<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
Filed by the registrant |X|
Filed by a party other than the registrant | |
Check the appropriate box:
|X| Preliminary proxy statement
| | Definitive proxy statement
| | Definitive additional materials
| | Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
AMERICAN HEALTHCHOICE, INC.
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
- --------------------------------------------------------------------------------
- 1 -
<PAGE> 2
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total Fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0- 11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- 2 -
<PAGE> 3
PRELIMINARY COPY
AMERICAN HEALTHCHOICE, INC.
1300 WEST WALNUT HILL LANE, SUITE 275
IRVING, TEXAS 75038
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 20, 1998
Dear Stockholders of American HealthChoice, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders
of American HealthChoice, Inc. (the "Company") to be held at 10:00 a.m., local
time on November 20, 1998, at the Company's office at 1300 West Walnut Hill
Lane, Suite 275, Irving, Texas 75038, to consider and vote upon the following
matters:
1. To elect five Directors to hold office in accordance with
the Articles of Incorporation and Bylaws of the Company ("Proposal 1");
2. To approve the issuance of shares of Common Stock upon
conversion of $3,385,000 of debentures issued during August 1998
("Proposal 2");
3. To approve (i) an amendment to the Company's Certificate of
Incorporation to decrease the number of authorized shares of Common
Stock from 115,000,000 shares to 4,600,000 shares (without affecting
par value), (ii) a 1-for-25 reverse stock split of the Company's issued
and outstanding shares of Common Stock (the "Reverse Split"), and (iii)
an amendment to the Company's Certificate of Incorporation, following
the effective date of the Reverse Split, to increase the post-split
number of authorized shares of Common Stock from 4,600,000 shares to
100,000,000 shares (without affecting par value), all of which shall be
considered as one proposal ("Proposal 3");
4. To ratify the selection of Lane Gorman Trubitt, L.L.P. as
the Company's auditors ("Proposal 4"); and
5. The transaction of such other business that may properly
come before the meeting or any adjournment or postponement thereof.
Only Stockholders of record at the close of business on October 16,
1998 who own Common Stock will be entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof.
All Stockholders are cordially invited and urged to attend the Annual
Meeting. EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE STILL REQUESTED
TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ADDRESSED
ENVELOPE. If you attend, you may vote in person if you wish, even though you
have sent your proxy.
By Order of the Board of Directors
Jay R. Stucki, Secretary
October 21, 1998
<PAGE> 4
PRELIMINARY COPY
AMERICAN HEALTHCHOICE, INC.
1300 WEST WALNUT HILL LANE, SUITE 275
IRVING, TEXAS 75038
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 20, 1998
This Proxy Statement (the "Proxy Statement") and the accompanying proxy
card are being furnished to the holders (the "Stockholders") of common stock,
par value $.001 per share ("Common Stock"), of American HealthChoice, Inc., a
New York corporation ( the "Company"), in connection with a solicitation of
proxies by the Board of Directors of the Company from the Stockholders for use
at the Annual Meeting of Stockholders of the Company (the "Annual Meeting").
Proxies will be voted at the Annual Meeting to be held at the time and place and
for the purposes set forth in the accompanying Notice. This Proxy Statement and
the enclosed form of proxy is being mailed on or about October 21, 1998.
The expense of this solicitation, including the reasonable costs
incurred by custodians, nominees, fiduciaries and other agents in forwarding the
proxy material to their principals, will be borne by the Company. The Company
will also reimburse brokerage firms and other custodians and nominees for their
expenses in distributing proxy material to beneficial owners of the Company's
Common Stock in accordance with Securities and Exchange Commission requirements.
In addition to the solicitation made hereby, certain directors, officers and
employees of the Company may solicit proxies by telephone and personal contact.
The Company's principal executive office is located at 1300 West Walnut
Hill Lane, Suite 275, Irving, Texas 75038, and its telephone number is (972)
751-1900.
VOTING AND PROXY INFORMATION
The Board of Directors of the Company has fixed the close of business
on October 16, 1998, as the record date (the "Record Date") for determining the
holders of Common Stock entitled to receive notice of and to vote at the Annual
Meeting. At the close of business on the Record Date, there were outstanding
14,679,901 shares of Common Stock, the only outstanding securities of the
Company entitled to vote at the Annual Meeting. As of the Record Date, the
Common Stock was held by approximately 112 stockholders of record.
For each share held on the Record Date, a holder of Common Stock is
entitled to one vote on all matters properly brought before the Stockholders at
the Annual Meeting. Such votes may be cast in person or by proxy. Abstentions
may be specified as to the approval of any of the Proposals. Under the rules of
the stock exchanges of which brokers are members, such brokers holding shares
for customers have authority to vote on certain matters when they have not
received instructions from the beneficial owners, and do not have such authority
as to certain other matters (so-called "broker non-votes"). Under these rules,
member firms may be prohibited from voting on Proposal 2 and Proposal 3 without
specific instructions from beneficial owners. The affirmative vote, either in
person or by proxy, of the holders of more than 50% of the shares of Common
Stock attending the Annual Meeting is necessary to approve Proposal 2; and the
affirmative vote, either in person or by proxy, of the holders of more than 50%
of the outstanding shares of Common Stock is necessary to approve Proposal 3.
Accordingly, if a Stockholder abstains from voting certain shares on the
approval of Proposal 2, or a beneficial owner fails to deliver written
instructions to his nominee holder of shares so that the nominee holder is not
able to vote such shares on Proposal 2, it will have the effect of a negative
vote, but if a broker indicates that it does not have authority to vote certain
shares on Proposal 2, those shares will not be considered as shares present and
entitled to vote with respect to the approval of Proposal 2 and therefore will
have no effect on the outcome of the vote, assuming a quorum is otherwise
present. On the other hand, if a Stockholder abstains from voting certain shares
on the approval of Proposal 3, a beneficial owner fails to deliver written
instructions to his nominee holder of
1
<PAGE> 5
shares so that the nominee is not able to vote such shares on Proposal 3, or if
a broker indicates that it does not have authority to vote certain shares
regarding Proposal 3, it will have the effect of a negative vote.
All shares of Common Stock that are represented at the Annual Meeting
by properly executed proxies received by the Company prior to or at the Annual
Meeting and not revoked will be voted at the Annual Meeting in accordance with
the instructions indicated in such proxies. Unless instructions to the contrary
are specified in the proxy, each such proxy will be voted FOR the election as a
Director of the nominees listed herein and for approval of the other Proposals.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of the Company, before the vote is taken at the Annual
Meeting, a written notice of revocation bearing a date later than the date of
the proxy, (ii) duly executing and delivering a subsequent proxy relating to the
same shares, or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation should be sent to:
Corporate Secretary, American HealthChoice, Inc., 1300 West Walnut Hill Lane,
Suite 275, Irving, Texas 75038.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, five directors will be elected to hold office
until the next Annual Meeting of Stockholders or until their successors are
elected and qualified.
It is intended that the accompanying proxy, unless contrary
instructions are set forth therein, will be voted for the election of the
nominees for election as directors as set forth in the following table. If any
nominee becomes unavailable for election to the Board of Directors, the persons
named in the proxy may act with discretionary authority to vote the proxy for
such other person, if any, as may be designated by the Board of Directors.
However, the Board is not aware of any circumstances likely to render the
nominees unavailable for election. The withholding of authority or abstention
will have no effect upon the election of directors by holders of Common Stock
because under New York law directors are elected by a plurality of the votes
cast, assuming a quorum is present. The presence of a majority of the
outstanding shares of Common Stock will constitute a quorum. The shares held by
each holder of Common Stock who signs and returns the enclosed form of proxy
will be counted for purposes of determining the presence of a quorum at the
meeting.
The following table sets forth certain information with respect to the
persons who will be the nominees for election at the Annual Meeting and the
other executive officers of the Company. Included within the information below
is information concerning the business experience of each such person during the
past five years. The number of shares of Common Stock beneficially owned by each
of the directors as of September 1, 1998 is set forth below in "Securities
Ownership of Certain Beneficial Owners."
NOMINEES AND BUSINESS EXPERIENCE
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Joseph W. Stucki, D.C. 40 President, Chief Executive Officer and March 1995
Chairman of the Board of Directors
Jay R. Stucki 38 Secretary and General Counsel December 1996
Jeffrey Jones, D.C. 37 Director March 1995
Michael R. Smith, M.D. 40 Director December 1996
John V. Mansfield 51 Director June 1998
James Roberts 39 Director June 1998
</TABLE>
2
<PAGE> 6
- -----------------------------
Joseph W. Stucki, D.C. Dr. Stucki is Chairman of the Board of
Directors, Chief Executive Officer and President of the Company. Dr. Stucki has
been a licensed chiropractor for approximately 16 years. In May 1983, he founded
United Chiropractic Clinics, Inc. and, as its Chairman and President, purchased
or developed and opened approximately 84 multi-disciplined clinics
(chiropractic, medical, physical therapist, massage therapist, etc.). From 1988
through 1995, Dr. Stucki served as Chairman and Chief Executive Officer of
United Health Services. United Health Services developed approximately 150
franchises throughout the United States. Dr. Stucki has been a consultant to
health care organizations on various issues including practice management,
strategic development, and mergers and acquisitions. Dr. Stucki has authored
several papers and manuals on practice management and has been a guest speaker
on health care issues. Dr. Stucki is a member of various national, state, and
local organizations.
Jay R. Stucki. Mr. Stucki became Secretary of the Company in June 1997.
He was Vice President, Chief Financial Officer and Treasurer from June 1997
until August 1998. Mr. Stucki was first employed by the Company in December 1996
as General Counsel. Mr. Stucki was in public administration for approximately 13
years, last serving as the Director of Aviation for the Jacksonville Port
Authority, Florida. Mr. Stucki obtained his Juris Doctor from Oklahoma City
School of Law. He also has a masters in business administration from the
University of Texas - Odessa, and a bachelor of business administration from the
University of Albuquerque.
Jeffrey Jones, D.C. Dr. Jones is a Director of the Company. He is the
Clinic Director of the United Chiropractic Uptown Clinic, New Orleans,
Louisiana, owned by a subsidiary of the Company. He obtained his Louisiana
Doctor of Chiropractic license in July 1985, and began his association with the
United Chiropractic Uptown clinic shortly thereafter. In the past, Dr. Jones has
acted as Regional Manager of other United Clinics in the greater New Orleans
area. He is a member of the Chiropractic Association of Louisiana, The Union of
Chiropractic Physicians and the American Chiropractic Association.
Michael R. Smith, M.D. Dr. Smith became a Director of the Company in
December 1996. Dr. Smith, a practicing physician board certified in family
practice, has been employed by the Company since September 1994. He provides
medical services at certain of the Company's clinics and serves as the Medical
Director for the Company's Texas clinics. He also serves on the Board of
Directors of AHC Physicians Corporation, Inc., a subsidiary of the Company. From
June 1992 through August 1994, Dr. Smith was an employee and then partner at the
Texas Trauma Rehabilitation Association. Dr. Smith graduated from The University
of Texas Medical Branch in 1984.
John V. Mansfield. Mr. Mansfield became a Director of the Company in
June 1998. He has been the President and Chief Executive Officer of Harland
Properties, Inc. since February 1992, and of Axis Care Group, Inc. since May
1997, two privately owned companies located in London, Ontario. Harland
Properties, Inc. is engaged in the business of real property management,
development and consulting, and Axis Care Group, Inc. is engaged in the business
of medical services management.
James Roberts. Mr. Roberts became a Director of the Company in June
1998. He has been the President of Health Dental Plus, Inc. since September
1993. Health Dental Plus, Inc. is engaged in the marketing of dental benefits
plans to employer groups and individuals.
Dr. Joseph W. Stucki and Jay R. Stucki are brothers.
Members of the Company's Board of Directors are elected to hold office
until the next meeting of stockholders and until their successors are elected
and qualified. Officers are elected to serve subject to the discretion of the
Board of Directors until their successors are appointed and have qualified.
The committees of the Company's Board of Directors are as follows:
Audit Committee John V. Mansfield, Chairman
James Roberts
Compensation Committee James Roberts, Chairman
John V. Mansfield
Dr. Joseph W. Stucki
3
<PAGE> 7
The Company does not have a Nominating Committee.
The Audit Committee reviews financial press releases and earning
reports and recommends to the Board the independent public accountants to be
used by the Company. The Audit Committee held four meetings in 1997 and three
meetings in 1998. All members of the Audit Committee attended at least 75% of
such meetings.
The Compensation Committee recommends salaries of the Executive
Officers of the Company for approval of the Board. The Compensation Committee
held four meetings in 1997 and three meetings in 1998. All members of the
Compensation Committee attended at least 75% of such meetings.
The Board of Directors held six meetings in 1997 and four meetings in
1998, and took six actions by written consent in 1997 and two actions by written
consent in 1998. Each member of the Board of Directors attended at least 75% of
the meetings of the Board.
The Company was notified on July 2, 1998 that one of its directors,
Robert P. DePalo, was resigning due to "irreconcilable differences of opinion
between the managing directors and [him] with respect to the governance of [the
Company]".
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and
non-cash compensation awarded to, earned by, or paid to the Company's Chief
Executive Officer and the other named executive officer for the last three
fiscal years. No other executive officer of the Company who was serving at the
end of fiscal 1998 earned more than $100,000 of annual base compensation for
services in all capacities to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
FISCAL ANNUAL -------------------------------------------
NAME AND YEAR ENDING COMPENSATION/ RESTRICTED STOCK SECURITIES UNDERLYING
PRINCIPAL POSITION SEPTEMBER 30, SALARY ($) AWARDS($) OPTIONS(#)
------------------ ------------- ------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Dr. Joseph W. Stucki 1998 $ 262,950 $ 14,050(1) --
Chairman of the Board, 1997 235,815 117,000(1) --
President and Chief 1996 211,938 -- --
Executive Officer
Jay R. Stucki 1998 169,717(2) 70,200(3) 200,000
General Counsel and 1997 83,109(2) 8,430(3) 200,000
Secretary 1996 --(4) -- --
</TABLE>
- ---------------------------
(1) Dr. Stucki is entitled to a stock bonus of 50,000 shares on June 1 of each
year of his employment agreement. The closing bid prices per share on June
1, 1997 and 1998 were $2.34 and $0.281, respectively. The employment
agreement also gives him the right to receive an option for 500,000 shares,
at an exercise price of $2.34 per share, upon the Company achieving three
consecutive quarters of profit or upon termination of employment for any
reason in connection with a change of control. See "- Employment
Agreements", below.
(2) Includes $47,817 and $3,487 in 1998 and 1997, respectively, for payment of
student loans pursuant to his employment agreement.
(3) Mr. Stucki is entitled to a stock bonus of 30,000 shares on June 1 of each
year of his employment agreement. The closing bid prices per share on June
1, 1997 and 1998 were $2.34 and $0.281, respectively. The employment
agreement also gives him the right to receive an option for 200,000 shares
on each June 1.
(4) Mr. Stucki was not employed by the Company in fiscal 1996.
4
<PAGE> 8
STOCK OPTION AND STOCK PURCHASE PLANS
The following tables set forth the number of options granted to the
Company's Chief Executive Officer and the other named executive officer during
fiscal 1998 and the value of the unexercised options held by them at September
30, 1998.
OPTION/SAR GRANTS TABLE
(OPTION/SAR GRANTS IN LAST FISCAL YEAR)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME # FISCAL YEAR ($/SH) DATE
------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Dr. Joseph W. Stucki - - $ - -
Jay R. Stucki 200,000 100% 0.281 6/1/03
</TABLE>
AGGREGATE OPTION/SAR EXERCISES IN FISCAL YEAR 1998
AND FISCAL 1998 YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN THE
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
SHARES OPTIONS AT FISCAL YEAR-END (#) YEAR-END ($)
ACQUIRED ON VALUE ------------------------------ --------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Joseph W. Stucki None None 150,000 - $ -(1) -
Jay R. Stucki None None 400,000 - -(1) -
</TABLE>
- --------------------
(1) All options are vested. Value is based on the closing price per share
on September 15, 1998 as quoted on the Nasdaq Small Cap Market, of
$0.09. None of the options were in-the-money on September 15, 1998.
EMPLOYEE BENEFIT PLANS
In August 1995, the Company adopted its 1995 Employee Stock Option Plan
(the "Employee Plan") under which options to purchase shares of Common Stock may
be issued to employees and consultants of the Company. The Company reserved
1,000,000 shares of Common Stock for issuance under the Employee Plan. Also in
August 1995, the Company adopted the 1995 Non-Employee Director Stock Option
Plan (the "Director Plan") which provides for the grant of options to directors
of up to 250,000 shares that do not qualify as "incentive stock options" under
the Internal Revenue Code of 1986. In addition, the Company adopted its 1995
Employee Stock Purchase Plan (the "Stock Purchase Plan"), effective October 1,
1995, which allows employees to acquire Common Stock of the Company at 85% of
its fair market value from payroll deductions received from the employees. The
Company has reserved a total of 250,000 shares of its Common Stock to be sold to
eligible employees under the Stock Purchase Plan. In October 1996, the Board of
Directors amended each of the Employee Plan, the Director Plan, and the Stock
Purchase Plan to clarify various matters concerning the administration of such
plans. In March 1997, the Company authorized for issuance 200,000 shares of
Common Stock pursuant to a consulting agreement ("Consultant Plan 1"). In July
1997, the Company adopted its 1997 Executive Stock Bonus Plan ("Executive Stock
Bonus Plan") under which options to purchase shares of Common Stock may be
issued to employees of the Company. The Company reserved 260,8700 shares of
Common Stock for issuance under the Executive Bonus Plan. In August 1997, the
Company reserved 250,000 shares of Common Stock for issuance to other
consultants ("Consultant Plan 2"). The following table presents the number of
shares issued or options granted under each of the Plans as of September 30,
1997:
5
<PAGE> 9
<TABLE>
<CAPTION>
PLAN OPTIONS GRANTED/SHARES ISSUED OPTION SHARES EXERCISED
---- ----------------------------- -----------------------
<S> <C> <C>
Employee Plan 282,500 9,167
Director Plan 100,000 100,000
Stock Purchase Plan 0 0
Executive Stock Bonus Plan 190,475
Consultant Plan 1 200,000
Consultant Plan 2 40,000
</TABLE>
COMPENSATION OF DIRECTORS
The Company pays its Directors $1,500 for each Board of Director
meeting attended in person and $250 for each telephonic Board meeting. The
Company reimburses all Directors for reasonable out-of-pocket expenses incurred
in connection with attending Board of Director meetings. Pursuant to the
Director Plan, any new Director elected to the Board of Directors is to receive
a 10-year option to purchase 10,000 shares of Common Stock at an exercise price
determined by the Board of Directors at the time of grant. If a non-employee
Director is re-elected, such Director is to receive, upon such re-election, a
10-year option to purchase 5,000 shares of Common Stock at an exercise price
determined by the Board of Directors at the time of grant. As of September 1,
1998, no options have been granted under the Director Plan except for a one-time
grant of options to purchase 100,000 shares granted to a former Director. See
"-Employment Agreements" for a discussion of the compensation paid to Dr.
Jeffrey Jones as an employee of the Company. Dr. Michael R. Smith was paid a
salary of $140,000 as an employee of the Company for the fiscal year ended
September 30, 1997.
EMPLOYMENT AGREEMENTS
Effective June 1, 1997, the Company entered into a three-year
employment agreement with Dr. Joseph W. Stucki to serve as President and Chief
Executive Officer of the Company for an annual base salary of $250,000. In
addition, he is entitled to a stock bonus of 50,000 shares at the beginning of
each year of the employment agreement and has the right to receive an option for
500,000 shares of Common Stock, at an exercise price of $2.34 per share, upon
the Company achieving three consecutive quarters of profit or upon termination
of employment for any reason in connection with a change of control. Dr. Stucki
is also entitled to a car allowance of $1,000 per month and reimbursement of up
to $1,500 per year for continuing professional education. In the event of
termination of the agreement for any reason by the Company or Dr. Stucki, he
will be entitled to a severance pay equal to six months of his full salary.
After a change of control of the Company, as defined in the employment
agreement, if Dr. Stucki's employment is terminated, he terminates his
employment, his duties are changed or certain other specified events take place,
he will be entitled to a severance payment equal to twice his effective annual
compensation, together with a continuation of all employee benefits for two
years.
The Company previously had two agreements with respect to Jay R.
Stucki, one for legal services and one as Chief Financial Officer (CFO). Mr.
Stucki agreed to forgo the base salary as general counsel while operating in the
combined positions. The CFO agreement was to expire June 1, 1999, subject to
automatic renewal for successive one year periods unless either party provided
90-day notice of cancellation prior to expiration of the then current term, and
the legal services agreement was to expire September 30, 1998, subject to
automatic renewal for successive one year periods unless either party gave
notice of cancellation. The Company and Mr. Stucki have mutually agreed to
terminate both agreements and are currently negotiating a new agreement for Mr.
Stucki's services as General Counsel. Under the CFO agreement, Mr. Stucki was
receiving $120,000 in annual compensation as of the date of mutual termination,
and was entitled to receive 30,000 shares of Common Stock and options to
purchase 200,000 shares of Common Stock on each June 1 anniversary date of the
Agreement. He was also entitled to standard employee benefits and reimbursement
for continuing professional education expenses. Under the legal services
agreement, Mr. Stucki was entitled to annual base compensation of $75,000
(foregone while serving as CFO), and the Company agreed to pay his student loans
in the amount of approximately $58,570, which was treated as compensation in
fiscal 1997 and 1998. Under the CFO agreement, Mr. Stucki was entitled to his
base salary for the remainder of the term if the agreement had been terminated
6
<PAGE> 10
by the Company without cause. While the new employment agreement is being
negotiated, Mr. Stucki will continue to receive an annual salary of $120,000,
standard employee benefits and reimbursement for continuing professional
education expenses.
Effective July 1, 1994, United Chiropractic Clinic of Uptown, Inc., a
subsidiary of the Company, entered into an employment agreement with Dr. Jeffrey
Jones as a clinic director providing chiropractic services at the New Orleans
Uptown clinic. The agreement was for an initial term of three years, and is
automatically renewed for consecutive one year terms unless the Company provides
written notice of nonrenewal not less than 90 days prior to the expiration of
the then current term. Dr. Jones also may terminate the agreement at any time
upon 30 days' written notice, and the Company can terminate the agreement for
cause, as defined in the agreement. Dr. Jones gave notice in March 1997 that he
was not renewing the employment agreement, although the Company and he have
continued to perform under the terms of the employment agreement, and the
Company believes the agreement is in effect. A one year covenant not to compete
commences upon the effective date of termination. Under the agreement, Dr. Jones
received compensation of $255,200 in fiscal 1997 and $500,038 in fiscal 1998. He
is also entitled to standard employee benefits and a term life insurance policy
of $500,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of
the Company's Common Stock as of September 30, 1998, by (i) each known
beneficial owner of more than five percent (5%) of the outstanding Common Stock,
(ii) each Director, (iii) each executive officer, and (iv) the executive
officers and Directors as a group. All share numbers are provided based on
information supplied to management of the Company by the respective individuals
and members of the group. Unless otherwise indicated, each of the stockholders
has sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS
---------------- ----------------
<S> <C> <C>
Joseph W. Stucki, D.C.(1) 2,632,320 16.7%
1300 West Walnut Hill Lane
Suite 275
Irving, Texas 75038
Jay R. Stucki(2) 466,382 3.1%
1300 West Walnut Hill Lane
Suite 275
Irving, Texas 75038
Jeffrey Jones, D.C.(3) 1,024,675 6.9%
807 S. Carrollton Avenue
New Orleans, Louisiana 70118
Michael R. Smith, M.D 17,000 *
3930 E. Southcross
San Antonio, Texas 78222
James Roberts 9,500 *
1300 West Walnut Hill Lane
Suite 275
Irving, Texas 75038
John V. Mansfield -- --
471 Waterloo Street
London, Ontario N6B 2P4
Officers and Directors as a group (6 persons) 4,149,877 27.1%
</TABLE>
7
<PAGE> 11
- --------------------------
* Less than one percent.
(1) Dr. Stucki is the Chief Executive Officer, President and Chairman of
the Board of Directors of the Company. The number of shares reported
includes 150,000 shares issuable upon exercise of options at $2.00 per
share which options are currently exercisable and expire August 15,
2000.
(2) Jay R. Stucki is the Secretary and General Counsel of the Company. The
number of shares reported includes 400,000 shares issuable upon
exercise of options at $2.34 per share ( 200,000 shares) and $0.281 per
share (200,000 shares) which options are currently exercisable and
expire May 30, 2002 and June 1, 2003 respectively.
(3) Dr. Jones is a Director of the Company. The number of shares reported
includes (i) 60,000 shares issuable upon exercise of options at $2.00
per share which options are currently exercisable and expire August 15,
2000 and (ii) 7,500 shares issuable upon exercise of warrants at $5.00
per share which warrants are currently exercisable and expire October
1, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 19, 1997, the Company entered into an Investor Agreement with
Wingate Financial Associates, L.L.C. ("Wingate") pursuant to which $2.6 million
of 8% cumulative convertible debentures were issued by the Company. In
connection with these transactions, and as part of the Investor Agreement, Dr.
Joseph W. Stucki and Dr. Jeffrey Jones were required to grant options to Wingate
for 469,304 shares and 197,509 shares, respectively, at an initial exercise
price of $2.125, which increased over time. Wingate exercised these options, but
required Dr. Stucki and Dr. Jones to loan one-half of the proceeds, which
amounted to $439,973 and $185,165, respectively, to the Company. Notes
documenting these loans were executed In July 1997, bore interest at 8% per
annum and were payable in stock of the Company or cash, at the holder's
election. Dr. Stucki and Dr. Jones elected to take stock in payment of the notes
in September 1997, and Dr. Stucki was issued 111,739 shares in exchange for
$439,973 in principal and interest accrued under his note, and Dr. Jones was
issued 47,026 shares in exchange for $185,165 in principal and interest accrued
under his note. As a condition to receiving stock, the Company's Board required
that Dr. Stucki and Dr. Jones sell their shares through a designated broker.
When the shares were not sold as promised, Dr. Stucki and Dr. Jones threatened
legal action and the Company agreed to reverse the transaction, whereupon Dr.
Jones and Dr. Stucki returned the shares issued to them and the notes were
reinstated in the amounts of $439,973 and $185,165 for Dr. Stucki and Dr. Jones,
respectively. On August 24, 1998, the Company sold $3,385,000 of 8% convertible
debentures, and $250,000 of the proceeds from the debentures were used to repay
$175,950 to Dr. Stucki and $74,050 to Dr. Jones under these notes.
As part of the Wingate transaction, Dr. Joseph W. Stucki was also
required to sell shares of Common Stock in an amount equal to $125,981 and loan
the proceeds to the Company. On May 12, 1997, Dr. Stucki made this loan in
exchange for a convertible debenture bearing interest at 10% per annum
convertible in 90 days into Common Stock of the Company at a 15% discount to the
fair market value on date of execution. This debenture was converted on
September 30, 1997 by Dr. Stucki, including the accrued interest of $4,867, for
87,964 shares of Common Stock.
On January 5, 1996, the Company purchased all of the outstanding
membership interests in Valley Family Health Center, L.L.C. ("Valley Family") in
exchange for an aggregate of 360,000 shares of the Company's Common Stock. Dr.
Joseph W. Stucki indirectly owned 25% of such membership interests, and received
90,000 shares of the Company's Common Stock. Dr. Stucki had an investment of
approximately $100,000 in his membership interest.
On May 3, 1996, Dr. Jeffrey Jones loaned $125,000 to the Company
bearing interest at an annual rate of 10% which was repaid in full (with
interest of $6,370) on November 5, 1996. He was granted a warrant to purchase
6,250 shares of Common Stock at any time prior to May 3, 1998 at an exercise
price of $5.00 per share as partial consideration for making such loan. Dr.
Jones also loaned $100,000 to the Company on December 17, 1996, bearing interest
at an annual rate of 57%, which loan was repaid in full (with interest of
$19,000) on April 29, 1997.
8
<PAGE> 12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company
pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"), or upon written representations received by the Company,
the Company is not aware of any failure by any director, officer or beneficial
owner of more than 10% of the Company's Common Stock to timely file with the
Securities and Exchange Commission any Form 3, 4 or 5 relating to 1997, other
than Peter Leach (a former director), who has not filed, and Dr. Joseph W.
Stucki, who was late in filing a Form 3 and Form 5 during such period.
PROPOSAL 2
APPROVAL OF CONVERSION
OF COMMON STOCK
GENERAL
In August 1998, the Company issued debentures in the total principal
amount of $3,385,000 to four limited partnerships not affiliated with the
Company. The debentures are convertible into the Company's Common Stock at a
conversion price equal to 80% of the average of the closing bid price of the
Common Stock on the Nasdaq Small Cap Market for the five trading days preceding
each conversion date; provided, no holder may covert an amount of debentures
which would result in the holder and its affiliates beneficially owning more
than 4.9% of the outstanding shares of Common Stock of the Company. The
debentures are payable in full on August 24, 2001 (the "Maturity Date"), and may
be partially converted from time to time into Common Stock until the Maturity
Date. The Company may prepay the debentures at any time, and any debentures
remaining unpaid at the Maturity Date will automatically be converted into
shares of Common Stock at the conversion rate, regardless whether any holder or
its affiliates would then own more than 4.9% of the outstanding shares of Common
Stock. The Company has pledged all of its tangible and intangible personal
property as security for repayment of the subordinated debentures.
Neither New York law nor the Company's Certificate of Incorporation or
Bylaws require Stockholder approval of the issuance of shares upon conversion of
the debentures into Common Stock. However, under the Marketplace Rules of the
Nasdaq Stock Market, the Stockholders must approve the conversion feature of the
debentures, by a majority of the total votes cast on the Proposal, because it
could result in the issuance by the Company of an aggregate number of shares of
Common Stock exceeding 20% of the shares of Common Stock presently outstanding.
Failure of the Company to obtain such approval of its Stockholders
prior to December 24, 1998 will result in the Company being in default under the
debentures, whereupon the holders will have, among other rights, the right to
declare the full amount of the debentures due and payable, together with
interest at 15% per annum, and foreclose on the collateral, or to convert
principal and interest for up to 20% of the number of shares of Common Stock
outstanding on the date of such conversion and declare the remaining debentures
immediately due and payable at an amount equal to 125% of the sum of principal
and accrued interest thereon, and foreclose on the collateral.
The Company is also required to file a registration statement with the
Securities and Exchange Commission ("Commission") on Form S-3 on or before
October 8, 1998 to register for resale the shares of Common Stock issued upon
conversion of the debentures. The registration statement must be declared
effective by the Commission on or before December 22, 1998, or the Company will
be in default under the debentures, which will give the holders various rights,
including those noted above.
PROPOSAL TO APPROVE CONVERSION SHARES
The Company is submitting to the Stockholders for approval the Proposal
to authorize the Company to issue shares of Common Stock to the holders of the
debentures upon conversion of their debentures into shares of Common Stock
pursuant to the terms of the debentures. Stockholders may vote for or against or
abstain from voting on the Proposal.
In considering their vote on the Proposal, Stockholders should give
special consideration to the following matters:
9
<PAGE> 13
Effect on Outstanding Voting Shares. Prior to conversion of the
debentures, there are a total of 14,679,901 shares of Common Stock outstanding.
Assuming full conversion of the debentures at a conversion price of
approximately $0.0625 per share , which is 80% of the average of the closing bid
price of the Common Stock for the five trading days preceding September 1, 1998,
there would be approximately 82,379,901 shares of Common Stock outstanding. As
noted above, the conversion price is equal to 80% of the average of the closing
bid price of the Common Stock for the five trading days preceding each
conversion date. Consequently, the number of shares issuable will vary depending
on the conversion date and the conversion price.
Effect on Capitalization. The following table presents the
capitalization of the Company at June 30, 1998, and as adjusted to show the pro
forma effect as of June 30, 1998 of the issuance and full conversion of the
debentures assuming a conversion date of September 1, 1998.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------
HISTORICAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Current maturities of long-term debt $ 357,811 $ 357,811
Long-term debt, net of current maturities 695,069 695,069
Stockholders' equity:
Common Stock 12,668 80,368
Options to acquire Common Stock 685,664 685,664
Additional paid-in capital 13,268,905 16,586,205
Accumulated deficit (8,623,228) (8,623,228)
------------ ------------
Total stockholders' equity 5,344,009 8,729,009
------------ ------------
Total capitalization $ 6,396,889 $ 9,781,889
============ ============
Stockholders' equity per share of
Common Stock before conversion
and as adjusted for full conversion $ .42 $ .11
============ ============
</TABLE>
Optional Conversion. The conversion rights contained in the debentures
are optional except for the mandatory conversion required at the Maturity Date
for any debentures remaining outstanding on the Maturity Date.
Waiver of Rights. Stockholders should be aware that under New York law,
any Stockholders voting in favor of the Proposal may be deemed to have waived
their rights to challenge such transaction, while Stockholders voting against
such transaction or abstaining from voting will continue to retain those rights.
Any such challenge could include allegations that the Board of Directors or
controlling Stockholders of the Company violated a fiduciary duty or duty of
fairness to the Company or the other Stockholders in the valuation and terms of
the issuance of the debentures and the conversion rate. A positive Stockholder
vote may have the effect of protecting the Board of Directors and such
controlling Stockholders from such claims on the theory that the Stockholders
have ratified the actions in accordance with New York law and the Company's
Bylaws. It should also be noted that under New York law, Stockholders do not
have dissenters' rights resulting from the Proposal, nor do they have preemptive
rights to acquire any of the conversion shares.
REQUIRED VOTE
The affirmative vote, either in person or by proxy, of the holders of
more than 50% of the shares of Common Stock attending the Annual Meeting is
necessary to approve and adopt Proposal 2. Accordingly, if a Stockholder
abstains from voting certain shares on the approval and adoption of Proposal 2,
or a beneficial owner fails to deliver written instructions to his nominee
holder of shares so that the nominee holder is not able to vote such shares, it
will have the effect of a negative vote, but if a broker indicates that it does
not have authority to vote certain shares, those shares will not be considered
as shares present and entitled to vote with respect to the approval and adoption
of Proposal 2 and therefore will have no effect on the outcome of the vote,
assuming a quorum is otherwise present.
As noted above, failure of the Stockholders to approve the issuance of
shares of Common Stock upon conversion of the debentures will constitute a
default under the debentures. In such event, the Company may seek a
10
<PAGE> 14
waiver of this requirement from Nasdaq or a waiver from the holders of the
debentures. If the Company cannot obtain a waiver from Nasdaq, the Company may
lose its listing as a Nasdaq Small Cap Market issuer, which would also
constitute a default under the debentures. If waivers from Nasdaq and the
holders of the debentures cannot be obtained, the Company will be required to
repay the debentures at the default rates noted above, or face foreclosure of
its intangible and tangible personal property. There can be no assurance that
the Company will be able to successfully borrow or otherwise raise sufficient
funds to enable it to repay the debentures in such circumstances.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF PROPOSAL 2 DESCRIBED ABOVE.
PROPOSAL 3
REVERSE SPLIT AND AMENDMENTS TO CERTIFICATE OF INCORPORATION
INTRODUCTION
The Board of Directors of the Company has adopted a resolution
approving, and recommends to the holders of Common Stock that they approve, (i)
an amendment to the Company's Certificate of Incorporation to decrease the
number of authorized shares of Common Stock from 115,000,000 shares to 4,600,000
shares (without affecting par value) ("Amendment No. One", substantially in the
form of Appendix A attached hereto), (ii) a 1-for-25 reverse stock split of the
Company's presently issued and outstanding shares of Common Stock (the "Reverse
Split"), and (iii) an amendment to the Company's Certificate of Incorporation,
following the effective date of the Reverse Split, to increase the post-split
number of authorized shares of Common Stock from 4,600,000 shares to 100,000,000
shares (without affecting par value) ("Amendment No. Two", substantially in the
form of Appendix B attached hereto), all of which shall be considered as one
proposal (the "Proposal") submitted to a vote of the holders of Common Stock.
The vote will be taken for or against the Proposal so that all three elements
are considered in one vote. The Proposal was adopted by the Company's Board of
Directors and is subject to approval by the holders of Common Stock.
Upon approval of the Proposal at the Annual Meeting, the following
actions will take place:
1. Amendment No. One will be filed with the State of New York on
November 20, 1998 (the "Effective Date") and the number of authorized shares of
Common Stock will be reduced from 115,000,000 to 4,600,000 shares (without
affecting par value) as of the Effective Date.
2. The Reverse Split of the Company's existing issued and outstanding
Common Stock will occur and such issued and outstanding shares will
automatically be divided by 25, and each current holder of 25 shares of Common
Stock will automatically become the holder of one post-split share of Common
Stock. No fractional shares will be deemed issued in connection with the Reverse
Split, and any fractional shares that may result will be rounded up to the
nearest whole post-split share. The certificates representing the existing
pre-split outstanding shares of Common Stock will not be required to be
exchanged for new certificates representing post-split shares. Rather, the
existing certificates shall be deemed to automatically constitute and represent
the correct number of post-split shares without further action by the
stockholders, and new certificates will only be issued as old certificates are
delivered to the Company's transfer agent as transfers of shares occur after the
Effective Date. As a result of the Reverse Split, the number of outstanding
shares of Common Stock on the Effective Date will be reduced from 14,679,901
shares to approximately 587,196 shares (subject to minor adjustments due to the
rounding up of fractional shares).
3. Immediately following the Effective Date, Amendment No. Two will be
filed with the State of New York and the number of post-split authorized shares
of Common Stock will be increased from 4,600,000 post-split shares to
100,000,000 post-split shares (without affecting par value). Immediately after
filing Amendment No. Two with the State of New York, the Company will have
authorized 100,000,000 shares of Common Stock, of which approximately 587,196
shares will be issued and outstanding (subject to minor adjustments due to the
rounding up of fractional shares).
The enclosed form of proxy provides a means for holders of Common Stock
to vote for or against the Proposal, or to withhold authority to vote for the
Proposal. Each properly executed Proxy received in time for the meeting will be
voted as specified thereon. If a holder of Common Stock does not specify
otherwise, the shares represented by such stockholder's proxy will be voted for
the Proposal. The affirmative vote, either in person or by proxy, of the holders
of more than 50% of the shares of Common Stock outstanding as of the Record Date
is necessary to approve the Proposal. Accordingly, if a stockholder abstains
from voting certain shares on the approval of the Proposal, a beneficial owner
fails
11
<PAGE> 15
to deliver written instructions to his nominee holder of shares so that the
nominee holder is not able to vote such shares, or a broker indicates that it
does not have authority to vote certain shares, it will have the effect of a
negative vote.
The voting rights and other rights attributable to Common Stock will
not be altered by the Proposal. Except for the rounding up of fractional shares
(which will result in only minor adjustments), the proposed Reverse Split will
not affect any stockholder's proportionate equity interest in the Company. The
Proposal will not change the par value of Common Stock. The effect on the
Company's consolidated financial statements will be a reclassification of the
capital accounts on the Company's balance sheet and a recalculation of loss per
share and weighted average shares outstanding as if the Reverse Split had
occurred on the first day of each period presented.
REASONS FOR PROPOSED REVERSE SPLIT
The current price per share of the Company's Common Stock is below the
minimum bid price per share of $1.00, which is necessary to maintain the
Company's listing as a Nasdaq SmallCap Market Issuer, and the Company has
committed to Nasdaq that it would undertake the Reverse Split in an effort to
increase the per share trading price to maintain its listing. The Board of
Directors of the Company is also of the opinion that the current price per share
of the Company's Common Stock has a tendency to diminish the effective
marketability of such stock because of the reluctance of many leading brokerage
firms to recommend lower-priced stocks to their clients. Additionally, the
policies and practices of a number of brokerage houses tend to discourage
individual brokers within those firms from dealing in lower-priced stocks. Some
of such policies and practices pertain to the payment of broker's commissions
and to time consuming procedures that operate to make the handling of
lower-priced stocks unattractive to brokers from an economic perspective. The
structure of trading commissions also tends to have an adverse impact upon
holders of lower-priced stocks since the brokerage commission payable on the
sale of a lower-priced stock generally represents a higher percentage of the
sales price than the commission on a relatively higher-priced stock. The
foregoing factors adversely affect the price and liquidity of the Common Stock,
and could also affect the Company's ability to raise additional capital through
a sale of equity securities. While the Company may pursue attempts to raise
additional equity capital through a sale of equity securities at some future
time following the Reverse Split, there are no current plans to raise such
additional capital and there can be no assurance that additional capital can be
raised on terms acceptable to the Company, even if the Reverse Split is
approved.
The Board of Directors is hopeful that the decrease in the number of
shares of Common Stock outstanding as a consequence of the proposed Reverse
Split, and the anticipated corresponding increased price per share, will allow
the Company to maintain its listing as a Nasdaq SmallCap Market Issuer and will
stimulate interest in the Company's post-split Common Stock and possibly promote
greater liquidity for the Company's stockholders with respect to those shares
held by them. However, the possibility does exist that such liquidity could be
adversely affected by the reduced number of shares which would be outstanding
after the proposed Reverse Split. If the Reverse Split does not result in the
Company being able to maintain a minimum bid price per share of $1.00 for its
Common Stock, the Company may be unable to maintain its listing as a Nasdaq
Small Cap Market Issuer. Failure to maintain its listing would constitute a
default under the $3,385,000 of debentures which, in turn, would give the
holders of debentures the rights discussed above under "Approval of Conversion
of Common Stock-General," including acceleration of the due date of the
debentures and foreclosure on all of the Company's tangible and intangible
personal property.
The Board of Directors is also hopeful that the proposed Reverse Split
will result in a price level for the shares that would mitigate the present
reluctance, policies and practices on the part of brokerage firms referred to
above and diminish the adverse impact of trading commissions on the potential
market for the Company's Common Stock. However, there can be no assurance that
the proposed Reverse Split will achieve the desired results which have been
outlined above, nor can there be any assurance that the Reverse Split will not
adversely impact the market price of the Common Stock or, alternatively, that
any increased price per share of the Common Stock immediately after the proposed
Reverse Split will be sustained for any prolonged period of time. In addition,
the Reverse Split may have the effect of creating odd lots of stock for some
stockholders and such odd lots may be more difficult to sell or have higher
brokerage commissions associated with the sale of such odd lots.
Management of the Company is not aware of any present efforts by any
person or persons to accumulate Common Stock in order to obtain control of the
Company and the proposed Reverse Split is not intended to be an anti-takeover
device. The approval of the Proposal is being sought simply in an attempt to
maintain the Company's listing as a Nasdaq Small Cap Market Issuer and to
enhance the image of the Company and to price the Common Stock in a price range
more acceptable to the brokerage community and to investors.
12
<PAGE> 16
REASONS FOR INCREASE OF POST-SPLIT NUMBER OF AUTHORIZED SHARES
Amendment No. Two will be filed immediately after the Effective Date in
order to increase the post-split number of authorized shares of Common Stock
from 4,600,000 shares to 100,000,000 shares. After giving effect to the Reverse
Split on the Effective Date, the Company will have approximately 587,196 shares
(subject to minor adjustments due to rounding of fractional shares) outstanding,
which would represent approximately 13% of the authorized shares if Amendment
No. Two was not implemented. In order to provide the Company with flexibility to
engage in financing and other acquisition transactions with Common Stock, and to
otherwise have sufficient shares of Common Stock available for issuance from
time to time by the Board of Directors upon its determination that such issuance
is appropriate and in the best interest of the Company, including the issuance
of shares upon conversion of outstanding debentures, the Board has approved, and
recommends that the holders of Common Stock approve as part of the Proposal,
Amendment No. Two increasing the number of post-split authorized shares of
Common Stock to 100,000,000 shares. Other than various options and warrants
representing approximately 26,087 post-split shares and approximately $4,036,000
of debentures of the Company convertible into approximately 3,259,061 post-split
shares (assuming a conversion price of approximately $0.0625 per share as of
September 1, 1998), the Company is not presently a party to any agreement,
letter of intent or understanding with any other party respecting any additional
Common Stock. However, the Company plans to pursue acquisition and merger
opportunities as they become available and otherwise pursue financing
transactions determined to be suitable by the Board.
GENERAL EFFECT OF PROPOSAL
The effect of the Proposal on the aggregate number of shares of the
Company's Common Stock is as follows:
<TABLE>
<CAPTION>
PRIOR TO AFTER
NUMBER OF SHARES(1) PROPOSAL PROPOSAL
- ---------------- ------------- -------------
<S> <C> <C>
Common Stock
Authorized 115,000,000 4,600,000
Outstanding 14,679,901 587,196(2)
Available for issuance 100,320,099 4,012,804(2)
Par value per share $ .001 $ .001
FINANCIAL DATA(3)
Stockholders' equity
Common Stock $ 9,871 $ 395(2)
Options to acquire Common Stock 685,664 658,664
Additional paid-in capital 12,003,258 12,012,734(2)
Accumulated deficit (6,628,616) (6,628,616)
------------- -------------
Total stockholders' equity $ 6,070,177 $ 6,070,177
============= =============
</TABLE>
- -------------------------
(1) As of September 30, 1998.
(2) Subject to minor adjustment due to rounding of fractional shares.
(3) Based upon audited financial information at September 30, 1997.
EFFECT UPON OUTSTANDING OPTIONS AND WARRANTS
In connection with the Proposal, all outstanding options and warrants
will be adjusted so that the number of shares issuable upon the exercise of such
outstanding options or warrants will be decreased in proportion to the 1-for-25
Reverse Split, and the exercise price per share under such outstanding options
and warrants will be proportionately increased. Outstanding options and warrants
will be rounded up to the nearest whole share and no cash payment will be made
in respect of any fractional share. The Company's 1995 Employee Stock Option
Plan, 1995 Non-Employee
13
<PAGE> 17
Director Stock Option Plan, 1995 Employee Stock Purchase Plan, Executive Bonus
Plan, Consultant Plan 1 and Consultant Plan 2 presently provide for 1,000,000
shares, 250,000 shares, 250,000 shares, 260,870 shares, 200,000 shares and
250,000 shares, respectively, which will be decreased proportionately so that
the number of post-split shares authorized under these Plans will equal 40,000
shares, 10,000 shares, 10,000 shares, 10,435 shares, 8,000 shares and 10,000
shares, respectively.
NO EXCHANGE OF STOCK CERTIFICATES
As noted above under "Introduction", each current certificate
representing issued and outstanding shares of Common Stock prior to the Reverse
Split shall be deemed to automatically constitute and represent the correct
number of post-split shares after the Effective Date without further action by
the stockholders, and it will not be necessary for any stockholder to surrender
the existing certificates representing such Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
A summary of the federal income tax consequences of the proposed
Reverse Split is set forth below. The following discussion is based upon present
federal tax law and does not purport to be a complete discussion of such
consequences. Accordingly, STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS FOR MORE DETAILED INFORMATION REGARDING THE EFFECTS OF THE PROPOSED
REVERSE SPLIT ON THEIR INDIVIDUAL TAX STATUS.
1. The proposed Reverse Split will not be a taxable transaction to the
Company.
2. A stockholder will not recognize any gain or loss as a result of the
Reverse Split.
3. The aggregate tax basis of a stockholder's post-split shares of
Common Stock (including any fractional shares issued in connection with the
rounding up of fractional shares) will equal the aggregate tax basis of the
stockholder's shares of pre-split Common Stock. The holding period of the
post-split Common Stock generally will include the holding period of the
stockholder's pre-split Common Stock, provided the pre-split shares of Common
Stock were capital assets in the hands of such stockholder.
NO DISSENTERS' RIGHTS
Under New York law, Stockholders are not entitled to dissenters' rights
with respect to the Reverse Split or any other element of the Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF PROPOSAL 3 DESCRIBED ABOVE.
PROPOSAL 4
RATIFICATION OF AUDITORS
The Board of Directors has selected Lane Gorman Trubitt, L.L.P. to
serve as the Company's independent auditors for the year ending September 30,
1998. The Stockholders are being asked to ratify the Board's selection.
Representatives of Lane Gorman Trubitt, L.L.P. will be present at the Annual
Meeting and will have the opportunity to make a statement and will be available
to answer appropriate questions.
Hein + Associates LLP served as the Company's independent public
accountants for 1996, but the Company terminated its relationship with Hein +
Associates LLP on July 29, 1997 and engaged BDO Seidman, LLP to serve as its
independent public accountants. However, on October 20, 1997, prior to any work
being performed, the Company and BDO Seidman, LLP agreed to end their
relationship, and on November 18, 1997, the Company engaged Lane, Gorman,
Trubitt, LLP. There were no disagreements with Hein + Associates LLP or BDO
Seidman, LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure or any reportable events.
Copies of letters from Hein + Associates LLP and BDO Seidman, LLP, addressed to
the Securities and Exchange Commission, concurring with the Company's statements
herein have been filed with the
14
<PAGE> 18
Securities and Exchange Commission. The report of Hein + Associates LLP on the
financial statements of the Company for the fiscal year ended September 30, 1996
included an explanatory paragraph which expressed substantial doubt about the
Company's ability to continue as a going concern. The decisions to terminate the
Company's relationship with Hein + Associates LLP and end its relationship with
BDO Seidman, LLP were approved by the Board of Directors of the Company, and the
decision to engage Lane Gorman Trubitt, L.L.P. was approved by the Audit
Committee of the Board of Directors of the Company.
Ratification of the appointment of Lane Gorman Trubitt, L.L.P. as the
Company's independent auditors for the fiscal year ending September 30, 1998
requires the approval by the holders of a majority vote of the outstanding
shares of Common Stock attending the Annual Meeting, either in person or by
proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL 4.
ANNUAL REPORT
The Annual Report to Stockholders, including consolidated financial
statements, for the year ended September 30, 1997, accompanies the proxy
material being mailed to all Stockholders. The Annual Report is not a part of
the proxy solicitation material.
OTHER MATTERS
The Board of Directors does not intend to bring any other matters
before the Annual Meeting and has not been informed that any other matters are
to be presented to the Annual Meeting by others. In the event that other matters
properly come before the Annual Meeting or any adjournments thereof, it is
intended that the persons named in the accompanying proxy and acting thereunder
will vote in accordance with their best judgment.
DEADLINE FOR SUBMISSION
OF PROPOSALS TO BE PRESENTED
AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS
Any Stockholder who intends to present a proposal at the 1999 Annual
Meeting of Stockholders must file such proposal with the Company by June 24,
1999, for possible inclusion in the Company's proxy statement and form of proxy
relating to the meeting. The proxies named in the Company's Proxy Statement for
the 1999 Annual Meeting of Stockholders may exercise discretionary authority to
vote on any matter raised at the 1999 Annual Meeting which is not described in
the 1999 proxy statement unless the Company has received notice of such matter
on or before September 7, 1999.
By Order of the Board of Directors
Jay R. Stucki, Secretary
15
<PAGE> 19
APPENDIX A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN HEALTHCHOICE, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and Secretary of American
HealthChoice, Inc., a New York Corporation, do hereby certify and set forth:
1. The name of the corporation (hereinafter called the "Corporation")
is AMERICAN HEALTHCHOICE, INC. The Corporation's Certificate of Incorporation
was filed on September 14, 1988 under the name Paudan, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by amending the first paragraph of paragraph FOURTH to read in its
entirety as follows:
"FOURTH: The aggregate number of shares which the Corporation
shall have authority to issue is 9,600,000, of which 4,600,000 shares
shall be common stock of the par value of $0.001 per share (the "Common
Stock"), and of which 5,000,000 shares shall be preferred stock of the
par value of $0.001 per share ("Preferred Stock"). At the filing of
this Certificate of Amendment, each outstanding share of Common Stock
of the par value of $0.001 per share shall become one-twenty fifth
(1/25th) share of Common Stock of the par value of $0.001 per share, so
that after the filing of this Certificate of Amendment stockholders
shall be deemed to hold one share of Common Stock for every 25 shares
of Common Stock held prior to the filing, with any fractional shares
being rounded up to the nearest whole share of Common Stock."
3. As of the date of approval of this Certificate of Amendment, there
were 14,679,901 shares of Common Stock of the par value of $0.001 per share
issued and outstanding and 100,320,099 shares of Common Stock of the par value
of $0.001 per share authorized but unissued. Following the filing of this
Certificate of Amendment, there will be 587,196 shares of Common Stock of the
par value of $0.001 per share issued and outstanding and 4,012,804 shares of
Common Stock of the par value of $0.001 per share authorized but unissued.
4. The Certificate of Amendment is not intended to reduce stated
capital.
5. This Certificate of Amendment to the Corporation's Certificate of
Incorporation was authorized pursuant to Section 803(a) of the Business
Corporation Law, by vote of the Board of Directors of the Corporation, followed
by vote of at least a majority of all outstanding shares of the Corporation
entitled to vote thereon at a meeting of shareholders.
6. This is the first of two Certificates of Amendment being filed on
the same day by the Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury on
_______________ __, 1998.
AMERICAN HEALTHCHOICE, INC.
By:
-------------------------------------
Joseph W. Stucki, President
By:
-------------------------------------
Jay R. Stucki, Secretary
16
<PAGE> 20
APPENDIX B
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN HEALTHCHOICE, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and Secretary of American
HealthChoice, Inc., a New York Corporation, do hereby certify and set forth:
1. The name of the corporation (hereinafter called the "Corporation")
is AMERICAN HEALTHCHOICE, INC. The Corporation's Certificate of Incorporation
was filed on September 14, 1988 under the name Paudan, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by amending the first paragraph of paragraph FOURTH to read in its
entirety as follows:
"FOURTH: The aggregate number of shares which the Corporation
shall have authority to issue is 105,000,000, of which 100,000,000
shares shall be common stock of the par value of $0.001 per share (the
"Common Stock"), and of which 5,000,000 shares shall be preferred stock
of the par value of $0.001 per share ("Preferred Stock").
3. As of the date of approval of this Certificate of Amendment, there
were 587,196 shares of Common Stock of the par value of $0.001 per share issued
and outstanding and 4,012,804 shares of Common Stock of the par value of $0.001
per share authorized but unissued. Following the filing of this Certificate of
Amendment, there will be 587,196 shares of Common Stock of the par value of
$0.001 per share issued and outstanding and 99,412,804 shares of Common Stock of
the par value of $0.001 per share authorized but unissued.
4. The Certificate of Amendment is not intended to reduce stated
capital.
5. This Certificate of Amendment to the Corporation's Certificate of
Incorporation was authorized pursuant to Section 803(a) of the Business
Corporation Law, by vote of the Board of Directors of the Corporation, followed
by vote of at least a majority of all outstanding shares of the Corporation
entitled to vote thereon at a meeting of shareholders.
6. This is the second of two Certificates of Amendment being filed on
the same day by the Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury on
_______________ __, 1998.
AMERICAN HEALTHCHOICE, INC.
By:
-------------------------------------
Joseph W. Stucki, President
By:
-------------------------------------
Jay R. Stucki, Secretary
17
<PAGE> 21
PRELIMINARY COPY
COMMON STOCK PROXY
AMERICAN HEALTHCHOICE, INC.
THIS COMMON STOCK PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of American HealthChoice, Inc. (the "Company") to be
held at the Company's office at 1300 West Walnut Hill Lane, Suite 275, Irving,
Texas 75038, on November 20, 1998, beginning at 10:00 a.m., local time, and the
Proxy Statement in connection therewith and (2) appoints Dr. Joseph W. Stucki
and Jay R. Stucki, and each of them, the undersigned's proxies with full power
of substitution for and in the name, place and stead of the undersigned, to vote
upon and act with respect to all of the shares of Common Stock of the Company
standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the meeting and at any adjournment
thereof.
The undersigned directs that the undersigned's proxy be voted as
follows:
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for [ ] ABSTAIN
DIRECTORS (except as marked to the contrary below all nominees listed below from voting
</TABLE>
Joseph W. Stucki, D.C., Jeffrey Jones, D.C., Michael R. Smith, M.D.,
John V. Mansfield and James Roberts
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the line provided below.)
---------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
2. APPROVAL OF [ ] FOR Approval of Proposal 2 [ ] AGAINST Approval of Proposal 2 [ ] ABSTAIN
PROPOSAL 2 described below described below from voting
</TABLE>
Proposal 2 is the approval of the issuance of shares
of Common Stock upon conversion of $3,385,000 of
debentures issued during August 1998.
<TABLE>
<S> <C> <C> <C>
3. APPROVAL OF [ ] FOR Approval of Proposal 3 [ ] AGAINST Approval of Proposal 3 [ ] ABSTAIN
PROPOSAL 3 described below described below from voting
</TABLE>
Proposal 3 [items (i) through (iii) below]
constitutes a unified proposal to approve, and a
vote "FOR" will constitute approval of, all of the
following matters:
(i) An amendment to the Company's Certificate of
Incorporation to decrease the number of
authorized shares of Common Stock from
115,000,000 shares to 4,600,000 shares
(without affecting par value); and
(ii) a 1-for-25 reverse stock split of the
Company's presently issued and outstanding
shares of Common Stock (the "Reverse
Split"); and
(iii) an amendment to the Company's Certificate of
Incorporation, following the effective date
of the Reverse Split, to increase the
post-split number of authorized shares of
Common Stock from 4,600,000 shares to
100,000,000 shares (without affecting par
value).
4. RATIFY SELECTION OF LANE GORMAN TRUBITT, L.L.P. AS THE COMPANY'S
AUDITORS.
[ ] FOR Ratification [ ] AGAINST Ratification [ ] ABSTAIN
from voting
5. IN THE DISCRETION OF THE PROXIES, ON ANY OTHER MATTER WHICH MAY
PROPERLY COME BEFORE THE MEETING.
This proxy will be voted as specified above. If no specification is
made, this proxy will be voted for the election of the director nominees in item
1 above, for approval of the Proposals in items 2 and 3 above and for
ratification of the selection of auditors in Item 4 above.
The undersigned hereby revokes any proxy heretofore given to vote or
act with respect to the Common Stock of the Company and hereby ratifies and
confirms all that the proxies, their substitutes, or any of them may lawfully do
by virtue hereof.
If more than one of the proxies named shall be present in person or by
substitute at the meeting or at any adjournment thereof, the majority of the
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
Please date, sign and mail this proxy in the enclosed envelope.
Date 1998
----------------- ---,
------------------------------------
Signature of Stockholder
------------------------------------
Signature of Stockholder
Please date this proxy and sign your
name exactly as it appears hereon.
Where there is more than one owner,
each should sign. When signing as an
attorney, administrator, executor,
guardian or trustee, please add your
title as such. If executed by a
corporation, the proxy should be
signed by a duly authorized officer.
