Company on April 30, 1997 upon the initial filing of
this Registration Statement.
(3) The Preferred Stock Purchase Rights, which are attached to the shares of
Common Stock of the registrant, will be issued for no additional
consideration; no additional registration fee is required.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1998
PROSPECTUS
PHP HEALTHCARE CORPORATION
7,532,266 SHARES OF COMMON STOCK
------------------
Of the 7,532,266 shares of Common Stock offered hereby, 145,000 are being
sold by PHP Healthcare Corporation, a Delaware corporation ("PHP" or the
"Company"), and 7,387,266 shares are being sold by the Selling Stockholders
named under "Selling Stockholders." The 145,000 shares of Common Stock being
sold by the Company include (i) 100,000 shares (the "Option Shares") which may
be issued upon the exercise of stock options ("Options") granted from time to
time under the PHP Healthcare Corporation 1996 Physicians' Option Plan (the
"Plan") and (ii) 45,000 shares (the "Warrant Shares") which are issuable upon
the exercise of an outstanding Warrant, dated as of November 1, 1992 (the
"Warrant") issued by the Company. The 7,387,266 shares of Common Stock being
sold by Selling Stockholders include (i) 500,150 shares (the "NationsBank
Shares") issuable to NationsBank, N.A. ("NationsBank") upon excercise of a
Warrant granted to NationsBank (the "NationsBank Warrant"), (ii) 500,000 shares
(the "Kluge Shares") held by Chase Manhattan Bank, John W. Kluge and Stuart
Subotnick Trustees U/A DTD 5/30/84 As Amended made by and for John W. Kluge
("Kluge"), (iii) 4,561,258 shares issuable upon conversion of (A) 70,000 shares
of Series B Convertible Preferred Stock (the "Series B Preferred Stock") and (B)
700 shares of Series B Preferred Stock issuable upon the exercise of warrants
granted to the placement agents (the shares referred to in clauses (A) and (B)
together, the "Conversion Shares".) (Although the number of Conversion Shares is
currently indeterminable, the 4,561,258 shares referred to in this clause (iii)
was calculated based on a Conversion Price of $15.50, the closing market price
of the Company's common stock on February 26, 1998) and (iv) 493,400 shares (the
"Robbins Family Shares") held by Charles H. Robbins, the Company's former
Chairman and Chief Executive Officer, and certain members of his immediate
family or trusts for their benefit.
OPTION SHARES. Option Shares will be issued by the Company from time to
time, at the exercise price for the related Option granted under the Plan as and
if Options are exercised. Under the Plan, Options may be granted to directors,
officers, employees, consultants or advisors of the Company or its subsidiaries,
affiliates or associates and certain other eligible persons (excluding any
officer or director of the Company who is subject to the reporting requirements
of Section 16(a) under the Exchange Acts). The exercise prices and other terms
of such Options will be determined in accordance with the terms of the Plan. The
Plan provides that the purchase price per share under each Option granted
thereunder shall not be less than the par value of a Share on the date the
Option is granted. The Company has not granted any Options pursuant to the Plan
as of April 30, 1997. See "Description of the Plan" and "Plan of
Distribution--Option Shares."
WARRANT SHARES. The Warrant Shares will be issued by the Company from time
to time as and if the Warrant is exercised. The Warrant was granted on November
1, 1992 (the "Grant Date") and is exercisable for a period of seven years after
the Grant Date. The Warrant entitles the holder to purchase 15,000 Warrant
Shares at an exercise price of $5.75 per share, 15,000 Warrant Shares at an
exercise price of $7.50 per share, and 15,000 Warrant Shares at an exercise
price of $12.00 per share, subject to adjustment in certain circumstances. See
"Plan of Distribution--Warrant Shares."
NATIONSBANK SHARES. The NationsBank Shares will be issued by the Company
from time to time as and if the NationsBank Warrant is exercised. The
NationsBank Warrant was granted on October 31, 1997 and is exercisable at any
time until October 31, 2007. The NationsBank Warrants entitle the holder(s)
thereof to acquire 500,150 NationsBank Shares, subject to adjustment in certain
circumstances. See "Plan of Distribution--NationsBank Shares."
KLUGE SHARES. The Kluge Shares were sold to Chase Manhattan Bank, John W.
Kluge and Stuart Subotnick Trustees U/A DTD 5/30/84 As Amended made by and for
John W. Kluge pursuant to Stock Purchase Agreements dated as of April 28, 1997
between (i) the Company and Kluge, dated as of April 28, 1997, as to 200,000 of
the Kluge Shares and (ii) Charles H. Robbins and Kluge, dated as of May 2, 1997,
as to 300,000 of the Kluge Shares. The Kluge Shares were acquired at a price of
$13.00 per share. The Kluge Shares may be offered by Kluge from time to time by
open market transactions, registered transactions or a combination of such
methods of sale, at fixed prices, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. See
"Plan of Distribution--Kluge Shares."
CONVERSION SHARES. The Conversion Shares consist of an estimated 4,561,258
shares of Common Stock that will be issued by the Company from time to time upon
the conversion of the Series B Preferred Stock, which was issued in a private
placement completed on December 30, 1997. See "Plan of Distribution--Conversion
Shares." The number of the Conversion Shares offered hereby is an estimate based
upon (i) Conversion Price of $15.50 the closing market price of Common Stock on
February 26, 1998, (ii) the exercise of the Convertible Stock Warrants as of the
date of their issue and (iii) the conversion of all outstanding shares of Series
B Preferred Stock. This number is subject to adjustment and could be materially
more or less than such estimated amount depending on factors that cannot be
predicted by the Company at this time, including, without limitation, the future
market price of the Common Stock and the decision of the holders of the Series B
Preferred Stock as to when and in what amounts to convert their shares of Series
B Preferred Stock. This presentation is not intended to constitute a prediction
as to future market price of the Common Stock or when and in what amount holders
of the Series B Preferred Stock will elect to convert their shares. See "Risk
Factors--Effect of Conversion of Series B Preferred Stock; Description of
Capital Stock--Series B Preferred Stock."
ROBBINS FAMILY SHARES. The Robbins Family Shares consist of (i) 1,423,458
shares held by Charles H. Robbins, (ii) 100,000 shares held by Ellen E. Robbins,
individually, (iii) 93,400 shares held by Ellen E. Robbins, Trustee under Trust
Indenture dated October 1, 1985, FBO Caroline H. Robbins, Charles H. Robbins,
Grantor, (iv) 100,000 shares held by Ellen E. Robbins, Trustee, under Trust
Indenture dated October 1, 1985, FBO Lee S. Robbins, Charles H. Robbins, Grantor
and (v) 109,000 shares held by Charles B. Robbins. The Robbins Family Shares may
be offered by the Robbins Family from time to time by open market transactions,
negotiated transactions, or a combination of such methods, at fixed prices, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. See "Plan of Distribution--Robbins Family
Shares."
The Option Shares, the Warrant Shares, the NationsBank Shares, Kluge Shares,
Conversion Shares and the Robbins Family Shares are collectively referred to
herein as the "Shares."
The Common Stock is traded on the New York Stock Exchange under the symbol
PPH. On February 26, 1998, the closing price of the Common Stock as reported by
the New York Stock Exchange was $15.50 per share.
The Company will use the net proceeds from the sales of the Option Shares
and Warrant Shares for general corporate purposes. The Company will not receive
any of the proceeds from the sale of shares by the Selling Stockholders. For a
description of certain income tax consequences to holders of the Options and the
Option Shares issued upon the exercise thereof, see "Certain United States
Federal Income Tax Consequences."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W, Washington D.C. 20549 and
at the Commission's Regional Offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549, at prescribed rates. Such materials can also be
inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (such registration statement, together with all amendments and exhibits
thereto, being hereinafter referred to as the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), for the
registration under the Securities Act of the Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement for further information with respect to the Company and the securities
offered hereby. Statements contained herein concerning the provisions of
documents filed as exhibits to the Registration Statement are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. Copies of the Registration Statement and the exhibits may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and made a part hereof: the Company's Annual Report on Form 10-K and Form 10-K/A
for the fiscal year ended April 30, 1997, the Company's Quarterly Reports on
Form 10-Q for the three months ended July 31, 1997 and October 31, 1997, the
Company's Current Report on Form 8-K and Form 8-K/A, dated November 17, 1997 and
January 20, 1998, respectively, and the Company's Current Report on Form 8-K
dated January 6, 1998, and the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A, Amendment 1,
filed on August 11, 1992, including any amendments or reports filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents which have been incorporated by reference in this
Prospectus, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to: Anthony M. Picini, Executive
Vice President, PHP Healthcare Corporation, 11440 Commerce Park Drive, Reston,
Virginia 20191, telephone (703) 758-3600.
2
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in the
documents incorporated herein by reference, prospective purchasers of the Shares
should carefully consider the factors set forth below before purchasing the
Shares.
CAPITATED NATURE OF REVENUE
The Company provides a portion of its services on a capitated basis, and the
Company intends to negotiate additional capitated agreements with managed care
organizations or assume such contracts in connection with its affiliation with
primary care practices. Such contracts, typically referred to as "risk sharing"
contracts, are arrangements between the Company and another managed care
organization under which the Company agrees to provide certain health care
services, as required by members of such managed care organization, in exchange
for a fixed fee per member per month. Under these contracts, the Company bears
the risk that the cost of the services it is required to provide will exceed the
fixed fees it is entitled to receive. In order for such risk sharing contracts
to be profitable for the Company, the Company must effectively manage the
utilization rate of primary care services, specialty physician services, and
hospital services delivered to members of the managed care organization. There
can be no assurance that the capitation fees that the Company will receive will
be sufficient to recover the costs of the health care services it will be
required to provide.
DEPENDENCE ON PRIMARY CARE PHYSICIANS
Primary care physicians are a key operating component of the Company's
integrated health care delivery networks. The Company competes for exclusive
primary care physician affiliations with a variety of networks including group
practices, IPAs, HMOs, practice management companies and hospitals. Most primary
care physicians have traditionally practiced independently or in small single
specialty groups. The competitive and operational disadvantages to the physician
of this type of practice structure have compelled many of these physicians to
evaluate alternatives. The process of negotiating these affiliations is
competitive, complex and time-consuming. There can be no assurance that the
Company will continue to be able to identify and secure affiliations with a
sufficient number of primary care physicians to operate its integrated health
care delivery networks effectively.
DEPENDENCE ON CERTAIN RELATIONSHIPS
Effective October 31, 1997, the Company completed the acquisition of 18
health care centers and related assets from HIP of New Jersey, Inc. ("HIP") for
approximately $80 million including transaction costs (the "HIP Transaction").
HIP is a New Jersey not-for-profit health maintenance organization. In
connection with the acquisition, the Company also entered into a Health Services
Agreement with HIP. Pursuant to the Health Services Agreement, PHP will arrange
for the provision of health care services for more than 200,000 HIP members over
the next 20 years on a capitated basis, with the capitation payments calculated
as a percentage of the premiums collected by HIP. The percentage of premiums
will decrease gradually over the first five years of the contract and will
remain fixed for the last 15 years of the agreement. Based upon HIP's current
premium rates and enrollment, the Company is currently receiving capitation
payments and other revenues of approximately $30 million per month. In addition
to arranging for medical care, the Company will also be delegated the
responsibility for certain administrative functions, including provider
relations, utilization management and claims payment. The Health Services
Agreement has a 20-year term and may be renewed for successive 5-year periods.
This agreement also permits HIP to buy out the contract after December 31, 2000
and prior to December 31, 2003, at a price equal to the greater of (i) the
unamortized purchase price paid by the Company or (ii) the value of the
agreement through the end of the initial 20-year term. For the year ended April
30, 1997 and for the six months ended October 31, 1997, on a pro forma basis
after giving effect to the HIP Transactions, approximately 60% and
3
<PAGE>
60.6%, respectively, of the Company's revenues and an even greater percentage of
gross profits would be derived from the HIP relationship. The termination of the
Health Service Agreement would have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, the Company has two contracts, one with the District of
Columbia Department of Human Services ("DCDHS") (concerning the Company's
Medicaid HMO in the District of Columbia) and one with the Medigroup, Inc., a
wholly owned subsidiary of BCBSNJ (related to the provision of health care
services to BCBSNJ beneficiaries under a global capitation arrangement) which,
for the year ended April 30, 1997 and for the six months ended October 31, 1997,
accounted for 33.5% and 30.8%, respectively, of the Company's revenues, and an
even greater percentage of the Company's gross profits. On a pro forma basis
after giving effect to the HIP Transaction, for the year ended April 30, 1997
and for the six months ended October 31, 1997, these two contracts accounted for
13.4% and 12.1%, respectively, of the Company's revenues. The DCDHS contract and
the BCBSNJ contract individually accounted for 19.8% and 13.7%, respectively, of
the Company's revenues in fiscal 1997 and 16.3% and 14.5 %, respectively, of the
Company's revenues for the six months ended October 31, 1997. On a pro forma
basis after giving effect to the HIP Transaction, for fiscal year 1997 and the
six months ended October 31, 1997, the DCDHS contract and the BCBSNJ contract
individually accounted for 7.9% and 5.5%, and 6.4% and 5.7%, respectively. The
loss of either the DCDHS contract or the BCBSNJ contract would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's accounts receivable as of October 31, 1997 include gross
amounts due from the DCDHS and the United States Department of Health and Human
Services totalling $23.3 million related to the cost settlement for the
three-year contract period ended September 30, 1994, and related to the cost
settlement for the contract period beginning October 1, 1994. In the quarter
ending January 31, 1997, the Company established a reserve of $9.8 million
against its Medicaid receivable from DCDHS, principally relating to services
provided during the period 1992 through 1994, resulting in a net receivable of
$13.5 million. The Company cannot predict when or whether any of the unreserved
amounts will be paid. The failure of the Company to collect such amounts would
have a material adverse effect on the Company's business, financial condition
and results of operations.
For several years the Company engaged in on-going good faith discussions and
negotiations with the District regarding the amounts due for the 1992 through
1994 contract periods. In February 1997, that process ultimately resulted in an
agreement to settle these amounts due the Company for $18.9 million. The
agreement was signed and approved by two different departments in the District
government, but required approval for payment by the District's Chief Financial
Officer. In early March 1997, through comments in the local press, the Company
learned that the Chief Financial Officer was not going to approve payment.
Consequently, in light of the clearly prolonged timeframe to resolve the issues
surrounding payment of these receivables, and in particular to receive a formal
response from the District providing substantiation for the denial of payment,
the Company has determined to recognize reserves of $9.8 million in the quarter
ended January 31, 1997 against its Medicaid receivables from the District of
Columbia, principally relating to services provided during the 1992 to 1994
contract periods. The Company remains committed to pursuing its contractual
rights for the amounts it is due from the District. No further resolution or
final determination of the amounts due have been forthcoming from the District.
LIMITATIONS ON THIRD PARTY REIMBURSEMENT
A major portion of the Company's revenues is derived from governmental
programs. In particular, for the year ended April 30, 1997 and the six months
ended October 31, 1997, approximately 26.5% and 26.4%, respectively, of the
Company's revenues (10.6% and 10.4%, respectively, on a pro forma basis after
giving effect to the HIP Transaction) were derived from the Medicaid program, a
cooperative state-federal program for medical assistance to the needy.
Reflecting a trend in the health care industry, third party payors increasingly
are negotiating with health care providers such as the Company concerning the
prices charged for medical services, with the goal of lowering reimbursement and
utilization rates. There can be
4
<PAGE>
no assurance that any future reduction in reimbursement rates would be offset
through enhanced operating efficiencies, or that any such enhancement of
operating efficiencies would occur. Third party payors may also deny
reimbursement if they determine that a treatment was not performed in accordance
with the cost-effective treatment methods established by such payors, was
experimental, or for other reasons.
Congress continues to make cutbacks in the Medicare and Medicaid programs
providing for reductions in the rate of spending increases in the Medicare and
Medicaid programs. These cutbacks, budgetary constraints at both the federal and
state levels, and increasing public and private sector pressures to contain
health care costs are likely to continue to lead to significant reductions in
government and other third party reimbursements for medical charges which could
adversely affect the Company.
GOVERNMENT REGULATION
UNCERTAINTY RELATED TO REGULATORY ENVIRONMENT.
Virtually all aspects of the health care industry are subject to extensive
federal and state regulation. Various federal and state laws, which are
interpreted and enforced by courts and regulatory authorities with broad
discretion, regulate the relationships between the Company and its affiliated
physicians, hospitals and ancillary health care providers. These laws include
(i) the anti-fraud and abuse provisions of the Medicaid and Medicare statutes,
which prohibit certain business practices and relationships that may affect the
provision and cost of health care services reimbursable under the Medicaid and
Medicare programs, including the solicitation, payment, receipt or offering of
any direct or indirect remuneration for the referral of patients or for the
provision of goods or services; (ii) the anti-kickback provisions of the Social
Security Act, which restrict physician referrals to certain providers, including
hospitals, with which the physician has a financial arrangement; (iii) the laws
of some states, which prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from engaging in the practice
of medicine; (iv) the laws of most states, which regulate the business of
insurance and the operation of HMOs; (v) federal antitrust laws, which prohibit
anti-competitive conduct, including price fixing, concerted refusals to deal and
division of market; and (vi) federal and state civil and criminal statutes which
prohibit health care providers from fraudulently or wrongfully overcharging
governmental or other third party payors for health care services. Violations of
these laws could result in substantial civil or criminal penalties, exclusion
from the Medicaid and Medicare programs, and suspension or debarment from
obtaining government contracts. Although the Company seeks to structure its
operations and arrange its business relationships so as to comply with all
applicable legal requirements (including the laws and regulations mentioned
above), there can be no assurance that, upon review of the Company's business,
courts or regulatory authorities might not adopt or assert a contrary position,
that the Company's present or future operations might not be successfully
challenged as violating, or determined to have violated, such legal
requirements, or that new laws and regulations, or the interpretation of
existing laws and regulations, might not require the Company to restructure some
or all of its operations or adversely effect the Company's business
relationships. Any such result could have a material adverse effect on the
Company.
POTENTIAL FEDERAL AND STATE INVESTIGATIONS.
As part of the pervasive regulation of the health care industry by federal
and state governments, these governments have begun intensive investigations and
audits of health care providers to determine whether the providers are
overcharging for medical services and procedures for Medicare and Medicaid
patients. In cases in which the overcharging is deemed intentional and meets
other criteria, the federal or state government may seek criminal, civil, or
administrative sanctions against health care providers. This could result in
exclusion from the Medicare and Medicaid programs and could result in suspension
or debarment from government contracts. Any such exclusion, suspension or
debarment of the Company could have a material adverse effect upon the Company's
business.
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TRUTH IN NEGOTIATIONS ACT.
Under the Truth in Negotiations Act, the federal government is entitled for
three years after final payment on certain negotiated contracts or contract
modifications to examine all of the Company's cost records with respect to such
contracts to determine whether the Company furnished complete, accurate, and
current cost or pricing data to the government in connection with the
negotiation of the price of the contract or modification. The federal government
also has the right for up to six years after final payment to seek a downward
adjustment to the price of a contract or modification if it determines that the
contractor failed to disclose complete, accurate and current data.
UNCERTAINTY RELATING TO HEALTH CARE REFORM.
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation thus far, there are
currently numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services,
including a number of proposals that would significantly limit reimbursement
under Medicare and Medicaid. It is not clear at this time what proposals, if
any, will be adopted or, if adopted, what effect such proposals would have on
the Company's business. There can be no assurance that currently proposed or
future health care legislation or other changes in the administration or
interpretation of governmental health care programs will not have an adverse
effect on the Company.
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems are critical to its ability to
manage care efficiently and to be competitive in the market. The Company relies
on these systems to support practice operations and to facilitate the management
and monitoring of clinical performance. Clinical guidelines, practice protocols,
case management and utilization review systems are all essential to the
Company's ability to secure, and operate profitably under, capitated and
shared-risk contracts. There can be no assurance that the Company will be able
to refine and enhance these systems to keep them current and competitive.
HISTORICAL LOSSES
The Company reported net losses of $4.1 million, $9.3 million and $3.8
million for the fiscal years ended April 30, 1997, 1994 and 1993, respectively.
Although the Company was profitable for the six months ended October 31, 1997,
and the fiscal years ended April 30, 1996 and 1995, there can be no assurance
that it will operate profitably in the future, or have earnings or cash flow
sufficient to comply with the financial covenants to which it is subject or to
cover its fixed charges. As a consequence of the losses reported in fiscal 1993,
1994, and 1997 the Company failed to comply with certain financial covenants
under its credit agreement. The Company obtained waivers for such noncompliance
and the Company's bank modified the applicable financial covenants. In the
future, any failure by the Company to comply with the financial covenants
contained in its credit agreement (or in any replacement credit facility) could
result in a default under such facility which could have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON GOVERNMENT CONTRACTS
Contracts with various federal, state and local government agencies
(excluding agreements concerning the Company's Medicaid HMO in the District of
Columbia) accounted for approximately 41.9% and 30.9% of the Company's revenues
for the year ended April 30, 1997 and the six months ended October 31, 1997,
respectively (16.7% and 12.2%, respectively, on a pro forma basis after giving
effect to the HIP Transaction). Revenues from contracts and subcontracts with
the United States Department of Defense accounted for approximately 20.6% and
18.5% of the Company's revenues for the year ended April 30,
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1997 and the six months ended October 31, 1997, respectively (8.2% and 7.3%,
respectively, on a pro forma basis after giving effect to the HIP Transaction).
These contracts are obtained primarily through the competitive bidding process
as governed by applicable federal and state statutes and regulations, and
generally may be modified or terminated for the convenience of the government
agency at any time during the term of the contract. Contracts are generally
awarded for a base period of less than one year and corresponding with the
government agency's fiscal year, have two-to-four one-year renewals at the
option of the government agency, and are subject to appropriation of funds
annually by the appropriate legislative body. There is, therefore, no assurance
that the Company will be able to retain its contracts or, if retained, that all
of such contracts will be fully funded.
Under the competitive bidding process, unsuccessful bidders may protest the
award of a contract to another bidder in accordance with a government appeals
process if they believe the award was improper. Such protests could result in
the rebidding, delay or loss of contracts. In addition, contracts with
government agencies are generally complex in nature and subject contractors to
extensive regulation under federal, state and local law. For example, government
contractors are subject to audits which can result in adjustments to contract
costs and fees.
The Company believes that it has complied in all material respects with
applicable government regulations. In certain circumstances in which a
contractor has not complied with the terms of a contract or with regulations or
statutes, the contractor may be debarred or suspended from obtaining future
contracts for a specified period of time. Moreover, pursuant to recent statutes
and regulations, a suspension or debarment from obtaining future federal
contracts will also result in a reciprocal suspension or debarment from
participation in non-procurement federal programs, such as Medicare, Medicaid,
and other federally-funded grant programs. Any such suspension or debarment of
the Company could have a material adverse effect upon the Company's business.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the skill and efforts of its senior
management. The loss of key management personnel or the inability to attract,
retain and motivate sufficient numbers of qualified management personnel could
adversely affect the Company's business.
COMPETITION
The managed care industry is highly competitive and is subject to continuing
changes in how services are provided and how providers are selected and paid.
Increased enrollment in prepaid health care plans due to health care reform or
for other reasons, increased participation by physicians in group practices and
other factors may attract new entrants into the managed care industry and result
in increased competition for the Company. Certain of the Company's competitors
are significantly larger, have substantially greater financial resources and may
have longer established relationships with payors than the Company. There can be
no assurance that the Company will be able to compete effectively, that
additional competitors will not enter the market, or that such competition will
not make it more difficult to develop, consolidate and manage integrated health
care delivery networks on terms beneficial to the Company.
EXPOSURE TO PROFESSIONAL LIABILITY
Due to the nature of the Company's business, there are asserted from time to
time medical malpractice lawsuits and other claims against the Company, some of
which are currently pending, which subjects the Company to the attendant risk of
substantial damage awards. The most significant source of potential liability in
this regard is the negligence of physicians employed or contracted by the
Company. To the extent such physicians are employees of the Company or were
regarded as agents of the Company in the practice of medicine, the Company
would, in most instances, be held liable for their negligence. In addition, the
Company could be found in certain instances to have been negligent in performing
its
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management services under contractual arrangements, even if no agency
relationship with the physician were found to exist. In some cases, the
Company's contracts with hospitals and third party payors require the Company to
indemnify such other parties for losses resulting from the negligence of
physicians who were employed or managed by or affiliated with the Company.
The Company maintains professional and general liability insurance on a
claims made basis in amounts deemed appropriate by management, based on
historical claims and the nature and risks of its business. There can be no
assurances, however, that an existing or future claim or claims will not exceed
the limits of available insurance coverage, that any insurer will remain solvent
and able to meet its obligations to provide coverage for any such claim or
claims or that such coverage will continue to be available or available with
sufficient limits and at a reasonable cost to adequately and economically insure
the Company's operations in the future. A judgment against the Company in excess
of such coverage could have a material adverse effect on the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has experienced a high degree of
volatility. There can be no assurance that such volatility will not continue or
become more pronounced. In addition, recently the stock market has experienced,
and is likely to experience in the future, significant price and volume
fluctuations which could adversely affect the market price of the Common Stock
without regard to the operating performance of the Company. The Company believes
that factors such as quarterly fluctuations in the financial results of the
Company or its competitors and general conditions in the industry, the overall
economy and the financial markets could cause the price of the Common Stock to
fluctuate substantially.
EFFECT OF CONVERSION OF SERIES B PREFERRED STOCK
In December 1997, the Company sold 70,000 shares of Series B Preferred Stock
to accredited investors in a private placement. See "Recent Developments --
Private Placement." The exact number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock depends on the Conversion Price in
effect at the time of conversion. Because the Conversion Price is equal to the
lowest reported trade over a specified period of trading days adjusted for a
certain discount, the number of shares of Common Stock issuable upon conversion
will vary inversely with the market price of the Company's Common Stock. Holders
of the Common Stock will be diluted by any issuances of Common Stock upon
conversion of the Series B Preferred Stock and may be substantially diluted
depending upon the market price of the Common Stock.
As noted above, the exact number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock cannot currently be determined but
such issuances will vary inversely with the market price of the Common Stock,
and such shares will be issued at a discount which increases to 9% if Series B
Preferred Stock is held through the last day of the eleventh month after
issuance. The current holders of Common Stock will be diluted by issuances of
Common Stock upon conversion of the Series B Preferred Stock to an extent that
depends on the future market price of the Common Stock, the timing of
conversions of Series B Preferred Stock and exercise of the related placement
agent warrants, and whether the Company opts to pay cash in lieu of additional
shares of Common Stock upon conversion of Series B Preferred Stock. The
potential effects of any such dilution on the existing shareholders of the
Company include the significant diminution of the current shareholders' economic
and voting interests in the Company. In addition, pursuant to the terms of the
Series B Preferred Stock purchase agreement and depending upon the Conversion
Price, the Company may be required to register additional shares of Common Stock
to cover the conversion of the Series B Preferred Stock. The registration and
sale of such additional shares of the Common Stock of the Company, or the
prospect thereof, could have a material adverse affect on the market price of
the Common Stock.
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FAILURE TO OBTAIN STOCKHOLDER APPROVAL FOR ISSUANCE OF ADDITIONAL SHARES
The rules of the New York Stock Exchange ("NYSE") require, as a condition to
listing, that issuers obtain stockholder approval of the issuance of additional
shares of Common Stock equal to 20% or more of the number of shares or voting
power then issued and outstanding. The Company intends to seek the approval of
its stockholders of the issuance of Common Stock issuable upon conversion of the
Series B Preferred Stock in accordance with its listing agreement with the NYSE.
It is presently expected that such approval will be sought at a special meeting
of stockholders to be called solely for that purpose.
If the stockholder approval sought is not obtained, the Company will be
prohibited under the terms of its listing agreement with the NYSE from issuing
more than an aggregate of approximately 2,300,000 shares (plus any listed shares
then held in the Company's treasury) of Common Stock in connection with the
conversion of the Series B Preferred Stock (slightly less than 20.0% of the
shares of Common Stock outstanding on the date of the private placement). If the
approval sought is not granted by stockholders or if such approval is not for
any reason received by May 31, 1998, the Company will be obligated to redeem, at
the Special Redemption Price (as defined below), Series B Preferred Stock which,
in its reasonable judgment, will permit conversion of the remaining shares of
Series B Preferred Stock without breaching any obligation of the Company under
the Company's listing agreement with the NYSE. The "Special Redemption Price"
means a cash payment equal to 110% of the liquidation preference of such shares.
Such redemption must be completed within 15 days of the event which required
such redemption. After issuance of all such shares of Common Stock, the Company
will be required upon conversion of shares of Series B Preferred Stock in
accordance with the terms thereof to redeem such shares at the Special
Redemption Price. Any delay in payment will cause such redemption amount to
accrue interest at the rate of 0.1% per day until paid.
Under the terms of the Series B Preferred Stock purchase agreements (the
"Preferred Stock Agreements"), the amount of cash which the Company would be
required to return in the event of stockholder disapproval will depend on the
per share market price on the Common Stock on the date such payment must be
made. Because of the manner in which the Conversion Price is determined under
the Preferred Stock Agreement, the number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock will increase if the market
price of the Common Stock decreases. Accordingly, if the market price of the
Common Stock decreases, the number of shares of Series B Preferred Stock which
could not be converted into Common Stock would increase and the amount of cash
that the Company would be required to pay to holders of the Series B Preferred
Stock would increase. There can be no assurance that the Company will have
available the cash resources to satisfy future obligations which might arise
depending on the future market price of the Common Stock, or that such payments
would not have a material adverse effect on the Company's financial position or
ability to execute its growth plans.
CONTROL BY MANAGEMENT AND CERTAIN STOCKHOLDERS
As of February 20, 1998, certain of the Company's executive officers and
directors and related entities (the "Shareholders") currently hold an aggregate
of approximately 12.0% of the outstanding Common Stock (23.7% including shares
issuable upon the exercise of options or the conversion of convertible
securities held by such persons and exercisable or convertible within 60 days)
and may exercise a controlling influence over the outcome of matters submitted
to the Company's stockholders for approval. In addition, pursuant to the terms
of an Employment Agreement (the "Employment Agreement") entered into as of
February 24, 1997 between the Company and Charles H. Robbins, the Company's
former Chairman and Chief Executive Officer, Mr. Robbins and his wife, Ellen
Robbins, agreed to vote Common Stock beneficially owned by them, at their
option, either (i) in accordance with the recommendation of the Board of
Directors of the Company or (ii) pro rata in the same manner and proportion that
votes of the other stockholders of the Company have been cast. Mr. and Mrs.
Robbins have agreed to vote in such a manner until the earlier of (i) January
31, 1999 or (ii) a Change of Control (as defined in the Employment Agreement).
Including the Common Stock beneficially owned by Mr. and Mrs. Robbins, the
Shareholders
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have voting control of an aggregate 26.3% of the Outstanding Common Stock (36.1%
including shares issuable upon the exercise of options or the conversion of
convertible securities held by the Shareholders and the Robbins and exercisable
or convertible within 60 days). As a result, such executive officers, directors
and related entities collectively may have the power to delay, defer or prevent
a change in control of the Company.
ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Company's certificate of incorporation, by-laws
and Delaware law could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. These provisions include a classified Board of Directors, the
ability of the Board of Directors to authorize the issuance, without further
stockholder approval, of preferred stock with rights and privileges which could
be senior to the Common Stock, elimination of the stockholders' ability to take
any action without a meeting, and establishment of certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings. In addition,
the Company has distributed preferred stock purchase rights which could cause
substantial dilution to a person or group that attempts to acquire a controlling
interest in the Company. The Company is also subject to Section 203 of the
Delaware General Corporation Laws which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an "interested
stockholder." See "Description of Capital Stock."
RISKS ASSOCIATED WITH "FORWARD-LOOKING" STATEMENTS
This Prospectus contains and incorporates by reference certain statements
that are "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Those statements include,
among other things, the discussions of the Company's business strategy and
expectations concerning the Company's market position, future operations,
margins, profitability, liquidity and capital resources. Investors in the Common
Stock offered hereby are cautioned that reliance on any forward-looking
statement involves risks and uncertainties, and that although the Company
believes that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be incorrect. The uncertainties in this regard include,
but are not limited to, those identified in the risk factors discussed above. In
light of these and other uncertainties, the inclusion of a forward-looking
statement herein should not be regarded as a representation by the Company that
the Company's plans and objectives will be achieved.
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THE COMPANY
GENERAL
PHP develops, consolidates and manages integrated health care delivery
networks. Through its networks of affiliated group and independent practice
association ("IPA") physicians, hospitals and ancillary health care providers,
the Company markets and provides primary and specialty health care services to
third party payors, self-insured employers and government agencies. As of
January 31, 1998, PHP was operating 100 healthcare projects in 31 states and was
affiliated with over 7,500 physicians through network, employment and a variety
of other arrangements, providing health care resulting in over two million
patient visits per year.
PHP was organized as a Delaware corporation in January 1986 and succeeded to
the business of a predecessor corporation by merger in March 1986. The Company's
corporate headquarters is located at 11440 Commerce Park Drive, Reston,
Virginia, 20191, and its telephone number at that address is (703) 758-3600.
Unless the context otherwise requires, all references herein to the "Company"
include PHP and its subsidiaries.
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USE OF PROCEEDS
The net proceeds from the sale of the Option Shares and the Warrant Shares,
as and if received, will be used by the Company for general corporate purposes.
The Company will not receive any proceeds from any sales of the Robbins
Family Shares, the Kluge Shares, the NationsBank Shares or the Conversion
Shares.
DESCRIPTION OF THE PLAN
The following description of the Plan and its administration is qualified in
its entirety by reference to the full text of the Plan, a copy of which is an
exhibit to the Registration Statement.
PURPOSE OF THE PLAN
The purpose of the Plan is to strengthen the Company by providing an
incentive to certain directors, officers, employees, and certain consultants and
advisors of the Company and its Affiliates, Associates and Subsidiaries (each as
defined under Rule 12b-2 under the Exchange Act) and thereby encouraging them to
devote their abilities and industry to the success of the Company's business
enterprise.
SHARES AVAILABLE FOR ISSUANCE
The maximum number of Shares that may be issued under the Plan is 100,000.
Unexercised Options that expire, terminate or are canceled become again
available for Options under the Plan.
ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") whose
members are appointed by the Board of Directors of the Company. The Committee
shall consist of at least two officers or directors of the Company and may
consist of the entire Board. Subject to the terms and conditions of the Plan,
the Committee shall have the power from time to time to, among other things,
construe and interpret the Plan and the Options granted under the Plan to
correct defects, omissions and inconsistencies in the Plan, and to establish,
amend and revoke rules and regulations for the administration of the Plan. All
decisions and determinations by the Committee are final, binding and conclusive
upon the Company, its Subsidiaries, persons granted Options under the Plan
("Optionees"), and all other persons having any interest therein.
The Committee acts as manager of, and not trustee of, the Plan. Members of
the Committee or the Board of Directors receive no compensation for their
services in connection with their administration of the Plan. As of the date of
this Prospectus, the members of the Board of Directors and the Committee are
listed in the Company's Annual Report on Form 10-K. Requests for additional
information should be directed to Anthony M. Picini, Executive Vice President
and Chief Financial Officer, PHP Healthcare Corporation, 11440 Commerce Park
Drive, Reston, VA, 20191.
ERISA; INTERNAL REVENUE CODE
The Plan is not subject to the Employee Retirement Income Security Act of
1974 ("ERISA") and is not qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Options granted under the Plan may only
be nonqualified stock options. See "Certain United States Federal Income Tax
Consequences" below for information concerning the tax treatment of Options and
the Shares issued upon the exercise thereof.
ELIGIBILITY
The Plan provides that Options may be granted to any director, officer,
employee, consultant or advisor of the Company, any Subsidiary, Affiliate or
Associate of the Company or to any person with whom the Company or any
Subsidiary, Affiliate or Associate has a management or services agreement
including, without limitation, (i) any duly licensed doctor of medicine who
provides health care services in
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any health care network, plan or product sponsored or administered by the
Company or any Subsidiary, Affiliate or Associate, or (ii) any professional
medical corporation, the employees of which include a duly licensed doctor of
medicine who provides health care services in any health care network plan or
product sponsored or administered by the Company or any Subsidiary, Affiliate or
Associate ("Eligible Person"). Notwithstanding the foregoing, the term "Eligible
Person" shall not include any officer or director of the Company who is subject
to reporting under Section 16(a) of the Exchange Act.
Subject to the terms and conditions of the Plan, the Committee shall
determine the Eligible Persons to whom Options shall be granted under the Plan
and the number of such Options to be granted, and prescribe the terms and
conditions of each such Option, including the purchase price per Share subject
to each Option. The Plan does not provide for a maximum or minimum number of
shares of Common Stock that may be granted under Options to any Eligible Person.
TERMS AND CONDITIONS OF OPTIONS
Each grant of an Option under the Plan shall be evidenced by a Stock Option
Agreement ("Agreement") between the Optionee and the Company, and is subject to
the following additional terms and conditions:
PURCHASE PRICE. The purchase price per Share under each Option granted
under the Plan shall be determined by the Committee and shall not be less than
the par value of a Share on the date the Option is granted.
MAXIMUM DURATION. Options granted under the Plan shall be for such term as
the Committee shall determine, provided that an Option shall not be exercisable
after the expiration of ten (10) years from the date it is granted.
VESTING. Each Option shall become exercisable in such installments and at
such times as may be designated by the Committee and set forth in the Agreement
and may be exercised in whole or in part, at any time after becoming
exercisable, but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.
MODIFICATION. The Committee may amend or modify any Agreement in any manner
consistent with the terms of the Plan, provided that no modification of an
Option may adversely alter or impair any rights or obligations under the Option
without the Optionee's consent.
NON-TRANSFERABILITY. No Option granted under the Plan shall be transferable
by the Optionee to whom granted except by will or the laws of descent and
distribution, and an Option may be exercised during the lifetime of such
Optionee only by the Optionee or his or her guardian or legal representative.
The terms of such Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee.
METHOD OF EXERCISE. The exercise of an Option shall be made only by a
written notice delivered in person or by mail to the Secretary of the Company at
the Company's principal executive office, specifying the number of shares to be
purchased and accompanied by payment therefor and otherwise in accordance with
the Agreement pursuant to which the Option was granted. The purchase price for
any Shares purchased pursuant to the exercise of an Option shall be paid in full
in cash upon such exercise. Notwithstanding the foregoing, the Committee shall
have the discretion to determine at the time of grant of each Option or at any
later date (up to and including the date of exercise) that the form of payment
acceptable in respect of the exercise of such Option may consist of either of
the following (or any combination thereof): (i) cash or (ii) the transfer of
Shares to the Company upon such terms and conditions as determined by the
Committee. Any Shares transferred to the Company as payment of the purchase
price under an Option shall be valued at their Fair Market Value on the day
preceding the date of exercise of such Option. In addition, Options may be
exercised through a registered broker-dealer pursuant to such cashless exercise
procedures (other than Share withholding) which are, from time to time,
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deemed acceptable by the Committee. No fractional Shares (or cash in lieu
thereof) shall be issued upon exercise of an Option and the number of Shares
that may be purchased upon exercise shall be rounded to the nearest number of
whole Shares.
RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose to be the
owner of any Shares subject to any Option unless and until (i) the Option shall
have been exercised pursuant to the terms thereof, (ii) the Company shall have
issued and delivered Shares to the Optionee and (iii) the Optionee's name shall
have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend, and other ownership
rights with respect to such Shares, subject to such terms and conditions as may
be set forth in the applicable Agreement.
EFFECT OF A TERMINATION OF SERVICE
The Agreement evidencing the grant of each Option shall set forth the terms
and conditions applicable to such Option upon a termination or change in the
Optionee's status as an Eligible Person, including a termination or change by
reason of the sale of the Company's interest in any Subsidiary, Affiliate,
Associate or Division, which shall be as the Committee may, in its discretion,
determine at the time the Option is granted or thereafter.
EFFECT OF CERTAIN TRANSACTIONS
Except as otherwise provided in an Agreement, in the event of (i) the
liquidation or dissolution of the Company or (ii) a merger or consolidation of
the Company (a "Transaction"), the Plan and the Options issued thereunder shall
continue in effect in accordance with their respective terms, except that
following a Transaction each Optionee shall be entitled to receive in respect of
each Share subject to any outstanding Options, upon exercise of any Options, the
same number and kind of stock, securities, cash, property, or other
consideration that each holder of a Share was entitled to receive in the
Transaction in respect of a Share; PROVIDED, HOWEVER, that such stock,
securities, cash, property, or other consideration shall remain subject to all
of the conditions, restrictions and performance criteria which were applicable
to the Options prior to such Transaction.
WITHHOLDING OF TAXES
At such times as an Optionee recognizes taxable income in connection with
the receipt of Shares or cash under the Plan (a "Taxable Event"), the Optionee
shall pay to the Company an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld by the Company
in connection with the Taxable Event (the "Withholding Taxes") prior to the
issuance, or release from escrow, of such Shares or the payment of such cash.
The Company shall have the right to deduct from any payment of cash to an
Optionee an amount equal to the Withholding Taxes in satisfaction of the
obligation to pay Withholding Taxes. In satisfaction of the obligation to pay
Withholding Taxes to the Company, the Optionee may make a written election,
which may be accepted or rejected in the discretion of the Committee to have
withheld a portion of the Shares then issuable to him or her having an aggregate
Fair Market Value equal to the Withholding Taxes.
ADJUSTMENT OF SHARES UPON CHANGES IN CAPITALIZATION OR REORGANIZATION
In the event of any Change in Capitalization the Committee shall determine
the appropriate adjustments, if any, to the (i) maximum number and class of
Shares or other stock or securities with respect to which Options may be granted
under the Plan and (ii) the number and class of Shares or other stock or
securities which are subject to outstanding Options granted under the Plan and
the purchase price therefor, if applicable. A Change in Capitalization could
result from a reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash dividend,
property dividend, combination or exchange of shares, repurchase of shares,
change in corporate structure or similar event.
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TERMINATION AND AMENDMENT OF THE PLAN
The Plan shall terminate on the day preceding the tenth anniversary of the
date of its adoption by the Board and no Option may be granted thereafter. The
Board may sooner terminate the Plan and may at any time and from time to time
amend, modify or suspend the Plan; PROVIDED, HOWEVER, that: no such amendment,
modification, suspension or termination shall impair or adversely alter any
Options theretofore granted under the Plan, except with the consent of the
Optionee, nor shall any amendment, modification, suspension or termination
deprive any Optionee of any Shares which he or she may have acquired through or
as a result of the Plan.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred
Stock, par value $.01 per share, of which 50,000 have been designated as Series
A Junior Participating Preferred Stock and 80,800 have been designated as Series
B Preferred Stock. Certain Preferred Stock Purchase Rights were distributed
pursuant to a dividend distribution declared April 10, 1992, and the Series A
Junior Participating Preferred Stock was reserved for issuance upon exercise of
such rights. As of October 31, 1997, 11,559,930 shares of Common Stock were
outstanding and held by approximately 950 shareholders of record. As of December
31, 1997, 70,000 shares of Series B Preferred Stock were outstanding and held by
approximately 60 holders of record.
COMMON STOCK
Subject to the prior rights of any shares of Preferred Stock which may be
issued in the future, the holders of the Common Stock are entitled to receive
dividends as and when declared by the Board of Directors out of funds legally
available for dividends, and, in the event of liquidation, dissolution or
winding up of the Company, to share ratably in all assets remaining after
payment of liabilities. The holders of the Common Stock are entitled to one vote
for each share of Common Stock held of record on all matters submitted to a vote
of shareholders. Since holders of Common Stock do not have cumulative voting
rights, holders of more than 50% of the outstanding shares of Common Stock
present and voting at an annual meeting at which a quorum is present can elect
all the directors of the Company to be elected at such meeting. The holders of
Common Stock have no preemptive rights or conversion rights and are not subject
to further calls or assessments by the Company. There are no redemption or
sinking fund provisions applicable to the Common Stock.
The Transfer Agent for the Company's Common Stock is The Bank of New York.
PREFERRED STOCK
The Board of Directors is authorized to issue shares of Preferred Stock from
time to time in one or more classes or series and to fix by resolution or
resolutions (without further stockholder action) the voting rights, if any, and
the designations, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions thereof,
including, without limitation, the dividend rights, conversion rights, rights
and terms of redemption (including sinking fund provisions) and liquidation
rights of each such class or series. In addition, the Board of Directors is
empowered to determine the number of shares constituting each class and series
of Preferred Stock and, subject to compliance with applicable law, to increase
or decrease the number of shares of each such class or series. The Board of
Directors may, without shareholder approval, issue Preferred Stock with voting
and conversion rights which could adversely affect the voting power of holders
of Common Stock.
SERIES A PREFERRED STOCK PURCHASE RIGHTS
The description of certain Preferred Stock Purchase Rights distributed
pursuant to a dividend distribution declared by the Company's Board of Directors
on April 10, 1992, and of the shares of Series A Junior Participating Preferred
Stock reserved for issuance upon exercise of such Rights, is incorporated by
15
<PAGE>
reference to Item 1 of the Company's Form 8-A, dated April 10, 1992, filed with
the Securities and Exchange Commission on April 13, 1992.
The Preferred Stock Purchase Rights have certain anti-takeover effects. The
Rights will cause substantial dilution to a person or group that attempts to
acquire the Company without conditioning the offer on a substantial number of
the Rights being acquired. The Rights should not interfere with any merger or
other business combination approved by the Board of Directors since the Rights
may be redeemed by the Company.
SERIES B PREFERRED STOCK
The following description of the Series B Preferred Stock is qualified in
its entirety by reference to the Certificate of Designations, a copy of which is
an exhibit to the Registration Statement.
DIVIDENDS. The holders of the Series B Preferred Stock are not entitled to
receive dividends.
VOTING RIGHTS. The holders of Series B Preferred Stock have no voting
rights, except (i) as to whether a consolidation or merger of the Company or a
sale of substantially all of the Company's assets is deemed a liquidation or
(ii) as provided by law. The holders of the Series B Preferred Stock have no
right to vote on the proposal in this Proxy Statement.
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the holders of the
Series B Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any assets of the Company to the holders of the Common
Stock or any other class or series of shares except any class or series which is
entitled to priority over the Series B Preferred Stock, the amount of $1,000 per
share plus any amounts accrued but unpaid under Section 1.4(b)(iv) of the
Preferred Stock Agreement (the "Liquidation Preference"). A consolidation or
merger of the Company with or into any other corporation or corporations, or a
sale of all or substantially all of the assets of the Company, shall, at the
option of the holders of the Series B Preferred Stock, be deemed a liquidation,
dissolution or winding up of the Company if the shares of stock of the Company
(along with all derivative securities) outstanding immediately prior to such
transaction represent immediately after such transaction less than a majority of
the voting power of the surviving corporation (or of the acquirer of the
Company's assets in the case of a sale of assets). Such option may be exercised
by the vote or written consent of holders of a majority of the Series B
Preferred Stock at any time within thirty calendar days after written notice of
the essential terms of such transaction shall have been given to the holders of
the Series B Preferred Stock. Such notice shall be given by the Company
immediately following determination of such essential terms. If such option is
exercised, the holders of the Series B Preferred Stock shall be entitled to
receive, in cash, immediately upon the occurrence of such transaction, an amount
per share equal to the Liquidation Preference. This provision shall not apply to
a business combination in which substantially all the Common Stock of the
Company is converted into or exchanged for voting common stock of the
corporation surviving such business combination, if (i) such common stock of the
surviving corporation is listed and traded on the NASDAQ National Market or the
New York Stock Exchange, and (ii) the Board of Directors of the Company
determines in good faith that the conversion rights and other rights and
preferences of the Series B Preferred Stock are preserved and not rendered of
less value by the terms of such business combination.
CONVERSION. The shares of Series B Preferred Stock are convertible into
shares of the Company's common stock upon the earlier of April 1, 1998 or the
date on which the registration statement relating to the resale of the Common
Stock issuable upon conversion of the Series B Preferred Stock becomes
effective. The shares of Series B Preferred Stock will automatically convert
into common stock on the fifth anniversary of the date of original issuance to
the extent any shares of Series B Preferred Stock remain outstanding at that
time. Each share of Series B Preferred Stock is convertible into that number of
shares of common stock equal to the quotient of (i) $1,000 divided by (ii) the
Conversion Price. Through May 31, 1998, the Conversion Price will be $25.
Thereafter, subject to the maximum Conversion Price specified
16
<PAGE>
below, the Conversion Price will be equal to the lowest trading price of the
common stock for the 22 trading days immediately preceding the conversion date,
less a discount ranging from 5% (beginning June 1, 1998) to 9% (on or after
December 1, 1998). The maximum Conversion Price is the lesser of (i) $30, (ii)
91% of the average of the daily low trading prices of the common stock for all
trading days in March, 1999, and (iii) 91% of the average of the daily low
trading prices for all trading days in September, 1999; PROVIDED, HOWEVER, that
the maximum Conversion Price shall not be less than $25 (the "Conversion Cap").
The number of shares that any holder of Series B Preferred Stock may convert
in any calendar month is limited according to a sliding scale percentage of such
holder's shares of Series B Preferred Stock determined by reference to the
highest of the daily low trading prices during such month.
<TABLE>
<CAPTION>
HIGHEST OF DAILY LOW TRADING PERCENTAGE CONVERTIBLE
PRICES DURING MONTH DURING SUCH MONTH
- ---------------------------------------------- ----------------------------------------------
<S> <C>
$25.00 or less.................... 20%
$25.01 to $27.00.................. 25%
$27.01 to $29.00.................. 30%
$29.01 to $31.00.................. 35%
$31.01 to $33.00.................. 40%
$33.01 to $35.00.................. 45%
$35.01 to $37.00.................. 50%
$37.01 or more.................... 100%
</TABLE>
The number of shares which may be converted in any calendar month also
includes the number of shares which might have been but were not converted
during earlier calendar months.
If at any time the Conversion Price falls below $25, upon conversion of any
Series B Preferred Stock, the Company may, in lieu of the issuance of common
stock, make a payment in cash in an amount equal to the value of the common
stock based upon the high trading price of the common stock on the conversion
date.
The shares of Series B Preferred Stock will not be convertible into more
than 2,300,000 shares of common stock (approximately 19.9% of the number of
shares of common stock outstanding on October 31, 1997) without obtaining
shareholder approval in accordance with NYSE listing requirements. If such
shareholder approval is not obtained by May 31, 1998, the Company will be
required to redeem, at a price equal to 110% of the liquidation preference of
such shares, the smallest number of shares of Series B Preferred Stock which is
sufficient, in the Company's reasonable judgment, such that following such
redemption, conversion of the remaining shares of Series B Preferred Stock would
not constitute a breach of the Company's obligations under the NYSE Rules.
The Company has agreed to register the shares of common stock issuable upon
conversion of the Series B Preferred Stock for resale under the Securities Act
of 1933 by April 1, 1998.
Each purchaser of the Series B Preferred Stock has agreed not to offer or
sell on any trading day, on a net basis, more than the following number of
shares of common stock: the greater of (i) 10% of the average daily trading
volume of the common stock for the five previous trading days, (ii) 10,000
shares, or (iii) 10% of the trading volume of the common stock on the day of
such sale. In addition, the purchasers of the Series B Preferred Stock and their
affiliates have agreed not to engage in any short sales, swaps, purchasing of
puts, or other hedging activities involving the common stock to hedge their
investment in the Series B Preferred Stock; however, any purchaser may write
call options if the call exercise price is greater than the lesser of (i) the
effective Conversion Price on the day that the call is written or (ii) the
closing price of the common stock on the day prior to the day that the call is
written. These hedging restrictions do not apply to certain short sales within
three days of conversion where the shares issuable upon conversion are used to
cover the short sale.
17
<PAGE>
SERIES B PREFERRED STOCK WARRANTS
In connection with the Private Placement, certain designees of the Placement
Agents received in aggregate 700 Preferred Stock Warrants, which may be
exercised at a purchase price of $1,000 per share to acquire 700 shares of
Series B Preferred Stock. See "--Series B Preferred Stock" for the rights and
preferences of the Series B Preferred Stock. The Preferred Stock Warrants expire
in December 1999 and contain customary anitdilution provisions that provide for
adjustments in the event of stock splits, stock dividends and similar
developments.
The Company is required to register under the Securities Act the offer and
sale of shares of Common Stock issuable upon conversion Series B Preferred Stock
that are issuable upon the exercise of the Preferred Stock Warrants.
NATIONSBANK WARRANTS
The following description of the NationsBank Warrants is qualified in its
entirety by reference to the full text of the Warrant Agreement, a copy of which
is an exhibit to the Registration Statement.
SHARES AVAILABLE FOR ISSUANCE. The maximum number of Shares that may be
issued pursuant to exercise of the NationsBank Warrant, subject to certain
adjustments described below, is 500,150.
EXERCISABILITY. The NationsBank Warrants are exercisable at any time or
from time to time until October 31, 2007. Each of the 500,150 NationsBank
Warrants entitle the holder thereof to purchase one Share at no cost.
ADJUSTMENT OF SHARES ISSUABLE UPON EXERCISE OF THE NATIONSBANK
WARRANTS. The number of Shares issuable upon the exercise of each NationsBank
Warrant is subject to appropriate adjustment to reflect any stock dividends,
subdivision of Shares, combination of Shares or reclassification of Shares. The
number of Shares issuable upon the exercise of each NationsBank Warrant is also
subject to certain adjustments in the event the Company issues Shares, or
options, warrants or other rights to purchase Shares at a price lower than the
then current market value of the Shares.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BY-LAWS
The Company's Restated Certificate of Incorporation (the "Certificate")
provides that the Board of Directors consists of three classes of directors
serving for staggered three-year terms. As a result, one-third of the Company's
Board of Directors will be elected each year. The classified board provision
could prevent a party who acquires control of a majority of the outstanding
voting stock of the Company from obtaining control of the Board of Directors
until the second annual stockholders meeting following the date the acquirer
obtains the controlling interest. Subject to the rights of holders of Preferred
Stock of the Company, any vacancy on the Board of Directors may be filled only
by the remaining directors then in office.
The Company has 9,919,200 authorized and unissued shares of Preferred Stock.
The Certificate grants the Board of Directors broad power to establish the
designations, powers, preferences and rights of any series of Preferred Stock.
Such stock could be used by the Board of Directors for defensive purposes,
including its issuance or sale to third parties or use in recapitalization
transactions.
In order for a stockholder to nominate a candidate for director, under the
Company's By-laws, timely notice of the nomination must be given to the Company
in advance of the meeting. Such notice must be given in respect to an election
to be held at an annual meeting of stockholders not less than 90 days before the
anniversary of the immediately preceding annual meeting, and must be given in
respect to an election to be held at a special meeting of stockholders within 10
days after the notice of the meeting is given to stockholders. The stockholder
filing the notice of nomination must describe various matters regarding the
nominee, including such information as name, address, occupation and shares
held.
18
<PAGE>
In order for a stockholder to bring other business before an annual
stockholder meeting, timely notice must be received by the Company not less than
60 days nor more than 90 days before the meeting (but if the Company gives less
than 70 days notice of the meeting, then such notice must be received within 10
days after the notice of the meeting is mailed or other public disclosure of the
meeting is made). Such notice must include a description of the proposed
business, the reasons therefore, and other specified matters.
Under the By-laws, special meetings of stockholders may be called only by
the Board of Directors or the President of the Company, and may not be called by
stockholders. In addition, the Certificate provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of the stockholders in lieu thereof.
The By-laws may be amended by the Board of Directors or by affirmative vote
of the holders of two-thirds of the stock issued and outstanding and entitled to
vote thereon. Certain provisions of the Certificate, including provisions
concerning the classified Board of Directors and the ability of stockholders to
take action only at an annual or special meeting of stockholders, may only be
amended by the affirmative vote of the holders of two-thirds of the stock issued
and outstanding and entitled to vote thereon. The foregoing summary is qualified
in its entirety by reference to the full text of the Company's Certificate and
By-laws.
These provisions are designed in part to make it more difficult and
time-consuming to obtain majority control of the Board of Directors of the
Company or otherwise to bring a matter before stockholders without the Board's
consent, and thus reduce the vulnerability of the Company to an unsolicited
takeover proposal. These provisions are designed to enable the Company to
develop its business in a manner which will foster its long-term growth, with
the threat of a takeover not deemed by the Board to be in the best interest of
the Company and its stockholders and the potential disruption entailed by such a
threat reduced to the extent practicable. On the other hand, these provisions
may have an adverse effect on the ability of stockholders to influence the
governance of the Company and the possibility of stockholders receiving a
premium above market price for their securities from a potential acquiror who is
unfriendly to management.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the Delaware General Corporation Law which
restricts certain business combinations between the Company and an "interested
stockholder" (in general, a stockholder owning 15% or more of the Company's
outstanding voting stock) or its affiliates or associates for a period of three
years following the date on which the stockholder becomes an "interested
stockholder." The restrictions do not apply if (i) prior to an interested
stockholder becoming such, the Board of Directors approves either the business
combination or the transaction in which the stockholder becomes an interested
stockholder (ii) upon consummation of the transaction in which any person
becomes an interested stockholder, such interested stockholder owns at least 85%
of the voting stock of the Company outstanding at the time the transaction
commences (excluding shares owned by certain employee stock ownership plans and
persons who are both directors and officers of the Company) or (iii) on or
subsequent to the date an interested stockholder becomes such, the business
combination is both approved by the Board of Directors and authorized at an
annual or special meeting of the Company's stockholders, not by written consent,
by the affirmative vote of at least 66 2/3% of the outstanding voting stock not
owned by the interested stockholders.
19
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company, as
of the date hereof, February , 1998, regarding the beneficial ownership of
Common Stock by the Selling Stockholders. Because the Selling Stockholders may
sell all, some or none of their shares, no estimate can be made of the number of
shares held by any Selling Stockholder after the completion of this offering.
If, however, each of the Selling Stockholders were to sell all of the shares
offered hereby, then each Selling Stockholder would beneficially own less than
one percent of the shares of Common Stock outstanding. Except as otherwise
indicated below, none of the Selling Stockholders has had a material
relationship with the Company or any of its predecessors or affiliates within
the past three years.
<TABLE>
<CAPTION>
SHARES OF NUMBER OF
COMMON STOCK SHARES BEING
BENEFICIALLY OWNED OFFERED
--------------------- ------------
<S> <C> <C> <C>
NAME NUMBER PERCENT
- ----------------------------------------------------------------------------- ---------- ---------
Charles H. Robbins (1)....................................................... 1,716,858 14.3% 1,423,458
Ellen E. Robbins (2)......................................................... 1,716,858 14.3% 100,000
Ellen E. Robbins, Trustee, under
Trust Indenture dated October 1, 1985,
FBO Lee S. Robbins, Charles H. Robbins, Grantor............................ 100,000 0.8% 100,000
Ellen E. Robbins, Trustee, under
Trust Indenture dated October 1, 1985, FBO
Caroline H. Robbins, Charles H. Robbins, Grantor........................... 93,400 0.8% 93,400
Charles B. Robbins (3)....................................................... 109,000 0.9% 109,000
Chase Manhattan Bank, John W. Kluge and Stuart Subotnick
Trustees U/A DTD 5/30/84 As Amended made by and for
John W. Kluge.............................................................. 500,000 4.2% 500,000
NationsBank.................................................................. 500,150 4.0% 500,150
Drakefield Corporation (4)................................................... 387,096 3.1% 387,096
Bear, Stearns International Limited (4)(5)................................... 322,580 2.6% 322,580
Ziff Asset Management, L.P. (4).............................................. 322,580 2.6% 322,580
SIL Nominees Ltd. (4)........................................................ 290,322 2.4% 290,322
Stockwell Corporation, S.A. (4).............................................. 258,064 2.1% 258,064
Q Funding, L.P. (4).......................................................... 209,677 1.7% 209,677
Canadian Imperial Holdings Inc. (4).......................................... 193,548 1.6% 193,548
Deere Park Capital Management, LLC (4)....................................... 193,548 1.6% 193,548
Elara Ltd. (4)............................................................... 193,548 1.6% 193,548
Southbrook International Investments Ltd. (4)................................ 193,548 1.6% 193,548
Baldwin Enterprises, Inc. (4)................................................ 141,935 1.2% 141,935
Lakeshore International Ltd. (4)............................................. 129,032 1.1% 129,032
Ramius Capital Group, L.L.C. (4)............................................. 129,032 1.1% 129,032
The Tail Wind Fund Ltd. (4).................................................. 129,032 1.1% 129,032
Ramius Fund, Ltd. (4)........................................................ 116,129 1.0% 116,129
R(2) Investments, LDC (4).................................................... 112,903 0.9% 112,903
Strome, Susskind Hedgecap, L. P. (4)......................................... 109,677 0.9% 109,677
Strome Offshore Limited (4).................................................. 106,451 0.9% 106,451
Saybrook Fund I, L.P. (4).................................................... 102,903 0.8% 102,903
Strome Partners, L.P. (4).................................................... 87,096 0.7% 87,096
Leonardo, L.P. (4)........................................................... 77,419 0.6% 77,419
AGR Halifax Fund, Ltd. (4)................................................... 64,516 0.5% 64,516
ProFutures Special Equities Fund, L.P. (4)................................... 64,516 0.5% 64,516
Kodiak Opportunity Offshore, Ltd. (4)........................................ 53,225 0.4% 53,225
Raphael, L.P. (4)............................................................ 51,612 0.4% 51,612
Kodiak Opportunity, L.P. (4)................................................. 43,548 0.4% 43,548
Alexander L. and Linda S. Cappello (4)....................................... 33,548 0.3% 33,548
Fortune Fund Ltd.--Seeker 3 (4).............................................. 32,258 0.3% 32,258
Crisotomo B. Garcia (IRA) (4)................................................ 32,258 0.3% 32,258
JMG Capital Partners, L.P. (4)............................................... 32,258 0.3% 32,258
Triton Capital Investments, Ltd. (4)......................................... 32,258 0.3% 32,258
Licap Partners (4)........................................................... 25,806 0.2% 25,806
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SHARES OF NUMBER OF
COMMON STOCK SHARES BEING
BENEFICIALLY OWNED OFFERED
--------------------- ------------
NAME NUMBER PERCENT
- ----------------------------------------------------------------------------- ---------- ---------
<S> <C> <C> <C>
Gerard K. Cappello (4)....................................................... 22,387 0.2% 22,387
Strome Hedgecap Limited (4).................................................. 19,354 0.2% 19,354
Trust Company of America (4)................................................. 19,354 0.2% 19,354
Peter J. Cocoziello (4)...................................................... 16,451 0.1% 16,451
Anvil Investment Partners, L.P. (4).......................................... 16,129 0.1% 16,129
Fayerweather Associates (4).................................................. 16,129 0.1% 16,129
RSP VI Limited Partnership (4)............................................... 16,129 0.1% 16,129
Lawrence K. Fleischman (4)................................................... 14,387 0.1% 14,387
Steven Amos (4).............................................................. 12,903 0.1% 12,903
Laredo Capital Partners (4).................................................. 12,903 0.1% 12,903
Paul Rajewski (4)............................................................ 12,903 0.1% 12,903
Capital Vision Group, Inc. Profit Sharing Plan (4)........................... 6,451 0.1% 6,451
Earl E. Gales, Jr. (4)....................................................... 6,451 0.1% 6,451
Teresa I. Grove, Trustee for J.F. Grove III "A" (4).......................... 6,451 0.1% 6,451
Lawrence Kaplan (4).......................................................... 6,451 0.1% 6,451
Stanley Kaplan (4)........................................................... 6,451 0.1% 6,451
Theodore Meisel (4).......................................................... 6,451 0.1% 6,451
OK Associates Pension Trust (4).............................................. 6,451 0.1% 6,451
Pelain Partners (4).......................................................... 6,451 0.1% 6,451
Alfred Romano (4)............................................................ 6,451 0.1% 6,451
Jeffrey C. Ullman, Trustee Jeffrey C. Ullman Living Trust (4)................ 6,451 0.1% 6,451
RJB Partners L.P. (4)........................................................ 3,870 0.0% 3,870
Loretta Hirsh Shine (4)...................................................... 3,870 0.0% 3,870
Robert Deutschman (4)........................................................ 3,419 0.0% 3,419
Jonathan Thomas (4).......................................................... 3,419 0.0% 3,419
Jonathan Rosenthal (4)....................................................... 3,354 0.0% 3,354
Jon Schotz (4)............................................................... 3,354 0.0% 3,354
Jerry Kaplan (4)............................................................. 3,225 0.0% 3,225
Teresa I. Grove, Trustee for Lisa Grove-Samuelson "B" (4).................... 3,225 0.0% 3,225
Teresa I. Grove, Trustee for Rachel Collins "B" (4).......................... 3,225 0.0% 3,225
Leslie D. Michelson (4)...................................................... 3,225 0.0% 3,225
NY-DBL Diamond Group (4)..................................................... 3,225 0.0% 3,225
Kenneth L. Staub, Trustee Kenneth L. Staub Trust dated 5/9/90 (4)............ 3,225 0.0% 3,225
Watt Family Properties, Inc. (4)............................................. 3,225 0.0% 3,225
Lisa G. Shine (4)............................................................ 1,935 0.0% 1,935
</TABLE>
- ------------------------
(1) Includes 100,000 Shares held by Ellen E. Robbins, individually, 100,000
shares owned by Ellen E. Robbins, Trustee, under Trust Indenture dated
October 1, 1985, FBO Lee S. Robbins, Charles H. Robbins, Grantor ("Lee
Robbins Trust") and 93,400 Shares owned by Ellen E. Robbins, Trustee, under
Trust Indenture dated October 1, 1985, FBO Caroline H. Robbins, Charles H.
Robbins, Grantor ("Caroline Robbins Trust"). Excludes 109,000 Shares
beneficially owned by Charles H. Robbins' son Charles B. Robbins. Charles H.
Robbins ceased to be an executive officer and a director of the Company
effective as of January 31, 1997, but continued as an employee of the
Company until January 31, 1998.
(2) Includes 1,423,458 Shares held by Charles H. Robbins, 100,000 Shares owned
by Lee Robbins Trust, and 93,400 Shares owned by Caroline Robbins Trust.
Excludes 109,000 Shares beneficially owned by Charles H. Robbins' son
Charles B. Robbins.
(3) Until February 24, 1997, Charles B. Robbins was employed by the Company as a
Senior Vice-President.
(4) Such beneficial ownership represents an estimate of the number of shares of
Common Stock issuable upon the conversion of shares of Series B Preferred
Stock beneficially owned by such person, assuming (i) a conversion price of
$15.50, which is the closing market price on February 26, 1998 and
21
<PAGE>
(ii) each of the Series B Preferred Stock Warrants is exercised as of the
date of issuance. The actual number of shares of Common Stock issued upon
the conversion of the Series B Preferred Stock depends upon the Conversion
Price, which cannot be predicted by the Company at this time. After May 31,
1998, the Conversion Price, subject to the maximum Conversion Price, will be
equal to the lowest trading price of the Common Stock for the 22 trading
days immediately preceding the conversion date, less a discount ranging from
5% to 9%.
(5) Represents shares of Series B Preferred Stock held by Bear Stearns
Securities Corp. in nominee name on behalf of the beneficial owner, Bear,
Stearns International Limited.
Pursuant to Section 3.01 of the Employment Agreement, Charles H. Robbins and
Ellen E. Robbins have agreed not to acquire beneficial ownership of additional
securities of the Company prior to the earlier of January 31, 1999 or (ii) a
change in control of the Company.
PLAN OF DISTRIBUTION
OPTION SHARES
The Option Shares may be issued from time to time upon the exercise of
Options granted under the Plan and the payment in full of the exercise price
with respect to such Options. The Option Shares will be sold directly to
Optionees exercising Options under the Plan and no person will receive any
commission or other compensation in connection with the sale of the Option
Shares. The Company will pay all expenses incident to the offer and sale of the
Option Shares.
WARRANT SHARES
The Warrant Shares may be issued from time to time prior to the expiration
of the Warrant upon exercise of the Warrant and payment in full of the exercise
price. The Warrant Shares will be sold directly to the holder of the Warrant and
no person will receive any commission or other compensation in connection with
the sale of the Warrant Shares. The Company will pay all expenses incident to
the offer and sale of the Warrant Shares.
KLUGE SHARES
The Kluge Shares may be offered and sold from time to time by or for the
account of Kluge or by pledgees, donees, transferees or other successors in
interest. The decision to offer and sell the Kluge Shares, and the timing and
amount of any offers or sales that are made, is and will be within the sole
discretion of Kluge. Any Kluge Shares may be offered for sale by Kluge on the
New York Stock Exchange, or otherwise, at prices and on terms then obtainable,
at fixed prices then prevailing at the time of sale, or in negotiated
transactions at negotiated prices, or otherwise. The Kluge Shares offered hereby
may be offered in any manner permitted by law, other than an underwritten public
offering, including through brokers, dealers or agents, and directly to one or
more purchasers. Sales of the Kluge Shares may involve: (a) block transactions
in which the broker or dealer so engaged will attempt to sell the Kluge Shares
as an agent, but may position and resell a portion of the block as principal to
facilitate the transactions; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions; or (d) transactions in which the broker
solicits purchasers. To the extent required, this Prospectus may be amended and
supplemented from time to time to describe a specific plan of distribution. In
connection with such transactions, broker-dealers or other financial
institutions may engage in short sales of the Common Stock, to the extent
permitted by law, in the course of hedging the positions they assume with Kluge.
Kluge may also pledge Shares to a broker-dealer or other financial institution,
and, upon a default, such broker-dealer or other financial institution, may
effect sales of the pledged Shares pursuant to this Prospectus (as supplemented
or amended to reflect such transaction). In addition, any Shares that qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus. Brokers or dealers engaged to sell the Kluge Shares will
receive compensation from Kluge in the form of commissions or discounts in
amounts to be negotiated
22
<PAGE>
immediately prior to the sale. Any gain realized by such brokers or dealers on
the sale of the Kluge Shares which they purchase as a principal may be deemed to
be compensation to the brokers or dealers in addition to any commissions they
will receive from Kluge. Brokers or dealers engaged by Kluge may arrange for
other brokers or dealers to participate. Any broker or dealer to be utilized by
Kluge will be selected by Kluge. Such broker or dealer and any other
participating broker or dealer may be deemed to be "underwriters" within the
meaning of the Securities Act and any discounts or commissions received by them
or any profit on the resale of shares by them may be deemed to be underwriting
discounts and commissions thereunder.
The Company will bear all expenses in connection with the registration of
the Kluge Shares being offered and sold by Kluge.
The Company has agreed to indemnify Kluge and certain other persons against
certain liabilities, including certain liabilities under the Securities Act.
The Company has advised Kluge that, unless granted an exemption by the
Commission from Regulation M under the Exchange Act, or unless otherwise
permitted under Regulation M, Kluge cannot engage in any stabilization activity
in connection with the Company's securities and cannot bid for or purchase any
securities of the Company or attempt to induce any person to purchase any of the
Company's securities other than as permitted by the Exchange Act. In addition,
the Company will make copies of this Prospectus available to Kluge and Kluge
will furnish each broker or dealer engaged by Kluge and each other participating
broker or dealer the number of copies of this Prospectus required by such broker
or dealer.
NATIONSBANK SHARES
The NationsBank Shares may be offered and sold from time to time by or for
the account of NationsBank. The decision to offer and sell the NationsBank
Shares, and the timing and amount of any offers or sales that are made, is and
will be within the sole discretion of NationsBank. Any NationsBank Shares may be
offered for sale by NationsBank on the New York Stock Exchange, or otherwise, at
prices and on terms then obtainable, at fixed prices then prevailing at the time
of sale, or in negotiated transactions at negotiated prices, or otherwise. The
NationsBank Shares offered hereby may be offered in any manner permitted by law,
other than an underwritten public offering, including through brokers, dealers
or agents, and directly to one or more purchasers. Sales of the NationsBank
Shares may involve: (a) block transactions in which the broker or dealer so
engaged will attempt to sell the NationsBank Shares as an agent, but may
position and resell a portion of the block as principal to facilitate the
transactions; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions; or (d) transactions in which the broker solicits
purchasers. To the extent required, this Prospectus may be amended and
supplemented from time to time to describe a specific plan of distribution. In
connection with such transactions, broker-dealers or other financial
institutions may engage in short sales of the Common Stock, to the extent
permitted by law, in the course of hedging the positions they assume with
NationsBank. NationsBank may also pledge Shares to a broker-dealer or other
financial institution, and, upon a default, such broker-dealer or other
financial institution, may effect sales of the pledged Shares pursuant to this
Prospectus (as supplemented or amended or reflect such transaction). In
addition, any Shares that qualify for sale pursuant to Rule 144 may be sold
under Rule 144 rather than pursuant to this Prospectus. Brokers or dealers
engaged to sell the NationsBank Shares will receive compensation from
NationsBank in the form of commissions or discounts in amounts to be negotiated
immediately prior to the sale. Any gain realized by such brokers or dealers on
the sale of the NationsBank shares which they purchase as a principal may be
deemed to be compensation to the brokers or dealers in addition to any
commissions they will receive from NationsBank. Brokers or dealers engaged by
NationsBank may arrange for other brokers or dealers to participate. Such broker
or dealer and any other participating broker or dealer may be deemed to be
"underwriters" within the
23
<PAGE>
meaning of the Securities Act and any discounts or commissions received by them
or any profit on the resale of shares by them may be deemed to be underwriting
discounts and commissions thereunder.
The Company will bear all expenses in connection with the registration of
the NationsBank Shares being offered and sold by NationsBank.
The Company has advised NationsBank that, unless granted an exemption by the
Commission from Regulation M under the Exchange Act, or unless otherwise
permitted under Regulation M, NationsBank cannot engage in any stabilization
activity in connection with the Company's securities and cannot bid for or
purchase any securities of the Company or attempt to induce any person to
purchase any of the Company's securities other than as permitted by the Exchange
Act. In addition, the Company will make copies of this Prospectus available to
NationsBank and NationsBank will furnish each broker or dealer engaged by
NationsBank and each other participating broker or dealer the number of copies
of this Prospectus required by such broker or dealer.
CONVERSION SHARES
The Conversion Shares may be offered and sold from time to time by or for
the account of the holders of the Series B Preferred Stock or by pledgees,
donees, transferees or other successors in interest. The Company has agreed to
use its best efforts to keep this Prospectus effective until December 30, 1999.
The decision to offer and sell the Conversion Shares, and the timing and amount
of any offers or sales that are made, is and will be (subject the limitation set
forth below) within the sole discretion of the holders of the Series B Preferred
Stock. Any of the Conversion Shares may be offered for sale on the New York
Stock Exchange, or otherwise, through brokers' transactions at prices then
prevailing at the time of sale, at prices related to such prevailing prices, at
varying prices determined at the time of sale or at negotiated or fixed prices.
Sales of the Conversion Shares may involve: (a) block transactions in which the
broker or dealer so engaged will attempt to sell the Conversion Shares as an
agent, but may position and resell a portion of the block as principal to
facilitate the transactions; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions; (d) transactions in which the broker
solicits purchasers; or (e) through the writing of options (whether such options
are listed on an options exchange or otherwise) on, or settlement of short sales
of, the Common Stock.
Pursuant to Preferred Stock Investment Agreement, each purchaser of the
Series B Preferred Stock has agreed to refrain from offering or selling publicly
on any trading day on the NYSE or on the principal exchange on which the Common
Stock is traded an amount of Common Stock equal to the greater of (i) 10% of the
average daily trading volume of the Common Stock for the five trading days
immediately prior to such sale as reported by the NYSE or by such principal
exchange, (ii) 10,000 shares of Common Stock or (iii) 10% of the trading volume
of the Common Stock on the day of such sale as reported by the NYSE or by such
principal exchange. In addition, the purchasers of the Series B Preferred Stock
and their affiliates have agreed not to engage in any short sales, swaps,
purchasing of puts, or other hedging activities involving the common stock to
hedge their investment in the Series B Preferred Stock; however, any purchaser
may write call options if the call exercise price is greater than the lesser of
(i) the effective Conversion Price on the day that the call is written or (ii)
the closing price of the common stock on the day prior to the day that the call
is written. These hedging restrictions do not apply to (i) transactions not
solicited or directed by a purchaser of the Series B Preferred Stock and in
which such purchaser has no beneficial interest made on behalf of third-party
clients who are not holders of Series B Preferred Stock or (ii) certain short
sales within three days of conversion in amounts not greater than the number of
shares issuable upon conversion where the shares issuable upon conversion are
used to cover the short sale. To the extent required this Prospectus may be
amended and supplemented from time to time to describe a specific plan of
distribution.
Brokers or dealers engaged by any holder of Series B Preferred Stock may
receive compensation from such holders in the form of commission or discounts in
amounts to be negotiated immediately prior to the
24
<PAGE>
sale. Any gain realized by such brokers or dealers on the sale of the Conversion
Shares that they purchase as a principal may be deemed to be compensation to the
brokers or dealers in addition to any commissions they will receive from such
holders of the Series B Preferred Stock. Brokers or dealers engaged by any
holder of the Series B Preferred Stock may arrange for other brokers or dealers
to participate. Such broker or dealer and any other participating broker or
dealer may be deemed to be "underwriters" within the meaning of the Securities
Act and any discounts or commissions received by them or any profit on the
resale of shares by them may be deemed to be underwriting discounts and
commissions thereunder.
Under the securities laws of certain states, the Common Stock may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states, the Common Stock may not be sold unless the Common Stock has
been registered or qualified for sale in such state or pursuant to an exemption
from registration or qualification.
The Company will bear all expenses in connection with the registration of
the Conversion Shares.
The Company has advised the holders of the Series B Preferred Stock that,
unless granted an exemption by the Commission from Regulation M under the
Exchange Act, or unless otherwise permitted under Regulation M, the holders of
the Series B Preferred Stock cannot engage in any stabilization activity in
connection with the Company's securities and cannot bid for or purchase any
securities other than as permitted by the Exchange Act. In addition, the Company
will make copies of this Prospectus available the holders of the Series B
Preferred Stock who will furnish each broker or dealer engaged by any such
holder and other participating broker or dealer the number of copies of this
Prospectus required by such broker or dealer.
ROBBINS FAMILY SHARES
The Robbins Family Shares may be offered and sold from time to time by or
for the account of the Robbins Family. The decision to offer and sell the
Robbins Family Shares, and the timing and amount of any offers or sales that are
made, is and will be within the sole discretion of the Robbins Family. Any
Robbins Family Shares may be offered for sale by the Robbins Family on the New
York Stock Exchange, or otherwise, at prices and on terms then obtainable, at
fixed prices, at prices then prevailing at the time of sale, or in negotiated
transactions at negotiated prices, or otherwise. The Robbins Family Shares
offered hereby may be offered in any manner permitted by law, including through
brokers, dealers or agents, and directly to one or more purchasers. Sales of the
Robbins Family Shares may involve: (a) block transactions in which the broker or
dealer so engaged will attempt to sell the Robbins Family Shares as an agent,
but may position and resell a portion of the block as principal to facilitate
the transactions; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions; or (d) transactions in which the broker solicits
purchasers. To the extent required, this Prospectus may be amended and
supplemented from time to time to describe a specific plan of distribution. In
connection with such transactions, broker-dealers or other financial
institutions may engage in short sales of the Common Stock, to the extent
permitted by law, in the course of hedging the positions they assume with the
Robbins Family. The Robbins Family may also pledge Shares to a broker-dealer or
other financial institution, and, upon a default, such broker-dealer or other
financial institution, may effect sales of the pledged Shares pursuant to this
Prospectus (as supplemented or amended to reflect such transaction). In
addition, any Shares that qualify for sale pursuant to Rule 144 may be sold
under Rule 144 rather than pursuant to this Prospectus. Brokers or dealers
engaged to sell the Robbins Family Shares will receive compensation from the
Robbins Family in the form of commissions or discounts in amounts to be
negotiated immediately prior to the sale. Any gain realized by such brokers or
dealers on the sale of the Robbins Family Shares which they purchase as a
principal may be deemed to be compensation to the brokers or dealers in addition
to any commissions they will receive from the Robbins Family. Brokers or dealers
engaged by the Robbins Family may arrange for other brokers or dealers to
participate. Such broker or dealer and any other participating broker or dealer
may be deemed to be "underwriters" within the meaning of the Securities Act and
any discounts or commissions received by
25
<PAGE>
them or any profit on the resale of shares by them may be deemed to be
underwriting discounts and commissions thereunder.
The Company will bear all expenses in connection with the registration of
the Robbins Family Shares being offered and sold by the Robbins Family.
The Company has advised the Robbins Family that, unless granted an exemption
by the Commission from Regulation M under the Exchange Act, or unless otherwise
permitted under Regulation M, the Robbins Family cannot engage in any
stabilization activity in connection with the Company's securities and cannot
bid for or purchase any securities of the Company or attempt to induce any
person to purchase any of the Company's securities other than as permitted by
the Exchange Act. In addition, the Company will make copies of this Prospectus
available to the Robbins Family and the Robbins Family will furnish each broker
or dealer engaged by the Robbins Family and each other participating broker or
dealer the number of copies of this Prospectus required by such broker or
dealer.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Options and the Option
Shares received upon the exercise thereof. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
Internal Revenue Service ("IRS") rulings, and judicial decisions now in effect,
all of which are subject to change (possibly with retroactive effect) or
different interpretations.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to holders of the Options and the Option
Shares and does not deal with tax consequences arising under the laws of any
foreign, state or local jurisdiction. This discussion is for general information
only, and does not purport to address all of the tax consequences that may be
relevant to particular purchasers in light of their personal circumstances, or
to certain types of purchasers (such as certain financial institutions,
insurance companies, tax-exempt entities, dealers in securities or persons who
hold the Option Shares in connection with a straddle) who may be subject to
special rules. This discussion assumes that each holder holds the Option Shares
as capital assets.
For the purpose of this discussion, the term "United States person" means a
citizen or resident of the United States, a corporation or partnership created
or organized in the United States or any state thereof, or an estate or trust,
the income of which is includible in income for United States federal income tax
purposes regardless of its source.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION IN
THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE OPTIONS AND THE OPTION SHARES
RECEIVED UPON THE EXERCISE THEREOF, AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
GRANT AND EXERCISE OF OPTIONS
An Optionee will not be deemed to have received any income subject to tax at
the time the Option is granted.
Upon exercise of an Option, the Optionee will recognize an amount of
ordinary income equal to the excess of the fair market value of Option Shares
purchased on the date of exercise over the exercise price. In general, the
Optionee's basis in the Option Shares acquired by exercising an Option is equal
to their fair market value at the time of the exercise. A subsequent disposition
of such Option Shares in a taxable transaction will produce capital gain (or
loss) for the Optionee equal to the difference between his or her basis and the
sale proceeds. Provided the Option Shares are held as a capital asset, the gain
or loss realized on such disposition will be taxed as long-term capital gain or
loss if the stock was held for more than one
26
<PAGE>
year from the date the Option Shares were acquired pursuant to the exercise of
the Option. If the stock was held for one year or less, such gain or loss will
be short-term capital gain or loss.
The Company is required to withhold any federal, state or local taxes
required by law to be withheld on the amount of ordinary income recognized by
the Optionee. Under the terms of the Plan, as set forth in the Prospectus (see
"Description of the Plan -- Withholding Taxes"), the Optionee is required to pay
to the Company an amount equal to the Company's withholding obligation prior to
the issuance of the Shares.
USING STOCK TO EXERCISE OPTIONS
Special rules apply if an Optionee already owns shares of Common Stock and
surrenders those shares to pay all or part of the exercise price under an
Option. Such a transaction is treated as a tax-free exchange with respect to the
number of new Option Shares that is equal to the number of old shares being
surrendered. The Optionee's basis in the new shares received for the old shares
actually surrendered in exchange therefor is the same as his or her basis in the
old shares, and the capital gain holding period runs without interruption from
the date the old shares were acquired. The Optionee will recognize ordinary
income on any additional new Option Shares received in an amount equal to (1)
the fair market value of the additional new Option Shares at the time of receipt
less (2) any cash paid by the Optionee in connection with the exercise. The
Optionee's basis in the additional Shares is equal to any cash paid upon the
exercise of the Option plus any amount includible in gross income, and the
capital gain holding period commences on the date of exercise. The effect of
these rules is to defer the date when any gain in the old shares must be
recognized for tax purposes. Stated differently, these rules allow an Optionee
to finance the exercise of an Option by using shares that he or she already
owns, without paying current tax on any unrealized appreciation in the value of
those old shares.
LEGAL MATTERS
The validity of the issuance of the Shares offered hereby will be passed
upon for the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), Washington, D.C. 20004.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets as of April 30, 1997 and 1996, and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended April 30, 1997, incorporated by
reference in this Prospectus and in the Registration Statement from the
Company's 1997 Form 10-K, have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants, as stated in its reports incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing. With respect to the unaudited interim financial
information as of July 31, 1997 and October 31, 1997, and for the three-month
and six-month periods then ended incorporated by reference in this Prospectus
and Registration Statement, Coopers & Lybrand L.L.P. has reported that it has
applied limited procedures in accordance with professional standards for a
review of such information. However, its separate reports included in the
Company's quarterly reports on Form 10-Q for the quarters ended July 31, 1997
and October 31, 1997, and incorporated by reference herein, state that Coopers &
Lybrand L.L.P. did not audit and it does not express an opinion on that interim
financial information. Accordingly, the degree of reliance on its report on such
information should be restricted in light of the limited nature of the review
procedures applied. Coopers & Lybrand L.L.P. is not subject to the liability
provisions of Section 11 of the Securities Act for its reports on unaudited
interim financial information because that report is not a "report" or "part" of
the Prospectus or Registration Statement prepared or certified by Coopers &
Lybrand L.L.P. within the meaning of Sections 7 and 11 of the Securities Act.
27
<PAGE>
The consolidated financial statements of HIP of New Jersey, Inc. and
Subsidiary as of and for the years ended December 31, 1996, 1995 and 1994,
incorporated by reference in this Prospectus and Registration Statement from the
Company's Current Report on Form 8-K/A, have been audited by Ernst & Young LLP,
independent auditors as set forth in their reports incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
28
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Risk Factors................................... 3
The Company.................................... 11
Use of Proceeds................................ 12
Description of the Plan........................ 12
Description of Capital Stock................... 15
Selling Stockholders........................... 20
Plan of Distribution........................... 22
Certain United States Federal Income Tax
Consequences.................................. 26
Legal Matters.................................. 27
Independent Accountants........................ 27
</TABLE>
PHP HEALTHCARE CORPORATION
7,532,266 SHARES
OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
FEBRUARY 27, 1998
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- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered. All amounts are estimates except the
registration fee.
<TABLE>
<S> <C>
Commission Registration Fee.................................... $28,135.17
Printing and engraving expenses................................ 8,000
Legal fees and expenses........................................ 75,000
Accounting fees and expenses................................... 15,000
Miscellaneous.................................................. 10,000
----------
Total...................................................... $136,135.17
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of such persons' heirs, executors and administrators; and
empowers the corporation to purchase and maintain insurance on
II-1
<PAGE>
behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under Section 145.
Article IX of the Company's By-laws provides that the Company shall
indemnify its directors and officers to the fullest extent authorized by the
DGCL.
Section 102(b)(7) of DGCL provides that a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director provided that such provision shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived an improper personal benefit. Article X of the Company's
Certificate of Incorporation limits the liability of directors to the fullest
extent permitted by Section 102(b)(7).
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
* 4.1 1996 Physicians' Stock Option Plan of PHP Healthcare Corporation, as amended.
* 4.2 Stock Purchase Agreement by and between PHP Healthcare Corporation and David E. Berman and Mary Ellen
Michael-Fleming dated as of November 1, 1992.
* 4.3 Warrant to Purchase Shares of Common Stock of PHP Healthcare Corporation dated as of November 1, 1992.
4.4 Specimen form of the Company's Common Stock certificate (incorporated by reference from Exhibit 7.1 to
the Company's Form 8-A, Amendment 1, filed with the Securities and Exchange Commission on August 11,
1992).
* * 4.5 Specimen form of the Company's Series B Convertible Preferred Stock
4.6 Certificate of Designations of Series B Convertible Preferred Stock (incorporated by reference from
Exhibit 4.1 to the Company's Form 8-K, filed with the Securities and Exchange Commission on January 6,
1998).
4.7 Form of Preferred Stock Investment Agreement (incorporated by reference from Exhibit 4.1 to the Company's
Form 8-K, field with the Securities and Exchange Commission on January 6, 1998).
* * 4.8 Form of Series B Preferred Stock Purchase Warrant
* * 5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
15 Letter of Coopers & Lybrand L.L.P. re: unaudited interim financial information
23.1 Consent of Coopers & Lybrand L.L.P.
* *23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).
23.3 Consent of Ernst and Young L.L.P.
* 24.1 Power of Attorney (included on signature page).
</TABLE>
* Previously filed with Form S-3 on April 30, 1997
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not
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<PAGE>
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Reston, Commonwealth of Virginia, on this 27th day of
February, 1998.
PHP HEALTHCARE CORPORATION
(Registrant)
By:
/s/ Anthony M. Picini
-----------------------------------
Name: Anthony M. Picini
Title: Executive Vice President
and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Anthony M. Picini as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in the capacities
indicated on this 27th day of February, 1998.
<TABLE>
<C> <S> <C>
/s/ Charles P. Reilly
- ------------------------------------------- Chairman of the Board
Charles P. Reilly
/s/ Jack M. Mazur President and Director
- ------------------------------------------- (principal executive officer)
Jack M. Mazur
/s/ Michael D. Starr Senior Executive Vice President
- ------------------------------------------- and Director
Michael D. Starr
/s/ Anthony M. Picini Executive Vice President and
- ------------------------------------------- Chief Financial Officer
Anthony M. Picini (principal accounting officer)
/s/ Robert L. Bowles, Jr. President, D.C. Chartered
- ------------------------------------------- Health Plan, and Director
Robert L. Bowles, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
/s/ William J. Lubin Executive Vice President and
- ------------------------------------------- Director
William J. Lubin
/s/ Frank L. Provato, M.D. Executive Vice President,
- ------------------------------------------- Corporate Medical Director,
Frank L. Provato, M.D. and Director
/s/ Joseph G. Mathews
- ------------------------------------------- Director
Joseph G. Mathews
/s/ Donald J. Ruffing
- ------------------------------------------- Director
Donald J. Ruffing
/s/ John J. McDonnell
- ------------------------------------------- Director
John J. McDonnell
/s/ Jerry W. Carlton
- ------------------------------------------- Director
Jerry W. Carlton
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- ----------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
*4.1 1996 Physicians' Stock Option Plan of PHP Healthcare Corporation, as amended.
*4.2 Stock Purchase Agreement by and between PHP Healthcare Corporation and David E. Berman and Mary
Ellen Michael-Fleming dated as of November 1, 1992.
*4.3 Warrant to Purchase Shares of Common Stock of PHP Healthcare Corporation dated as of November
1, 1992.
4.4 Specimen form of the Company's Common Stock certificate (incorporated by reference from Exhibit
7.1 to the Company's Form 8-A, Amendment 1, filed with the Securities and Exchange Commission
on August 11, 1992).
**4.5 Specimen form of the Company's Series B Convertible Preferred Stock
4.6 Certificate of Designations of Series B Convertible Preferred Stock (incorporated by reference
from Exhibit 3.1 to the Company's Form 8-K, field with the Securities and Exchange Commission
on January 6, 1998).
4.7 Form of Preferred Stock Investment Agreement (incorporated by reference from Exhibit 4.1 to the
Company's Form 8-K, filed with the Securities and Exchange Commission on January 6, 1998).
**4.8 Form of Series B Preferred Stock Purchase Warrant
**5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
15 Letter of Coopers & Lybrand L.L.P. re: unaudited interim financial information.
23.1 Consent of Coopers & Lybrand L.L.P.
**23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).
23.3 Consent of Ernst and Young L.L.P.
*24.1 Power of Attorney (included on signature page).
</TABLE>
- ------------------------
* Previously filed with Form S-3 on April 30, 1997
** To be filed by amendment
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: PHP Healthcare Corporation
Registration on Form S-3
We are aware that our report, dated December 17, 1997, on our review of
interim financial information of PHP Healthcare Corporation and consolidated
subsidiaries (the Company) as of October 31, 1997, and for the three-month and
six-month periods ended October 31, 1997 and 1996, and included in the Company's
quarterly report on Form 10-Q for the quarter ended October 31, 1997, is
incorporated by reference in this registration statement. In addition, we are
aware that our report, dated September 18, 1997, on our review of interim
financial information of the Company as of July 31, 1997, and for the
three-month periods ended July 31, 1997 and 1996, and included in the Company's
quarterly report on Form 10-Q for the quarter ended July 31, 1997, is also
incorporated by reference in this registration statement. Pursuant to Rule
436(c) under the Securities Act of 1933, this report should not be considered a
part of the prospectus and registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
Coopers & Lybrand L.L.P.
Washington, D.C.
February 25, 1998
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-3 (File No. 333-26207) of our report, dated July 25, 1997, on our
audits of the consolidated financial statements and financial statement schedule
of PHP Healthcare Corporation and Subsidiaries as of April 30, 1997 and 1996,
and for the years ended April 30, 1997, 1996 and 1995, which report is included
in the Company's 1997 Form 10-K. We also consent to the reference to our firm
under the caption "Independent Accountants."
COOPERS & LYBRAND L.L.P.
Washington, D.C.
February 25, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption Independent
Accountants and to the use of our reports dated February 14, 1997, except for
Note 4 which is dated April 29, 1997, and March 6, 1996, in Amendment No. 1 to
the Registration Statement Form S-3 No. 333-26207 and related Prospectus of PHP
Healthcare Corporation for the registration of 7,532,266 shares of its common
stock.
/s/ Ernst & Young LLP
Iselin, New Jersey
February 26, 1998
