<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-11(c) or (S)240.14a-12
Allegiant Physician Services
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a- 6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
ALLEGIANT PHYSICIAN SERVICES, INC.
500 Northridge Road, Suite 500
Atlanta, Georgia 30350
September 3, 1996
To the Stockholders of Allegiant Physician Services, Inc.:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
(the "Annual Meeting") of Allegiant Physician Services, Inc., a Delaware
corporation ("Allegiant"), to be held on September 25, 1996, at 8:00 a.m., Local
Time, at the Ashford Club, 400 Perimeter Center Terrace, Atlanta, Georgia 30350.
You will find enclosed the (i) Notice of Annual Meeting, (ii) Proxy Statement
and (iii) Proxy for the Annual Meeting. Accompanying this Proxy Statement and
incorporated by reference herein is Allegiant's 1995 Annual Report. At the
meeting you will be asked to elect Directors to the Board of Directors and
ratify the appointment of Ernst & Young LLP, as Allegiant's independent
auditors.
At this meeting, you will also be asked to approve the sale of substantially
all of the assets of Allegiant to Anesthesia Solutions, Inc., a Delaware
corporation ("ASI"), pursuant to an Asset Purchase Agreement. The Board of
Directors of Allegiant has unanimously approved the sale of assets and believes
it is in the best interests of Allegiant and its stockholders, and unanimously
recommends that stockholders vote "FOR" approval of the transaction. The Proxy
Statement describes in more detail the terms of the transaction with ASI and
provides certain financial and other information pertaining to Allegiant and
ASI. Please give this information your careful attention.
We urge you to complete, sign and date the enclosed Proxy and return it
promptly in the enclosed envelope, whether or not you plan to attend the Annual
Meeting. If you attend the Annual Meeting, you may vote in person, even if you
previously returned your Proxy.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Richard L. Jackson
Richard L. Jackson
Chairman of the Board and Chief Executive Officer
<PAGE>
ALLEGIANT PHYSICIAN SERVICES, INC.
500 Northridge Road, Suite 500
Atlanta, Georgia 30350
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On
September 25, 1996
8:00 a.m.
To the Stockholders of Allegiant Physician Services, Inc.:
Notice is hereby given that the 1996 Annual Meeting of Stockholders (the
"Annual Meeting") of Allegiant Physician Services, Inc., a Delaware corporation
("Allegiant"), will be held on September 25, 1996, at 8:00 a.m., Local Time, at
the Ashford Club, 400 Perimeter Center Terrace, Atlanta, Georgia 30350, for the
following purposes:
1) to elect six Directors of Allegiant, each to serve a term of one
year;
2) to ratify the appointment of Ernst & Young LLP, as independent
public accountants of Allegiant and its subsidiaries for the year
1996;
3) to approve the sale of substantially all of the assets (the
"Transaction") of Allegiant to Anesthesia Solutions, Inc., a
Delaware corporation, pursuant to the terms of an Asset Purchase
Agreement; and
4) to transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The Board of Directors has fixed August 20, 1996 as the record date (the
"Record Date") for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting. Approval of the sale of substantially all of the
assets of Allegiant requires the presence, by proxy or in person, of the holder
of a majority of all shares entitled to vote and the affirmative vote of the
holders of a majority of all shares outstanding. Approval of the other matters
requires only the affirmative vote of a plurality of the shares entitled to vote
at a meeting at which a quorum is present in person or by proxy.
THE BOARD OF DIRECTORS OF ALLEGIANT UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE TRANSACTION.
By Order of the Board of Directors
/s/ Pamela Wagner
__________________________________________________
Secretary
September 3, 1996
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY TO
ALLEGIANT IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE>
ALLEGIANT PHYSICIAN SERVICES, INC.
PROXY STATEMENT
FOR AN ANNUAL MEETING OF STOCKHOLDERS OF
ALLEGIANT PHYSICIAN SERVICES, INC.
TO BE HELD ON SEPTEMBER 25, 1996
-----------------
INTRODUCTION
This Proxy Statement is being furnished to holders (the "Stockholders") of
common stock, $.001 par value per share ("Allegiant Common Stock"), of Allegiant
Physician Services, Inc., a Delaware corporation ("Allegiant"), in connection
with the solicitation of proxies by and on the behalf of the Board of Directors
of Allegiant for use at an Annual Meeting of Stockholders to be held on
September 25, 1996, at 8:00 a.m., local time, at the Ashford Club, 400 Perimeter
Center Terrace, Atlanta, Georgia 30350, and at any adjournment or adjournments
thereof (the "Annual Meeting"). Accompanying this Proxy Statement and
incorporated by reference herein is Allegiant's 1995 Annual Report.
At the Annual Meeting, the holders of Allegiant Common Stock will be asked to
elect Directors to the Board of Directors and to ratify the appointment of Ernst
& Young LLP as Allegiant's independent public accountants. See "Part A" of this
Proxy Statement.
At the Annual Meeting, the Stockholders will also be asked to approve the sale
of substantially all of the assets of Allegiant pursuant to the terms of an
Asset Purchase Agreement, dated as of June 1, 1996 (the "Asset Purchase
Agreement"), by and among Anesthesia Solutions, Inc., a Delaware corporation
("ASI"), Richard L. Jackson, Allegiant's founder, Chairman of the Board and
Chief Executive Officer, and Allegiant. The sale of assets contemplated by the
Asset Purchase Agreement is referred to herein as the "Transaction." The
Transaction was consummated on June 1, 1996, subject to rescission if the
requisite Stockholder approval of the Transaction is not received by October 1,
1996. Subsequent to June 1, 1996, Allegiant's business has consisted of
expanding its hospital information systems, locum tenens services, physician
practice management services and of holding the promissory notes of ASI acquired
by Allegiant in the Transaction. See "Part B" of this Proxy Statement.
The Allegiant Common Stock is quoted on the OTC Bulletin Board. On January
23, 1996, the last trading day prior to the public announcement of the
Transaction, the last reported sales price per share of Allegiant Common Stock
on the Nasdaq/NMS was $0.75. On August 27, 1996, the last reported sales price
per share of Allegiant Common Stock on the OTC Bulletin Board was $0.46. This
Proxy Statement and the accompanying Notice of Annual Meeting and Proxy enclosed
herewith are first being mailed to Stockholders of Allegiant on or about
September 3, 1996.
The date of this Proxy Statement is September 3, 1996.
<PAGE>
AVAILABLE INFORMATION
Allegiant Physician Services, Inc. and EquiMed, Inc. (an affiliate of ASI) are
subject to the information and reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at certain regional offices of the Commission
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511;
and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such information can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C>
Page
----
INTRODUCTION................................................................. 1
AVAILABLE INFORMATION........................................................ 2
GENERAL INFORMATION REGARDING THE ANNUAL MEETING............................. 5
PART A....................................................................... 7
ELECTION OF DIRECTORS........................................................ 7
Board of Directors......................................................... 7
Nominees for Board of Directors............................................ 7
Meetings of the Board and Board Committees................................. 8
Legal Proceedings Involving Certain Officers and Directors................. 9
Compensation of Directors.................................................. 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 10
DIRECTORS AND EXECUTIVE OFFICERS OF ALLEGIANT............................... 11
EXECUTIVE COMPENSATION...................................................... 11
Executive Officers......................................................... 11
Report of the Compensation and Stock Option Administration Committee....... 12
Compensation Committee Interlocks and Insider Participation................ 13
Summary Compensation Table................................................. 14
1995 Option Grants......................................................... 15
Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End
Option Value Table........................................................ 16
Ten Year Option Repricing.................................................... 17
Employment Agreements........................................................ 18
Certain Relationships and Related Transactions............................... 18
Compliance with Section 16(a) of the Securities Exchange Act of 1934......... 18
Performance Graph............................................................ 19
APPOINTMENT OF INDEPENDENT AUDITORS.......................................... 20
Changes In And Disagreements With Accountants................................ 20
PART B....................................................................... 21
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
SUMMARY...................................................................... 21
General..................................................................... 21
The Parties................................................................. 21
The Annual Meeting.......................................................... 22
The Transaction............................................................. 22
COMPARATIVE PER SHARE AND DIVIDEND INFORMATION............................... 25
Allegiant................................................................... 25
ASI......................................................................... 26
GENERAL INFORMATION.......................................................... 27
The Annual Meeting.......................................................... 27
Vote Required............................................................... 27
Recommendation of the Allegiant Board....................................... 27
Other Information........................................................... 27
THE TRANSACTION.............................................................. 28
General..................................................................... 28
Background of the Transaction............................................... 28
Allegiant's Reasons for the Transaction; Recommendation of the
Allegiant Board............................................................ 28
Principal Terms Defined in the Asset Purchase Agreement..................... 29
Consideration to Be Paid for the Business................................... 30
Effective Date of the Transaction........................................... 31
Certain Federal Income Tax Consequences..................................... 31
Representations and Warranties.............................................. 31
Indemnification of ASI by Allegiant......................................... 32
Conditions to Consummation.................................................. 32
Amendments; Termination..................................................... 32
Additional Covenants of the Parties......................................... 32
Noncompetition Agreement, Guaranty Agreement and Other Actions by All
Parties.................................................................... 32
Operations of Allegiant after the Transaction............................... 33
Interests of Certain Persons in the Transaction............................. 33
Expenses and Fees........................................................... 34
Governing Law; Arbitration.................................................. 34
INFORMATION REGARDING ALLEGIANT.............................................. 35
History and Overview........................................................ 35
Growth Strategy............................................................. 35
Acquisition Activities...................................................... 36
Industry Background......................................................... 36
Services Provided........................................................... 37
The Business................................................................ 37
Hospital Information Systems................................................ 39
Physician Recruiting and Staffing Services.................................. 39
Locum Tenen Services........................................................ 39
Physician Practice Management Services...................................... 39
Promissory Notes............................................................ 39
Pain Treatment Operations................................................... 40
Competition................................................................. 40
Government Regulation....................................................... 40
Professional Liability Insurance............................................ 41
Employees and Independent Contractors....................................... 41
Properties.................................................................. 41
</TABLE>
3
<PAGE>
Legal Proceedings............................................................ 41
INFORMATION REGARDING ASI.................................................... 43
Employees.................................................................. 43
Properties................................................................. 43
ALLEGIANT SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA................... 45
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION....................... 46
ALLEGIANT MANAGEMENT'S DISCUSSION AND ANALYSIS............................... 51
PROPOSALS OF ALLEGIANT'S STOCKHOLDERS........................................ 55
OTHER MATTERS................................................................ 55
INDEX TO ALLEGIANT CONSOLIDATED CONDENSED FINANCIAL STATEMENTS............... 56
4
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GENERAL INFORMATION REGARDING THE ANNUAL MEETING
This Proxy Statement is divided into two parts: Part A relates to the
election of the Board of Directors, ratification of independent auditors and
other matters customarily addressed at annual meetings of Allegiant's
Stockholders; Part B relates to the sale of substantially all of the assets of
Allegiant to ASI pursuant to the Transaction.
Proxies in the form enclosed are solicited by the Board of Directors of
Allegiant for the Annual Meeting of Stockholders to be held on September 25,
1996, at 8:00 a.m., Local Time, at Ashford Club, 400 Perimeter Center Terrace,
Atlanta, Georgia 30350. Any Stockholder who executes and delivers a proxy may
revoke it any time before it is voted by filing with the Secretary of Allegiant
either an instrument revoking the proxy or a duly executed proxy bearing a later
date. Any Stockholder present at the meeting may revoke his or her proxy by
expressing a desire to personally cast his or her vote.
All shares represented by effective proxies will be voted as specified
in connection with (i) the six nominees for election to the Board of Directors,
(ii) the ratification of the appointment of Ernst & Young LLP, as independent
auditors for the year 1996, and (iii) the Transaction. Unless otherwise
specified, the proxies will be voted (i) FOR the election as directors of the
nominees listed in this Proxy Statement, (ii) FOR the ratification of the
appointment of Ernst & Young, LLP as independent auditors for the year 1996, and
(iii) FOR the Transaction.
Under Delaware law, directors are elected by the affirmative vote, in
person or by proxy, of a plurality of the shares entitled to vote in the
election at a meeting at which a quorum is present. Only votes actually cast
will be counted for the purpose of determining whether a particular nominee
received more votes than the persons, if any, nominated for the same seat on the
Board of Directors.
Delaware law requires that the proposed Transaction be approved by at
least a majority of the outstanding shares entitled to vote. Abstentions and
broker non-votes (as defined below), therefore, will have the effect of votes
against the proposed Transaction. Approval of the Transaction will require the
affirmative vote of a majority of the shares present, in person or by proxy, and
entitled to vote on such matter. Abstentions will be counted in determining the
minimum number of votes required for approval of the Transaction and will,
therefore, have the effect of negative votes. Brokers holding shares of
Allegiant Common Stock in street name for their customers may not vote those
shares without specific instructions from the customer as to the Transaction or
any other non-routine matter that may come before the Annual Meeting. Shares
that brokers are not authorized to vote as to such matters are referred to
herein as "broker non-votes." Broker non-votes will not be counted in
determining the minimum number of votes required for approval of the Transaction
and, therefore, will have the effect of negative votes. With respect to any
other matters that may come before the Annual Meeting, if proxies are executed
and returned, such proxies will be voted in a manner deemed by the proxy
representatives named therein to be in the best interests of Allegiant and its
shareholders.
The Board of Directors has fixed the close of business on August 20,
1996 as the Record Date for determining the Stockholders of Allegiant entitled
to receive notice of and to vote at the Annual Meeting. Only holders of record
of Allegiant Common Stock as of the Record Date are entitled to vote at the
Annual Meeting. The number of shares of Common Stock outstanding and entitled to
vote as of the Record Date was 34,245,519. Each share is entitled to one vote.
The solicitation of proxies will be made primarily by mail. Proxies may
also be solicited personally and by telephone or telegraph by regular employees
of Allegiant, without any additional remuneration and at minimal cost. Also,
Allegiant has retained the firm of Corporate Investor Communications, Inc. to
assist in the solicitation of proxies for a fee estimated at $4,000 plus
expenses. Allegiant intends to request banks, brokerage houses, custodians,
nominees and fiduciaries to forward the proxy material to their principals and
request authority for the execution of proxies. Allegiant will reimburse such
persons for their expenses in so doing.
5
<PAGE>
Upon written request to Investor Relations, Allegiant Physician
Services, Inc., 500 Northridge Road, Suite 500, Atlanta, Georgia 30350,
Allegiant will provide without charge to each Stockholder, a copy of Allegiant's
Annual Report on Form 10-K, including the financial statements and the schedules
to the financial statements, required to be filed with the Securities and
Exchange Commission.
6
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PART A
ELECTION OF DIRECTORS
Board of Directors
The Board of Directors of Allegiant currently consists of six Directors.
Allegiant's Bylaws provide that the Board of Directors shall consist of not less
than three nor more than nine Directors, subject to increase or decrease in such
number within legal limits by action of the Board of Directors or Stockholders.
Successors to those Directors whose terms have expired are required to be
elected by Stockholder vote; vacancies in unexpired terms and any additional
positions created by board action are filled by action of the existing Board of
Directors.
In the event that any of the nominees named below is unwilling or unable
to continue to serve as Director, the persons named in the proxy will vote for a
substitute nominee. Management has no reason to believe that any nominee will be
unable to continue to serve. There are no family relationships between any
Director or Executive Officer of Allegiant.
Proxies in the accompanying form will be voted in favor of electing the
six persons named below as Directors to serve for a term of one year or until
their successors are elected and have qualified. All of the persons listed below
are members of the present Board of Directors. Set forth below is certain
information concerning each nominee for Director.
Nominees for Board of Directors
Richard L. Jackson, 42 (1) Director since September 1987
Mr. Jackson founded Allegiant in September 1987 and served as President of
Allegiant until September 1991 when he became Chairman of the Board. Mr.
Jackson became Chief Executive Officer in November 1993 and resumed his position
as President in January 1994 as part of Allegiant's restructuring effort. In
December 1995, Mr. Jackson relinquished his position as President to Terrence L.
Bauer. Prior to forming Allegiant, Mr. Jackson was a founder, President and
Chief Executive officer of Jackson & Coker, one of the largest physician
recruiting firms in the United States. Mr. Jackson is also a director of I.Q.
Software, Inc. and the founder of several other health care service companies.
W. Daniel Barker, MHA, LFACHE, 68 (2) Director since March 1994
Since 1991, Mr. Barker has served as Professor Emeritus, Department of Community
Health at the Emory University School of Medicine, where he had been named an
Associate Professor in 1978 and Professor in 1988. From 1984 to 1990, he was
the Director of Hospitals for Woodruff Health Sciences Center of Emory
University, and now holds the title of Retired, Director of Hospitals. In 1990,
Mr. Barker became a Life Fellow with the American College of Healthcare
Executives (LFACHE). Throughout the years, he has received numerous honors,
which include Distinguished Service Awards from the American Hospital
Association, the Emory University School of Medicine, the Medical Association of
Atlanta, and the Georgia State University, Institute of Health Administration
Alumni Club. Mr. Barker has served on numerous health care finance, advisory
and strategic planning committees, including President of the Georgia Hospital
Association and Chairman of the Board of Trustees of the American Hospital
Association.
Paul S. Ellison, FACHE, 63 (3) Director since May 1993
Mr. Ellison has served as the Executive Vice President of The SunHealth Alliance
since 1986. From 1969 to 1986, Mr. Ellison served as the President of Cleveland
Memorial Hospital in Shelby, North Carolina. He has been a member of the North
Carolina Hospital Association since 1967, serving in various capacities, and
receiving the Distinguished Service Award and the Meritorious Service Award from
the Association in 1986 and 1992, respectively. He has also served as Chairman
of the American College of Healthcare Executives from 1990 to 1993 and on the
Board of Directors of the Southeastern Hospital Conference from 1989 to 1992,
serving as Chairman from 1979 to 1980. Mr. Ellison is a member of the American
Hospital Association and has served on
7
<PAGE>
the Board of the North Carolina Health Insurance Advisory Board and on the Board
of North Carolina Blue Cross/Blue Shield. Mr. Ellison is a graduate of Wofford
College and of the post graduate program in hospital administration at Charlotte
Memorial Hospital (Carolinas Medical Center).
William H. Franklin, Jr., Ph.D., 58 (1)(2) Director since March 1992
Mr. Franklin is President of Angel Ventures, Inc., a firm specializing in
capitalizing and developing start-up and early stage ventures. He is also
President of Environmental Science Technologies, a company that produces health
physics and radiological safety and regulatory compliance software and
automation for the nuclear power industry and hazardous process manufacturers.
Prior to forming Angel Ventures, Inc. in 1993, Dr. Franklin was Vice Chairman of
Premier HealthCare, Inc., a venture development firm specializing in health care
service businesses. Between 1979 and 1992, he worked with a number of
entrepreneurs developing various business ventures including Jackson & Coker on
whose Board he served from 1983 to 1987. Dr. Franklin holds two engineering
degrees, an MBA and Ph.D.
Kenneth J. O'Donnell, 51 Director since November 1994
Since January 1994, Mr. O'Donnell has been the President, Chief Executive
Officer and a member of the Board of Directors of CTI EDIsolv, Inc., a provider
of electronic data interchange services for the healthcare industry. Prior to
joining CTI EDIsolv, Inc., Mr. O'Donnell was President and Chief Executive
Officer of National Electronic Information Corporation ("NEIC") where he created
and directed the design and implementation of the NEIC Healthcare Information
Network. Mr. O'Donnell started his career with McDonnell Douglas Information
Systems, one of the pioneers in computerized hospital information systems, where
he held a variety of technical, marketing and management positions during his 22
years of service.
Harrison L. Rogers, Jr. M.D., 71 Director since November 1994
Dr. Rogers, who previously served as the President of the American Medical
Association, is a retired general surgeon who formerly practiced on the staffs
of Crawford Long Hospital and Piedmont Hospital in Atlanta, Georgia. Prior to
his retirement from clinical practice in 1992, Dr. Rogers was a clinical
assistant professor in the department of surgery at Emory University School of
Medicine and a member of the medical and teaching staffs at both Crawford Long
and Piedmont Hospitals. From 1986 until 1993, Dr. Rogers served as a member of
the board of Trustees of SunHealth Corporation, a hospital alliance of 240
southeastern hospitals. Dr. Rogers has also served as a regional delegate to
the American Hospital Association House of Delegates, a member of the American
Red Cross Board of Directors, President of the Atlanta Clinical Society and as a
member of the Board of Directors and Treasurer of Blue Cross/Blue Shield of
Georgia/Atlanta.
(1) Executive Committee Member
(2) Audit Committee Member
(3) Compensation and Stock Option Administration Committee Member
Meetings of the Board and Board Committees
During the year ended December 31, 1995, the Board of Directors held 13
meetings. Allegiant has three standing committees: (1) an Executive Committee,
(2) an Audit Committee and (3) a Compensation and Stock Option Administration
Committee. The Executive Committee, which acts in the absence of the Board of
Directors, held numerous telephonic and other meetings during 1995. All of the
Executive Committee's resolutions resulting from those meetings were
subsequently reviewed with the Board of Directors and to date such resolutions
have been ratified by the Board of Directors. The Audit Committee met 2 times
during 1995 with Allegiant's independent auditors and financial management to
review internal accounting controls, accounting policies and procedures and the
results of the annual audit of Allegiant's financial statements for the year
ended December 31, 1994. The Audit Committee is also responsible for
recommending to the Board of Directors the independent auditors to be retained
for the year. The Compensation and Stock Option Administration Committee held
several telephonic and other meetings during 1995. All of the Compensation and
Stock Option Administration Committee's resolutions resulting from those
meetings were subsequently reviewed with the Board of Directors and to date such
resolutions have been ratified by the Board of Directors. The Compensation and
Stock Option
8
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Administration Committee makes recommendations to the Executive Committee
concerning stock option grants for executive officers and reviews and recommends
for approval by the Board of Directors the initial and periodic compensation
arrangements for the Chairman, Chief Executive Officer and President and any
other executive officers. During 1995, no members of the Board of Directors, who
were Directors at the time of the meeting, attended fewer than 75% of the total
of the meetings of the Board of Directors and committees of which he was a
member. See "Nominees for Board of Directors" for the present members of the
committees.
Legal Proceedings Involving Certain Officers and Directors
During September 1994, Allegiant settled for $2.8 million a purported class
action suit filed in August 1993 in the U.S. District Court for the Central
District of California against Allegiant, certain directors, officers and
others. Mr. Jackson and Dr. Franklin are current directors who were named in the
litigation. The plaintiff alleged various violations of federal securities laws.
Allegiant's portion of the settlement of $2.0 million, net of insurance
proceeds, was recorded for financial purposes during the fourth quarter of 1993.
Allegiant borrowed $500,000 of the funds put in escrow for the settlement of the
case from one of Allegiant's insurance carriers.
Compensation of Directors
Each Director of Allegiant who is not an officer or an affiliate of
Allegiant is paid a fee of $1,500 for attendance at any meeting (other than for
telephonic meetings) of the Board of Directors. Additionally, each non-
affiliated Director receives an annual retainer of $6,000 for services as a
Director and at the time of becoming a Director received options to purchase
20,000 shares of Common Stock at an exercise price equal to the then current
fair market value of the Common Stock on the date of grant.
Election of each nominee for director requires the affirmative vote of a
plurality of the shares entitled to vote at a meeting at which a quorum is
present in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE ABOVE NOMINEES.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 20, 1996 information regarding
the beneficial ownership of Common Stock of (i) each person known by Allegiant
to be the beneficial owner of more than five percent of the outstanding Common
Stock of Allegiant, (ii) each of the directors of Allegiant, (iii) the Executive
Officer Group and (iv) all executive officers and directors of Allegiant as a
group.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of Class
Name and Address of Beneficial Owner (1) Beneficial Ownership (2) Beneficially Owned (12)
- ---------------------------------------- ------------------------ ----------------------
<S> <C> <C>
Richard L. Jackson 16,417,199 (3) 46.4%
National Century Financial Enterprises, Inc. 12,773,333 (4) 36.1%
6125 Memorial Drive
Dublin, OH 43017
HealthCare Ventures II, L.P. 1,862,673 5.3%
Twin Towers at Metro Park
379 Thornall Street
Edison, NJ 08837
Daniel Barker 20,080 (5) *
Paul Ellison 14,855 (6) *
William Franklin 30,543 (7) *
Kenneth J. O'Donnell 19,774 (8) *
Harrison Rogers 19,774 (9) *
Bruce A. Jacobs 26,854 (10) *
Terrence P. Schuck 51,537 (11) *
All executive officers and directors of
Allegiant as a group 16,836,007 (3)(12) 47.6%
</TABLE>
* Denotes beneficial ownership of less than 1%.
(1) Except as otherwise indicated, the address of the beneficial owners of
more than five percent of the outstanding common stock is c/o Allegiant,
500 Northridge Road, Suite 500, Atlanta, Georgia 30350.
(2) Except as otherwise indicated, each of the parties listed above has sole
voting and investment power over the shares owned.
(3) Includes an aggregate of 13,212,213 shares with respect to which Mr.
Jackson holds a proxy to vote.
(4) Represents shares issued as collateral for Allegiant's debt obligations
which are subject to a proxy to vote held by Richard L. Jackson.
(5) Includes 15,268 shares issuable upon exercise of options within 60 days
but does not include 5,688 shares issuable upon exercise of options not
exercisable within 60 days.
(6) Includes 14,855 shares issuable upon exercise of options within 60 days
but does not include 1,871 shares issuable upon exercise of options not
exercisable within 60 days.
(7) Includes 13,543 shares issuable upon exercise of options within 60 days.
(8) Represents shares issuable upon exercise of options which are exercisable
within 60 days.
(9) Represents shares issuable upon exercise of options which are exercisable
within 60 days.
(10) Includes 26,854 shares issuable upon exercise of options within 60 days
but does not include 19,919 shares issuable upon exercise of options not
exercisable within 60 days. Effective August 16, 1996, Mr. Jacobs was no
longer employed with the Allegiant.
(11) Includes 45,537 shares issuable upon exercise of options within 60 days
but does not include 25,764 shares issuable upon exercise of options not
exercisable within 60 days.
(12) Calculation of percentages of beneficial ownership includes 18,765,251
shares issued as collateral for certain of Allegiant's debt obligations.
When these debt obligations are paid in full and the shares held as
collateral are returned to Allegiant, the percentages of beneficial
ownership (assuming no other changes in the number of shares beneficially
owned) would be as follows: Richard L. Jackson, 22.0%; National Century
Financial Enterprises, Inc., 0.0%; HealthCare Ventures II, L.P., 11.2%; and
officers and directors of Allegiant as a group, 24.5%.
10
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF ALLEGIANT
The following table sets forth the names, ages and positions of the
executive officers and directors of Allegiant:
<TABLE>
<CAPTION>
Name Age Position With Allegiant
- --------------------------------------- --- ---------------------------------------
<S> <C> <C>
Richard L. Jackson (1) 42 Chairman of the Board, Chief Executive Officer
Terrence L. Bauer (2) 40 President, Chief Operating Officer
Timothy L. Powers 45 Executive Vice President, Chief Financial Officer and
Treasurer
Bruce A. Jacobs (3) 52 Executive Vice President, Managed Care
Terrence P. Schuck 50 Executive Vice President, Chief Information Officer
W. Daniel Barker (4) 69 Director
Paul S. Ellison (5) 63 Director
William H. Franklin, Jr., Ph.D. (1)(4) 58 Director
Kenneth J. O'Donnell 52 Director
Harrison L. Rogers, Jr. MD 71 Director
</TABLE>
(1) Member of the Executive Committee
(2) Effective August 16, 1996, Mr. Bauer resigned from Allegiant.
(3) Effective August 16, 1996, Mr. Jacobs was no longer employed by Allegiant.
(4) Member of the Audit Committee
(5) Member of the Compensation and Stock Option Administration Committee
EXECUTIVE COMPENSATION
Executive Officers
The following persons serve as executive officers of Allegiant.
Mr. Jackson, who is listed above under "Nominees for Board of Directors," also
serves as Allegiant's Chief Executive Officer.
Terrence L. Bauer
Mr. Bauer joined Allegiant in December 1995 as President and Chief
Operating Officer. He has over 16 years of experience in operations, marketing,
and sales. Prior to joining Allegiant, Mr. Bauer served as Chief Executive
Officer at ATC HealthCare Services, a provider of temporary and contractual
healthcare staffing services. Also, he has served in senior management positions
at Critical Care America, IVAC Corporation, and McGaw Laboratories. Effective
August 16, 1996, Mr. Bauer resigned from Allegiant.
Timothy L. Powers
Mr. Powers joined Allegiant in February 1995 as Controller and was
appointed to the position of Vice President-Controller, Chief Accounting Officer
and Assistant Treasurer by Allegiant's Board of Directors. He was promoted to
the position of Vice President, Chief Financial Officer and Treasurer in March
1995. Prior to joining Allegiant, Mr. Powers served as controller and in other
financial management positions at Freshens Premium Yogurt, Burger King
Corporation, HBO & Company and Wheelabrator-Frye Corporation.
Bruce A. Jacobs
Mr. Jacobs joined Allegiant as Executive Vice President responsible for its
newly-formed Allegiant Managed Care Division effective January 1, 1995. Prior to
joining Allegiant, Mr. Jacobs was a principal of The Jacobs Group within
SunHealth Alliance in Atlanta, Georgia. From May 1989 to May 1993, Mr. Jacobs
was the Vice President of Plan Management of Mercy Alternative in Detroit,
Michigan where he developed physician-hospital
11
<PAGE>
organizations as well as a state-wide managed care organization consisting of 22
hospitals and 650 physicians. From June 1987 to April 1989, he served as a
Regional Vice President of Travelers Health Network in Atlanta, Georgia where he
managed a five-city network of health maintenance organizations and preferred
provider organizations with more than 90,000 members and $100 million in
revenue. Prior to joining Travelers Health Network, Mr. Jacobs spent
approximately 15 years working in the healthcare industry for Cigna Health
Plans, Comed Management Inc., HealthOne and Blue Cross and Blue Shield
Association. Effective August 16, 1996, Mr. Jacobs was no longer employed with
Allegiant.
Terrence P. Schuck
Mr. Schuck joined Allegiant in March 1994 as Executive Vice President and
Chief Information Officer. Prior to joining Allegiant Mr. Schuck served as
Executive Director, Information Systems at HBO & Co. He has over 29 years
experience in management information systems and computer support and has served
in managerial and executive positions for Computer Service Management Group and
Harris Corporation.
Report of the Compensation and Stock Option Administration Committee
The Compensation and Stock Option Administration Committee (the
"Committee") believes that Allegiant must pay competitively to attract and
retain qualified executives. The Committee reviews Allegiant's executive
incentive plans, programs and policies; monitors the performance and
compensation of the Chief Executive Officer and the Chief Financial Officer; and
makes recommendations and reports to the Board of Directors concerning matters
of executive compensation. In performing these duties, the Committee considers
management's evaluations and recommendations along with other factors. The
Committee seeks to achieve the following:
1. A competitive base compensation package that enables Allegiant to
attract and retain key executives by evaluating comparable
historical and industry information.
2. A bonus program that is based on both Allegiant's business performance
and the individual performance of each officer.
3. The provision of stock compensation opportunities that are linked with
performance.
Allegiant's executive compensation program currently has three main
components, which are discussed below:
Base Salary
Allegiant's objective for paying base salaries is to be competitive in the
marketplace based on individual responsibilities and experience, together with
the particular needs, requirements and financial results of Allegiant.
The base salaries for certain executive officers were determined by
employment agreements entered into with such officers. Any incentive
compensation granted to executive officers other than what is specifically
provided for in their employment agreements is totally at the discretion of the
Board of Directors and would be based on Allegiant meeting or exceeding its
operating plans for the year.
Bonuses
Upon recommendation to its Board of Directors, Allegiant may pay an annual
cash bonus to its executive officers based on both the executive officer's
performance and Allegiant's overall performance.
Stock Options
Allegiant has in place stock option plans (collectively, the "Plans").
During each year, the Stock Option Administration Committee considers the
desirability of granting key employees, including the executive officers, awards
under its Plans. The Plans are designed to provide long-term, stock based
incentives for executives in order
12
<PAGE>
to encourage superior performance over an extended period of time and to align
executives' interests with those of shareholders.
In 1995, stock options were issued to a broad group of key employees,
including executive officers, Messrs. Jacobs and Schuck. Also during 1995, stock
options that were previously granted to Mr. Schuck, an executive officer, were
subsequently repriced to the current market price of Allegiant's common stock.
These options were intended to serve as a reward for joining and continuing with
Allegiant and to encourage the holders to make significant contributions to the
success of Allegiant. All options granted during 1995 were granted at the fair
market value on the date of grant.
Paul S. Ellison
Compensation and Stock Option
Administration Committee
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Mr. Ellison, who is not nor was an
officer or other employee of Allegiant and has no other relationship with
Allegiant required to be disclosed as a Compensation Committee interlock.
13
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation awarded to,
earned by, or paid by any person, to the Chief Executive Officer and to the
executive officers named below (the "Executive Officer Group") at December 31,
1995.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------------------- --------------
SECURITIES ALL
UNDERLYING OTHER
NAME AND SALARY BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR $ $ (#) $
- -------------------------------------- -------- ---------- ----------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Richard L. Jackson 1995 316,757 -- -- 7,200 (2)
Chairman of the Board and Chief 1994 281,250 -- -- 1,110 (2)
Executive Officer 1993 280,679 61,895 (1) -- 1,479
Bruce Jacobs (3) 1995 151,350 7,474 46,773 --
Executive Vice President, Managed 1994 -- -- -- --
Care 1993 -- -- -- --
Terrence P. Schuck (4) 1995 105,000 10,121 71,301 (5) --
Executive Vice President and Chief 1994 80,002 -- 50,000 --
Information Officer 1993 -- -- -- --
</TABLE>
(1) Bonus paid in 1993 was based upon Allegiant's 1992 performance and was
included in Allegiant's 1992 results of operations.
(2) Represents amount paid for premiums on certain term and whole life
insurance policies.
(3) Mr. Jacobs joined Allegiant on January 1, 1995. Effective August 16, 1996,
Mr. Jacobs was no longer employed with Allegiant.
(4) Mr. Schuck joined Allegiant on March 1, 1994.
(5) Includes 42,657 options at an exercise price of $1.31 that were issued in
August 1995 as a replacement for the 50,000 originally granted in 1994 at
an exercise price of $2.88.
14
<PAGE>
1995 Option Grants
The following table sets forth information regarding grants of stock
options to purchase shares of Common Stock made during 1995 to each member of
the Executive Officer Group.
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Price Appreciation for
Options Employees in Exercise Price Option Term (1)
Name Granted (#) 1994 ($/Share) Expiration Date 5% 10%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Jacobs(2) 46,773 4% $1.31 December 2004 $38,534 $97,653
Terrence P. Schuck 28,644 2% $1.31 January 2005 $23,598 $59,803
42,657 (3) 3% $1.31 February 2004 $35,143 $89,059
</TABLE>
(1) The dollar gains under these columns are the result of calculations
assuming a 5% and a 10% annual appreciation for the term of the stock
option, i.e., 10 years. These calculations are required to be included in
accordance with rules promulgated by the Securities and Exchange Commission
and are not intended to forecast possible future appreciation of the stock
prices of Allegiant's Common Stock.
(2) Effective August 16, 1996, Mr. Jacobs was no longer employed with
Allegiant.
(3) During 1995, 50,000 options originally granted in 1994 at an exercise price
of $2.88 per share were surrendered and subsequently replaced with 42,657
options at an exercise price of $1.31.
15
<PAGE>
Aggregate Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Value Table
The following table sets forth information regarding the value of
unexercised stock options held at December 31, 1995 by each member of the
Executive Officers Group. No options were exercised during 1995 by any member
of the Executive Officer Group.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options
Fiscal Year-End (#) at Fiscal Year-End (5)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ----------------------- ----------------- ----------------
<S> <C> <C>
Bruce A. Jacobs (1) 19,168/ 27,605 -
Terrence P. Schuck (2) 36,593/ 34,708 -
</TABLE>
(1) Effective August 16, 1996, Mr. Jacobs was no longer employed with
Allegiant.
(2) During 1995, 50,000 options granted in 1994 at an exercise price of
$2.88 per share were surrendered and subsequently replaced with 42,657
options at an exercise price of $1.31 per share.
16
<PAGE>
Ten Year Option Repricing
The following table sets forth information regarding the repricing
during 1995 of Allegiant's stock options held by each member of the Executive
Officer Group.
<TABLE>
<CAPTION>
Number of Length of
Securities Market Exercise Original
Underlying Price of Price New Option Term
Options Stock at Time at Time Exercise Remaining at
Repriced of Repricing of Repricing Price Date of
Name Date (#) ($) ($) ($) Repricing
- --------------------- ------------- ------------------ ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Terrence P. Schuck (1) August, 1995 42,657 $1.31 $2.88 $1.31 9 years
</TABLE>
(1) During 1995, 50,000 options originally granted in 1994 at an exercise price
of $2.88 per share were surrendered and subsequently replaced with 42,657
options at an exercise price of $1.31.
Report on Repricing Options
During 1995 options that were previously granted to Mr. Schuck, an
executive officer, and to other individuals that are not members of the
Executive Officer Group, were repriced to the current market price of
Allegiant's common stock. These options were intended to serve as a reward for
joining and continuing with Allegiant and to encourage the holder to make
significant contributions to the success of Allegiant. Due to the decrease in
the market price of Allegiant's common stock, Allegiant repriced certain options
to the current market value to reward the holders for remaining with Allegiant
and encourage them to continue to contribute to the success of Allegiant.
Paul S. Ellison
Compensation and Stock Option
Administration Committee
17
<PAGE>
Employment Agreements
In May 1991, Richard L. Jackson entered into an employment agreement with
Allegiant, which was amended in October 1991 and expires in March 1997. The
amended agreement requires Mr. Jackson to serve as Chairman, Chief Executive
Officer and President of Allegiant. The agreement is automatically renewed for
additional one year terms unless either party gives the other 60 days notice.
The base compensation under the amended agreement is $275,000 per annum
effective January 1, 1994, subject to annual increases equal to a cost-of-living
index increase. Compensation will continue to be paid to Mr. Jackson for two
months in case of permanent disability and to Mr. Jackson's designated
beneficiary for six months in the case of death. All obligations of Allegiant
under the agreement cease if Mr. Jackson's employment is terminated for cause,
as defined in the agreement. Allegiant is obligated to maintain certain term and
whole life insurance policies providing $350,000 and $1,000,000, respectively,
in coverage, of which Mr. Jackson's designees are the beneficiaries. The
agreement also includes certain confidentiality and non-competition provisions.
Bruce A. Jacobs entered into an employment agreement with Allegiant
starting on January 1, 1995 serving as Executive Vice President, Managed Care.
Under the agreement, Mr. Jacobs base salary was $150,000, and Allegiant provides
9 months income protection if terminated for no cause. The agreement also
includes certain confidentiality and non-competition provisions. Effective
August 16, 1996, Mr. Jacobs was no longer employed with Allegiant and Mr. Jacobs
will receive income protection provided under the agreement.
Terrence P. Schuck entered into an employment agreement with Allegiant
beginning March 1, 1994. Mr. Schuck serves as Executive Vice President, and
Chief Information Officer. The base compensation under this agreement is
$100,000. Mr. Schuck has since received an increase in his base salary to
$105,000. Allegiant will provide 6 months income protection if Mr. Schuck is
terminated for no cause and 30 days if terminated for cause. The agreement also
includes certain confidentiality and non-competition provisions.
Certain Relationships and Related Transactions
In December 1993, Allegiant borrowed $1.1 million from Richard L. Jackson,
Chairman, Chief Executive Officer, President and a significant stockholder,
under a thirty-day promissory note bearing interest at prime plus 0.5% (6.5% at
December 31, 1993), the same interest rate as Allegiant's line of credit from a
bank. During the first quarter of 1994, Allegiant borrowed an additional $1.5
million from Mr. Jackson under the same terms and conditions. In May 1994, with
stockholders' approval, these short-term loans were converted to $1.5 million
convertible promissory notes maturing in 1995 with interest at 10% and 400,000
shares of Allegiant's unregistered common stock valued at $2.50 per share. The
convertible promissory notes of $500,000 and $1.0 million were convertible to
common stock at per share prices of $3.00 and $3.25, respectively, at
Mr. Jackson's option during March and September 1995, respectively.
In August 1995, Allegiant's Board of Directors approved the restructure
of the two convertible promissory note agreements. Under the terms of the new
agreement, the two notes have been combined into one note for $1.5 million, with
the same interest rate as Allegiant's line of credit from a bank. The loan will
be paid in six equal monthly installments of $250,000 beginning on
September 1, 1997.
In 1991, Allegiant guaranteed a sublease for office space of Premier
HealthCare, Inc., a company in which Mr. Jackson had an ownership interest at
the time of the guarantee. Allegiant paid rent totaling approximately $56,000
and $20,000 in fiscal 1994 and 1995, respectively. The lease terminated in
April 1995.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Allegiant's
directors and executive officers, and persons who own more than 10% of a
registered class of Allegiant's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of Allegiant. These
insiders are required by Securities and Exchange Commission regulations to
furnish Allegiant with copies of Section 16(a) forms they file, including
Forms 3, 4 and 5.
18
<PAGE>
To Allegiant's knowledge, based solely on review of the copies of such
reports furnished to Allegiant and written representations that no other reports
were required, insiders complied with all applicable monthly transaction
reporting requirements during the year ended December 31, 1995.
Performance Graph
The following graph compares the cumulative total return on Allegiant's
Common Stock from March 4, 1992 (the effective date of Allegiant's initial
public offering) through December 31, 1995 with the Nasdaq Market Index and the
Nasdaq Health Services Stocks Index, assuming that $100 was invested as of
March 4, 1992.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
3/4/92 6/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allegiant Physician Services, Inc. $100 $51 $117 $50 $29 $14 $17 $11 $7
Nasdaq Stock Market $100 $89 $108 $112 $123 $113 $121 $150 $170
Nasdaq Health Services Stocks $100 $83 $101 $95 $117 $108 $125 $118 $160
</TABLE>
19
<PAGE>
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that the Stockholders ratify the
appointment of the firm of Ernst & Young LLP as Allegiant's independent auditors
to examine the accounts and statements of Allegiant and its subsidiaries for the
year 1996. This firm has served in this capacity since January 17, 1996.
Representatives of the firm will be present at the Stockholders' meeting and
shall have the opportunity to make a statement if they desire to do so and to
respond to appropriate questions.
Changes In And Disagreements With Accountants
On January 17, 1996 Allegiant dismissed Arthur Andersen LLP as its
independent auditors.
The reports of Arthur Andersen LLP on the consolidated financial statements
of Allegiant for the two fiscal years ended December 31, 1994 and 1993,
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
The decision to change accountants was approved by the Board of Directors
of Allegiant by unanimous written consent dated January 17, 1996.
In connection with its audits for the fiscal years ended December 31, 1994
and 1993, and through January 17, 1996, there have been no disagreements with
Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosures, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Arthur Andersen LLP would
have caused them to make reference thereto in their report on the financial
statements for such years.
During the two fiscal years ended December 31, 1994 and 1993, through
present, there have been no reportable events (as defined in Item 304(a)(1)(v)
of Regulation S-K) with Arthur Andersen LLP.
Allegiant engaged Ernst & Young LLP as its new independent auditors as of
January 17, 1996. During the two fiscal years ended December 31, 1994 and 1993,
and through January 17, 1996, Allegiant had not consulted with Ernst & Young LLP
on items which (1) concerned the application of accounting principles to a
specified transaction or the type of audit opinion which might be rendered on
the Allegiant's financial statements or (2) concerned the subject matter of a
disagreement or reportable event with former independent auditors, (as described
in Regulation S-K Item 304(a)(1)(v)).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS FOR ALLEGIANT.
20
<PAGE>
PART B
SUMMARY
The following is a summary of certain information relating to the
Transaction. This summary is not intended to be a complete description of these
matters and is subject to and qualified in its entirety by reference to the more
detailed information contained in the Asset Purchase Agreement and related
documents. A copy of the Asset Purchase Agreement along with copies of the
Promissory Notes, Guaranty and Noncompetition Agreements will be provided
without charge to each stockholder, upon written request to Investor Relations,
Allegiant Physician Services, Inc., 500 Northridge Road, Suite 500, Atlanta,
Georgia 30350. Stockholders of Allegiant are urged to read carefully the entire
Proxy Statement. As used in this Proxy Statement, the terms "Allegiant" and
"ASI" refer to such corporations respectively, and the term "EquiMed" refers to
EquiMed, Inc., a Delaware corporation that is affiliated with ASI through the
common ownership of the equity securities of each by Douglas R. Colkitt, M.D.
Where the context requires, each such term also refers to each company and its
subsidiaries.
General
Part B of this Proxy Statement relates to the sale of substantially all of
the assets of Allegiant to ASI, pursuant to the terms of the Asset Purchase
Agreement. The Transaction was consummated on June 1, 1996 (the "Effective
Date"), however, the Asset Purchase Agreement provides that the Transaction will
be rescinded if the requisite Stockholder approval of the Transaction is not
received by October 1, 1996.
The Parties
Allegiant Physicians Services, Inc. Prior to the Effective Date, the
principal business of Allegiant has been the ownership of a hospital anesthesia
contract services business operating at 27 hospital locations in 16 states of
the United States, and the ownership of substantially all of the assets of an
anesthesiology practice in Sequin, Texas. This business is referred to herein
and in the Asset Purchase Agreement as the "Business," and it is the assets of
the Business that are sold pursuant to the Asset Purchase Agreement. The
Business accounted for 95% of Allegiant's net revenues in 1995 and 94% of net
revenues in each of fiscal 1994 and 1993. Subsequent to the Effective Date,
the principal business of Allegiant shall be expanding its hospital information
systems, locum tenens services, physician practice management services and of
holding the promissory notes of ASI acquired by Allegiant in the Transaction.
The mailing address of Allegiant is 500 Northridge Road, Suite 500, Atlanta,
Georgia 30350, and its telephone number is (770) 643-5555. See "Information
Regarding Allegiant."
ASI. ASI is a newly incorporated Delaware corporation, formed to acquire
the assets and the business represented by the Business from Allegiant. The
mailing address of its principal executive office is 2171 Sandy Drive, State
College, Pennsylvania 16803, and its telephone number is (814) 238-0375. See
"Information Regarding ASI."
Richard L. Jackson. Mr. Jackson is the founder, Chairman of the Board and
Chief Executive Officer of Allegiant. He is a party to the Asset Purchase
Agreement because he has agreed to provide a noncompetition agreement in favor
of ASI pursuant thereto.
Douglas R. Colkitt, M.D. Dr. Colkitt is not a party to the Asset Purchase
Agreement. However, Dr. Colkitt is the sole stockholder of Doc-Net Placement
Services Corp., a Delaware corporation ("Doc-Net"), which is the sole
stockholder of ASI. In addition, Dr. Colkitt is the President of ASI. The
consideration to be issued by ASI to Allegiant as payment for the Business is
guaranteed by Dr. Colkitt. The guaranty is secured by a pledge of the common
stock, $.0001 par value of EquiMed, Inc., a Delaware corporation ("EquiMed").
All of the 2,750,000 shares pledged to secure such guaranty are owned by Dr.
Colkitt.
EquiMed. EquiMed is not a party to the Asset Purchase Agreement.
Dr. Colkitt pledged 2,750,00 shares of EquiMed common stock to secure his
guaranty of the consideration issued by ASI to Allegiant. EquiMed is subject to
the information and reporting requirements of the Exchange Act, and in
accordance therewith files reports,
21
<PAGE>
proxy statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at certain regional
offices of the Commission located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and at 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such information can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549.
The Annual Meeting
Vote Required. Approval of the Transaction requires the presence, by proxy
or in person, of the holders of a majority of all shares entitled to vote and
the affirmative vote of the holders of a majority of the shares outstanding and
entitled to vote on the proposal. If fewer shares are voted in favor of the
Transaction than required for its approval, it is expected that the Annual
Meeting will be postponed or adjourned for the purpose of allowing additional
time for obtaining additional proxies or votes. At any subsequent reconvening of
the Annual Meeting, all proxies will be voted on the matter(s) to be considered
at the reconvened Annual Meeting in the same manner as such proxies would have
been voted on such matter(s) at the original convening of the Annual Meeting
(except for any proxies that have theretofore effectively been revoked or
changed) notwithstanding that they may have been effectively voted on the same
or any other matter at a previous meeting. Any such adjournment will require the
affirmative vote of a majority of the shares present at the session of the
Annual Meeting to be adjourned. A proxy granting authority to vote upon such
other business incidental to the conduct of the Annual Meeting as may properly
come before the Annual Meeting will constitute authority to vote in favor of one
or more adjournments of the Annual Meeting.
As of August 20, 1996, the executive officers and directors of Allegiant
beneficially owned 47.6 percent of the outstanding shares of Allegiant Common
Stock. All of such executive officers and directors have indicated that they
intend to vote all shares of Allegiant Common Stock over which they have voting
power in favor of the Transaction. See "Part B - General Information - The
Annual Meeting;" "- Vote Required" and "Part A - Security Ownership of Certain
Beneficial Owners and Management of Allegiant."
The Transaction
Sale of Assets. Subject to the terms and conditions set forth in the Asset
Purchase Agreement, on the Effective Date, Allegiant intends to sell all of the
assets comprising the Business to ASI upon the requisite Stockholder approval by
October 1, 1996. The Business accounted for 95% of Allegaint's net revenues in
1995 and 94% of net revenues in each of fiscal 1994 and 1993. In addition,
Allegiant and Mr. Jackson have granted ASI a Noncompetition Agreement. In return
for these agreements, ASI paid Allegiant approximately $16.0 million, such
amount represented by separate promissory notes (the "Promissory Notes"). The
Promissory Notes consist of (i) a "Primary Note" in the original principal
amount of $16.0 million, less Assumed Liabilities of up to $12.5 million and
(ii) a "Variable Note" in the original principal amount of $6 million, plus an
amount equal to the product (not to exceed $3 million ) of 4.09 times the
amount, if any, by which the Gross Margin Revenues of the Business (as defined
herein) during the period from June 1, 1996 to May 31, 1997 are greater than
$5.38 million, less an amount equal to the product (not to exceed $6 million) of
4.09 times the amount, if any, by which the Gross Margin Revenues of the
Business during the period from June 1, 1996 to May 31, 1997 are less than $5.38
million. It cannot be assured that any benefits of the Variable Note will be
realized. The Promissory Notes are secured by a guaranty of payment by Dr.
Colkitt and 2,750,000 shares of EquiMed common stock owned by Dr. Colkitt and
pledged pursuant to a Guaranty and Stock Pledge Agreement, dated June 1, 1996
(the "Guaranty Agreement"). The EquiMed Common Stock collateral has not been
delivered to Allegiant as of the date of this Statement of Proxy. However,
Allegiant has been advised that the collateral will be delivered immediately
following the approval of the Transaction by the shareholders of Allegiant.
After the Effective Date of the Transaction, subject to any rescission of
the Transaction due to the failure of the Stockholders to approve the
Transaction, the business of Allegiant has consisted of expanding its hospital
information systems, locum tenens services, physician practice management
services and of holding the Promissory Notes, secured by Dr. Colkitt's guaranty
and the pledge of EquiMed common stock under the Guaranty Agreement.
22
<PAGE>
See "Part B - Information Regarding Allegiant." Allegiant will no longer engage
in, nor will it be permitted to engage in, the Business, and it will retain
certain Excluded Liabilities of the Business (as defined herein) and have
certain indemnification obligations to ASI pursuant to the terms of Asset
Purchase Agreement. See "Part B - The Transaction - Operations of Allegiant
After the Transaction."
The principal services of Allegiant upon consummation of the sale with ASI
will be (i) hospital information services, (ii) locum tenens services and
(iii) physician practice management services. Hospital information services and
physician practice management services, though mature as business concepts, are
essentially new business groups and did not provide a contribution to revenue in
1995 or the first six months of 1996. Locums tenens services is a relatively new
business group, formed in January of 1995. Physician recruiting and staffing
services is a business group that formed the genesis of Premier Anesthesia, the
contract anesthesia management services division. However, in August 1996,
Allegiant decided to eliminate the physician recruting and staffing services
unit. Though all the remaining subsidiaries and business groups of Allegiant are
promising, only physician recruiting and staffing services and locums tenens
services have made contributions to revenue during 1995 and the first six months
of 1996, along with the contract anesthesia division. There can be no assurances
that the locum tenens business group will meet the working capital needs of
Allegiant. See "Part B - Allegiant Management's Discussion and Analysis."
Recommendation of the Allegiant Board. The Board of Directors of Allegiant
is unanimously of the view that the Transaction is in the best interests of
Allegiant and its Stockholders. The Allegiant Board therefore unanimously
recommends that the Stockholders of Allegiant approve the Transaction. The Board
of Directors' recommendation is based upon a number of factors discussed in this
Proxy Statement. See "Part B - The Transaction - Allegiant's Reasons for the
Transactions; Recommendation of the Allegiant Board of Directors."
Noncompetition Agreement. As an additional inducement to ASI to consummate
the Asset Purchase Agreement, Allegiant and Mr. Jackson have entered into a
Noncompetition Agreement, dated June 1, 1996 (the "Noncompetition Agreement")
with ASI and EquiMed. Under the terms of the Noncompetition Agreement,
Mr. Jackson and Allegiant have each agreed, for a period of five years, not to,
directly or indirectly, recruit, solicit, or otherwise seek to induce employees
or clients of ASI or employees of EquiMed, to terminate their employment or
client relationship with ASI, to terminate their employment relationship with
EquiMed, or to violate any agreement with ASI or EquiMed, own, lease, manage or
operate an anesthesiologist management business in the Territory (as defined
herein), engage in any business activity in the Territory that is directly or
indirectly in competition with any anesthesiologist management business
conducted by ASI or managed by EquiMed, otherwise provide any anesthesiologist
management services within the Territory or own, lease, manage or operate an
anesthesiology or anesthesiologist management business in the Territory.
Pursuant to the terms of the Noncompetition Agreement, Mr. Jackson and Allegiant
have further agreed, without the prior written consent of ASI, not to disclose
any confidential information of Allegiant, ASI or EquiMed to any person not
authorized by ASI to receive such information. The term "Territory," as used in
the Noncompetition Agreement, means the geographical area of the United States
of America. See "Part B - The Transaction -Noncompetition Agreement, Guaranty
Agreement and Other Actions by All Parties."
Effective Date. The Transaction was consummated at a closing (the
"Closing") on the Effective Date of June 1, 1996. The Transaction must be
approved by Allegiant's Stockholders by October 1, 1996. In the event that the
Transaction is not approved by the Stockholders, the Transaction will be
rescinded and the parties agree to cooperate in good faith to effectively
rescind the Transaction as of May 31, 1996. See "Part B - The Transaction -
Conditions of the Transaction."
Certain Federal Income Tax Consequences. The sale of assets by Allegiant
will be a taxable transaction to Allegiant. Allegiant will recognize gain
measured by the difference, if any, between the amount realized from the sale of
the assets and Allegiant's adjusted tax basis in such assets. Allegiant
currently estimates that the Transaction will result in a taxable gain which can
be offset by the net operating loss carryforward from prior years.
Conditions of the Transaction, Termination. Final consummation of the
Transaction is subject to the post-Closing condition of the approval of the
holders of a majority of the shares outstanding and entitled to vote on the
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<PAGE>
Transaction (the "Requisite Approval"). If for any reason Allegiant on or
before October 1, 1996 shall not have obtained the Requisite Approval, or shall
not have obtained a written legal opinion that such Requisite Approval is not
required, (i) ASI shall transfer all of the assets back to Allegiant effective
May 31, 1996; (ii) the Promissory Notes shall be cancelled and delivered back to
ASI; (iii) Allegiant shall assume and agree to pay and perform all of the
Assumed Liabilities (as defined herein) and indemnify ASI from any liability;
(iv) Allegiant shall pay to ASI or ASI shall pay to Allegiant, as the case may
be, an amount necessary to place the respective party in the financial positions
at May 31, 1996 which would have occurred if the Transactions contemplated by
the Asset Purchase Agreement had not been consummated on June 1, 1996; and
(v) in the event of a retransfer, the parties have agreed to cooperate in good
faith to effectively rescind the Transaction contemplated by the Asset Purchase
Agreement as of May 31, 1996. See "Part B - The Transaction - Conditions to
Consummation." The Asset Purchase Agreement may be amended by means of a
writing signed by all of the parties to such agreement.
Federal or State Regulatory Requirements. No Federal or State regulatory
requirements must be obtained in connection with the Transaction.
Defaults of Allegiant. In February and March 1994, Allegiant entered
accounts receivable funding agreements with a private healthcare accounts
receivable finance company. Under these agreements, the finance company
purchases with recourse and Allegiant sells, on a weekly basis, Allegiant's
eligible healthcare accounts receivable, net of contractual adjustments,
collection reserves and subsequent collections. In June 1995, Allegiant entered
into a separate agreement with this finance company with the same terms as
previously noted. No gain or loss is recognized on these transactions. Allegiant
paid a 1.5% commitment fee and pays interest at 9.5% per annum on the net
outstanding purchased accounts receivable balance until such accounts receivable
are collected. The outstanding balances of uncollected purchased accounts
receivable under both agreements totaled approximately $22.5 million, net of
amounts the finance company withheld from Allegiant as reserves at June 30,
1996. As of June 30, 1996, the finance company has advanced to Allegiant an
additional $11.2 million above their commitment level. This additional funding
represents funding in excess of the contractual requirements of the accounts
receivable funding agreements and is secured by approximately 12.8 million of
Allegiant's unregistered stock. See "Part A - Security Ownership of Certain
Beneficial Owners and Management." This additional funding places Allegiant in
default of the contractual requirements of the accounts receivable funding
agreements. According to the terms of the Transaction, ASI will assume $7.5
million of this debt.
In September 1994, Allegiant signed a three-year promissory note agreement
with a financial broker to provide up to $2.0 million for working capital
purposes, as lenders' funds are available. No principal payments are required
for three years, but Allegiant may prepay the notes at any time at a premium up
to 15%. As of June 30, 1996, outstanding borrowings totaled $1.8 million, net
of additional fees of $314,000. Interest is payable monthly at the prime rate
plus 2%. The promissory notes are secured by 5.9 million shares of Allegiant's
unregistered common stock. Allegiant is required to provide the lender with 300%
market value to loan balance coverage as determined at each month-end. Events
of default, which require cure by prepayment or otherwise within two business
days after notice of default, include, among other things, the untimely payment
of monthly interest and a drop in Allegiant's stock price below $0.62 per share.
At June 30, 1996, Allegiant was in default as a result of its common stock
trading below $0.62 per share. Allegiant has not been officially notified of
this default which is required by the note agreements. Allegiant does not
anticipate that the Transaction will have any effect on these promissory notes.
24
<PAGE>
COMPARATIVE PER SHARE AND DIVIDEND INFORMATION
Allegiant
From March 4, 1992 through April 9, 1996, Allegiant's Common Stock traded
on the National Market System ("Nasdaq") under the symbol ALPS. However, on
April 9, 1996, Allegiant was notified by the Nasdaq Review Committee that since
Allegiant did not meet the Nasdaq minimum net worth and minimum closing bid
price requirements, Allegiant's common stock would no longer be traded on the
Nasdaq National Market System. Effective April 10, 1996, Allegiant's common
stock began trading on the OTC Bulletin Board utilizing the same symbol, ALPS.
As of the Record Date, there were 3,753 holders of record of Allegiant Common
Stock. Allegiant has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying cash dividends on the Allegiant Common
Stock in the foreseeable future. Allegiant currently intends to retain all
earnings, if any, for use in the expansion of Allegiant's business. The payment
of dividends, if any, in the future with respect to Allegiant Common Stock is
within the discretion of the Board of Directors and will depend on Allegiant's
earnings, capital requirements, financial condition and other relevant factors.
The table below sets forth the high and low sales prices per share of Allegiant
Common Stock as reported on the Nasdaq/NMS or the OTC Bulletin Board, as the
case may be, for the periods indicated.
<TABLE>
<CAPTION>
Fiscal 1994 High Low
- ------ ---- ---- ---
<S> <C> <C>
First Quarter (ended March 31, 1994) $4.63 $2.38
Second Quarter (ended June 30, 1994) 2.75 1.13
Third Quarter (ended September 30, 1994) 4.00 1.25
Fourth Quarter (ended December 31, 1994) 3.25 1.75
Fiscal 1995
- ------ ----
First Quarter (ended March 31, 1995) $2.63 $1.00
Second Quarter (ended June 30, 1995) 2.44 0.94
Third Quarter (ended September 30, 1995) 1.94 1.13
Fourth Quarter (ended December 31, 1995) 1.63 0.66
Fiscal 1996
- ------ ----
First quarter (ended March 31, 1996) $1.06 $0.47
Second quarter (ended June 30, 1996) $0.72 $0.25
</TABLE>
The table below sets forth the high and low prices per share of Allegiant
Common Stock on January 23, 1996, the last full trading day prior to the public
announcement of the Transaction, and on August 27, 1996.
<TABLE>
<CAPTION>
Sale Price of
Allegiant Common Stock
--------- ------ -----
High Low
---- ---
<S> <C> <C>
January 23, 1996 $0.78 $0.72
August 27, 1996 $0.50 $0.46
</TABLE>
Comparative Per Share Data
See "Part B - Pro Forma Condensed Consolidated Financial Information."
This information presents Allegiant's historical per share data and unaudited
pro forma per share data adjusted to reflect the consummation of the Transaction
on a purchase of assets basis and should be read in conjunction with the Pro
Forma Condensed
25
<PAGE>
Consolidated Financial Information included elsewhere in this Proxy Statement
and the separate historical financial statements of Allegiant which are included
elsewhere in this Proxy Statement. The pro forma information is not necessarily
indicative of actual or future operating results or financial position that
would have occurred or that will occur upon consummation of the Transaction.
ASI
There is no established public trading market for ASI Common Stock. ASI has
never paid or declared any dividends on shares of its Common Stock. As of
July 23, 1996 there were 500 shares of ASI Common Stock outstanding held by one
shareholder.
26
<PAGE>
GENERAL INFORMATION
The Annual Meeting
This Proxy Statement is being furnished by Allegiant to its Stockholders in
connection with the solicitation of proxies by the Board of Directors of
Allegiant from the holders of the outstanding shares of Allegiant Common Stock
for use at the Annual Meeting to be held at the Ashford Club, 400 Perimeter
Center Terrace, Atlanta, Georgia 30350, at 8:00 a.m., local time, on September
25, 1996, and at any adjournments and postponements thereof, to (i) elect
Directors to the Board of Directors and ratify the appointment of Allegiant's
independent auditors, as described in Part A of this Proxy Statement,
(ii) consider the Transaction, as described in Part B of this Proxy Statement
and (iii) transact such other business incidental to the conduct of the Annual
Meeting as may properly come before the Annual Meeting.
Vote Required
Approval of the Transaction requires the presence, by proxy or in person,
of the holders of a majority of all shares outstanding and entitled to vote and
the affirmative vote of the holders of a majority of all such shares. If fewer
shares are voted in favor of the Transaction than required for its approval, it
is expected that the Annual Meeting will be postponed or adjourned for the
purpose of allowing additional time for obtaining additional proxies or votes.
At any subsequent reconvening of the Annual Meeting, all proxies will be voted
on the matter to be considered at the reconvened Annual Meeting in the same
manner as such proxies would have been voted on the matter at the original
convening of the Annual Meeting (except for any proxies which have theretofore
effectively been revoked or changed), notwithstanding that they may have been
effectively voted on the same or any other matter at a previous meeting. Any
such adjournment will require the affirmative vote of a majority of the shares
present at the session of the Annual Meeting to be adjourned. A proxy granting
authority to vote upon such other business incidental to the conduct of the
Annual Meeting as may properly come before the Annual Meeting will constitute
authority to vote in favor of one or more adjournments of the Annual Meeting.
As of August 20, 1996, the executive officers and directors of Allegiant
beneficially owned 47.6 percent of the outstanding shares of Allegiant Common
Stock. All of such executive officers and directors have indicated that they
intend to vote all shares of Allegiant Common Stock over which they have voting
power in favor of the Transaction. See "Part A -Security Ownership of Certain
Beneficial Owners and Management of Allegiant."
Recommendation of the Allegiant Board
The Board of Directors of Allegiant has approved the Transaction, is
unanimously of the view that the Transaction is in the best interests of
Allegiant and its Stockholders, and unanimously recommends that the stockholders
of Allegiant vote FOR approval of the Transaction. See "Part B - The
Transaction - Allegiant's Reasons for the Transaction; Recommendation of the
Allegiant Board."
Other Information
For additional information regarding Allegiant and its business, see
"Part B - Allegiant's Selected Historical and Pro Forma Financial Data," "-
Allegiant Management's Discussion and Analysis," "- Information Regarding
Allegiant" "Part A" of this Proxy Statement and "Allegiant Financial
Statements."
For additional information regarding ASI and its business, see "Information
Regarding ASI."
Representatives of Ernst & Young LLP will be present at the Annual Meeting
and shall have the opportunity to make a statement if they desire to do so and
to respond to appropriate questions regarding the Transaction.
27
<PAGE>
THE TRANSACTION
The following information describes certain information pertaining to the
Transaction. This description does not purport to be complete and is qualified
in its entirety by reference to the Asset Purchase Agreement, the Promissory
Notes, Guaranty and Noncompetion Agreements. A copy of these agreements will be
provided without charge to each stockholder, upon written request to Investor
Relations, Allegiant Physician Services, Inc., 500 Northridge Road, Suite 500,
Atlanta, Georgia 30350
General
Holders of Allegiant Common Stock are being asked to consider and approve
the Transaction. The terms of the Transaction are set forth in the Asset
Purchase Agreement and certain related agreements entered into in connection
therewith. The Asset Purchase Agreement provides for Allegiant to sell to ASI
Allegiant's contract anesthesiologist management services business and assets
and its ownership of substantially all of the assets of an anesthesiology
practice in Sequin, Texas, (which is collectively defined as the "Business") for
approximately $16.0 million, to be paid through ASI's delivery of the Promissory
Notes to Allegiant and its assumption of certain indebtedness of Allegiant. The
Business accounted for 95% of Allegiant's net revenues in 1995 and 94% of net
revenues in each of fiscal 1994 and 1995. The Transaction was consummated on
June 1, 1996 (the Effective Date), subject however, to the post-Closing
condition that Allegiant shall obtain the requisite Stockholder approval of the
Transaction. See "Part B - The Transaction - Effective Date of the Transaction"
and "- Conditions to Consummation."
Background of the Transaction
During the first quarter of 1995, Allegiant engaged a large investment
banking firm as its exclusive advisor and agent for the purpose of identifying,
evaluating and pursuing strategic alternatives for Allegiant to maximize
shareholders' value, to strengthen Allegiant financially and to better enable it
to aggressively pursue market opportunities for its services. With this in mind,
Allegiant began entertaining prospective buyers for its contract anesthesia
business. Allegiant entered into a letter of intent on November 21, 1995 with
EquiVision, Inc., a Delaware company later succeeded in a merger by EquiMed, to
purchase the contract anesthesia services business of Allegiant. During the due
diligence period, it was determined that the proposed transaction would be
effected between Allegiant and a new company, ASI, to be formed by Dr. Colkitt,
and on January 27, 1996, Allegiant entered into a letter of intent with Dr.
Colkitt reflecting the Transaction.
Allegiant's Reasons for the Transaction; Recommendation of the Allegiant Board
On May 15, 1996, the Allegiant Board of Directors unamimously approved the
Transaction. Allegiant began 1995 with its hospital information systems,
permanent physician recruiting and staffing services, including locum tenens
services business, and its physician practice management services business. In
1994, Allegiant adopted a plan to discontinue its pain treatment operations,
Pain Relief Network. In accordance with its plan, Allegiant sold its
discontinued pain treatment operations, in December 1995 to Pain Net, a company
formed by the senior management of the pain treatment operations, for $2.3
million in cash and $12.5 million in promissory notes. This along with the sale
of Allegiant's contract anesthesia services business will considerably simplify
its operations. It allows resources to be reallocated to the remaining business.
Allegiant feels that these are its most promising opportunities because the
nation's health care system, and indeed health care costs, will be increasingly
managed through the clinical oversight of primary care physicians. Allegiant
further believes that, since surgeries are the principal cost component in
hospital management, its hospital information system products will efficiently
capture operating room costs and clinical data in the future.
The physician practice management and hospital information systems business
units are entering their growth stages, and are responses to the most compelling
concern confronting the nation's health system: containing its cost without
comprising its quality. The sale of the contract anesthesia business services
will allow Allegiant the financial vitality and opportunity to properly
capitalize these emerging business segments.
THE BOARD OF DIRECTORS OF ALLEGIANT UNANIMOUSLY RECOMMENDS THAT YOU
28
<PAGE>
VOTE "FOR" THE TRANSACTION.
Principal Terms Defined in the Asset Purchase Agreement
Pursuant to the terms of the Asset Purchase Agreement, Allegiant has agreed
to sell, convey, transfer, assign and deliver to ASI, and ASI has agreed to buy
and acquire, all of the assets of Allegiant used or required in the conduct of
the Business (the "Assets"), including (i) all of Allegiant's rights to and
interests in all anesthesiologist management service contracts listed on an
exhibit to the agreement (the "Management Contracts"), (ii) all employment
contracts of the Business for the professional services of physicians and
certified registered nurse anesthetists currently working full-time in
connection with the Management Contracts (such Management Contracts and
employment contracts are defined in the agreement as the "Assigned Contracts"),
and (iii) certain specifically described related assets of Allegiant or any
affiliate of Allegiant used in or required in the conduct of the Business,
including equipment, computer, furniture, furnishings and other tangible
personal property, all claims and rights under certain contracts, all patient
records and charts (to the extent permitted by law), all sales and other
promotional materials and literature, all goodwill, trademarks, service marks
and trade names used by Allegiant (including the names "Premier" and "Premier
Anesthesia"), all rights under licenses and other governmental approvals or
permits, all inventory and supplies, all rights to leasehold improvements and
fixtures listed on an exhibit to the agreement, all software, all payroll
records pertaining to employees of Allegiant, all information relating to
Allegiant's referral sources, certain records and lists of third party payors,
case manager contacts and vendors and all financial records.
Notwithstanding the above, the term "Assets," as defined in the Asset
Purchase Agreement, does not include certain "Excluded Assets," a term that is
defined to include (i) all cash of Allegiant as of midnight the day before the
Effective Date, (ii) all accounts receivable and unbilled amounts for services
of Allegiant as of midnight of the day before the Effective Date, (iii) any land
or buildings owned by Allegiant, (iv) all pension plan assets of Allegiant,
(v) any assets related to Allegiant's SIS, physician recruiting and primary care
physician management businesses that are not used in or required in the conduct
of the Business, and (vi) certain assets specifically described in the
agreement. The Asset Purchase Agreement specifically provides that except as
otherwise expressly provided in the agreement, ASI assumes no obligations, debts
or liabilities of Allegiant relating to the Business, and Allegiant has agreed
to indemnify ASI against any and all such debts, obligations and liabilities.
The only obligations and liabilities of Allegiant assumed by ASI pursuant
to the terms of the Asset Purchase Agreement (the "Assumed Liabilities") are
(i) obligations of Allegiant under the Assigned Contracts, but only to the
extent that they represent obligations that are to be performed, in the ordinary
course, subsequent to the Effective Date, (ii) any obligation of Allegiant to
refund to contracting hospitals monies deposited with Allegiant in connection
with the commencement of the Management Contracts and subject to claims for
refund to the hospitals upon expiration or termination of the Management
Contracts, (iii) any obligation to repay to contracting hospitals any monies
previously advanced by them to Allegiant in respect of accounts receivable
outstanding and due to the contract hospital as of the Effective Date, in the
event that the Management Contracts were to be terminated on the Effective Date,
(iv) the obligation of Allegiant to reimburse to ASI the cost of tail
malpractice and general liability insurance coverage arising out of any action
or omission of Allegiant in the conduct of the Business prior to the Effective
Date, (v) the obligation of Allegiant to reimburse to ASI an amount equal to
1.5% of the amount of the collections of Allegiant's accounts receivable in
which ASI assisted, pursuant to the terms of the Asset Purchase Agreement, (vi)
the obligation of Allegiant to make the regular monthly payroll pursuant to the
employment contracts assigned to ASI in accordance with the Asset Purchase
Agreement for the month of May, 1996, in the approximate aggregate amount of
$1.6 million and (vii) $7.5 million of short-term debt. In addition, if ASI is
required to pay more than $12.5 million in satisfaction of the Assumed
Liabilities, ASI shall be entitled to offset such excess payment or payments
against any amounts due under the Promissory Notes and to recover the same in
accordance with the terms of the agreement.
29
<PAGE>
Consideration to Be Paid for the Business
At the Closing of the Transaction, ASI delivered the Promissory Notes to
Allegiant and assumed the indebtedness described below as consideration for the
purchase of the Assets and the execution, delivery and performance by Allegiant
and Mr. Jackson of the Noncompetition Agreement.
The Promissory Notes consist of a Primary Note and a Variable Note. The
Primary Note is to be in the principal amount of (i) $16.0 million, less
(ii) the amount of the Assumed Liabilities of up to $12.5 million. The Primary
Note is payable in monthly installments of accrued interest only (accrued at a
rate per annum equal to 9.0%) beginning on July 1, 1996, and principal of
$500,000 per month beginning on February 1, 1997, and then $1.5 million per
month beginning on July 1, 1997 until the Primary Note is paid in full.
The Variable Note is in the original principal amount of (i) $6.0 million,
plus (ii) an amount equal to the product (not to exceed $3.0 million) of 4.09
times the amount, if any, by which the "Gross Margin Revenues of the Business"
during the period from June 1, 1996 to May 31, 1997 are greater than $5.38
million, less (iii) an amount equal to the product (not to exceed $6.0 million)
of 4.09 times the amount, if any, by which the Gross Margin Revenues of the
Business during the period from June 1, 1996 to May 31, 1997 are less than $5.38
million. The Variable Note is payable in monthly installments of accrued
interest only (accrued at a rate per annum equal to 9.0%) beginning on
July 1, 1996, and principal of $1.5 million per month beginning on the first day
of the first full month following the pay off of the Primary Note, until the
Variable Note is paid in full.
The term "Gross Margin Revenues" is defined on an exhibit to the Asset
Purchase Agreement as revenues less all expenses directly associated with the
Management Contracts. These expenses will include, but are not limited to,
physician compensation, physician bonuses, certified registered nurse
anesthetists ("CRNA") compensation, CRNA insurance, and billing expense. These
expenses will also include the costs of any on-site personnel, travel by ASI
personnel to the contract sites, or any other cost that can be directly
attributable to the maintenance of the Management Contracts consistent with
current accounting practices. Malpractice insurance will be further defined as
the sum of the following three items: (i) amounts reimbursed to physicians and
CRNA's that purchase their own malpractice insurance; (ii) amounts paid by ASI
for a corporate malpractice policy; and (iii) an accrual for the purchase of a
tail policy and/or the payments of deductibles. Billing expense will be defined
as five percent (5%) of gross revenues, minus contractual adjustments and
uncollectible accounts, computed on an accrual basis in accordance with
generally accepted accounting principles consistently applied, if the collection
process is performed by the current billing group. If an outside billing company
performs the billing process, the five percent (5%) mentioned above will be
substituted for the amount charged by that billing company. To the extent that
interest and associated fees in connection with the National Century Financial
Enterprises obligation assumed by ASI pursuant to Section 1.3(vii) of the
Agreement exceed ten percent (10.0%) per annum, such excess costs will be deemed
to be expenses directly associated with the Management Contracts.
Following the Effective Date and within 30 days following the end of each
month, ASI agrees to provide Allegiant with written statements in reasonable
detail of ASI's calculation of the Gross Margin Revenues of the Business on a
calendar month basis and a cumulative basis as of the date of such statement and
to provide Allegiant and its authorized representatives with access to the books
and records of ASI in order to audit ASI's calculations of the Gross Margin
Revenues of the Business.
The obligations of ASI represented by the Promissory Notes are secured by
the guaranty of Douglas R. Colkitt, M.D., which guaranty is secured by
Dr. Colkitt's pledge of a first priority security interest in 2,750,000 shares
of EquiMed Common Stock and all proceeds thereof in accordance with the Guaranty
Agreement by Dr. Colkitt in favor of Allegiant. On August 27, 1996, the closing
price of a share of EquiMed Common Stock on the Nasdaq/NMS was $6.88.
Dr. Colkitt is Chairman of the Board of Directors of EquiMed and beneficially
owns
30
<PAGE>
approximately 76% of the outstanding EquiMed Common Stock. Dr. Colkitt is the
sole stockholder of Doc-Net, which is the sole stockholder of ASI.
No assurance can be given that if ASI defaults on the Promissory Notes, at
the time of such default, the shares of EquiMed Common Stock pledged as
collateral under the Guaranty Agreement will have sufficient value to adequately
recompense Allegiant for any loss it suffers as a result of such default.
Effective Date of the Transaction
The Transaction was consummated on the Effective Date of June 1, 1996.
The Transaction must be approved by Allegiant's Stockholders by October 1, 1996.
In the event that the Transaction is not approved by the Stockholders the
Transaction will be rescinded. The parties agree to cooperate in good faith to
effectively rescind the Transaction as of May 31, 1996.
Certain Federal Income Tax Consequences
The sale of assets by Allegiant will be a taxable transaction to Allegiant.
Allegiant will recognize gain measured by the difference, if any, between the
amount realized from the sale of the assets and Allegiant's adjusted tax basis
in such assets. Allegiant currently estimates that the Transaction will result
in a taxable gain which can be offset by the net operating loss carryforward
from prior years.
Representations and Warranties
The Asset Purchase Agreement contains various representations and
warranties of the parties thereto. With respect to Allegiant, the Asset Purchase
Agreement includes various representations and warranties as to, among other
things, the following: (i) Allegiant's corporate organization, good standing,
qualification and corporate power to carry on the Business; (ii) the accuracy,
completeness and fair presentation of the financial condition of Allegiant and
its income and expenses as set forth in certain financial statements delivered
to ASI; (iii) the accuracy and completeness of certain operating statements
relating to the Business provided by Allegiant to ASI; (iv) the adequacy and
accuracy of Allegiant's tax returns and tax filings; (v) the validity and
enforceability of certain contracts related to the Business; (vi) Allegiant's
compliance in all material respects with the laws, regulations, rules and
decrees of all governmental authorities; (vii) except for certain scheduled
litigation and such litigation or proceedings that will not adversely affect
Allegiant's ability to perform the Asset Purchase Agreement, the absence of any
litigation against Allegiant or affecting Allegiant or the Business; (viii) the
absence of any collective bargaining or labor agreement or employee benefit plan
(other than as listed on an exhibit to the agreement); (ix) Allegiant's
maintenance of certain insurance; (x) except as described in an exhibit to the
agreement, the absence of certain changes in the Business, including any
material adverse change to the Business, since March 31, 1996; (xi) the validity
of certain licenses and permits held by Allegiant in the conduct of the
Business; (xii) the agreement by Allegiant to indemnify ASI against any claims
for finder's fees, brokerage commissions, sales commissions or the like alleged
in connection with the transactions contemplated hereunder; (xiii) the absence
of any material untrue statement in any representation or warranty made by
Allegiant in the Asset Purchase Agreement or any statement in any other document
furnished by Allegiant to ASI pursuant to the Asset Purchase Agreement;
(xiv) the validity and enforceability against Allegiant of the Asset Purchase
Agreement and other agreements executed by Allegiant in connection therewith;
(xv) Allegiant's indemnification of ASI of any liability resulting from any
failure by Allegiant to comply with any applicable bulk sales law relating to
the Transaction; (xvi) Allegiant's good and marketable title to the Assets, free
and clear of any encumbrances thereon, except as described in an exhibit to the
agreement; (xvii) the presence of all necessary consents and the absence of any
encumbrances to be imposed in connection with the Transaction; (xviii) the
condition of personal property included in the Assets; and (xix) investment
representations made by Allegiant in connection with the private placement of
the Promissory Notes.
The Asset Purchase Agreement includes various representations and
warranties of ASI as to, among other things, the following: (i) the corporate
organization, good standing and qualification to do business of ASI; (ii) ASI's
corporate power to execute and deliver the Asset Purchase Agreement and
consummate the transactions contemplated thereby; (iii) the agreement by ASI to
indemnify Allegiant against any claims for finder's fees,
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brokerage's fees, brokerage commissions, sales commissions or the like alleged
in connection with the transactions contemplated hereunder; and (iv) the
validity and enforceability of the Asset Purchase Agreement and all other
agreements to be executed by ASI in connection therewith.
The Asset Purchase Agreement does not contain any representations or
warranties pertaining to Mr. Jackson, Dr. Colkitt or EquiMed.
Indemnification of ASI by Allegiant
The Asset Purchase Agreement sets forth Allegiant's obligation to indemnify
ASI and its affiliates from and against all Excluded Liabilities, all losses
relating to any breaches of warranty or misrepresentations or failures to
perform agreements by Allegiant contained in or made pursuant to the Asset
Purchase Agreement or other agreements executed by Allegiant in connection
therewith and all actions, suits, proceedings and other claims relating to any
of the foregoing.
Conditions to Consummation
Final consummation of the Transaction is subject to the post-Closing
condition of the Requisite Approval by the Allegiant Stockholders. If for any
reason Allegiant on or before October 1, 1996 shall not have obtained the
Requisite Approval, or shall not have obtained a written legal opinion that such
Requisite Approval is not required, (i) ASI shall transfer all of the assets
back to Allegiant effective May 31, 1996; (ii) the Promissory Notes shall be
cancelled and delivered back to ASI; (iii) Allegiant shall assume and agree to
pay and perform all of the Assumed Liabilities (as defined herein) and indemnify
ASI from any liability; (iv) Allegiant shall pay to ASI or ASI shall pay to
Allegiant, as the case may be, an amount necessary to place the respective party
in the financial positions at May 31, 1996 which would have occurred if the
Transaction contemplated by the Asset Purchase Agreement had not been
consummated on June 1, 1996; (v) in the event of a retransfer, the parties have
agreed to cooperate in good faith to effectively rescind the Transaction
contemplated by the Asset Purchase Agreement as of May 31, 1996.
Amendments; Termination
The Asset Purchase Agreement may be amended by means of a writing signed by
all the parties to such agreement. The Asset Purchase Agreement provides that
the Transaction shall be rescinded if the Requisite Approval is not obtained
prior to October 1, 1996.
Additional Covenants of the Parties
The Asset Purchase Agreement provides that ASI and Allegiant acknowledge
that (i) Allegiant had previously sold to NPFV, Inc., an Ohio corporation
("NPF"), certain of Allegiant's receivables, (ii) all right, title and interest
in such receivables belongs to NPF, and (iii) Allegiant is obligated to pursue
the collection of such receivables and to remit the same to NPF, in accordance
with the sale agreement with NPF. The Asset Purchase Agreement provides that ASI
will assist Allegiant in its collection efforts regarding the receivables. In
the event ASI or Allegiant come into possession of collections to which all
right, title and interest belong to NPF, with respect to the purchased
receivables, ASI and Allegiant agree to remit such collections directly to NPF.
In the event that ASI comes into possession of collections with respect to
receivables not purchased by NPF, ASI will remit such collections to Allegiant.
Allegiant shall pay to ASI an amount equal to 1.5% of the amount of all such
collections with respect to the receivables in connection with ASI's assistance.
This obligation of Allegiant to ASI is an Assumed Liability pursuant to the
terms of the Asset Purchase Agreement. See "Part B - The Transaction - Principal
Terms Defined in the Asset Purchase Agreement."
In addition, under the terms of the Asset Purchase Agreement, ASI has
agreed to include Allegiant as an insured under ASI's malpractice and general
liability insurance coverage in connection with any event or circumstance
arising out of any action or omission of Allegiant occurring prior to the
Effective Date. Allegiant has agreed to reimburse ASI for any expenses incurred
by ASI in acquiring tail malpractice and general liability insurance coverage
arising out of any action or omission of Allegiant in the conduct of the
Business prior to the
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Effective Date. This obligation of Allegiant to ASI is an Assumed Liability
pursuant to the terms of the Asset Purchase Agreement. See "Part B - The
Transaction - Principal Terms Defined in the Asset Purchase Agreement."
Noncompetition Agreement, Guaranty Agreement and Other Actions by All Parties
As an additional inducement to ASI to consummate the Asset Purchase
Agreement, Allegiant and Mr. Jackson have entered into a Noncompetition
Agreement with ASI and EquiMed. Under the terms of the Noncompetition Agreement,
Mr. Jackson and Allegiant have each agreed, for a period of five years, not to,
directly or indirectly, recruit, solicit or otherwise seek to induce employees
or clients of ASI or employees of EquiMed, to terminate their employment or
client relationship with ASI, to terminate their employment relationship with
EquiMed or to violate any agreement with ASI or EquiMed, own, lease, manage or
operate an anesthesiologist management business in the Territory, engage in any
business activity in the Territory that is directly or indirectly in competition
with any anesthesiologist management business conducted by ASI or managed by
EquiMed, otherwise provide any anesthesiologist management services within the
Territory or own, lease, manage or operate an anesthesiology or anesthesiologist
management business in the Territory. Pursuant to the terms of the
Noncompetition Agreement, Mr. Jackson and Allegiant have further agreed, without
the prior written consent of ASI, not to disclose any confidential information
of Allegiant, ASI or EquiMed to any person not authorized by ASI to receive such
information. The term "Territory," as used in the Noncompetition Agreement,
means the geographical area of the United States of America.
In addition, Dr. Colkitt and ASI entered into the Guaranty Agreement in
favor of Allegiant. The Guaranty Agreement provides that Dr. Colkitt
unconditionally guarantees to Allegiant the payment and performance of all the
indebtedness, obligations and liabilities of ASI to Allegiant pursuant to the
Promissory Notes. The guarantee is secured by a pledge of 2,750,000 shares of
the common stock of EquiMed. All of the shares pledged pursuant to the Guaranty
Agreement are owned by Dr. Colkitt. Furthermore, as an additional inducement to
ASI to consummate the Asset Purchase Agreement, Dr. Colkitt was granted an
option to purchase all of the outstanding shares of common stock of Ronald E.
Mayhorn, M.D., P.A., a Texas Professional Association located in Seguin, Texas
(the "Texas Professional Association"). The assets used in the Texas
Professional Association were part of the assets sold to ASI pursuant to the
Asset Purchase Agreement. ASI also entered into a services agreement with the
Texas Professional Association providing that ASI would provide certain services
and facilities to the professional association. In addition, the Asset Purchase
Agreement requires ASI to sublet office space and equipment from Allegiant, and
otherwise agree on the common occupancy and use of space, systems and equipment
at Allegiant's headquarters located in Atlanta, Georgia.
Operations of Allegiant after the Transaction
Allegiant's strategy is to achieve growth by (i) expanding its hospital
information systems business by marketing its specialized software system to
acute care hospitals, outpatient surgery centers and ambulatory surgical
centers; (ii) developing its locum tenens services by taking advantage of a
significant market need for temporary physicians; and (iii) developing its
physician practice management services by offering a broad range of management
and organizational services to physicians, hospitals, managed care organizations
and other healthcare providers.
Interests of Certain Persons in the Transaction
Other than as described herein, no director or executive officer of
Allegiant or ASI, and no associate of any such person, has any substantial
interest, direct or indirect, in the Transaction, other than in the interest
arising from the ownership of Allegiant Common Stock or ASI Common Stock, in
which case the director or officer receives no extra or special benefit not
shared on a pro rata basis by all other holders of such stock. For information
as to the ownership of such stock of Allegiant, See "Part A" of this Proxy
Statement. As of the June 30, 1996, the directors and executive officers of ASI
owned no shares of Allegiant Common Stock, and the directors and executive
officers of Allegiant owned no shares of ASI Common Stock.
Richard L. Jackson, the Chief Executive Officer and a principal
stockholder of Allegiant, is a party to the Noncompetition Agreement. See
"Part B - The Transaction - Noncompetition Agreement, Guaranty Agreement
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and Other Actions by All Parties."
Douglas R. Colkitt, M.D., the sole stockholder of Doc-Net, which is the
sole stockholder of ASI, and Chairman of the Board of Directors and principal
stockholder of EquiMed, is the obligor under the Guaranty Agreement. The
guaranty is secured by a pledge of 2,750,000 shares of EquiMed Common Stock. In
addition, Dr. Colkitt is the grantee under the Option Agreement. See "Part B -
The Transaction - Noncompetition Agreement, Guaranty Agreement and Other Actions
by All Parties."
Expenses and Fees
The Asset Purchase Agreement provides that all expenses incurred by the
parties in connection with the preparation of the agreement and the other
agreements contemplated thereby will be borne by the respective parties
incurring such expense.
Governing Law; Arbitration
The Asset Purchase Agreement, the Promissory Notes, the Noncompetition
Agreement and the Guaranty Agreement are to be governed by the law of the State
of Georgia. The Asset Purchase Agreement provides that all disputes concerning
it are to be submitted to binding arbitration in connection with the commercial
arbitration rules of the American Arbitration Association.
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INFORMATION REGARDING ALLEGIANT
History and Overview
Allegiant was incorporated in Delaware in February 1988 under the name
Physicians Staffing, Inc. and was a successor by merger in November 1988 to
Physician Sourcing & Research, Inc., a Delaware corporation incorporated in
September 1987. In August 1989, Allegiant changed its name to Premier
Anesthesia, Inc. On November 15, 1994, Allegiant changed its name to Allegiant
Physician Services, Inc.
Allegiant has experienced significant net losses in 1995 and prior
years, had a working capital deficiency of $17.9 million and a deficit in
stockholders' equity of $14.8 million as of December 31, 1995. Historically,
Allegiant concentrated on providing contract anesthesiology services to
hospitals (the "Business" as defined in this Proxy Statement) and the operations
of outpatient medical/surgical centers specializing in the multi-disciplinary
treatment of chronic pain. In early 1995, Allegiant made the decision to
discontinue its pain treatment operations entirely. Allegiant sold the pain
treatment operations in December 1995 to Pain Net, Inc. ("Pain Net") a company
organized and wholly owned by former members of senior management of Allegiant's
discontinued pain division. Terms of the sale were $2.3 million cash, paid at
closing, and $12.5 million in promissory notes. Pain Net will repay these notes
through future operations. Allegiant expects to fully collect these notes,
however, the repayments will be reflected as income when received due to the
highly leveraged structure of Pain Net. Simultaneous with the discontinuation
of the pain treatment operations, and in response to slower than anticipated
growth Allegiant streamlined its core business and shifted its focus from the
Business to expanding and developing its hospital information systems, physician
recruiting and staffing services, locum tenens services and its physician
practice management services. See "Part B - Allegiant Management Discussion and
Analysis."
Effective June 1, 1996, Allegiant transferred substantially all of the
assets of the Business to ASI in accordance with the terms of the Asset Purchase
Agreement. The Transaction will be rescinded if the Requisite Approval by the
Stockholders is not obtained. For a more complete description of the
Transaction, See "Part B - The Transaction."
The Business accounted for 95% of Allegiant's net revenues in 1995 and
94% of the net revenues in each of fiscal 1994 and 1993. The principal services
of Allegiant upon consummation of the sale with ASI will be: (i) hospital
information services; (ii) locum tenens services; and (iii) physician practice
management services. Hospital information services and physician practice
management services, though mature as business concepts, are essentially new
business groups and did not provide a contribution to revenue in 1995 or the
first quarter of 1996. Locums tenens services is a relatively new business
group, formed in January of 1995. Physician recruiting and staffing services is
a business group that formed the genesis of Premier Anesthesia, the contract
anesthesia services division. However, in August 1996, Allegiant decided to
eliminate the recruiting and staffing services unit. Though all the remaining
subsidiaries and business groups of the Company are promising, only locums
tenens services and physician recruiting and staffing services has made
significant revenue contributions during 1995 and the first six months of 1996,
along with the contract anesthesia division. There can be no assurances that the
locum tenen business group will be able to provide the working capital needs of
Allegiant. See "Part B - Management's Discussion and Analysis."
Growth Strategy
Allegiant's strategy is to achieve growth by (i) expanding its
hospital information systems business by marketing its specialized software
system to acute care hospitals, outpatient surgery facilities and ambulatory
surgical centers; (ii) developing its locum tenens services by taking advantage
of a significant market need for temporary physicians; and (iii) developing its
physician services by offering a broad range of management and organizational
services to physician based networks. In accordance with the Asset Purchase
Agreement, approximately $7.5 million of short-term debt and $4.5 million in
other current liabilities of Allegiant has been assumed by ASI and Allegiant
plans to re-deploy the remaining assets of Allegiant in marketing and developing
its hospital information systems, developing its locum tenens services and
developing its physician practice management division.
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Acquisition Activities
In May 1995, Allegiant moved forward with its strategy of developing
its physician management group by joining with Primary Care Concepts of Fort
Worth, Texas ("PCC") to develop a physician-owned and controlled community
healthcare delivery system in the Dallas-Fort Worth metropolitan area. Pursuant
to a Stock Purchase Agreement dated May 24, 1995 (the "Stock Purchase
Agreement") by and between Daughters of Charity Health Services of Fort Worth,
Texas and AHP Acquisition Company, L.L.C. (a corporation 51% owned by PCC and
49% owned by Allegiant) ("AHP"), AHP purchased an established preferred provider
organization for $341,000. Allegiant executed a promissory note with AHP
agreeing to fund AHP up to $1.0 million of which $823,000 had been advanced in
1995. Allegiant will serve as the management services organization for the new
healthcare delivery system by providing services such as marketing, staffing,
management, billing and collections and information systems. PCC will provide
the management of clinical care, and AHP will manage and expand the healthcare
provider network.
Allegiant is limited in its method of identifying and developing
certain practices because of its financial constraints in developing an
acquisition strategy. The settlement agreement relating to the class action
lawsuit filed against Allegiant requires the Acquisition Committee of
Allegiant's Board of Directors, a majority of the members of which must be non-
management directors, to conduct a thorough evaluation of a target company's
compliance with all applicable government regulations for the sale or
manufacture of such company's products or services if the target company
provides services outside Allegiant's core competencies and the purchase price
exceeds $1.0 million.
Industry Background
National concern over the rapidly rising cost of healthcare and recent
initiatives to control both public and private healthcare expenditures through
legislation are pressuring healthcare providers to deliver more cost effective
healthcare services. To limit utilization and to control the cost of healthcare,
payors are increasingly relying on managed care arrangements. Additionally, as
payors such as large employers and insurance companies use the power inherent in
their large patient bases to negotiate discounts and capitated fee arrangements,
healthcare providers are forced to find ways to understand their cost
structures, improve their negotiating powers, maintain their patient and
referral bases and perform the treatment and administrative functions of their
businesses more effectively and efficiently.
In response to cost and competitive pressures, physicians are
increasingly consolidating their practices with other physicians, selling their
practices, becoming employees of hospitals or payors or establishing
affiliations with insurance companies, hospitals and physician practice
management companies in order to be able to effectively negotiate group
contracts and to secure larger patient bases and referral pools. Similarly,
hospitals and clinics are consolidating their operations, forming affiliations
with other healthcare providers and turning to outside sources to recruit,
staff, schedule and administer different departments in order to shift these
managerial and administrative responsibilities to organizations that can deliver
these services on a more cost effective basis. Allegiant believes that it is
well positioned to take advantage of these changes through the services offered
by its hospital information systems, recruiting and staffing services, locum
tenens services and physician practice management services.
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Services Provided
The principal services provided by the Allegiant and its subsidiaries
are (i) the services provided in connection with the Business, (ii) hospital
information services, (iii) physician recruiting and staffing services, (iv)
locum tenens services and (v) physician practice management services. Each of
these services is discussed below.
The Business
Allegiant intends to sell the Assets of the Business to ASI on the
Effective Date upon Requisite Approval by Allegiant Stockholders of the
Transaction. Consequently, the description below of the Business constitutes
both a description of the Business as it was operated by Allegiant prior to the
Effective Date and as it has been operated by ASI subsequent to the Effective
Date, when the Business of Allegiant became the principal business of ASI. For
purposes of this description only, "Company" shall mean Allegiant, as to its
operations of the Business prior to the Effective Date, and ASI, as to its
operations of the Business subsequent to the Effective Date.
The Company contracts with physicians and CRNA's to provide full
anesthesiology department staffing for hospitals with which the Company has
exclusive anesthesia services contracts. The Company either contracts with
anesthesiologists who are existing members of the hospital's medical staff,
provided such physicians satisfy credentialing requirements, or actively
recruits qualified anesthesiologists to fulfill its contractual obligations to
the hospital. Anesthesiologists who desire to practice at the hospital must
contract with the Company. Generally, one of the Company's contract
anesthesiologists is appointed as medical director of the hospital's
anesthesiology department, having responsibility for department administration.
The Company commits to carry, or cause each anesthesiologist and CRNA to carry,
professional liability insurance covering the individual's activities at the
client hospital. This business group of Allegiant accounted for 95% of
Allegiant's net revenues in 1995 and 94% of net revenues in each of fiscal 1994
and 1993.
The Company contracts with a sufficient number of anesthesiologists
and CRNAs to provide anesthesia services for its hospital clients on a 24-hour,
365-day basis. The Company believes that the availability of full-time
anesthesiologists and CRNA coverage is a principal factor in allowing the
surgical procedures to be scheduled when necessary and as desired by the
hospital or surgeon and in accordance with the needs of the patients. The
Company also believes that the availability of such coverage will often
influence both a patient's and physician's decision to choose a particular
hospital for medical services. Predictable and dependable coverage increases the
opportunity to schedule elective surgical procedures, which are frequently
associated with more favorable reimbursement levels.
In order to determine a potential hospital client's appropriate
staffing levels, the Company analyzes the hospital's existing anesthesiology
services and requirements as well as the level of services the hospital desires
to provide to the community. Based on this assessment, the Company submits a
proposal for an advisable level of anesthesia coverage. The Company then
develops and implements a staffing plan for coverage of the anesthesiology
department, including on-call coverage for times when the operating rooms are
not scheduled to be in use. If the hospital desires a staffing level greater
than that justified by the existing surgical caseload or existing reimbursement
levels, the Company will generally require the hospital to guarantee either to
pay the Company's expenses or a stated level of reimbursement during the term of
the contract.
During the recruiting period for permanent anesthesia staff, the
Company contracts with and schedules locum tenens (temporary) anesthesiologists
and CRNAs to provide anesthesiology services to hospitals on an interim basis.
Management believes that the Company maintains the appropriate internal
resources and expertise to provide an adequate supply of locum tenens coverage
to fulfill contractual obligations. This staff utilizes strict standards to
ensure compliance with Company quality standards.
The Company currently provides contract anesthesiology services to 28
hospital anesthesiology departments. No one of Allegiant's existing service
contracts accounted for more than 10% of the Allegiant's net revenue for fiscal
1995. As of December 31, 1995, this business group had 58 full-time employees.
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As of December 31, 1995, Allegiant provided recruiting, staffing and
related services under 28 contracts to 28 hospital anesthesiology departments.
The Company's contracts with hospitals which grant the Company exclusive right
and responsibility to contract with physicians and CRNAs to provide required
medical services. Under these arrangements, the Company accepts responsibility
for billing and collection and, subject to contractual guarantees as described
below, assumes the risks for non-payment, fluctuations in patient volumes or
payor mix associated with reimbursement through government programs and other
third-party payors. All of these factors are taken into consideration by the
Company in deciding on appropriate contract terms with hospitals and healthcare
professionals.
The Company recruits all the physicians and CRNAs used to fulfill the
staffing requirements of hospitals and clinics in which the Company provides
contract anesthesiology services. Methods used by the Company to identify
anesthesiologists and CRNAs include mail solicitations, professional journal
advertising, telemarketing and the use of management's personal contacts. The
Company maintains a proprietary computerized database which holds information on
approximately 4,000 anesthesiologists who have indicated an interest in
affiliating with the Company on a full-time or locum tenens basis. The Company
pre-screens responses of anesthesiologists from its search to ensure the
candidates meet the qualifications established by the client and the Company.
The Company then conducts a verification of licensing, training and professional
references of each healthcare professional prior to setting up interviews for
the candidate with the hospital personnel and visits to the community. The
Company is responsible for supervising all arrangements relating to the
commencement of the healthcare professional's services, including relocation if
necessary.
The Company's hospital contracts generally provide that as compensation for
its services, the Company is entitled to collect and retain all charges for
medical services furnished by the Company's independent contractor healthcare
professionals to patients. Such contracts are referred to as "fee-for-service"
contracts. Under such an arrangement, the Company bears the expenses of
providing these services (principally consisting of physician and CRNA
compensation, insurance costs and billing and collection expenses). In general,
the Company's contracts with physicians performing services at hospitals require
the Company to pay the physicians a percentage of the Company's profits from its
contracts with that hospital, in addition to the physician's annual
compensation.
Many of the Company's contracts provide for certain financial guarantees or
stipends by hospital clients to the Company. Under "expense guaranty" contracts,
the client reimburses the Company to the extent that the Company's expenses in
performing the contract plus a fixed management fee exceed the Company's
collections from the medical services provided by the Company's physicians and
CRNAs. Under "collection guaranty" contracts, the client reimburses the Company
to the extent that collections do not reach a predetermined amount, regardless
of the Company's expenses. Finally, under "fixed stipend" contracts, the client
pays the Company a fixed supplemental amount, regardless of the Company's
collections or expenses. Expense guaranty, collection guaranty and fixed stipend
payments are made to the Company monthly. If the Company's collections exceed
the guaranteed amount, the Company must reimburse the excess to the client up to
the amount of guaranty payments received by the Company during the same period.
The Company principally obtains guaranties on contracts to compensate
either for its historical inability to fund the start-up phase of a contract and
finance the receivables until collection, or for the cost of implementing
staffing for the hospital's department, the cost of which may or may not be
justified by existing surgical case loads or patient volumes at the hospital. To
the extent the Company enters into a non-guaranteed contract, the Company may
experience losses if it has overestimated collections or underestimated expenses
required to perform such contracts, particularly during the start-up phase. As
of December 31, 1995, 10 hospital contracts contained expense guaranties, 4
hospital contracts contained collection guaranties, 2 hospital contracts
provided for fixed stipends and 12 hospital contracts provided for no guaranty
or stipend.
Under most contracts, the hospital agrees not to contract with any
independent contractor physicians provided to them by the Company for a period
of one year after the termination of the contract with the hospital. The
enforceability of such a non-solicitation restriction varies from state to state
depending on public policy constraints as they relate to the perceived
reasonableness of the scope of such non-solicitations.
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Hospital Information Systems
A subsidiary of Allegiant, Surgical Information Systems, Inc. ("SIS"),
formerly known as CINet and incorporated in February 1993, develops and markets
a surgical information system for use in hospitals and surgery centers to
monitor, record and help improve operating room procedures while capturing all
cost components of the pre-operative process.
The product developed and marketed by SIS is a fully integrated on-line
software application. In the operating room context, it is used by anesthesia
providers and surgical nurses to record each event (e.g., drugs administrated,
surgical procedures performed, supplies and equipment used) throughout the pre-,
intra- and post-operative and anesthesia phases. In addition, the system is
linked to all patient monitoring equipment in order to record vital signs and
significant OR events, time stamping all data points, and preparing both the
anesthesia and nursing records for signature. In the patient record-keeping
context, it is used by physicians, nurses and clerks to record patients' medical
histories, physiological and other relevant data, pre- and post-operative
treatments and recovery progress.
Development of the next release of the product, version 2.0, is scheduled
for beta release by the third quarter of 1996. Unlike the version 1.0 product
currently in use, version 2.0 is based entirely on open architecture standards
using Microsoft Windows NT workstations and Microsoft Windows NT or UNIX servers
running one of many off-the-shelf Relational Database Management Systems
(RDBMS). The system is uniquely designed to allow customization of user screens
on-site without writing any additional system code. This business group of
Allegiant accounted for 0.0%, 0.3% and 0.5% of Allegiant's net revenues in
fiscal 1995, 1994 and 1993, respectively. As of June 30, 1996, this group had 11
full-time employees.
Physician Recruiting and Staffing Services
Allegiant recruited permanent physicians practicing in a variety of
specialties for hospitals and clinics for which Allegiant did not provide
contract staffing services. During 1995 and 1994, the main areas of specialty
for which Allegiant provided such recruiting services included family practices,
internal medicine, orthopedics, general surgery, pediatrics and psychiatry. This
business group of Allegiant accounted for 3.5%, 4.0% and 3.6% of Allegiant's net
revenue in fiscal 1995, 1994 and 1993, respectively. During the six months ended
June 30, 1996 this group's operations were insignificant and had only 5 full-
time employees. Effective August 16, 1996, Allegiant decided it was in the best
interest of the shareholders to no longer provide physician recruting and
staffing services, except as described below (see "Locum Tenen Services").
Locum Tenen Services
In January 1995, Allegiant formed Quest Staffing Solutions, to provide
locum tenens, or temporary physician services, to its already mature physician
recruiting base. Quest offers physicians the opportunity to practice medicine on
a long-term or short-term basis throughout the United States. This also affords
the clientele the flexibility of not bearing the long-term committed costs of
having full-time physicians and paying only on an as needed basis. Quest is
owned 80% by Allegiant and accounted for 2.1% of Allegiant's revenue in 1995. As
of June 30, 1996, this group had 13 full-time employees.
Physician Practice Management Services
Allegiant has recently made a strategic decision to market its contract
management discipline in a market place that recent publications put at
approximately $200 billion. Allegiant's physician practice management group is
focusing its efforts in the area of physician based networks. Allegiant feels
that its core competencies of locum tenens and contract management services
place it uniquely in this emerging market. The group had no contribution to
revenue in 1995 and had 4 full-time employees as of June 30, 1996.
Promissory Notes
Allegiant received the two Promissory Notes for the sale of its anesthesia
contract business to ASI. The
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Primary Note in original principal amount of $16.0 million, less Assumed
Liabilities of approximately $12.0 million, accrues interest at a rate of 9% per
annum. The Assumed Liabilities include $7.5 million of debt owed by Allegiant to
its purchaser of accounts receivable. Asset Purchase Agreement requires payments
of interest only for the first six months starting July 1, 1996. Principal
payments are to begin on February 1, 1997 in the amount of $500,000 a month plus
interest. The principal payments will increase to $1.5 million on July 1, 1997
until the note is paid in full. The note is secured by 2,750,000 shares of
EquiMed, .0001 par value, common stock.
The Variable Note is in the original principal amount of (i) $6.0 million,
plus (ii) an amount equal to the product (not to exceed $3.0 million) of 4.09
times the amount, if any, by which the "Gross Margin Revenues of the Business"
during the period from June 1, 1996 to May 31, 1997 are greater than $5.38
million, less (iii) an amount equal to the product (not to exceed $6.0 million)
of 4.09 times the amount, if any, by which the Gross Margin Revenues of the
Business during the period from June 1, 1996 to May 31, 1997 are less than $5.38
million. The Variable Note is payable in monthly installments of accrued
interest only (accrued at a rate per annum equal to 9.0%) beginning on July 1,
1996, and principal of $1.5 million per month beginning on the first day of
first full month following the pay off of the Primary Note, until the Variable
Note is paid in full. It cannot be assured that the benfits of the earn-out
will be met.
Allegiant believes that the liabilities assumed by ASI, approximately $12
million in short-term debt, will provide Allegiant with a more favorable working
capital position. The reduction in short-term debt translates into a monthly
savings of approximately $75,000 in interest costs plus a cash inflow of
approximately $30,000 from interest income on the Primary Note from ASI.
Allegiant will use the proceeds realized from the Primary Note to fund its
current working capital needs and payoff its current liabilities. It cannot be
assured that any benefits of the Variable Note will be realized. If any
benefits are realized from the Variable Note the proceeds will be used to fund
its current working capital needs and payoff its current liabilities. See "Part
B - Allegiant Management's Discussion and Analysis."
Pain Treatment Operations
Historically, Allegiant operated outpatient medical/surgical centers that
specialized in pain management and the multi-disciplinary treatment of chronic
pain. Allegiant offered comprehensive medical services at the pain treatment
centers for the treatment of pain with specialists practicing in anesthesiology,
orthopedics, neurology, physical medicine and rehabilitation and psychology.
Allegiant discontinued the operations of these centers in the first quarter of
1995. In December 1995, Allegiant sold the discontinued pain treatment centers
to the senior management of the pain treatment operations. See "Part B -
Allegiant Management's Discussion and Analysis."
Competition
There are a number of other companies which provide contract staffing
services to hospital departments on a local or regional basis and Allegiant has
several major competitors. Allegiant is affected by significant competition in
the market for medical billing and collection services, which are an integral
part of Allegiant's hospital and clinic-based contract anesthesiology business
and are provided by many firms both regionally, nationally and locally. While
management believes Allegiant is the only provider of an integrated hospital
operating room information system, Allegiant must compete with a large number of
software vendors who provide systems with billing, charting, scheduling and
other capabilities to the hospital. Management believes that the competition
will continue to be based primarily upon the quality and reliability of services
provided, the cost of providing the services and the reduction in administrative
expenses experienced by the purchaser.
Government Regulation
Physicians and other healthcare provider's practices are highly regulated
at both state and federal levels and are subject to healthcare reform measures
being considered by Congress and State legislatures. Several of the alternatives
being considered contain provisions intended to control public and private
spending on healthcare and are funded in part by reductions in payments by
federal healthcare programs (primarily Medicare and Medicaid) to providers such
as hospitals and physicians. Given the uncertainty about the final content and
timing of the implementation of such reforms, it is difficult to predict the
impact adoption may have on the operations of
40
<PAGE>
Allegiant or the relationship it has with its independent contractors. One
measure which is already in use is a new system of Medicare reimbursement for
medical services (including anesthesia services) which is based on relative
value fee schedules. The purpose of this system of reimbursement, known as
"Resource Based Relative Value Scale" ("RBRVS") reimbursements, is to reallocate
medical reimbursement among medical specialties. Under the final regulations
relating to the RBRVS fee structure, the aggregate payments from Medicare to
anesthesiologists may be reduced slightly in each year through 1996, subject to
regional variation.
Professional Liability Insurance
Allegiant maintains professional liability insurance in amounts deemed
appropriate by management based upon historical claims and the nature and risks
of the business. Allegiant's policy provides insurance coverage for all claims
reported during the policy period ("claims-made basis"). In the past,
Allegiant's independent contractor physicians were not required to be covered
under Allegiant's policy, although approximately two-thirds of Allegiant's
independent contractor physicians at December 31, 1995 have elected to have such
coverage. If a physician chooses to obtain individual coverage, Allegiant
reimburses the physician for the cost of such policy. Allegiant's professional
liability insurance provides coverage, subject to policy limits, in the event
Allegiant is held liable as a defendant in a lawsuit against an independent
contractor physician or hospital, as well as for legal fees incurred in
defending any such lawsuit. The most significant source of potential liability
in this regard would be claims of negligence on the part of healthcare
professionals contracting with Allegiant. If such healthcare professionals were
deemed to be employees or agents of Allegiant in the practice of medicine,
Allegiant could be held liable for any medical negligence of such healthcare
professionals. Furthermore, Allegiant could be held liable for negligence
regardless of the nature of the relationship between Allegiant and its
contracted healthcare professionals if Allegiant were deemed negligent in
selecting or retaining such healthcare professionals. Most of Allegiant's
hospital contracts contain undertakings to ensure that services provided by its
physicians and CRNAs conform to certain generally accepted standards of the
anesthesiology profession. Under the terms of the Asset Purchase Agreement, ASI
agreed to include Allegiant as an insured under ASI's malpractice and general
liability insurance coverage in connection with any event or circumstance
arising out of any action or omission of Allegiant occurring prior to the
Effective Date. See "Part B - The Transaction - Additional Covenants of the
Parties."
Employees and Independent Contractors
As of December 31, 1995, Allegiant and its subsidiaries had 112 full-time
employees. None of Allegiant's employees is represented by a labor union and
Allegiant believes its relations with its employees are good. In addition to
its employees, at such date Allegiant had contractual relationships with 107
physicians and 53 CRNAs.
As of June 30, 1996, Allegiant and its subsidiaries had 46 full time
employees and approximately 26 contractual relationships with locum tenen
physicians.
Properties
Allegiant leases all of its facilities pursuant to leases with unaffiliated
lessors. During November 1994, Allegiant relocated its corporate headquarters
in Atlanta, Georgia, occupying approximately 22,000 square feet of space,
providing for current annualized rent of approximately $328,000. This space is
leased under an agreement that expires at the end of 1999. Pursuant to the
terms of the Asset Purchase Agreement, as of June 1, 1996, ASI has sublet
approximately 8,000 square feet of this space from Allegiant at a rate of $15.00
per square foot, plus ASI's pro rata share for the use of certain common areas,
storage facilities, workstations and services. The term is on a month to month
basis, with 60 days written notice for termination. See "Part B - The
Transaction - Additional Covenants of the Parties;" "-Information Regarding ASI
- - Properties."
Legal Proceedings
In April and May 1995, Allegiant issued an aggregate of 500,000 shares of
its common stock to two corporations affiliated with a California physician in
return for promissory notes from these corporations aggregating $1 million. The
notes were due on April 30 and June 30, 1995 and were guaranteed by the
physician. In June 1995, Allegiant received information that the physician had
pledged the 500,000 shares to a broker/dealer
41
<PAGE>
to secure financing and that the broker/dealer asserted title to the shares
pursuant to the pledge. Allegiant instructed its transfer agent not to permit a
transfer of the shares. The $1 million in promissory notes guaranteed by the
physician have not been paid and on August 28, 1995 Allegiant filed a civil
action against the physician and his related corporations for default under the
note agreements and related guaranties. The physician, on December 22, 1995,
filed a cross-complaint against Allegiant for, among other things, fraud and
breach of contract. On April 9, 1996, the broker/dealer filed legal action
against the physician and his related corporations for fraud and securities
fraud, respectively, and against Allegiant for certain violations of the related
state's Uniform Commercial Code. There is no assurance, however, that Allegiant
will be able to collect the notes in whole or in part. Certain facts and events,
in the near term, could change Allegiant's current valuation that the stock
subscription receivable is collectible.
In April 1995, Texas NPI, P.A. ("Texas NPI"), an affiliate of Allegiant,
filed a civil action against a physician of the practice seeking damages for
breach of contract, breach of fiduciary duty and fraud. The action was filed in
State Court in Dallas, Texas. In May 1995, the physician filed a counterclaim
against Texas NPI, Allegiant, another affiliate of Allegiant and two executive
officers of Allegiant. The counter claim seeks damages in excess of $650,000.
Any liability resulting from this litigation was assumed by Pain Net as part of
the sale of the pain treatment operations. In the first quarter of 1996,
Allegiant and Pain Net settled the lawsuit for $300,000. In exchange for a
promissory note Allegiant advanced $300,000 to Pain Net to fund the settlement.
The settlement has been reflected in Allegiant's discontinued operations in
1995. Repayment of the note from Pain Net will be reflected as income when
received.
During the fourth quarter of 1994, Allegiant filed in the Superior Court of
the State of California, County of Los Angeles, an action against certain
workers' compensation insurers and administrators seeking $123.0 million in
compensatory damages claiming abuse of process, intentional interference with
contractual and prospective economic relations, negligent interference with
contractual and prospective economic relations and unfair business practices,
which led to NPI's termination of pain management services to new patients
covered by the slow-paying California litigated workers' compensation system
insurance carriers. Certain of the defendants in the lawsuit have filed cross
complaints seeking restitution from Allegiant, its healthcare subsidiaries and
their associated medical groups for funds previously paid to the medical groups
and other damages. Although there can be no assurances, based upon the facts
and circumstances known to date, in the opinion of management, final resolution
of this matter will not have a material adverse effect on Allegiant's financial
condition or results of operations.
In December 1994, Hermes Systems S.A. commenced an arbitration proceeding
against Allegiant in the Belgian Centre for the Study and Practice of National
and International Arbitration. Hermes sought to recover $1,802,380, plus
interest, for computer software and related hardware allegedly purchased or
allegedly required to be purchased by Allegiant pursuant to a distribution
agreement between Allegiant and Hermes. Allegiant interposed defenses to the
claims asserted by Hermes and, in turn, alleged that Hermes has breached the
agreement. In the first quarter of 1996, Hermes was awarded damages against
Allegiant and as a result Allegiant recorded a $490,000 reserve in the fourth
quarter of 1995. Allegiant filed an appeal of the award in Georgia but there is
no assurance that Allegiant will obtain any relief from the appeal.
Allegiant contracts with physicians and other healthcare professionals to
fulfill certain of its contractual obligations to clients. Consistent with the
long-standing recognized practice of a significant segment of the healthcare
industry, Allegiant considers these professionals to be independent contractors
for income tax purposes. In the event of a proposed change in this
classification through regulatory challenge, management, based on the advice of
counsel, believes that certain "safe harbor" relief is available. In the event
of a determination that the healthcare professionals under contract to Allegiant
are employees, Allegiant may be subject to retroactive taxes and penalties.
Allegiant is subject to claims and legal actions by patients and others in
the ordinary course of business. Allegiant maintains professional liability
insurance which is limited to patient claims reported during the policy period.
A liability is recorded for estimated losses related to unreported patient
claims, which is included in other current liabilities in the accompanying
consolidated balance sheets. In the opinion of management, such liability is
sufficient to cover any such unreported patient claims, and the amount of
potential liability with respect to other legal actions will not affect the
financial position or results of operations of Allegiant.
42
<PAGE>
INFORMATION REGARDING ASI
ASI is a newly incorporated Delaware corporation, formed to acquire the
assets and the business represented by the Business from Allegiant. The
Transaction was consummated on the Effective Date, subject to the post-Closing
condition that Allegiant shall obtain the Requisite Approval of the Transaction.
Subsequent to the Effective Date, the Business of Allegiant became the principal
business of ASI. The description of the Business of Allegiant contained
elsewhere in this Proxy Statement constitutes a description of the principal
business of ASI subsequent to the Effective Date. See "Part B - The
Transaction;" and "- Information Regarding Allegiant -- The Business."
Employees
As of June 1, 1996, ASI had 52 full time employees and contractual
relationships with 110 physicians and 50 CRNAs.
Properties
Pursuant to the terms of the Asset Purchase Agreement, as of June 1, 1996,
ASI has sublet approximately 8,000 square feet of Allegiant's corporate
headquarters in Atlanta, Georgia at a rate of $15.00 per square foot, plus ASI's
pro rata share for the use of certain common areas, storage facilities,
workstations and services. The term of the sublease is on a month to month
basis, with 60 days written notice for termination. See "Part B - Information
Regarding Allegiant - Properties."
43
<PAGE>
ALLEGIANT SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following Selected Historical and Pro forma Consolidated Financial
Information should be read in conjunction with the Consolidated Financial
Statements incorporated by reference herein from Allegiant's 1995 Annual Report,
accompanying this Proxy Statement, "Part B - Allegiant Management's Discussion
and Analysis" and other financial data included herein, the selected historical
financial data for the fiscal year ended December 31, 1995 was derived from the
Consolidated Financial Statements, incorporated by reference herein from
Allegiant's 1995 Annual Report, accompanying this Proxy Statement. The selected
historical financial data for the six months ended June 30, 1996 are derived
from the Unaudited Consolidated Financial Statements of Allegiant appearing
elsewhere in this Proxy Statement. The results of operations for the six months
ended June 30, 1996, are not necessarily indicative of the results that may be
expected for the full fiscal year. The selected pro forma financial data for the
year ended December 31, 1995 and the six months ended June 30, 1996 are derived
from the Unaudited Pro Forma Consolidated Condensed Financial Information
contained elsewhere in this Proxy Statement and give effect to the Transaction.
ALLEGIANT PHYSICIAN SERVICES, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(Unaudited)
- --------------------------------------------------------------------------------
(000s omitted)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
---------------------- ----------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Summary of Operations
Net revenue $24,806 $2,426 $57,607 $3,865
Operating income (loss) (3,056) ($3,605) (4,187) ($6,954)
Income (loss) before income taxes (5,221) ($5,341) (7,676) ($9,585)
Income (loss) from continuing operations (5,221) ($5,341) (8,518) ($10,427)
Income (loss) from discontinued operations -- -- 1,790 1,790
Loss from sale of discontinued operations -- -- (12,401) (12,401)
--------- --------- -------- ---------
Net income (loss) ($5,221) ($5,341) ($19,129) ($21,038)
========= ========= ======== =========
Net income (loss) per common share:
Continuing operations ($0.34) ($0.35) ($0.62) ($0.76)
Discontinued operations -- -- (0.77) (0.77)
--------- --------- -------- ---------
Total net income (loss) ($0.34) ($0.35) ($1.39) ($1.53)
========= ========= ======== =========
Weighted average common shares outstanding 15,381 15,381 13,727 13,727
As a Percent of Net Revenue - Continuing Operations
Operating income (loss) (12.3)% (148.6)% (7.3)% (179.9)%
Income (loss) before income taxes (21.0)% (220.2)% (13.3)% (248.0)%
Net income (loss) (21.0)% (220.2)% (14.8)% (269.8)%
Balance Sheet Data
Working capital (deficit) ($22,695) ($13,299) ($17,906) ($8,831)
Total assets $9,636 $10,557 $9,388 $12,479
Long-term obligations $1,635 $1,635 $1,637 $1,637
Stockholders' investment (deficit) ($19,656) ($9,297) ($14,829) ($5,020)
Operating Ratios
Current ratio 0.2:1 0.3:1 0.2:1 0.5:1
</TABLE>
44
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are based upon the consolidated historical financial statements of
Allegiant adjusted to give effect to the Transaction. The Unaudited Pro Forma
Condensed Consolidated Balance Sheet as of June 30, 1996 gives effect to the
elimination of the disposed business assuming that the disposition had taken
place on June 30, 1996. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations for the year ended December 31, 1995 and the six months
ended June 30, 1996 give effect to the elimination of the disposed business
assuming the disposition of the business had taken place on January 1, 1995 and
January 1, 1996 respectively. The Pro Forma Condensed Consolidated Financial
Information may not be indicative of the results of Allegiant that would have
actually occurred if the Transaction had been effected on the dates indicated or
results that may be obtained in the future. The Pro Forma Condensed Consolidated
Financial Information are based upon currently available information and upon
certain assumptions that Allegiant believes are reasonable under the
circumstances. The Pro Forma Condensed Consolidated Financial Information should
be read in conjunction with the Consolidated Financial Statements incorporated
by reference herein from Allegiant's 1995 Annual Report, accompanying this Proxy
Statement.
45
<PAGE>
UNAUDITED PRO FORMA ALLEGIANT PHYSICIAN SERVICES, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
================================================================================
(000s omitted except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
------------------------------------
Anesthesia
Allegiant Disposition Allegiant
Historical Adjustments Pro Forma
---------- ----------- ---------
(1)
<S> <C> <C> <C>
Net revenue $ 24,806 $ 22,380 $ 2,426
--------- ---------- ---------
Direct costs:
Contract labor and other direct expenses 19,358 17,778 1,580
Provision for bad debts 3,203 3,167 36
Other expenses 5,301 886 4,415
--------- ---------- ---------
Total expenses 27,862 21,831 6,031
--------- ---------- ---------
Operating income (loss) (3,056) 549 (3,605)
Net interest expense 2,165 429 1,736
--------- ---------- ---------
Income (loss) before income taxes (5,221) 120 (5,341)
Income tax expense -- -- --
--------- ---------- ---------
Income (loss) from continuing operations $ (5,221) $ 120 $ (5,341)
========= ========== =========
Loss per share: $ (0.34) $ (0.35)
========= =========
Weighted average shares outstanding: 15,381 15,381
========= =========
</TABLE>
See notes to unaudited Pro Forma Consolidated Condensed Financial Statements
46
<PAGE>
UNAUDITED PRO FORMA ALLEGIANT PHYSICIAN SERVICES, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
================================================================================
(000s omitted except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
------------------------------------------
Anesthesia
Allegiant Disposition Allegiant
Historical Adjustments Pro Forma
------------- ------------ ------------
(1)
<S> <C> <C> <C>
Net revenue $ 57,607 $ 53,742 $ 3,865
------------- ------------ ------------
Direct costs:
Contract labor and other
direct expenses 40,776 39,205 1,571
Provision for bad debts 9,869 9,299 570
Other expenses 11,149 2,471 8,678
------------- ------------ ------------
Total expenses 61,794 50,975 10,819
------------- ------------ ------------
Operating income (loss) (4,187) 2,767 (6,954)
Net interest expense 3,489 858 2,631
============= ============ ============
Income (loss) before
income taxes (7,676) 1,909 (9,585)
Income tax expense 842 842
------------- ------------ ------------
Income (loss) from
continuing taxes $ (8,518) $ 1,909 $ (10,427)
============= ============ ============
Loss per share: $ (0.62) $ (0.76)
============= ============
Weighted average shares
outstanding: 13,727 13,727
============= ============
</TABLE>
See notes to unaudited Pro Forma Consolidated Condensed Financial Statements
47
<PAGE>
UNAUDITED PRO FORMA ALLEGIANT PHYSICIAN SERVICES, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
================================================================================
(000s omitted)
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------
Anesthesia
Allegiant Disposition Allegiant
Historical Adjustments Pro Forma
---------- ----------- ---------
(2)
ASSETS
Current Assets:
<S> <C> <C> <C><C>
Cash and cash equivalents $ 1,195 $ $ 1,195
Accounts receivable, net 2,833 (2,833) a -
Other Current Assets 658 2,791 b 3,449
--------- ---------- --------
Total current assets 4,686 (42) 4,644
--------- ---------- --------
Property and Equipment, net 1,514 (308) c 1,206
Capitalized software and other assets 2,026 2,026
Other long term assets 1,410 1,271 2,681
--------- ---------- --------
$ 9,636 $ 921 $ 10,557
========= ========== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
<S> <C> <C> <C><C>
Short-term borrowings $ 15,746 $ (9,100) e $ 6,646
Accounts payable 4,663 4,663
Other current liabilities 6,972 (338) f 6,634
--------- ---------- --------
Total current liabilities 27,381 (9,438) 17,943
--------- ---------- --------
Long-term Obligations:
Long-term debt and capital
lease obligations 1,635 1,635
--------- ---------- --------
1,635 1,635
Redeemable Common Stock 276 276
Stockholders' Investment (Deficit) (19,656) 10,359 g (9,297)
--------- ---------- --------
$ 9,636 $ 921 $ 10,557
========= ========== ========
Book value per common share $ (1.25) $ (0.58)
Shares outstanding 15,480 15,480
========= ========
</TABLE>
See notes to unaudited Pro Forma Consolidated Condensed Financial Statements
48
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT
JUNE 30, 1996 AND THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED JUNE
30, 1996. (000s omitted)
Statements of Operations Footnotes
Note 1: Eliminates the operating results of the anesthesia contract business
included in the Company's consolidated statement of operations for the
six months ended June 30, 1996 and the year ended December 31, 1995.
Other expenses adjustments of $866 for the six months ended June 30,
1996 and $2,471 for the year ended December 31, 1995 are comprised of
sales, general and administrative expenses of the contract anesthesia
business for the respective periods.
Interest expense adjustments for the six months ended June 30, 1996 of
$429 and for the year ended December 31, 1995 of $858, relate to the
assumption of short term debt in the amount of $7,500 by ASI, as
provided for in the Transaction.
Balance Sheet Footnotes
Note 2: Adjustments to reflect the sale of certain assets, assumption of
liabilities and estimated expenses of the Transaction and restructuring
charges relating to the Company on a go forward basis. The expenses of
the sale and the restructuring charges were taken into consideration in
calculating the estimated gain on the transaction and will be recorded
concurrently with the Transaction. Adjustments were also made to
eliminate the June 1996 operating activity of the contract anesthesia
as the Company is recording such activity until the Transaction is
closed by vote of its shareholders.
(a) Eliminate anesthesia receivables from June 1996 operations.
(b) Pro forma adjustment to record the current portion of the note
receivable and other receivables due from ASI, the purchase of certain
prepaid expenses by ASI and to charge off unamortized costs associated
with the anesthesia contracts.
Current portion of note receivable form ASI $ 3,000
Other receivables due from ASI 213
Prepaid expenses (205)
Unamortized contract costs (217)
--------
Total $ 2,791
--------
(c) Book value of property and equipment acquired by ASI.
(d) Long term portion of the Note Receivable from ASI ($1,452) and other
long term assets acquired ($181).
(e) Assumption of debt of Allegiant by ASI including the $7,500 obligation
to the Companys financing company and $1,600 of accrued physician
compensation.
49
<PAGE>
(f) Assumption of certain liabilities by ASI, charges related to the
Transaction and elimination of anesthesia liabilities relating to June
1996 operations. The charges have not been considered in the pro forma
operating statements enclosed and will be recognized concurrently with
the recording of the Transaction.
<TABLE>
<S> <C>
Purchase Price $ 16,000
Anesthesia operations June 1996 133
Prepaid expenses (205)
Fixed assets (308)
Unamortized costs (217)
Direct expenses (4,863)
Other (181)
----------
Total $ 10,359
----------
</TABLE>
(g) Estimated gain related to the Transaction.
<TABLE>
<S> <C>
Direct expenses $ 4,863
Contract deposits (254)
Contract guaranteed liabilities (921)
Professional liability insurance (550)
Accrued liabilities resulting from June 1996 contract operations (2,936)
Other acrued liabilities (540)
----------
Total $ (338)
----------
</TABLE>
50
<PAGE>
ALLEGIANT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis for fiscal years 1995, 1994 and
1993, respectively is incorporated by reference herein from Allegiant's 1995
Annual Report, accompanying this Proxy Statement.
SECOND QUARTER 1996
OVERVIEW
Historically, Allegiant's principal business activity has been its
contract anesthesia business, i.e., the Business, which accounted for
approximately 95% of Allegiant's net revenues in fiscal 1995 and 93% of
Allegiant's net revenue during the first six months of 1996. On the Effective
Date, Allegiant transferred substantially all of the assets of the Business to
ASI in accordance with the terms of the Asset Purchase Agreement, subject,
however, to the post-Closing condition that Allegiant shall obtain the Requisite
Approval by the Stockholders to the Transaction. This will conclude the shift
from Allegiant's core Business of contract anesthesia services to providing
other healthcare related services including hospital information systems,
physician recruiting and staffing services, locum tenens services and physician
practice management services. See "-- Liquidity and Capital Resources."
Allegiant was formed in 1988 and for the next five years concentrated on
providing contract management services to hospital anesthesiology departments
and offered physician recruiting services to hospitals for all physician
specialties. In late 1993, while continuing to offer and expand the services
previously mentioned, Allegiant made the decision to shift its market focus from
contract anesthesia services to the development and management of integrated
healthcare delivery networks primarily in small urban areas. Given this broader
definition of the market to which Allegiant offered its services, Allegiant
changed its name in late 1994 to Allegiant Physician Services, Inc. from Premier
Anesthesia, Inc.
The assets to be sold in the Transaction include all of Allegiant's
anesthesia contracts, physician and nurse contracts, office furniture and
computer equipment used in the contract anesthesia business. For a more
complete description of the Transaction, See "Part B - The Transaction."
Historically, Allegiant also operated medical/surgical centers
specializing in the multi-disciplinary treatment of chronic pain. Allegiant
discontinued all pain treatment operations in 1994. Allegiant evaluated the
historical trend of payments from the insurance carriers, the length of time in
the payment cycle and the cost of collection related to receiving these
payments. Under these circumstances, Allegiant determined that it was in the
best interest of the shareholders to discontinue all operations related to its
pain treatment operations. As a result, Allegiant recorded a $12.0 million
charge to 1994 earnings, of which $8.4 million provided for a write-down of
accounts receivable and a provision of $3.6 million to adjust the estimated net
realizable value of the assets of the pain treatment operations.
In December 1995, Allegiant sold its pain treatment operations to Pain
Net Inc. (Pain Net), a company formed and owned by former members of the senior
management of Allegiant's discontinued pain treatment operations, for $2.3
million in cash paid at closing and $12.5 million in two promissory notes. The
notes earn interest at 12% per year and are collateralized by patient
receivables of Pain Net. Pain Net will repay the notes from future operations.
Allegiant expects to fully collect these notes, however, the repayments will be
reflected as income when received due to the highly leveraged structure of Pain
Net.
In August 1996, the Board of Directors of Allegiant decided to
restructure the Physician Practice Management unit, which heretofore had pursued
both hospital and physician sponsored practice networks. Hereafter, Allegiant
will pursue only physician-sponsored networks for development. Allegiant also
eliminated its physician recruiting and staffing services unit.
51
<PAGE>
RESULTS OF OPERATIONS
Second Quarter 1996 Compared to Second Quarter 1995
Net revenue decreased $3.3 million or 21.2% between periods. The
continued deterioration in the number of anesthesia procedures and the decrease
of one contract on a comparable basis between the second quarter of 1996 and
1995 resulted in a decrease in anesthesia net revenue of approximately $2.9
million for the quarter ended June 30, 1996.
Operating income for the second quarter of 1996 was a loss of $1.8
million compared to income of $892,000 for the second quarter of 1995. The
decrease in operating income is attribute to both the contract anesthesia
business deterioration and increased operating expense by Allegiant on its
hospital information systems group. Contract labor and other direct costs were
79.3% and 64.9% of net revenue for the three months ended June 30 for 1996 and
1995, respectively. Other expenses increased from $2.4 million, or 15.8% of net
revenue, to $2.8 million or 22.8% of net revenue for the three months ended
June 30, 1995 and 1996, respectively.
Net interest expense for the second quarter of 1996 increased to $1.1
million compared to $355,000 during the same period in 1995. Allegiant's
commitment to fund its hospital information systems and physician practice
management groups along with the necessity to provide working capital to its
pain treatment operations caused its debt position to increase from $8.5 million
at the end of the second quarter in 1995 to $17.4 million as of June 30, 1996.
Additionally, Allegiant will not recognize interest income on the promissory
notes from the sale of the pain treatment operations until payment is received.
Weighted shares used to compute earnings per share were higher in 1996
than in 1995 due to the conversion of approximately 1.5 million shares of
Allegiant's common stock from debt to equity at various times during the past
twelve months. Earnings per share from operations declined to a loss of $.19 per
share during the second quarter of 1996 compared to income of $.04 per share
during the comparable time period in 1995.
Year-to-Date 1996 Compared to Year-to-Date 1995
Net revenue for the six months ended June 30, 1996 declined $7.2 million
from the corresponding period in 1995. This decline is mostly attributable to
the deterioration, as addressed before, in the contract anesthesia business
which was $6.7 million less during the first six months of 1996 compared to
1995.
Operating income for the first six months of 1996 was a loss of $3.1
million compared to income of $1.8 million during the first six months of 1995.
Though the contract anesthesia net revenue decreased $7.2 million while contract
labor and other direct costs associated with these contracts remained comparable
to the first six months of 1995. These costs were 78% and 65% of net revenue for
the six months ended June 30, 1996 and 1995, respectively.
Net interest expense for the first six months of 1996 was $2.2 million
compared to $744,000 for the first six months of 1995. This increase in interest
costs was associated with Allegiant's commitment, as mentioned previously, to
fund, through outside borrowings from its primary lender, its hospital
information systems and physician practice management groups, as well as the
funding needs in 1995 of the pain treatment operations. These funding
requirements increased Allegiant's debt and, accordingly, its debt service.
Weighted shares used to compute earnings per share were higher in 1996
than in 1995 due to the conversion of approximately 1.5 million shares of
Allegiant's common stock from debt to equity at various times during the past
twelve months. Earnings per share from operations declined to a loss of $.34 per
share during the six months ending June 30, 1996, compared to income of $.08 per
share during the comparable time period in 1995.
52
<PAGE>
Liquidity and Capital Resources
Allegiant's cash balance at June 30, 1996 was approximately $1.2
compared to $1.8 million at the end of the year. The decrease was primarily due
to the decision to pay off a convertible debenture in the approximate amount of
$300,000 prior to conversion and Allegiant's continued investment spending on
its hospital information systems and physician practice management groups.
Allegiant entered into an accounts receivable funding program with a
private healthcare accounts receivable financing company during the first
quarter of 1994 and has continued that arrangement to date. Allegiant has found
it necessary, from time to time, to call on its principal financing company to
provide additional cash beyond its contractual commitment.
Allegiant executed an Asset Purchase Agreement with ASI providing for
the sale of Allegiant's Business effective June 1, 1996. The sale is subject to
shareholder approval and will be voted upon by the shareholders at Allegiant's
1996 annual meeting. The Business accounted for approximately 95% and 93% of
Allegiant's net revenue in 1995 and during the first six months of 1996
respectively.
Consequently, the future cash flows and capital resources of Allegiant
should be dramatically impacted by this sale. The Business provided
approximately $3.8 million in net cash flows during 1995. Although cash
contributions from the Business have decreased in recent years, the sale of this
division will have immediate liquidity benefits to Allegiant. The agreement with
ASI provides that upon consummation of the sale, ASI will assume $7.5 million in
short term debt from Allegiant's principal lender. ASI will also assume
approximately $4.5 million of other current obligations. Allegiant believes that
this reduction of approximately $12.0 million in working capital requirements
will provide Allegiant with a more favorable working capital position. The
reduction in short-term debt translates into a monthly savings of approximately
$75,000 in interest costs plus a cash inflow of $30,000 from interest income on
the promissory note from ASI. Additionally, Allegiant will be paying down short-
term debt as collections on its accounts receivables occur.
The principal services of Allegiant upon consummation of the sale with
ASI will be (i) hospital information services, (ii) locum tenens services and
(iii) physician practice management services. Hospital information services and
physician practice management services, though mature as business concepts, are
essentially new business groups and did not provide contributions to revenue
through the second quarter of 1996. Locums tenens services is a relatively new
business group, formed in January of 1995.
Though all the remaining subsidiaries and business groups of Allegiant
are promising, only locums tenens services has made significant revenue
contributions during 1995 and the first six months of 1996, along with the
Business. There can be no assurances that this business group will be able to
provide the working capital needs of Allegiant. Allegiant expects to receive a
primary note from ASI upon consummation of the sale with ASI of approximately
$4.0 million. However, Allegiant will not benefit from reduction of the
principal balance of the note until seven months after the closing of the sale.
At that time, Allegiant will receive principal payments of $500,000 per month
for five months beginning on February 1, 1997, increasing to $1.5 million per
month on July 1, 1997, and continuing until the principal is paid off.
Additionally, Allegiant is entitled to an additional "earn-out" on a Variable
Note based upon the profitability of the contracts sold. The "earn-out" can be
up to $9.0 million. However, this amount is indeterminable at this time and it
cannot be assured that the benefits of any "earn-out" will be realized.
Allegiant is dependent upon the continuation of the accounts receivable
financing arrangement it has with its primary financing company. Although
Allegiant expects the finance company to continue to provide additional funding
to Allegiant while the Allegiant seeks to become cash flow positive, there is no
assurance that the amount of such funding will meet Allegiant's requirements or
that Allegiant will become cash flow positive. Allegiant has identified
approximately $20.0 million of previously billed but uncollected accounts
receivable. Allegiant has contracted with a national collection group to rebill
and begin the collection effort on these accounts. Upon rebilling the finance
company is committed to purchase these receivables, upon acceptance, for
approximately $10.0 million. Although Allegiant expects the finance company to
accept a majority of the rebilled accounts, there is no assurance of the
ultimate accepted amount, if any.
53
<PAGE>
The report of Allegiant's independent auditors contains an explanatory
paragraph as to Allegiant's ability to continue as a going concern. According to
the report, Allegiant has experienced recurring losses, a capital deficit, cash
flow deficiencies and overfunding related to short-term financing received by
Allegiant that raise substantial doubt about Allegiant's ability to continue as
a going concern. Additionally, Allegiant has not complied with certain covenants
of existing loan agreements.
Certain of Allegiant's assets might be worth substantially less than the
amounts shown on Allegiant's balance sheet if Allegiant is unable to continue as
a going concern and the financial statements have not been adjusted to reflect
the outcome of this uncertainty. There can be no assurance that the future
revenues will exceed operating expenses to enable Allegaint to continue as a
going concern.
To reduce the operating losses and improve cash flows, Allegiant
implemented or is in the process of implementing the following plan: (i) expand
its hospital information systems business by completing the enhanced version of
its proprietary software system and market it to hospitals, outpatient and
ambulatory surgical centers and other healthcare providers: (ii) continue to
market and grow its locums tenens services by taking advantage of a significant
market need for temporary physicians: and (iii) develop its physician practice
management services by offering a broad range of management and organizational
services to physician-sponsored networks.
54
<PAGE>
PROPOSALS OF ALLEGIANT'S STOCKHOLDERS
Proposals of Allegiant Stockholders intended to be presented at the 1997
Annual Meeting must have been received by Allegiant on or before May 6, 1997 to
be considered for inclusion in Allegiant's Proxy Statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Board of Directors of Allegiant is not aware of any matter to be
presented for action at the Annual Meeting other than (i) the election of
Directors to the Board of Directors; (ii) the ratification of the appointment of
Ernst & Young LLP as independent auditors of Allegiant and its subsidiaries for
the year 1996; and (iii) the approval of the Transaction. If any other matter
comes before the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matter in accordance with their best
judgment.
55
<PAGE>
INDEX TO ALLEGIANT CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Allegiant's Consolidated Financial Statements for the years ended
December 31, 1995, 1994 and 1993 are incorporated by reference herein from
Allegiant's 1995 Annual Report, accompanying this Proxy Statement.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Condensed Statements of Operations
For the Quarter Ended June 30, 1996 and 1995 57
Consolidated Condensed Balance Sheets
June 30, 1996 and December 31, 1995 58
Consolidated Condensed Statements of Cash Flows
For the Quarter Ended June 30, 1996 and 1995 59
Notes to Consolidated Condensed Financial Statements 60
</TABLE>
56
<PAGE>
ALLEGIANT PHYSICIAN SERVICES, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
- --------------------------------------------------------------------------------
(000s omitted except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net revenue $12,264 $15,556 $24,806 $32,001
-------- ------- ------- -------
Direct costs and other operating expenses:
Contract labor and other direct expenses 9,729 10,088 19,358 20,898
Provision for bad debts 1,593 2,125 3,203 4,206
Other 2,791 2,451 5,301 5,129
-------- ------- ------- -------
Total expenses 14,113 14,664 27,862 30,233
-------- ------- ------- -------
Operating income (loss) (1,849) 892 (3,056) 1,768
Net interest income (expense) (1,074) (355) (2,165) (744)
-------- ------- ------- -------
Income (loss) before income taxes ($2,923) $537 ($5,221) $1,024
Income tax expense - - - -
-------- ------- ------- -------
Net income (loss) (2,923) 537 (5,221) 1,024
======== ======= ======= =======
Earnings (loss) per share: ($0.19) $0.04 ($0.34) $0.08
Weighted average shares outstanding 15,503 13,774 15,381 13,459
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
57
<PAGE>
ALLEGIANT PHYSICIAN SERVICES, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(000s omitted) June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $1,195 $1,784
Accounts receivable, net of allowance for doubtful accounts
of $4,577 and $5,570 in 1996 and 1995 2,833 1,468
Other current assets 658 1,029
------------ ------------
Total current assets 4,686 4,281
------------ ------------
Property and Equipment, net of accumulated depreciation of $1,946 and
$1,641 in 1996 and 1995, respectively 1,514 1,746
Capitalized software, net of accumulated amortization of $440
and $220 in 1996 and 1995, respectively 2,026 1,894
Deposits and other assets 1,410 1,467
------------ ------------
$9,636 $9,388
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
Current Liabilities:
Short-term borrowings and current portion of long-term obligations $15,746 $10,403
Accounts payable 4,663 4,757
Accrued salaries and contract costs 2,597 2,589
Billings in excess of contract costs 921 1,548
Other accrued expenses 3,454 2,890
------------ ------------
Total current liabilities 27,381 22,187
------------ ------------
Long-term Obligations:
Long-term debt and capital lease obligations 1,635 1,637
Redeemable Common Stock 276 393
Stockholders' Investment (Deficit): (19,656) (14,829)
------------ ------------
$9,636 $9,388
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
58
<PAGE>
ALLEGIANT PHYSICIAN SERVICES, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
(000s omitted)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1996 1995
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ($5,221) $1,024
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Minority interest in affiliate 254 --
Depreciation and amortization 607 259
Changes in assets and liabilities:
Accounts receivable, net (1,365) 1,918
Prepaid expenses and other 328 231
Other assets 122 (241)
Accounts payable (94) (444)
Accrued expenses 574 (315)
Deposits and other current liabilities (554) (928)
---------------- --------------
Net cash used in continuing
operations (5,349) 1,504
---------------- --------------
Net cash used in discontinued
operations -- (3,494)
---------------- --------------
Net cash used in operating
activities (5,349) (1,990)
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions, net (95) (144)
Capitalized software (352) (335)
Long-term note receivable to affiliate (540) (519)
---------------- --------------
Net cash used in investing
activities (987) (998)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock -- 1,984
Repurchase of redeemable common stock (117) --
Net short-term and long-term borrowings
(repayments) and capital lease obligations 5,864 1,032
---------------- --------------
Net cash provided by financing
activities 5,747 3,016
---------------- --------------
Net increase in cash and cash equivalents (589) 28
Cash and cash equivalents at beginning of
period 1,784 267
---------------- --------------
Cash and cash equivalents at end of period $1,195 $295
================ ==============
Cash paid during the period for:
Interest $2,002 $1,075
Income taxes $ -- $2
================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
59
<PAGE>
Notes to Consolidated Condensed Financial Statements
June 30, 1996 and 1995
Note A - Summary of Significant Accounting Policies
The interim financial statements presented herein reflect all adjustments that
are, in the opinion of management, necessary to fairly state the interim
financial statements presented, such adjustments being of a normal recurring
nature. Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. The interim statements should be read in conjunction with the Company's
audited financial statements and notes thereto for the year ended December 31,
1995. Certain reclassifications have been made to prior year's amounts to
conform to the 1996 presentation.
Note B - Short-term Borrowings and Long-term Debt
In February and March 1994, the Company entered accounts receivable funding
agreements with a private healthcare accounts receivable finance company. Under
these agreements, the finance company purchases with recourse and the Company
sells, on a weekly basis, the Company's eligible healthcare accounts receivable,
net of contractual adjustments, collection reserves and subsequent collections.
In June 1995, the Company entered into a separate agreement with this finance
company with the same terms as previously noted. No gain or loss is recognized
on these transactions. The Company paid a 1.5% commitment fee and pays interest
at 9.5% per annum on the net outstanding purchased accounts receivable balance
until such accounts receivable are collected. The outstanding balances of
uncollected purchased accounts receivable under both agreements totaled
approximately $22.5 million, net of amounts the finance company withheld from
the Company as reserves at June 30, 1996. As of June 30, 1996, the finance
company has advanced to the Company an additional $11.2 million. This
additional funding represents funding in excess of the contractual requirements
of the accounts receivable funding agreements and is secured by approximately
12.8 million of the Company's unregistered stock. This additional funding places
the Company in default of the contractual requirements of the accounts
receivable funding agreements. This amount has been classified as short-term
debt at June 30, 1996.
In September 1994, the Company signed a three-year promissory note agreement
with a financial broker to provide up to $2.0 million for working capital
purposes, as lenders' funds are available. No principal payments are required
for three years, but the Company may prepay the notes at any time at a premium
up to 15%. As of June 30, 1996, outstanding borrowings totaled $1.8 million,
net of additional fees of $314,000. Interest is payable monthly at the prime
rate plus 2%. The promissory notes are secured by 5.9 million shares of the
Company's unregistered common stock. The Company is required to provide the
lender with 300% market value to loan balance coverage as determined at each
month-end. Events of default, which require cure by prepayment or otherwise
within two business days after notice of default, include, among other things,
the untimely payment of monthly interest and a drop in the Company's stock price
below $0.62 per share. At June 30, 1996, the Company was in default because the
Company's common stock has been trading below $0.62 per share. The Company has
not been officially notified of this default which is required by the note
agreements. The Company has classified the notes as short-term borrowings.
Note C - Contingencies
In April and May 1995, the Company issued an aggregate of 500,000 shares of
common stock to two corporations affiliated with a California physician in
return for promissory notes from these corporations aggregating $1 million. The
notes were due on April 30 and June 30, 1995 and were guaranteed by the
physician. In June 1995, the Company received information that the physician
had pledged the 500,000 shares to a broker/dealer to secure financing and that
the broker/dealer asserted title to the shares pursuant to the pledge. The
Company instructed its transfer agent not to permit a transfer of the shares.
The $1 million in promissory notes guaranteed by the physician have not been
paid and on August 28, 1995 the Company filed a civil action against the
physician and his related corporations for default under the note agreements and
related guaranties. The physician, on December 22, 1995, filed a cross-
complaint against the Company for, among other things, fraud and breach of
contract. On April 9, 1996, the broker/dealer filed legal action against the
physician and his related corporations for fraud and securities fraud, and
against the Company for certain violations of the related state's Uniform
Commercial Code. There is no assurance, however, that the Company will be able
to collect the notes in whole or in part. Certain
60
<PAGE>
facts and events, in the near term, could change the Company's current valuation
that the stock subscription receivable is collectible.
During the fourth quarter of 1994, the Company filed in the Superior Court of
the State of California, County of Los Angeles, an action against certain
workers' compensation insurers and administrators seeking $123.0 million in
compensatory damages claiming abuse of process, intentional interference with
contractual and prospective economic relations, negligent interference with
contractual and prospective economic relations and unfair business practices,
which led to NPI's termination of pain management services to new patients
covered by the slow-paying California litigated workers' compensation system
insurance carriers. Certain of the defendants in the lawsuit have filed cross
complaints seeking restitution from Allegiant, its healthcare subsidiaries and
their associated medical groups for funds previously paid to the medical groups
and other damages. Although there can be no assurances, based upon the facts and
circumstances known to date, in the opinion of management, final resolution of
this matter will not have a material adverse effect on the Company's financial
condition or results of operations.
Note D - Income Taxes
The Company's income tax benefit for the period ended June 30, 1996, was
calculated at an effective rate of 38% before being offset by an increase in the
deferred tax valuation allowance. The increase in the valuation allowance was
recognized based on the uncertainty of future tax obligations generated from
planned earnings through June 30, 1997.
Note E - Sale of Anesthesia Contract Business
Effective June 1, 1996, and subject to the rescission rights described below,
the Company transferred substantially all of its assets relating to its
anesthesia operations (the "Transaction") to Anesthesia Solutions, Inc. ("ASI").
The Transaction will be rescinded if the requisite shareholder approval of the
Transaction is not received by October 1, 1996. The assets to be sold in the
Transaction include all of the Company's anesthesia contracts, physician and
nurse contracts, office furniture and computer equipment used in the contract
anesthesia business. The anesthesia contract business accounted for
approximately 95% of the Company's revenue in fiscal years 1995, 1994 and 1993
and approximately 92% in the first quarter of 1996. The assets to be sold
primarily consists of contracts and are recorded in the Company's financial
statements at nominal amounts as of December 31, 1995.
The consideration received in the Transaction was a Promissory Note, dated June
1, 1996, (the "Note") by ASI in favor of the Company, in original principal
amount of $16.0 million, with interest equal to 9% per year. The Note will be
reduced by certain liabilities assumed by ASI totaling approximately $12
million. The Agreement requires interest only payments on the Note to be made
for the first six months commencing July 1, 1996, and monthly principal payments
of $500,000 starting January 1, 1997, increasing to $1,500,000 on July 1, 1997,
until the Note is paid in full. The Note is secured by 2,750,000 shares of
EquiMed, Inc., $.0001 par value, common stock. An additional sale premium of up
to $9 million will be paid by ASI if the provisions of an earn-out agreement are
realized by ASI within twelve months. It cannot be assured that the benefits of
the earn-out agreement will be met.
Since June 1, 1996 the anesthesia contract business has been operated by ASI and
the assets of the anesthesia contract business have been transferred to ASI. Due
to the timing of the Transaction and the prerequisite shareholder approval, the
Company has reflected the operations of the anesthesia contract business for the
month of June 30, 1996, in the accompanying Consolidated Condensed Statements of
Operations. The financial position of the Company, reflected in the accompanying
Balance Sheets, includes the assets and liabilities of the anesthesia contract
business at June 30, 1996. The Company will continue to report the operations
and financial positions of the anesthesia contract business until the Company
has obtain shareholder approval of the Transaction.
61
<PAGE>
In accordance with the Agreement, the Transaction must be approved by the
Company's shareholders by October 1, 1996. The Company expects to hold its
annual meeting on September 20, 1996, at which the shareholders will vote on the
Transaction. There is no assurance that the shareholders will vote in favor of
the Transaction. If the Transaction is not approved by the shareholders, the
Transaction will be rescinded and the Company will pay ASI, or ASI will pay the
Company, as the case may be, an amount necessary to place the respective parties
in their financial positions at May 31, 1996, as if the Agreement had not been
consummated on June 1, 1996.
In June 1996, the Company was reimbursed approximately $1.6 million by ASI for
certain liabilities assumed by ASI pursuant to the Transaction. The Company has
classified this in current liabilities in "Short-term borrowings and current
portion of long-term obligations."
62
<PAGE>
[FILED ELECTRONICALLY AS APPENDIX TO PROXY STATEMENT]
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF ALLEGIANT PHYSICIAN SERVICES, INC.
The undersigned shareholder(s) of Allegiant Physician Services, Inc., a
Delaware corporation ("Allegiant"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated September 3,
1996, and hereby appoints Richard L. Jackson and Timothy L. Powers, or either of
them, proxies and attorneys-in-fact, with full power of substitution, on behalf
and in the name of the undersigned, to represent the undersigned at the 1996
Annual Meeting of Stockholders of Allegiant to be held on September 25, 1996, at
8:00 a.m., Local Time, at Ashford Club, 400 Perimeter Center Terrace, Atlanta,
Georgia 30350, and at any adjournment(s) thereof, and to vote all shares of
Allegiant Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matter set forth below:
(1)To elect the nominees listed below to serve as directors of Allegiant
for the ensuing year:
Richard L. Jackson, W. Daniel Barber, Paul S. Ellison, William H.
Franklin, Jr., Kenneth J. O'Donnell and Harrison L. Rogers.
[ ] FOR all nominees listed above, [ ] WITHHOLD authority to vote for all
except as indicated below
Instruction: To withhold authority for any individual nominee, mark "FOR"
above, and write the name of the nominees as to whom you wish to withhold
authority in the space below:
- --------------------------------------------------------------------------------
(2)To ratify the appointment of Ernst & Young LLP, as independent public
accountants of Allegiant and its subsidiaries for the year 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3)To approve the sale of substantially all of the assets of Allegiant to
Anesthesia Solutions, Inc., a Delaware corporation, pursuant to the terms of an
Asset Purchase Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued on reverse side)
