<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
AMERICAN MEDICAL RESPONSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 8099 04-3147881
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
2821 SOUTH PARKER ROAD, 10TH FLOOR, AURORA, COLORADO 80014, (303) 614-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAUL T. SHIRLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2821 SOUTH PARKER ROAD, 10TH FLOOR, AURORA, COLORADO 80014, (303) 614-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
KEITH F. HIGGINS, ESQ. CARMELO M. GORDIAN, ESQ.
ROPES & GRAY RONALD G. SKLOSS, ESQ.
ONE INTERNATIONAL PLACE BROBECK, PHLEGER & HARRISON LLP
BOSTON, MASSACHUSETTS 02110 301 CONGRESS AVENUE, SUITE 1200
(617) 951-7000 AUSTIN, TEXAS 78701
(512) 477-5495
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: At the effective time of the merger of a wholly-owned subsidiary of
the Registrant with and into STAT Healthcare, Inc., which shall occur as soon
as practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all conditions to closing of such merger as
described in the enclosed Proxy Statement/Prospectus.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) FEE(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3,975,003
Common Stock, $.01 par value......... shares $30.00 $119,250,097.50 $36,139.67
</TABLE>
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- -------------------------------------------------------------------------------
(1) Represents the maximum number of shares of Common Stock, $0.01 par value,
which the Registrant would issue, (i) in exchange for 14,975,412 shares of
Common Stock, $0.01 par value of STAT Healthcare, Inc. ("STAT") (ii) in
respect of 138,375 currently exercisable options to purchase shares of
STAT Common Stock and (iii) in respect of 786,226 warrants to purchase
shares of STAT Common Stock, based upon an exchange ratio of 0.25 of a
share of Registrant Common Stock per share of STAT Common Stock.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended (the
"Securities Act"), and based upon the price of the Registrant's Common
Stock on the New York Stock Exchange on October 31, 1996.
(3) A fee of $23,739.67 was previously paid by the Registrant on behalf of
STAT Healthcare, Inc. pursuant to Rule 14a-6 under the Securities Exchange
Act of 1934, as amended, in connection with the filing of the preliminary
Proxy Statement/Prospectus on October 21, 1996. Pursuant to Rule 457(b)
under the Securities Act, such fee is being credited against the
registration fee, and accordingly, an additional $12,400 is being paid in
connection with this Registration Statement.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
LOGO
12450 GREENSPOINT DRIVE
SUITE 1200
HOUSTON, TEXAS 77060
November 6, 1996
STAT Stockholders:
You are cordially invited to attend a Special Meeting of the stockholders
(the "Special Meeting") of STAT Healthcare, Inc. ("STAT") to be held at 9:00
a.m. (local time) on December 10, 1996, at STAT's headquarters, 12450
Greenspoint Drive, Suite 1200, Houston, Texas.
At the Special Meeting, STAT stockholders will be asked to consider and vote
on a proposal to approve and adopt the Agreement and Plan of Merger dated as
of October 7, 1996 (the "Merger Agreement") by and among STAT, American
Medical Response, Inc. ("American") and SHI Acquisition Corp., a wholly-owned
subsidiary of American ("Merger Sub"). Pursuant to the Merger Agreement,
Merger Sub will be merged with and into STAT (the "Merger") and STAT will
become a wholly-owned subsidiary of American. In the Merger, each outstanding
share of STAT will be converted into the right to receive 0.25 of a share of
American common stock. STAT stockholders will receive cash in lieu of any
fractional shares which would otherwise be issued in the Merger.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger and has received the opinion of Pacific Growth
Equities, Inc., STAT's financial advisor, that the exchange ratio of 0.25 is
fair from a financial point of view to holders of STAT common stock. A copy of
that opinion is attached as Annex B to the accompanying Proxy
Statement/Prospectus. THE BOARD OF DIRECTORS OF STAT HAS DETERMINED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF STAT STOCKHOLDERS. ACCORDINGLY,
THE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Proxy Statement/Prospectus for details of the Merger and
additional related information.
Whether or not you expect to attend the Special Meeting, it is important
that your shares be represented. Please complete, sign and date the enclosed
proxy card and return it promptly in the enclosed postage-paid envelope. If
you attend the Special Meeting, you may vote in person if you wish, even
though you previously have returned your proxy card.
Thank you and I look forward to seeing you at the Special Meeting.
Sincerely,
Russell D. Schneider
Chairman of the Board
and Chief Executive Officer
<PAGE>
LOGO
12450 GREENSPOINT DRIVE
SUITE 1200
HOUSTON, TEXAS 77060
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of STAT Healthcare, Inc., a Delaware corporation ("STAT"), will be
held at 9:00 a.m., local time, on December 10, 1996, at STAT's headquarters,
12450 Greenspoint Drive, Suite 1200, Houston, Texas.
The meeting is called for the purpose of considering and voting upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger dated
as of October 7, 1996 (the "Merger Agreement") among American Medical
Response, Inc., a Delaware corporation ("American"), SHI Acquisition
Corp., a wholly-owned subsidiary of American, and STAT. A copy of the
Merger Agreement is attached as Annex A to the Proxy
Statement/Prospectus accompanying this Notice.
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The proposed merger and other related matters are more fully described in
the attached Proxy Statement/Prospectus and the Annexes thereto.
The Board of Directors has fixed the close of business on November 6, 1996
as the record date for the determination of the stockholders entitled to
notice of and to vote at the Special Meeting, or any adjournments or
postponements thereof. Only holders of record of STAT Common Stock on the
record date are entitled to vote at the Special Meeting. A list of such
stockholders will be available at the time and place of the meeting and,
during the ten days prior to the meeting, at the office of the Secretary of
STAT at the above address.
If you would like to attend the meeting and your shares are held by a
broker, bank or other nominee, you must bring to the meeting a recent
brokerage statement or a letter from the nominee confirming your beneficial
ownership of the shares. You must also bring a form of personal
identification. In order to vote your shares at the meeting, you must obtain
from the nominee a proxy issued in your name.
You can ensure that your shares are voted at the meeting by signing and
dating the enclosed proxy and returning it in the envelope provided. Sending
in a signed proxy will not affect your right to attend the meeting and vote in
person. You may revoke your proxy at any time before it is voted by notifying
the Secretary of STAT at the above address in writing, or by executing a
subsequent proxy, which revokes your previously executed proxy.
Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
Ned E. Chapman, Secretary
Houston, Texas
November 6, 1996
<PAGE>
STAT HEALTHCARE, INC.
PROXY STATEMENT
----------------
AMERICAN MEDICAL RESPONSE, INC.
PROSPECTUS
This Proxy Statement and Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of common stock, par value $0.01 per share ("STAT
Common Stock"), of STAT Healthcare, Inc., a Delaware corporation ("STAT"), in
connection with the solicitation of proxies by the Board of Directors of STAT
for use at a Special Meeting of Stockholders of STAT to be held at STAT's
headquarters, 12450 Greenspoint Drive, Suite 1200, Houston, Texas, on December
10, 1996 at 9:00 a.m., local time, and at any and all adjournments or
postponements thereof (the "Special Meeting").
This Proxy Statement/Prospectus also constitutes the Prospectus of American
Medical Response, Inc., a Delaware corporation ("American") with respect to
the issuance of shares of common stock of American, par value $0.01 per share
("American Common Stock"), to be issued to stockholders of STAT, in connection
with the proposed merger (the "Merger") of SHI Acquisition, Inc., a Delaware
corporation and a wholly-owned subsidiary of American ("Merger Sub"), with and
into STAT pursuant to the Agreement and Plan of Merger dated as of October 7,
1996 (the "Merger Agreement") by and among American, Merger Sub and STAT.
American Common Stock is traded on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "EMT." On November 1, 1996, the closing sale price
for American Common Stock as reported in the NYSE Composite Transactions Tape
was $30 1/4 per share.
Based upon the exchange ratio of 0.25 shares of American Common Stock for
each share of STAT Common Stock (the "Exchange Ratio") and the number of
shares of STAT Common Stock and options and warrants to purchase STAT Common
Stock outstanding at November 6, 1996, American would issue approximately
3,975,000 shares of American Common Stock to STAT stockholders in the Merger
if options and warrants to purchase STAT Common Stock that are currently
exercisable are exercised prior to the Effective Time and would assume options
to purchase STAT Common Stock which would be converted into options to
purchase approximately 54,000 shares of American Common Stock.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of STAT on or about November 8, 1996.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY STAT STOCKHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS NOVEMBER 6, 1996.
<PAGE>
Upon consummation of the Merger, STAT will be a wholly-owned subsidiary of
American. Consummation of the Merger is subject to various conditions,
including the approval and adoption of the Merger Agreement by the holders of
a majority of the outstanding shares of STAT Common Stock at the Special
Meeting. Holders of approximately 60% of the STAT Common Stock outstanding as
of the date of the Merger Agreement have agreed to vote in favor of the
approval and adoption of the Merger Agreement and have granted Merger Sub an
irrevocable proxy to vote their shares of STAT Common Stock in accordance
therewith. See "Other Agreements--Stockholder Agreements."
All information contained in this Proxy Statement/Prospectus with respect to
American and Merger Sub has been provided by American. All information
contained in this Proxy Statement/Prospectus with respect to STAT has been
provided by STAT.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise. See "Special Meeting--Record Date" and "--Voting Rights; Proxies."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE
ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR INCORPORATED BY REFERENCE SINCE THE DATE HEREOF.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FORWARD-LOOKING STATEMENTS................................................ 1
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF DOCUMENTS BY REFERENCE................................... 1
SUMMARY................................................................... 3
The Companies........................................................... 3
The Meeting............................................................. 3
Change of Vote.......................................................... 4
The Merger.............................................................. 4
Opinion of Financial Advisor............................................ 7
Interests of Certain Persons in the Merger.............................. 7
Certain Federal Income Tax Consequences................................. 8
Comparative Rights of Stockholders...................................... 8
Comparative Per Share Prices............................................ 8
Selected Historical and Pro Forma Financial Data........................ 9
Unaudited Selected Pro Forma Combined Financial Data.................... 12
Comparative Per Share Data.............................................. 13
RISK FACTORS.............................................................. 14
INTRODUCTION.............................................................. 17
SPECIAL MEETING........................................................... 17
Purpose of the Special Meeting.......................................... 17
Record Date............................................................. 17
Quorum.................................................................. 17
Required Vote........................................................... 17
Voting Rights; Proxies.................................................. 18
Solicitation of Proxies................................................. 18
THE MERGER................................................................ 19
General................................................................. 19
Effective Time.......................................................... 19
Conversion of Shares; Procedures for Exchange of Certificates........... 19
Background of the Merger................................................ 20
Reasons of American for Engaging in the Merger.......................... 22
Recommendation of the Board of Directors of STAT; Reasons for the Merg-
er....................................................................... 22
Opinion of STAT's Financial Advisor..................................... 23
Interests of Certain Persons in the Merger.............................. 27
Certain Federal Income Tax Consequences................................. 29
Anticipated Accounting Treatment........................................ 30
Effect on Stock Options and Warrants.................................... 31
Certain Legal Matters................................................... 31
Federal Securities Law Consequences..................................... 31
Stock Exchange Listing.................................................. 32
Dividends............................................................... 32
Appraisal Rights........................................................ 32
Fees and Expenses....................................................... 32
THE MERGER AGREEMENT...................................................... 33
Terms of the Merger..................................................... 33
Exchange of Certificates................................................ 34
Representations and Warranties.......................................... 35
Conduct of Business Pending the Merger.................................. 36
Additional Agreements................................................... 39
Conditions to the Merger................................................ 41
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Termination............................................................... 44
Amendment and Waiver...................................................... 45
OTHER AGREEMENTS............................................................ 46
Stockholder Agreements.................................................... 46
THE COMPANIES............................................................... 47
American.................................................................. 47
STAT...................................................................... 47
COMPARATIVE PER SHARE PRICES AND DIVIDENDS.................................. 76
American.................................................................. 76
STAT...................................................................... 76
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.................................... 77
DESCRIPTION OF CAPITAL STOCK OF AMERICAN.................................... 85
COMPARATIVE RIGHTS OF STOCKHOLDERS.......................................... 85
Special Meeting of Stockholders........................................... 85
Stockholder Action by Written Consent..................................... 85
Advance Notice of Stockholder Proposals and Board Nominations............. 86
Quorums................................................................... 86
Classification of the Board of Directors.................................. 86
Removal of Directors...................................................... 86
Vacancies on the Board of Directors....................................... 86
Indemnification of Directors, Officers and Others......................... 87
Amendments to Charter..................................................... 87
By-Laws................................................................... 87
Vote Required for Mergers................................................. 87
OTHER MATTERS............................................................... 88
VALIDITY OF THE SHARES AND TAX MATTERS...................................... 88
EXPERTS..................................................................... 88
STOCKHOLDER PROPOSALS....................................................... 89
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF STAT.......................... F-1
Annexes:
A. Agreement and Plan of Merger
B. Opinion of STAT's Financial Advisor, Pacific Growth Equities, Inc.
</TABLE>
ii
<PAGE>
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes and incorporates by reference
forward-looking statements based on current plans and expectations of American
Medical Response, Inc. and STAT Healthcare, Inc. Such statements relate to,
among other matters, analyses, including an opinion from financial advisors to
STAT Healthcare, Inc.'s Board of Directors as to the fairness from a financial
point of view of the exchange ratio in the Merger, based upon forecasts of
future results, and estimates of amounts that are not yet determinable. Such
forward-looking statements are contained in the sections entitled "Summary,"
"Risk Factors," "The Merger," "The Companies" and other sections of this Proxy
Statement/Prospectus. Such statements involve risks and uncertainties which
may cause actual future activities and results of operations to be materially
different from that suggested in this Proxy Statement/Prospectus, including
among others, risks associated with the integration of acquisitions by
American Medical Response, Inc., fluctuations in American Medical Response,
Inc. operating results because of the acquisitions and variations in stock
prices, changes in reimbursement practices or rates or in applicable
government regulations, as well as other factors described elsewhere in this
Proxy Statement/Prospectus.
AVAILABLE INFORMATION
American and STAT are subject to the informational 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 filed may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and may be
available at the following Regional Offices of the Commission: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Each of
American and STAT makes filings of reports, proxy statements and other
information pursuant to the Exchange Act with the Commission electronically,
and such materials may be inspected and copied at the Commission's Web site
(http://www.sec.gov). In addition, material filed by American can be inspected
at the offices of the NYSE, 20 Broad Street, New York, New York 10005, on
which the shares of American Common Stock are listed.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement on Form S-4 and exhibits relating thereto,
including any amendments (the "Registration Statement"), of which this Proxy
Statement/Prospectus is a part, and which American has filed with the
Commission under the Securities Act of 1933, as amended (the "Securities
Act"). Reference is made to such Registration Statement for further
information with respect to American and the securities of American offered
hereby. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document filed with
the Commission or attached as an annex hereto.
INCORPORATION OF DOCUMENTS BY REFERENCE
American hereby incorporates by reference into this Proxy
Statement/Prospectus the following documents previously filed with the
Commission pursuant to the Exchange Act:
1.American's Current Report on Form 8-K filed on January 16, 1996;
2.American's Current Report on Form 8-K filed on October 11, 1996;
3.American's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996 and June 30, 1996, as amended by American's Quarterly Report on
Form 10-Q/A for the quarter ended June 30, 1996;
4.American's Annual Report on Form 10-K for the fiscal year ended December
31, 1995; and
5. The description of American Common Stock in American's Registration
Statement on Form 8-A (no. 1-11196), as amended.
1
<PAGE>
In addition, all reports and other documents filed by American pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
reports and documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement/Prospectus
to the extent that a statement contained herein (or in the case of any
statement in such an incorporated document), or in any other subsequently
filed document that also is incorporated or deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY ANY
PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, INCLUDING ANY
BENEFICIAL OWNER, TO: AMERICAN MEDICAL RESPONSE, INC., 2821 SOUTH PARKER ROAD,
10TH FLOOR, AURORA, COLORADO 80014 ATTENTION: ANNA MARIE DUNLAP, VICE
PRESIDENT, INVESTOR RELATIONS, (TELEPHONE NO.: (303) 614-8570). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE
DECEMBER 3, 1996.
2
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and the Annexes hereto. This summary does
not contain a complete statement of all material information relating to the
Merger Agreement and the Merger and is subject to, and is qualified in its
entirety by, the more detailed information and financial statements contained
or incorporated by reference in this Proxy Statement/Prospectus. Stockholders
of STAT should read carefully this Proxy Statement/Prospectus in its entirety.
Certain capitalized terms used in this summary are defined elsewhere in this
Proxy Statement/Prospectus.
THE COMPANIES
AMERICAN MEDICAL RESPONSE, INC.
American is the leading provider of emergency and non-emergency ambulance
services in the United States. American provides pre-hospital emergency medical
care and ambulance services to patients in response to "911" emergency medical
calls. Additionally, American provides non-emergency ambulance services to
patients during transfer to and from healthcare facilities and residences and
non-medical transport services to the physically challenged and the elderly.
American completed approximately 1,710,000 transports in response to calls for
its services during 1995, expects to complete approximately 2,600,000
transports in response to calls for its services during 1996, and currently
provides ambulance services in 28 states.
The executive offices of American are located at 2821 South Parker Road,
Aurora, Colorado 80014, and its telephone number is (303) 614-8500.
STAT HEALTHCARE, INC.
STAT provides a continuum of disease management services primarily to
diabetic patients with complications such as end-stage renal disease ("ESRD" or
"chronic kidney failure") and non-healing wounds. STAT also provides physician
practice management services to affiliated physician groups which staff
hospital emergency departments. As of October 1, 1996, STAT operated five
kidney dialysis facilities, managed two hyperbaric oxygen ("HBO") therapy
facilities and had entered into contracts to manage three additional HBO
therapy facilities commencing in October 1996, and provided home healthcare
management and related ancillary services primarily in the Rio Grande Valley of
south Texas. As of October 1, 1996, STAT, through its affiliated physician
groups, also provided physician practice management services to 24 hospital
emergency departments, 17 of which are in the Houston greater metropolitan
area.
The executive offices of STAT are located at 12450 Greenspoint Drive, Suite
1200, Houston, Texas 77060, and its telephone number is (713) 872-6900.
THE MEETING
TIME, PLACE AND DATE
The Special Meeting of STAT's stockholders will be held at STAT's
headquarters, 12450 Greenspoint Drive, Suite 1200, Houston, Texas on December
10, 1996, at 9:00 a.m., local time (including any and all adjournments or
postponements thereof, the "Special Meeting").
3
<PAGE>
PURPOSE OF THE MEETING
At the Special Meeting, holders of STAT Common Stock will consider and vote
upon a proposal (the "Merger Proposal") to approve and adopt the Merger
Agreement providing for the merger of Merger Sub with and into STAT. Holders of
STAT Common Stock will also transact such other business as may properly come
before the Special Meeting.
THE BOARD OF DIRECTORS OF STAT HAS APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT STAT STOCKHOLDERS VOTE FOR THE MERGER PROPOSAL.
SEE "THE MERGER--BACKGROUND OF THE MERGER," "--RECOMMENDATION OF THE BOARD OF
DIRECTORS OF STAT; REASONS FOR THE MERGER" AND "--INTERESTS OF CERTAIN PERSONS
IN THE MERGER."
VOTES REQUIRED; RECORD DATE
The Merger Proposal will require approval and adoption of the Merger
Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of STAT Common Stock. Holders of STAT Common Stock are
entitled to one vote per share. Only holders of STAT Common Stock at the close
of business on November 6, 1996 (the "Record Date") will be entitled to notice
of and to vote at the Special Meeting. See "Special Meeting."
Holders of approximately 60% of the STAT Common Stock outstanding as of the
date of the Merger Agreement entered into stockholder agreements with American
pursuant to which such holders agreed, among other things, to vote in favor of
the Merger Agreement and have granted Merger Sub an irrevocable proxy to vote
their shares of STAT Common Stock in accordance therewith. See "Other
Agreements--Stockholder Agreements."
CHANGE OF VOTE
STAT stockholders who have executed a proxy may revoke the proxy at any time
prior to its exercise at the Special Meeting by giving written notice to the
Secretary of STAT at STAT's headquarters, 12450 Greenspoint Drive, Suite 1200,
Houston, Texas 77060, by signing and returning a later dated proxy or by voting
in person at the Special Meeting. ACCORDINGLY, STOCKHOLDERS OF STAT WHO HAVE
EXECUTED AND RETURNED PROXY CARDS IN ADVANCE OF THE SPECIAL MEETING MAY CHANGE
THEIR VOTE AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING.
THE MERGER
THE MERGER
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
STAT and STAT will become a wholly-owned subsidiary of American.
4
<PAGE>
MERGER CONSIDERATION
Pursuant to the Merger, each outstanding share of STAT Common Stock (other
than shares owned by STAT as treasury stock or by its subsidiaries or by
American or its subsidiaries, all of which shall be canceled) will be converted
into the right to receive 0.25 of a share of American Common Stock. See "The
Merger Agreement-- Terms of the Merger."
EXCHANGE OF CERTIFICATES
As soon as practicable after the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware (the time of such filing being the
"Effective Time"), The First National Bank of Boston, c/o Boston EquiServe, or
another person designated by American in its capacity as exchange agent for the
Merger (the "Exchange Agent"), will send a transmittal letter to each STAT
stockholder. The transmittal letter will contain instructions with respect to
the surrender of certificates representing STAT Common Stock to be exchanged
for American Common Stock. See "The Merger Agreement--Exchange of
Certificates."
STAT STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR STAT COMMON STOCK TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. STAT
STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
CONDITIONS TO THE MERGER; TERMINATION; FEES
The obligations of American, Merger Sub and STAT to consummate the Merger are
subject to various conditions, including but not limited to: (i) the
effectiveness of the Registration Statement; (ii) obtaining requisite approval
of the stockholders of STAT; (iii) approval for listing on the NYSE, subject to
official notice of issuance, of the American Common Stock to be issued in
connection with the Merger; (iv) the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; (v) the absence of any
preliminary or permanent injunction or other order by any court preventing the
consummation of the Merger; (vi) receipt of opinions of counsel to American and
of KPMG Peat Marwick LLP, independent certified public accountants of STAT and
American, as to the tax treatment of the Merger; and (vii) receipt of an
opinion of KPMG Peat Marwick LLP to the effect that the Merger qualifies for
"pooling of interests" accounting treatment. See "The Merger Agreement--
Conditions to the Merger."
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of STAT: (i) by mutual written consent of
the Boards of Directors of American and STAT; (ii) by American or STAT, if the
Merger shall not have been consummated by March 31, 1997 (provided that such
right to terminate shall not be available to any party whose obligation to
fulfill any obligation under the Merger Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); (iii)
by American or STAT, if a court or other governmental authority shall have
issued a nonappealable final order permanently enjoining or otherwise
prohibiting the Merger (provided that such right to terminate the Merger
Agreement shall not be available to any party who has not complied with its
obligations under the Merger Agreement and such noncompliance materially
contributed to the issuance of such order); (iv) by American, if the requisite
vote of the stockholders of STAT shall not have been obtained by March 31,
1997; (v) by American or STAT, if the Board of Directors of STAT withdraws,
modifies or changes its approval of the Merger Agreement or the Merger in a
manner adverse to American; (vi) by American or STAT, if after receipt by STAT
of an Acquisition Proposal (as defined in the Merger Agreement), American
requests in writing that the Board of Directors of STAT reconfirm its
recommendation of the Merger Agreement and the Board of Directors of STAT fails
to do so within ten business days; (vii) by American or STAT, if the Board of
Directors of STAT recommends to the stockholders of STAT an Alternative
Transaction (as defined in "The Merger Agreement--Termination") or recommends
that the stockholders of STAT tender their shares in a tender or exchange offer
by a person other than American for 25% or more of the outstanding STAT Common
Stock; (viii) by American or STAT if (1) any representation or
5
<PAGE>
warranty of STAT or American, respectively, set forth in the Merger Agreement
shall be untrue when made, or (2) upon a breach of any covenant or agreement on
the part of STAT or American, respectively, set forth in the Merger Agreement
and, in the case of any such breach that is curable, if such breach shall not
have been cured within ten days after the nonbreaching party gives the
breaching party written notice of such breach, in each case such that the
corresponding conditions set forth in the Merger Agreement would not be
satisfied (either (1) or (2) above being a "Terminating Breach"), provided,
that, if such Terminating Breach is curable prior to March 31, 1997 by STAT or
American, as the case may be, through the exercise of its reasonable best
efforts and for so long as STAT or American, as the case may be, continues to
exercise such reasonable best efforts, neither American nor STAT, respectively,
may terminate the Merger Agreement under this section; or (ix) by American, if
any representation or warranty of STAT shall have become untrue such that the
corresponding condition set forth in the Merger Agreement would not be
satisfied, or by STAT, if any representation or warranty of American shall have
become untrue such that the corresponding condition in the Merger Agreement
would not be satisfied, in either case other than by reason of a Terminating
Breach. See "The Merger Agreement--Termination--Conditions to Termination."
STAT will pay American a fee of $4.5 million plus reasonable, documented out-
of-pocket expenses of up to $500,000, if the Merger Agreement is terminated:
(i) by American, because of the failure to obtain the requisite vote for
approval of the Merger Agreement by the stockholders of STAT by March 31, 1997,
if a proposal for an Alternative Transaction is made prior to the date of the
Special Meeting; (ii) by American or STAT, because the STAT Board of Directors
withdraws, modifies or changes its approval of the Merger Agreement or the
Merger in a manner adverse to American; (iii) by American or STAT, if after
receipt by STAT of an Acquisition Proposal, American requests in writing that
the Board of Directors of STAT reconfirm its recommendation of the Merger
Agreement and the Board of Directors of STAT fails to do so within ten business
days; (iv) by American or STAT, because the STAT Board of Directors recommends
to the stockholders of STAT an Alternative Transaction or recommends that the
stockholders of STAT tender their shares in a tender or exchange offer, as set
forth above; (v) by American, because any representation or warranty of STAT
set forth in the Merger Agreement shall be untrue when made or upon a breach on
the part of STAT of any covenant or agreement set forth in the Merger Agreement
(and, in the case of any such breach that is curable, if such breach shall not
have been cured within ten days after American gives STAT written notice of
such breach), in each case such that the conditions to closing the Merger set
forth in the Merger Agreement as to the accuracy of STAT's representations and
warranties and the performance of STAT's agreements and covenants required to
be performed prior to the Effective Time would not be satisfied, unless such
breach is curable prior to March 31, 1997 through the exercise of STAT's
reasonable best efforts and STAT continues to exercise such reasonable best
efforts. See "The Merger Agreement--Termination--Fees and Expenses."
American will pay STAT a fee of $4.5 million plus reasonable, documented out-
of-pocket expenses of up to $500,000, if the Merger is terminated by STAT
because any representation or warranty of American shall have been untrue when
made or upon a breach on the part of American of any covenant or agreement set
forth in the Merger Agreement (and, in the case of any such breach that is
curable, if such breach shall not have been cured within ten days after STAT
gives American written notice of such breach), in each case such that the
conditions to closing the Merger set forth in the Merger Agreement as to the
accuracy of American's representations and warranties and the performance of
American's agreement and covenants required to be performed prior to the
Effective Time would not be satisfied, unless such breach is curable prior to
March 31, 1997 through the exercise of American's reasonable best efforts and
American continues to exercise such reasonable best efforts.
LISTING
It is a condition to the Merger that the shares of American Common Stock to
be issued in the Merger be authorized for listing on the NYSE, subject to
official notice of issuance.
6
<PAGE>
DIVIDENDS
Under the terms of the Merger Agreement, STAT is not permitted to declare,
set aside, make or pay any dividend or other distribution in respect of its
capital stock from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement and the Effective Time, without the prior
written consent of American. In addition, pursuant to the Merger Agreement,
American is not permitted to declare, set aside, make or pay any dividend or
other distribution in respect of its capital stock, from the date of the Merger
Agreement until the earlier of the termination of the Merger Agreement and the
Effective Time, without the prior written consent of STAT.
APPRAISAL RIGHTS
Under the General Corporation Law of the State of Delaware (the "DGCL"), the
holders of STAT Common Stock are not entitled to any appraisal rights with
respect to the Merger. See "The Merger--Appraisal Rights."
GOVERNMENTAL APPROVALS REQUIRED
Prior to consummating the Merger, American, STAT and certain STAT
stockholders must file notifications under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR Act"). See "The Merger--Certain
Legal Matters."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. The receipt of a letter from KPMG Peat
Marwick LLP, independent certified public accountants of American and STAT,
confirming that the Merger will qualify for "pooling of interests" accounting
treatment, is a condition to consummation of the Merger.
OPINION OF FINANCIAL ADVISOR
Pacific Growth Equities, Inc. ("Pacific Growth Equities") delivered its
written opinion dated October 7, 1996 to the Board of Directors of STAT that,
as of such date, the Exchange Ratio was fair, from a financial point of view,
to the holders of STAT Common Stock. For information on the assumptions made,
matters considered and limits of the review undertaken by Pacific Growth
Equities, see "The Merger--Opinion of STAT's Financial Advisor." STOCKHOLDERS
ARE URGED TO READ IN ITS ENTIRETY THE OPINION OF PACIFIC GROWTH EQUITIES
ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement provides for certain arrangements with respect to
employment agreements with certain STAT directors and officers and
indemnification and insurance arrangements for STAT directors and officers.
Upon consummation of the Merger, pursuant to the Merger Agreement, Russell D.
Schneider, who is currently the Chairman of the Board and Chief Executive
Officer of STAT, will be appointed to the Board of Directors of American by the
directors of American. Upon consummation of the Merger, based on the number of
outstanding shares of American Common Stock and STAT Common Stock as of
November 1, 1996, directors and executive officers of STAT will own
approximately 9.9% of the outstanding shares of American Common Stock. David C.
Colby, who is a director of STAT, is also a director and an executive officer
of American. In addition, at the Effective Time, STAT's right under its stock
plan to repurchase shares of STAT Common Stock issued upon exercise of options
held by David C. Colby and by Ann N. James, Ph.D., also a director of STAT, in
each case, to purchase 20,000 shares of STAT Common Stock at an exercise price
of $7.75 per share will terminate. See "The Merger--Interests of Certain
Persons in the Merger."
7
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is expected that the Merger will constitute a reorganization for federal
income tax purposes and, accordingly, that no gain or loss will be recognized
for federal income tax purposes by holders of STAT Common Stock upon the
conversion of STAT Common Stock into American Common Stock in the Merger
(except with respect to any cash received in lieu of a fractional share
interest in American Common Stock). The obligation of American and Merger Sub
to consummate the Merger is conditioned on the receipt by American of an
opinion of Ropes & Gray, its counsel, and the obligation of STAT to consummate
the Merger is conditioned on the receipt by STAT of an opinion of KPMG Peat
Marwick LLP, independent certified public accountants of STAT and American, in
each case to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended.
See "The Merger--Certain Federal Income Tax Consequences." STAT stockholders
are urged to consult their own tax advisors as to the specific tax consequences
to them of the Merger.
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of stockholders of STAT currently are governed by Delaware law,
STAT's Certificate of Incorporation and STAT's By-Laws. Upon consummation of
the Merger, stockholders of STAT will become stockholders of American, which is
also a Delaware corporation, and their rights as stockholders of American will
be governed by Delaware law, American's Certificate of Incorporation and
American's By-Laws. For a discussion of various differences between the rights
of stockholders of STAT and the rights of stockholders of American, see
"Description of Capital Stock of American" and "Comparative Rights of
Stockholders."
COMPARATIVE PER SHARE PRICES
The American Common Stock is traded on the NYSE under the symbol "EMT." The
STAT Common Stock is traded on the Nasdaq National Market under the symbol
"STHC." The high and low sales price for STAT Common Stock on October 7, 1996,
the last full trading day before the execution of the Merger Agreement and the
announcement of the Merger, were $8.375 and $7.625, respectively. The following
table sets forth the closing price per share of the American Common Stock as
reported in the NYSE Composite Transactions Tape and the closing price per
share of the STAT Common Stock as reported by the Nasdaq National Market on
October 7, 1996, the last full trading day before the execution of the Merger
Agreement and the announcement of the Merger, and on November 1, 1996, the most
recent date for which prices were available prior to printing this Proxy
Statement/Prospectus, and the equivalent pro forma per share value of STAT
Common Stock based on American Common Stock prices.
<TABLE>
<CAPTION>
AMERICAN STAT STAT
COMMON STOCK COMMON STOCK PRO FORMA
PRICE PRICE EQUIVALENT (1)
------------ ------------ --------------
<S> <C> <C> <C>
October 7, 1996........................ $37 1/2 $8 3/8 $9 3/8
November 1, 1996....................... 30 1/4 7 3/8 7 9/16
</TABLE>
- --------
(1) Represents the equivalent pro forma value of one share of STAT Common
Stock calculated by multiplying the closing price of one share of American
Common Stock on the dates listed above by the Exchange Ratio.
See "Comparative Per Share Prices and Dividends."
8
<PAGE>
SELECTED HISTORICAL AND
PRO FORMA FINANCIAL DATA
The following selected historical financial data of American and STAT have
been derived from their respective historical audited and unaudited
consolidated financial statements. The selected historical data of American
should be read in conjunction with American's consolidated financial statements
and the notes thereto that are incorporated herein by reference. The selected
historical data of STAT should be read in conjunction with STAT's Consolidated
Financial Statements and Notes thereto and "The Companies--STAT--Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
The selected historical financial data of American for all periods includes
the consolidated results of the four ambulance service providers acquired by
American concurrent with its initial public offering in August 1992 and the
three ambulance providers acquired by American in June 1993, February 1994, and
February 1995 in transactions accounted for as poolings of interests. The
historical data for the ambulance service providers acquired by American
through June 30, 1996 and accounted for as purchases are included from their
respective dates of acquisition.
The selected historical financial data of STAT for all periods presented
includes STAT's affiliated physician groups, South Texas Acute Trauma
Physicians, P.A. ("STAT Physicians I") and STAT Physicians, P.A. ("STAT
Physicians II"), and AmHealth Corporation and certain related entities which
were acquired by STAT in June 1996 in a transaction accounted for as a pooling
of interests.
The selected historical financial data of American and STAT as of June 30,
1996 and for the six months ended June 30, 1996 and 1995 have been derived from
unaudited consolidated financial statements. Such unaudited data reflects all
adjustments (consisting only of normal, recurring adjustments) necessary for
the fair presentation of the financial condition as of that date and the
results of operations for those unaudited interim periods for each of American
and STAT. The results of operations for those interim periods are not
necessarily indicative of the results to be expected for any other period.
The unaudited selected pro forma combined financial data give effect to the
merger of American and STAT as if the transaction was accounted for as a
pooling of interests and occurred, for balance sheet purposes, on June 30, 1996
and, for statements of earnings purposes, on January 1, 1993. The pro forma
information is not necessarily indicative of the results that would have been
reported had such events actually occurred on the date specified, nor is it
indicative of American's future results. It does not include any one-time,
nonrecurring Merger-related costs, nor does it incorporate any benefits from
any potential cost savings or synergies following the Merger.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AMERICAN
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -----------------
1995 1994 1993 1992 1991 1996 1995
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENTS
OF EARNINGS DATA :
Total revenue...................... $483,846 $327,364 $217,883 $147,052 $131,504 $322,595 $220,567
Operating expenses:
Salaries and benefits............. 245,142 168,474 110,298 76,631 65,781 161,349 112,491
Uncompensated care................ 92,345 64,217 44,656 30,477 27,723 61,573 42,585
Other operating expenses.......... 77,875 52,278 36,211 24,046 22,001 51,077 35,573
Depreciation...................... 15,671 10,594 6,805 4,610 3,943 10,707 7,023
Amortization of intangibles....... 5,288 2,741 1,664 671 1,059 4,585 1,939
Restructuring charge.............. 23,000 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.......... 459,321 298,304 199,634 136,435 120,507 289,291 199,611
-------- -------- -------- -------- -------- -------- --------
Earnings from operations.......... 24,525 29,060 18,249 10,617 10,997 33,304 20,956
Interest expense, net.............. 3,222 1,592 959 923 1,376 4,669 1,432
-------- -------- -------- -------- -------- -------- --------
Earnings before income taxes...... 21,303 27,468 17,290 9,694 9,621 28,635 19,524
Income taxes....................... 10,866 11,644 7,489 4,340 4,025 12,828 9,196
-------- -------- -------- -------- -------- -------- --------
Net earnings...................... $ 10,437 $ 15,824 $ 9,801 $ 5,354 $ 5,596 $ 15,807 $ 10,328
======== ======== ======== ======== ======== ======== ========
Pro forma net earnings (1)........ $ 10,950 $ 16,103 $ 10,463 $ 6,103 $ 5,447 $ 15,807 $ 10,841
======== ======== ======== ======== ======== ======== ========
Pro forma net earnings per common
share:
Primary........................... $ 0.60 $ 1.06 $ 0.80 $ 0.60 $ 0.58 $ 0.78 $ 0.65
======== ======== ======== ======== ======== ======== ========
Fully diluted..................... $ 0.60 $ 1.06 $ 0.80 $ 0.60 $ 0.58 $ 0.77 $ 0.65
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding:
Primary........................... 18,126 15,181 13,009 10,243 9,367 20,186 16,674
======== ======== ======== ======== ======== ======== ========
Fully Diluted..................... 18,126 15,181 13,009 10,243 9,367 22,933 16,674
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
JUNE 30,
1995 1994 1993 1992 1991 1996
------- -------- -------- ------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Working capital............................ 32,181 $ 29,457 $ 53,027 $28,027 12,115 $ 64,057
Property and equipment, net................ 64,669 39,361 22,340 13,763 12,488 70,602
Total assets............................... 476,381 236,859 140,830 79,585 48,360 555,126
Current maturities of debt................. 13,919 8,166 4,190 7,091 6,527 19,841
Long-term debt............................. 101,660 42,890 3,095 9,076 9,419 151,869
Stockholders' equity....................... 249,564 130,732 106,914 40,731 16,409 274,863
</TABLE>
- --------
(1) Certain adjustments have been made for salaries and benefits and income
taxes related to companies that were S corporations for federal income tax
purposes prior to their acquisition by American.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STAT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1995 1994(1) 1993(2) 1996 1995
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENTS OF
EARNINGS DATA:
Net service revenues.................. $23,141 $14,521 $10,043 $16,663 $10,375
------- ------- ------- ------- -------
Operating expenses:
Professional medical fees............ 9,241 7,714 6,823 6,695 4,548
Human resources...................... 4,640 1,949 1,107 3,516 1,625
Supplies............................. 1,818 1,143 375 1,136 822
Billing and collection costs......... 1,461 795 304 996 697
Other costs.......................... 2,215 1,440 784 1,437 899
------- ------- ------- ------- -------
Total operating expenses........... 19,375 13,041 9,393 13,780 8,591
------- ------- ------- ------- -------
Operating income...................... 3,766 1,480 650 2,883 1,784
Interest and other (income) expense,
net.................................. 121 5 33 133 29
Reorganization costs.................. -- -- -- 1,269 --
------- ------- ------- ------- -------
Income before income taxes............ 3,645 1,475 617 1,481 1,755
Income taxes.......................... 347 65 -- (44) 181
------- ------- ------- ------- -------
Net income............................ $ 3,298 $ 1,410 $ 617 $ 1,525 $ 1,574
======= ======= ======= ======= =======
Pro forma net income(3).............. $ 2,406 $ 974 $ 407 948 $ 1,158
======= ======= ======= ======= =======
Pro forma net income per common
share............................... $ 0.20 $ 0.11 $ 0.05 $ 0.06 $ 0.13
======= ======= ======= ======= =======
Number of shares used in computing
pro forma net income per share...... 11,897 8,545 7,458 15,320 9,078
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1994 1993 1996
------- ------ ----- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Working capital.......................... $ 5,618 $1,215 $ 197 $4,189
Total assets............................. 10,575 4,824 1,143 13,759
Long-term debt and capital lease
obligations, less current portion....... 1,640 1,194 330 2,282
Total liabilities........................ 4,203 3,045 697 7,099
Stockholders' equity..................... 6,372 1,779 446 6,660
</TABLE>
- --------
(1) Represents consolidated financial data for STAT for the year ended December
31, 1994 combined with financial data for STAT Physicians I for the eight
months ended August 31, 1994.
(2) Represents consolidated financial data for STAT combined with financial
data for STAT Physicians I.
(3) Certain adjustments have been made for income taxes related to companies
that were partnerships or S corporations for federal income tax purposes
prior to their acquisition by STAT.
11
<PAGE>
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1995 1994 1993 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS
OF EARNINGS DATA (1):
Total revenue........................ $513,648 $344,638 $228,631 $345,858 $233,704
Operating expenses:
Salaries and benefits.............. 259,189 178,275 118,181 171,431 118,738
Uncompensated care................. 99,006 66,970 45,361 68,173 45,347
Other operating expenses........... 82,815 55,295 37,640 54,517 37,805
Depreciation....................... 16,059 10,817 6,886 10,965 7,135
Amortization of intangibles........ 5,288 2,741 1,664 4,585 1,939
Restructuring charge and merger
costs............................. 23,000 -- -- 1,269 --
-------- -------- -------- -------- --------
Total operating expenses......... 485,357 314,098 209,732 310,940 210,964
-------- -------- -------- -------- --------
Earnings from operations......... 28,291 30,540 18,899 34,918 22,740
Interest expense, net................ 3,343 1,597 992 4,802 1,461
-------- -------- -------- -------- --------
Earnings before income taxes....... 24,948 28,943 17,907 30,116 21,279
Income taxes......................... 11,213 11,709 7,489 12,784 9,377
-------- -------- -------- -------- --------
Net earnings....................... $ 13,735 $ 17,234 $ 10,418 $ 17,332 $ 11,902
======== ======== ======== ======== ========
Pro forma net earnings............. $ 13,356 $ 17,077 $ 10,870 $ 16,755 $ 11,999
======== ======== ======== ======== ========
Pro forma net earnings per common
share (2):
Primary............................ $ 0.61 $ 0.90 $ 0.65 $ 0.70 $ 0.59
======== ======== ======== ======== ========
Fully Diluted...................... $ 0.61 $ 0.90 $ 0.65 $ 0.70 $ 0.59
======== ======== ======== ======== ========
Weighted average common shares
outstanding (2).....................
Primary............................ 21,870 18,925 16,753 23,930 20,418
======== ======== ======== ======== ========
Fully Diluted...................... 21,870 18,925 16,753 26,677 20,418
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital....................................................... $ 68,246
Property and equipment, net........................................... 73,751
Total assets.......................................................... 568,885
Current maturities of debt............................................ 21,399
Long-term debt........................................................ 154,151
Stockholders' equity.................................................. 281,523
</TABLE>
- --------
(1) The historical consolidated statements of earnings data for STAT have been
reclassified to conform with American's financial statement presentation.
(2) Assumes that 0.25 of a share of American Common Stock was issued in
exchange for each share of STAT Common Stock outstanding.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of American
and STAT and combined per share data on an unaudited pro forma basis after
giving effect to the Merger as if it had occurred on January 1, 1993 on a
pooling-of-interests basis assuming that 0.25 of a share of American Common
Stock was issued in exchange for each share of STAT Common Stock outstanding.
This data should be read in conjunction with the selected historical audited
and unaudited financial data and the historical audited and unaudited financial
statements of American and STAT and the notes thereto that are included
elsewhere in this Proxy Statement/Prospectus or incorporated herein by
reference. The selected pro forma combined financial information of American
and STAT is derived from the unaudited pro forma condensed combined financial
statements and should be read in conjunction with such unaudited pro forma
statements and notes thereto included elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had American and STAT been a single
entity during the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ------------
1995 1994 1993 1996 1995
-------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
AMERICAN(1):
Historical earnings per share........... $ 0.60 $ 1.06 $ 0.80 $ 0.77 $0.65
Pro forma combined earnings per share... $ 0.61 $ 0.90 $ 0.65 $ 0.70 $0.59
Historical book value per share......... $ 12.56 $13.31
Pro forma combined book value per
share.................................. $ 10.84 $11.54
STAT(1):
Historical earnings per share........... $ 0.20 $ 0.11 $ 0.05 $ 0.06 $0.13
Equivalent pro forma earnings per
share(2)............................... $ 0.15 $ 0.23 $ 0.16 $ 0.18 $0.15
Historical book value per share......... $ 0.43 $ 0.45
Equivalent pro forma book value per
share(2)............................... $ 2.71 $ 2.89
</TABLE>
- --------
(1) Neither American nor STAT paid any cash dividends for the periods
presented.
(2) Computed assuming the conversion ratio of 4 shares of STAT Common Stock for
each share of American Common Stock.
13
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT, THE
STOCKHOLDERS OF STAT SHOULD CONSIDER THE FOLLOWING FACTORS, AMONG OTHERS,
WHICH COULD AFFECT THE RESULTS OF AMERICAN.
GROWTH STRATEGY--ACQUISITION OF AMBULANCE PROVIDERS. American's growth
strategy depends in large measure on its ability to acquire additional
ambulance service providers. Competition for the acquisition of ambulance
service providers is increasing as the ambulance service industry continues to
undergo consolidation. Certain of American's existing and potential
competitors have significantly greater capital resources than American.
Although American has acquired numerous ambulance service providers, there can
be no assurance that suitable additional acquisition candidates can be
identified, acquired or successfully integrated into American's operations.
American has used a combination of cash, American Common Stock and
subordinated debt as consideration for past acquisitions and plans to continue
to use these forms of consideration in the future. In the event that the
American Common Stock does not maintain a sufficient valuation or if potential
acquisition candidates are unwilling to accept American's securities as
consideration, American will be required to use more cash resources to
continue its acquisition program. In addition, if sufficient financing is not
available as needed on terms acceptable to American, American's growth
strategy could be adversely affected.
POSSIBLE ADVERSE CHANGES IN REIMBURSEMENT RATES OR COVERAGE. A substantial
majority of American's revenues are attributable to payments received from
third-party payors, including Medicare, Medicaid and private insurers. The
revenues, cash flows and profitability of American, like those of other
companies in the healthcare industry, are affected by the continuing efforts
of third-party payors to control expenditures for healthcare. Medicare and
Medicaid reforms adopted by Congress in 1995 called for a seven-year freeze on
rates for ambulance services. Although these reforms were vetoed by the
President, there exists a potential for a freeze of Medicare reimbursement
rates for ambulance services in the future. Any freeze in Medicare
reimbursement or insufficient increases in rates to compensate for increases
in inflation could have an adverse impact on American's business, financial
condition and results of operation. In addition, Congressional hearings in
December 1994 focused attention on efforts within the Health Care Financing
Administration ("HCFA") to control Medicare expenditures for ambulance
services. The hearings specifically addressed two areas: provision of
ambulance services to and from dialysis facilities and reimbursement at
advanced life support ("ALS") rates for ambulance transports where ALS
services are made available to the patient but not needed at the time the
service is provided. American believes that it is in substantial compliance
with current regulations for reimbursement for ambulances services to and from
dialysis treatment facilities which require documentation of medical necessity
and does not believe that any initiatives in this area would have a material
adverse effect on American. Any initiative to address the ALS reimbursement
issue would affect virtually all providers of emergency ambulance service,
including American. Under current rules, ALS service is reimbursed at ALS
rates if, based on an assessment of the patient's condition, it is determined
that ALS service is medically necessary or if ALS response is required under
"911" contracts or state or local law. Under a new proposal that HCFA is
considering for proposed rule-making in late 1996 or early 1997, an ambulance
provider would only be reimbursed at ALS rates, if ALS services were medically
necessary at the time the service is provided. The proposal HCFA is currently
considering would likely receive substantial opposition from many interested
groups, including public and private ambulance providers, state and local
governments that mandate ALS responses and patient advocacy groups. In
addition, American believes that any change in ALS reimbursement would not
become final prior to the spring of 1997 and, if adopted, would be phased in
or otherwise structured so as to minimize any adverse effect on ambulance
service providers. American could make adjustments to mitigate the effect of
any such HCFA proposal. For example, most of American's 911 contracts provide
for a renegotiation of rates in the event of a change in reimbursement policy.
In addition, American could potentially offset reduced Medicare revenue by
negotiating for increases in local operating subsidies. American could also
attempt to change the staffing of its ambulance crews or negotiate for longer
response times both of which would reduce operating costs. Because of the
preliminary nature of this proposal, American is unable to predict whether
HCFA will adopt the current proposal and is unable to determine the impact of
any proposal adopted by the HCFA. However, if a proposal like the one HCFA is
currently considering were to become law without any phase-in period and if
American were unable to mitigate its effect, it would at least in the short
term have an adverse effect on American's profitability. Reimbursement can
also be influenced by the financial
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instability of private third-party payors and by budget pressures and cost
shifting by governmental payors. A reduction in coverage or reimbursement
rates by third-party payors could have a material adverse effect on American's
business. In addition, some states are considering various healthcare and
insurance reform proposals. No assurance can be given that any such reforms
will not have a material adverse effect on American. In addition, the regional
Medicare carrier in American's Mid-Atlantic Region, which includes
Pennsylvania, New Jersey and Delaware, has recently changed its practice of
reimbursement based on the location of the administrative offices of an
ambulance service provider to the location of the facility where the
transporting ambulance is garaged. This change in reimbursement rates, which
became effective in October of 1996, has and will continue to reduce
American's reimbursement for certain transports in its Mid-Atlantic Region.
American has taken steps to mitigate the effect of this change, including
requesting an increase in the allowable Medicare reimbursement rate through
the inherent reasonableness process, and relocating the location of certain
garage facilities. American is also considering billing services directly to
patients instead of accepting Medicare assignment. If American is unable to
mitigate the effect of this change, such change in reimbursement practice
could have a material adverse effect on American's business, financial
condition and results of operation.
GOVERNMENT REGULATION. Various state and federal laws regulate ambulance
providers, physicians and other clinicians and other providers of healthcare
services. These laws include the fraud and abuse provisions of the Social
Security Act, which prohibit the solicitation, payment, receipt or offering of
any direct or indirect remuneration for the referral of Medicare or Medicaid
patients, or for the ordering or providing of Medicare or Medicaid covered
services, items or equipment. Violations of these laws may result in
substantial civil or criminal penalties for individuals or entities, including
large civil monetary penalties and exclusion from participation in the
Medicare and Medicaid programs. Such exclusion, if applied to American or,
after the Merger, to its affiliated physician groups, could result in
significant loss of reimbursement to American.
COMPETITION. The ambulance service industry is highly competitive. Principal
participants include government entities, large regional ambulance service
providers, hospitals and numerous local providers. In some areas in which
American operates, American has begun to experience intense competition from
fire departments, particularly for emergency services. The entry by local fire
districts into markets for ambulance transport services in areas in which
American operates could have a material adverse effect on American's business,
financial condition and results of operation. Certain existing and potential
competitors of American have significantly greater capital resources than
American. There can be no assurance that municipalities or healthcare
facilities that presently contract for ambulance services will not choose to
provide ambulance services directly in the future.
RISKS OF OPERATIONS AND GROWTH OF STAT BUSINESS. American has not previously
operated an emergency department physician management service business or a
disease management business. Such businesses present risks that are in some
ways different from the risks of operating an ambulance service business,
including the following:
Growth Strategy. Following the consummation of the Merger, American's growth
strategy will depend in part on its ability to develop or acquire dialysis
facilities and to enter into additional hospital-based HBO therapy and
physician practice management contracts, particularly through strategic
relationships with hospital networks. There can be no assurance that American
will be able to develop new dialysis facilities or identify, acquire or
successfully integrate acquired dialysis facilities, or that American will be
able to identify, enter into or successfully integrate additional HBO therapy
or physician practice management contracts. In addition, the regulatory
framework of certain jurisdictions in which STAT does not operate, or changes
in the regulatory framework of the jurisdiction in which STAT currently
operates, may limit American's ability to expand the operations of STAT into,
or its ability to continue STAT's operations within, new and existing
geographical markets if American is unable to modify the operational structure
of STAT to conform with such regulatory framework or such changes.
Corporate Exposure to Professional Liabilities. STAT's affiliated physician
groups and certain physicians who provide services on their behalf may be the
subject of medical malpractice claims with the attendant risk of substantial
damage awards. To the extent that physicians placed by affiliated physician
groups at hospitals are
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regarded as agents of STAT in the practice of medicine, STAT could be held
liable for any medical malpractice claims against such physicians. STAT also
could be found in certain instances to have been negligent in performing its
contract management services for the hospitals even if no agency relationship
between STAT, the affiliated physician groups or such physician exists. In
addition, any liability for malpractice claims incurred by an affiliated
physician group that was not covered by insurance would reduce the earnings of
the affiliated physician group and thereby reduce any management fee based on
net profits payable to STAT. There can be no assurance that any future claim
will not exceed the scope or limits of available insurance coverage maintained
by STAT's affiliated physician groups or by STAT or that such coverage will
continue to be available.
Government Regulation. After the Merger, American's business will be subject
to additional regulation at both the federal and state level applicable to
STAT, including federal laws governing rates paid for reimbursement for
dialysis treatment and restrictions on physician referrals and state law
prohibitions on the corporate practice of medicine. STAT is reimbursed for
dialysis services primarily at fixed rates established under the Medicare ESRD
program. Under this ESRD program, which is administered by HCFA, once a
patient becomes eligible for Medicare reimbursement, Medicare is responsible
for payment of 80% of the composite rate determined by HCFA for dialysis
treatments and a secondary payor (usually Medicare supplemental insurance or
the state Medicaid or ESRD-type program) pays approximately 20% of the
composite rate. There can be no assurance that future legislation or
regulations that may significantly modify the Medicare program or
substantially reduce the amount paid for STAT's services will not be adopted
or that there will be sufficient increases in rates to compensate for future
increases in STAT's operating costs. In addition, federal and state laws also
impose restrictions on referrals by healthcare providers for designated
healthcare services to entities with which they have a financial relationship.
Any future governmental reform that includes additional prohibitions on
ownership, directly or indirectly, of facilities to which they refer patients
could adversely affect the combined businesses, financial condition and
results of operations of American and STAT. After the Merger, STAT will
continue to also be subject to state laws prohibiting physicians from
splitting fees with non-physicians and prohibit non-physician entities from
practicing medicine. Although STAT believes its operations are in material
compliance with existing laws, STAT's operations have not been the subject of
judicial or regulatory interpretation or review, and there can be no assurance
that any such interpretation or review would not adversely affect STAT's
operations.
Integration of AmHealth. In June 1996, STAT acquired AmHealth Corporation
and its related healthcare entities (collectively, "AmHealth") in exchange for
11,200,000 shares of STAT Common Stock. AmHealth operated kidney dialysis
facilities, managed HBO therapy facilities and provided home healthcare
management and related ancillary services primarily in the Rio Grande Valley
of south Texas. STAT did not conduct any such operations prior to June 1996.
The continuing process of integrating the operations of AmHealth into STAT
will require the dedication of STAT's management resources. There can be no
assurance that STAT's management will be able to integrate successfully
AmHealth's operations and oversee the combined entity. Failure to integrate
successfully AmHealth's operation into STAT's operations could have a material
adverse effect on STAT's business, financial condition and results of
operations.
FIXED EXCHANGE RATIO DESPITE POTENTIAL CHANGES IN STOCK PRICES. The Exchange
Ratio is expressed in the Merger Agreement as a fixed ratio. Accordingly, the
Exchange Ratio will not be adjusted in the event of any increase or decrease
in the price of either American Common Stock or STAT Common Stock. The price
of
American Common Stock at the Effective Time may vary from its price at the
date of this Proxy Statement/Prospectus and at the date of the Special
Meeting. Such variations may be the result of changes in the business,
operations or prospects of American or STAT, market assessments of the
likelihood that the Merger will be consummated and the timing thereof,
likelihood of successful integration and operation of the combined entity,
regulatory considerations, general market and economic conditions and other
factors. Because the Effective Time may occur at a date later than the Special
Meeting, there can be no assurance that the price of American Common Stock on
the date of the Special Meeting will be indicative of its price at the
Effective Time. The Effective Time will occur as soon as practicable following
the Special Meeting and the satisfaction or waiver of the other conditions set
forth in the Merger Agreement. Stockholders of STAT are urged to obtain
current
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market quotations for American Common Stock and STAT Common Stock. See "The
Merger Agreement--Terms of the Merger."
NONREALIZATION OF SYNERGIES. The Merger involves the integration of two
companies that have previously operated independently. No assurance can be
given that American will not encounter difficulties in integrating the
respective operations of American and STAT or that the benefits expected from
such integration will be realized. In addition, there can be no assurance that
American will not experience the loss of key STAT personnel. Among the factors
considered by the Boards of Directors of American and STAT in connection with
their respective approval of the Merger Agreement were the opportunities for
synergies that could result from the Merger. Although American expects to
achieve significant annual savings in operating costs as a result of the
Merger, no assurance can be given that such savings will be realized. See "The
Merger--Reasons of American for Engaging in the Merger" and "--Recommendation
of the Board of Directors of STAT; Reasons for the Merger."
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the stockholders of
STAT in connection with the solicitation of proxies by the Board of Directors
of STAT for use at a Special Meeting of Stockholders of STAT to be held at
STAT's headquarters, 12450 Greenspoint Drive, Suite 1200, Houston, Texas on
December 10, 1996, at 9:00 a.m., local time, and at any and all adjournments
or postponements thereof (the "Special Meeting").
This Proxy Statement/Prospectus also constitutes the Prospectus of American
with respect to the issuance of up to 3,975,003 shares of American Common
Stock to be issued to stockholders of STAT in connection with the Merger, as
described below.
SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of STAT Common Stock will consider and vote
upon a proposal to approve and adopt the Merger Agreement. In the Merger, (i)
STAT will become a wholly-owned subsidiary of American and (ii) each
outstanding share of STAT Common Stock (other than shares owned by STAT as
treasury stock or by its subsidiaries or by American or its subsidiaries, all
of which shall be canceled) will be converted into the right to receive 0.25
of a share of American Common Stock.
THE BOARD OF DIRECTORS OF STAT HAS APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT STAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT. SEE "THE MERGER--BACKGROUND OF THE MERGER," "--
RECOMMENDATION OF THE BOARD OF DIRECTORS OF STAT; REASONS FOR THE MERGER"; AND
"--INTERESTS OF CERTAIN PERSONS IN THE MERGER."
RECORD DATE
The STAT Board of Directors has fixed the close of business on November 6,
1996 as the Record Date for determining holders entitled to notice of and to
vote at the Special Meeting.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of STAT Common Stock is
necessary to constitute a quorum at the Special Meeting.
REQUIRED VOTE
The approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of STAT Common Stock.
Abstentions and broker nonvotes will have the effect of votes against approval
of the Merger Agreement. Holders of approximately 60% of the STAT Common Stock
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outstanding as of the date of the Merger Agreement have entered into a
Stockholder Agreement with American pursuant to which such holders have agreed
to vote in favor of the Merger Agreement. See "Other Agreements--Stockholder
Agreements." The directors and officers of STAT and their affiliates own as a
group approximately 65% of the outstanding shares of STAT Common Stock.
VOTING RIGHTS; PROXIES
As of the Record Date, there were 14,975,412 shares of STAT Common Stock
issued and outstanding, each of which entitles the holder thereof to one vote.
All shares of STAT Common Stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH SHARES OF STAT COMMON STOCK WILL BE VOTED IN FAVOR OF APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. STAT does not know of any matters other than
as described in the accompanying Notice of Special Meeting that are to come
before the Special Meeting. If any other matter or matters are properly
presented for action at the Special Meeting, the persons named in the enclosed
form of proxy and acting thereunder will have the discretion to vote on such
matters in accordance with their best judgment, unless such authorization is
withheld. A stockholder giving a proxy pursuant to this proxy solicitation may
revoke it at any time before it is exercised by giving a subsequent proxy,
delivering to the Secretary of STAT a written notice of revocation prior to
the voting of the proxy at the Special Meeting, or attending the Special
Meeting and informing the Secretary of STAT in writing that such stockholder
wishes to vote his or her shares in person. However, mere attendance at the
Special Meeting will not in and of itself have the effect of revoking the
proxy.
Votes cast by proxy or in person at the Special Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether
or not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum and as voted against approval of the Merger Agreement. If
a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
SOLICITATION OF PROXIES
STAT will bear its own cost of solicitation of proxies. Brokerage houses,
fiduciaries, nominees and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of stock held in
their names. Certain directors, officers and employees of STAT may solicit
proxies by telegraph, telephone or in person.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF STAT. ACCORDINGLY, STAT STOCKHOLDERS ARE URGED TO READ
AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE MERGER
This section of the Proxy Statement/Prospectus, as well as the next two
sections of the Proxy Statement/Prospectus entitled "The Merger Agreement" and
"Other Agreements," describe certain aspects of the proposed Merger. To the
extent that it relates to the Merger Agreement, or the other agreements
described under "Other Agreements," the following description does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached as Annex A to this Proxy Statement/Prospectus and
is incorporated herein by reference, and such other agreements, which are
filed as exhibits to the Registration Statement and are incorporated herein by
reference. All stockholders are urged to read the Merger Agreement and such
other agreements in their entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approvals of the STAT stockholders required therefor is obtained and all other
conditions to the Merger are satisfied or waived. Upon consummation of the
Merger, Merger Sub will be merged with and into STAT, and STAT will become a
wholly-owned subsidiary of American. Pursuant to the Merger, each outstanding
share of STAT Common Stock (other than shares owned by STAT as treasury stock
or by its subsidiaries or by American or its subsidiaries, all of which shall
be canceled) will be converted into the right to receive 0.25 of a share of
American Common Stock.
Based upon the outstanding shares of American and STAT as of November 1,
1996 and the Exchange Ratio, the stockholders of STAT immediately prior to the
consummation of the Merger would own approximately 15.1% of the outstanding
American Common Stock following consummation of the Merger. Such percentage
could change depending upon whether shares of American Common Stock and STAT
Common Stock issuable upon exercise of outstanding American and STAT stock
options, warrants and other rights are issued.
EFFECTIVE TIME
Consummation of the Merger will occur upon the filing (the "Effective Time")
of a Certificate of Merger with the Secretary of State of the State of
Delaware (the "Certificate of Merger"). The filing of the Certificate of
Merger will occur as soon as practicable after the satisfaction or waiver of
all conditions to the closing of the transactions contemplated by the Merger
Agreement. The Merger Agreement may be terminated by either party if the
Merger shall not have been consummated on or before March 31, 1997. The Merger
Agreement may also be terminated under certain other circumstances. See "The
Merger Agreement--Conditions to the Merger" and "--Termination."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of STAT Common Stock into the right to receive American
Common Stock at the Exchange Ratio will occur automatically at the Effective
Time.
As soon as practicable after the Effective Time, a transmittal letter will
be mailed by the Exchange Agent to each stockholder of STAT informing such
stockholder of the procedures to follow in forwarding stock certificates
representing STAT Common Stock to the Exchange Agent. Upon receipt of such
STAT stock certificates, the Exchange Agent will deliver full shares of
American Common Stock to such stockholder and cash in lieu of fractional
shares pursuant to the terms of the Merger Agreement and in accordance with
the transmittal letter, together with any dividends or other distributions to
which such stockholder is entitled.
If any issuance of shares of American Common Stock in exchange for shares of
STAT Common Stock is to be made to a person other than the STAT stockholder in
whose name the certificate is registered at the Effective Time, it will be a
condition of such exchange that the certificate so surrendered be properly
endorsed or otherwise in proper form for transfer and that the STAT
stockholder requesting such issuance either pay any transfer or other tax
required or establish to the satisfaction of American that such tax has been
paid or is not payable.
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After the Effective Time, there will be no further transfers of STAT Common
Stock on the stock transfer books of STAT. If a certificate representing STAT
Common Stock is presented for transfer, it will be canceled and a certificate
representing the appropriate number of full shares of American Common Stock
and cash in lieu of fractional shares and any dividends and distributions will
be issued in exchange therefor.
After the Effective Time and until surrendered, shares of STAT Common Stock
will be deemed for all corporate purposes, other than the payment of dividends
and distributions, to evidence ownership of the number of full shares of
American Common Stock into which such shares of STAT Common Stock were
converted on the Effective Time. No dividends or other distributions, if any,
payable to holders of American Common Stock will be paid to the holders of any
certificates for shares of STAT Common Stock until such certificates are
surrendered. Upon surrender of such certificates, all such declared dividends
and distributions which shall have become payable with respect to such
American Common Stock in respect of a record date after the Effective Time
will be paid to the holder of record of the full shares of American Common
Stock represented by the certificate issued in exchange therefor, without
interest. See "The Merger Agreement--Exchange of Certificates."
STAT STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. STAT STOCKHOLDERS SHOULD
NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
BACKGROUND OF THE MERGER
On July 8, 1996, members of senior management of American met with members
of senior management of STAT at American's headquarters in Aurora, Colorado to
discuss the possibility of integrating American Medical Pathways, a healthcare
access service being developed by American, into an urgent care joint venture
STAT was in the process of developing for use in the Houston, Texas market.
On August 16, 1996, in a telephone call among Paul T. Shirley, Chief
Executive Officer and President of American, Russell D. Schneider, the
Chairman and Chief Executive Officer of STAT, and David C. Colby, a director
and the Chief Financial Officer of American and also a director of STAT, Mr.
Schneider inquired whether American would be interested in engaging in a
business combination with STAT in light of the previous favorable service
integration discussions between the companies and STAT's growth objectives and
opportunities and need for capital.
During the next few days, Mr. Schneider began contacting the other members
of STAT's Board of Directors to advise them of the discussions between STAT
and American regarding a possible business combination of the two companies.
On August 27, 1996, Messrs. Shirley and Colby and George DeHuff, the Chief
Operating Officer of American, met with Mr. Schneider and Ruben A. Perez and
Dr. William H. Rice, directors and executive officers of STAT, to learn more
about the respective businesses of the companies and explore the desirability
of a possible business combination between them. On the same day, following
the meeting with the representatives of STAT, Messrs. Shirley, Colby and
DeHuff met to discuss their meeting with STAT and to plan a visit to Houston
to review STAT's operations.
On September 6, 1996, Messrs. Colby and DeHuff, Carol Burt, an executive
officer of American, and Don Jones, a consultant to American, met in Houston
with Messrs. Schneider and Perez and Dr. Victor M. Miranda, a director and
executive officer of STAT, to review STAT's operations.
During the week of September 9, 1996, Mr. Shirley and Mr. Schneider had
numerous telephone conversations about the terms of a possible business
combination. The conversations included discussion of the exchange ratio,
including possible adjustments to the exchange ratio based on collars and the
value of American Common Stock. Also discussed were numerous management issues
including Mr. Schneider's appointment to
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American's Board of Directors. During that same week, Mr. Shirley telephoned
members of American's Board of Directors to discuss the possible opportunity
for a business combination with STAT and the status of discussions between the
parties.
On September 13, 1996, American and STAT executed a confidentiality
agreement with respect to the exchange of nonpublic information between them.
The agreement provided that through September 30, 1996, STAT would not
solicit, engage in negotiations or discussions concerning or provide nonpublic
information to any person relating to a merger or sale, or similar
transaction, other than the Merger, involving STAT or any of its subsidiaries.
On October 1, 1996, American and STAT amended the agreement to extend this
obligation to October 9, 1996. The agreement also provided that in the event
STAT breached this obligation it would pay to American, upon written demand,
all reasonable out-of-pocket expenses incurred in connection with its
evaluation of the proposed business combination between STAT and American
along with a fee of $500,000 which the parties agreed was reasonable under the
circumstances to compensate American.
During the weeks of September 16 and 23, 1996, representatives of American
and STAT and their respective legal counsel conducted due diligence
investigations of the business and operations of the other party. On September
18, 1996, representatives of American and representatives of STAT met in
Houston to review the status of the parties' due diligence investigations and
STAT's development projects.
During the period from September 18, 1996, through October 7, 1996, the date
the Merger Agreement was executed, representatives of American and STAT and
their respective legal counsel were in frequent contact to negotiate the terms
of the Merger Agreement, the Stockholder Agreements and the Employment
Agreements. The principal areas of negotiation included: the representations
and warranties to be made by American and STAT in the Merger Agreement; the
covenants to be made by American and STAT in the Merger Agreement; the
conditions required for a termination of the Merger Agreement; the triggering
events for payment of a fee and expenses in the event of termination of the
Merger Agreement; and the terms of the Stockholder Agreements and the
Employment Agreements.
By letter dated September 23, 1996, STAT engaged Pacific Growth Equities as
its financial advisor to render a fairness opinion in connection with the
Merger.
On the morning of October 7, 1996, the Board of Directors of STAT met to
consider the proposed Merger. Mr. Colby, who is a director of STAT and also a
director and the Chief Financial Officer of American, was not present at the
meeting. Members of STAT senior management, STAT's legal advisors and its
financial advisors made presentations and reviewed among other things, the
matters set forth under "--Recommendation of the Board of Directors of STAT;
Reasons for the Merger." The terms of the Merger Agreement, Stockholder
Agreements and Employment Agreements were reviewed with the directors of STAT.
Pacific Growth Equities rendered its oral opinion, confirmed by a subsequent
written opinion dated October 7, 1996 that, as of such date, the Exchange
Ratio was fair from a financial point of view to the stockholders of STAT.
After discussion and consideration, the members of the Board of Directors of
STAT present at the meeting unanimously voted to approve the Merger, the
Merger Agreement and the Stockholder Agreements.
On the afternoon of October 7, 1996, the Board of Directors of American met
to consider the proposed Merger. Members of American's senior management,
American's legal advisors and its investment bankers made presentations and
reviewed among other things, the matters set forth under "--Reasons of
American for Engaging in the Merger." The terms of the Merger Agreement and
the related agreements were reviewed with the directors of American. After
discussion and consideration, nine of the ten directors of the Board of
Directors of American voted to approve the Merger, the Merger Agreement and
the related agreements, and one director, David C. Colby, who is also a
director of STAT, abstained.
The Merger Agreement and the Stockholder Agreements were executed and
delivered in the evening of October 7, 1996 and the Merger was publicly
announced at approximately 8:00 a.m. Eastern time on October 8, 1996.
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REASONS OF AMERICAN FOR ENGAGING IN THE MERGER
In reaching its decision to approve the Merger Agreement and the Merger, the
Board of Directors of American considered a number of factors including:
1. American's desire to diversify its business into related healthcare
services;
2. The suitability of STAT's business to American's business, including
the nature of STAT's business; STAT's approach to emergency practice
management and disease management; and the quality of STAT's management
team;
3. STAT's business strategy, and the potential growth rates for STAT's
business;
4. The complementary nature of the businesses of American and STAT and
the possible integration of their businesses; and
5. The expectation that American and STAT could achieve synergistic
benefits from the Merger, including reduced costs of insurance and capital,
and reduced accounting and public reporting costs.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF STAT; REASONS FOR THE MERGER
The Board of Directors of STAT believes the following are reasons STAT's
stockholders should vote FOR approval and adoption of the Merger Agreement and
approval of the Merger:
. Access to American's established customer base. The STAT Board believes
the Merger will yield cross-marketing opportunities by enabling the
combined company to offer STAT's emergency physician practice management
and HBO therapy management services at hospitals currently served by
American's ambulance services, which should allow STAT to accelerate the
growth of its business.
. The opportunity to integrate STAT's emergency physician practice
management services into American Medical Pathways. Through American
Medical Pathways, American is seeking capitated care contracts with
health maintenance organizations ("HMOs") or other payors. The inclusion
of emergency physician practice management services in this product
could improve the success of American Medical Pathways and speed the
growth of STAT's emergency management services.
. Greater access to capital. American's larger revenue base and presence
in the financial markets afford American significantly greater access to
the capital required to expand STAT's business. A principal part of
STAT's business strategy includes acquiring existing dialysis
facilities, developing new dialysis facilities, opening additional
hospital-based HBO therapy facilities and financing the acquisition by
its affiliated physician groups of additional emergency department
management contracts, all of which activities require significant
capital expenditures. The STAT Board believes that, due to the greater
resources available to American, STAT will be better positioned to
compete as a part of a larger, more integrated company than as a smaller
independent company.
. Reduced volatility in financial market performance and operating
results. Through the Merger, the STAT Board believes STAT's stockholders
might expect greater and improved liquidity for their securities in the
financial markets. STAT's securities frequently experience the price
volatility often associated with thinly traded stocks, and STAT's
operating results are dependent upon a relatively small number of
revenue sources. Because of the combined company's substantially larger
revenue base and expected broader following in the financial markets,
stockholders might expect a more stable trading market for their
securities.
In the course of its deliberations, the STAT Board of Directors reviewed a
number of additional factors relevant to the Merger. In particular, the STAT
Board considered, among other things: (i) information concerning STAT's and
American's respective businesses, historical financial performance, product
offerings and business development strategies; (ii) the history of
consolidation in the healthcare industry; (iii) the fact that American is
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not a highly leveraged company; (iv) the comparative stock prices and price-
earnings multiples of the two companies; (v) the compatibility of the
management and businesses of STAT and American; (vi) the financial
presentation by Pacific Growth Equities; and (vii) reports from management and
legal advisors on the results of their due diligence investigation of
American.
Potential negative factors to the Merger considered by the STAT Board were:
(i) the fact that no pricing collar or floor had been negotiated in the
Exchange Ratio; (ii) that a shift in American's core business as a result of
the announcement of the Merger might result in negative reaction by the
financial markets; (iii) that the Merger is expected to be dilutive to
American's 1996 earnings; and (iv) that American's stock has historically
traded at a price-earnings multiple less than that of STAT's stock.
In view of the variety of factors, both positive and negative, considered by
the STAT Board, it did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered. The
factors were considered in their entirety by the STAT Board in the course of
its deliberations and discussions regarding the Merger. After taking into
consideration all of the factors set forth above, the STAT Board concluded
(with David C. Colby not in attendance and not participating in deliberations
or voting) that the Merger Agreement and the Merger were in the best interests
of STAT and its stockholders and that STAT should proceed with the Merger
Agreement and the Merger at this time.
For a discussion of the interests of certain members of STAT's management
and Board of Directors in the Merger, see "The Merger--Interests of Certain
Persons in the Merger."
THE STAT BOARD HAS APPROVED THE MERGER AGREEMENT AND THE MERGER AND
RECOMMENDS THAT STAT'S STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER. THE STAT BOARD BELIEVES THAT THE MERGER AGREEMENT
AND THE MERGER ARE FAIR AND IN THE BEST INTERESTS OF STAT'S STOCKHOLDERS.
OPINION OF STAT'S FINANCIAL ADVISOR
The Board of Directors of STAT retained Pacific Growth Equities to render
its opinion as to whether the Exchange Ratio is fair, from a financial point
of view, to the holders of STAT Common Stock. On October 7, 1996, Pacific
Growth Equities rendered its opinion to the Board of Directors of STAT to the
effect that, as of such date, the Exchange Ratio was fair, from a financial
point of view, to the holders of STAT Common Stock.
THE FULL TEXT OF PACIFIC GROWTH EQUITIES' OPINION, DATED OCTOBER 7, 1996,
WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY PACIFIC GROWTH
EQUITIES IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. PACIFIC GROWTH
EQUITIES' OPINION IS DIRECTED ONLY TO THE FAIRNESS, AS OF OCTOBER 7, 1996 AND
FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO THE HOLDERS OF STAT
COMMON STOCK AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STAT STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT.
THE SUMMARY OF PACIFIC GROWTH EQUITIES' OPINION SET FORTH BELOW IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED AS
ANNEX B. STAT STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS
ENTIRETY.
In conducting its investigation and analysis in arriving at its opinion
attached as Annex B, Pacific Growth Equities reviewed such information and
took into account such financial and economic factors as it deemed relevant
under the circumstances. In that connection, Pacific Growth Equities among
other things: (i) reviewed forecasts concerning the business and operations of
American furnished to Pacific Growth Equities by or on behalf of American for
purposes of its analysis, as well as publicly available information, including
but not limited to Annual Reports on Form 10-K, Quarterly Reports on Form 10-
Q, proxy and information statements and other information filed with the
Commission by American and equity analyst research reports prepared by
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various investment banking firms; (ii) reviewed forecasts concerning the
business and operations of STAT furnished to Pacific Growth Equities by or on
behalf of STAT for purposes of its analysis, as well as publicly available
information, including but not limited to Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, proxy and information statements and other
information filed with the Commission by STAT and equity analyst research
reports prepared by various investment banking firms; (iii) reviewed the draft
of the Merger Agreement in the form presented to STAT's Board of Directors on
the date of the opinion; (iv) compared the historical market prices and
trading activity of STAT Common Stock and the American Common Stock with those
of certain other publicly traded companies it deemed relevant; (v) compared
the financial position and operating results of STAT and American with those
of other publicly traded companies it deemed relevant; and (vi) reviewed, to
the extent publicly available, the financial terms of certain other business
combinations it deemed relevant. Pacific Growth Equities held discussions with
certain members of STAT's and American's senior management concerning STAT's
and American's respective historical and current financial condition and
operating results, as well as the future prospects of STAT and American,
respectively. Pacific Growth Equities also considered such other information,
financial studies, analysis and investigations and financial, economic and
market criteria which it deemed relevant for the preparation of its opinion.
Pacific Growth Equities did not recommend the Exchange Ratio and the Exchange
Ratio was determined by STAT and American in arms-length negotiations. STAT
did not place any limitation upon Pacific Growth Equities with respect to the
procedures followed or factors considered by Pacific Growth Equities in
rendering its opinion.
In arriving at its opinion, Pacific Growth Equities assumed and relied upon
the accuracy and completeness of all of the financial and other information
provided to it by or on behalf of STAT and American, or publicly available,
and was not engaged, and did not attempt, to independently verify any such
information. Pacific Growth Equities also assumed, with STAT's consent, that:
(i) the Merger will be accounted for as a pooling of interests and will be
treated as a tax free reorganization for federal income tax purposes; (ii) all
material assets and liabilities (contingent or otherwise, known or unknown) of
STAT and American are as set forth in the consolidated financial statements of
STAT (including the consolidated financial statements of STAT's affiliated
physician group, South Texas Acute Trauma Physicians, P.A.) and American,
respectively; and (iii) the Merger will be consummated in accordance with the
terms of the Merger Agreement, without any amendment thereto and without
waiver by STAT or American of any of the conditions to their respective
obligations thereunder. Pacific Growth Equities also assumed that the
financial forecasts examined by it had been reasonably prepared on bases
reflecting the best available estimates and good faith judgments of the senior
managements of STAT and American, respectively, as to the future performance
of their respective companies. Pacific Growth Equities relied upon assurances
of management of STAT and American that such management was unaware of any
fact that would make their respective information and forecasts provided to
Pacific Growth Equities incomplete or misleading. In conducting its review,
Pacific Growth Equities did not make nor obtain (or assume any responsibility
for making or obtaining) an independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of STAT or American, nor did
Pacific Growth Equities make a physical inspection of the properties or
facilities of STAT or American.
Pacific Growth Equities' opinion was based upon economic, monetary and
market conditions as they existed on and to the extent that they could be
evaluated as of the date of such opinion and did not predict or take into
account any changes which may occur, or information which may become
available, thereafter. Pacific Growth Equities' opinion expressly states that
subsequent developments may affect the opinion and that Pacific Growth
Equities does not have any obligation to update, revise or reaffirm its
opinion. Pacific Growth Equities' opinion does not address the relative merits
of the Merger and any other potential transactions or business strategies
considered by STAT's Board of Directors, and does not constitute a
recommendation to any stockholder of STAT as to how such stockholder should
vote with respect to the Merger. Pacific Growth Equities' opinion does not
imply any conclusion as to the likely trading range of the American Common
Stock following the consummation of the Merger, which may vary depending upon,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities.
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In connection with preparing its opinion on October 7, 1996, Pacific Growth
Equities conducted a variety of financial analyses summarized below with
respect to STAT and American:
Historical Trading Price and Ratio Analysis. Pacific Growth Equities
reviewed the history of trading prices for shares of STAT Common Stock and
American Common Stock for the 20 trading day period from September 9, 1996 to
October 3, 1996, and compared the relation of such trading prices to each
other. The review showed average, high and low prices to be $7.18, $8.38 and
$6.31, respectively, per share of STAT Common Stock and $36.08, $37.88 and
$33.63, respectively, per share of American Common Stock. Based on such prices
and over such period, the average, high and low trading ratios of American
Common Stock to STAT Common Stock were 5.02, 5.56 and 4.01, respectively. For
purposes of providing historical perspective to the analysis, Pacific Growth
Equities also reviewed, but did not provide specific ratio analysis with
respect to, the historical trading prices for STAT Common Stock and American
Common Stock for the most recent two years. Trading data for STAT was not
available for the portion of the period prior to STAT's initial public
offering on April 21, 1995.
Contribution Analysis. Pacific Growth Equities analyzed STAT's and
American's relative contribution to the combined company resulting from the
Merger with respect to revenues, operating income, income before taxes and
stockholders' equity. As a result of the Merger and assuming approximately
27,565,000 shares of American Common Stock outstanding after the Merger, STAT
stockholders will own approximately 14.0% of the outstanding American Common
Stock, which compares to STAT's contribution (based on American's and STAT's
latest twelve month ("LTM") results through, and balance sheets at, June 30,
1996) of 5.0% of pro forma revenues, 8.05% of pro forma operating income, 8.0%
of pro forma income before taxes and 2.0% of pro forma stockholders' equity,
respectively of the combined company.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
methodology, Pacific Growth Equities valued each of STAT and American by
estimating the present value of operating cash flows of STAT and American if
each were to continue on a stand-alone basis (without giving effect to the
Merger). Pacific Growth Equities valued STAT and American in accordance with
forecasts provided by management of STAT and American, respectively. Operating
cash flow represents net income, plus depreciation/amortization expense, less
expected capital expenditures, and less any increase and plus any decrease in
forecasted working capital of the respective companies. For each entity and
under each case, Pacific Growth Equities aggregated (x) the present value of
the operating cash flows over the period from 1997 through 1999 with (y) the
present value of the range of terminal values described below. The range of
terminal values was generally calculated by applying multiples (ranging from
25.0-29.0 for STAT and 18.0-22.0 for American) to each entity's net income for
the last 12 months of the forecast period. This range of terminal values
represented, for each of STAT and American, their respective value beyond the
forecast period. As part of the DCF analysis, Pacific Growth Equities used
discount rates reflecting each entity's specific financial characteristics,
ranging from 20.0% to 30.0% for STAT and from 8.0% to 12.0% for American. This
DCF analysis resulted in values ranging from $32.31 to $43.11 per share of
American Common Stock, with a midpoint of $37.46 per share, and values ranging
from $6.86 to $9.92 per share of STAT Common Stock, with a midpoint of $8.25
per share.
Pacific Growth Equities also performed a DCF analysis on the combined
company resulting from the Merger utilizing the forecasts provided by
management of STAT and American, and assuming an expense savings equal to
approximately 0.2% of sales during each fiscal year in the forecast period. In
this analysis Pacific Growth Equities determined the range of terminal values
by applying the same multiples utilized in the stand-alone analysis for
American and determined the present value of operating cash flows and terminal
values by applying the same discount rates applied in the stand-alone analysis
for American. Assuming that 27,565,000 shares of American Common Stock are
outstanding following the Merger, this DCF analysis resulted in values ranging
from $32.21 to $42.97 per share of post-Merger American Common Stock, with a
mid-point of $37.33 per share. Based on the Exchange Ratio, this results in an
average implied value per share of STAT Common Stock of $9.33, compared with
an average implied value of $8.25 per share of STAT Common Stock on a stand-
alone basis as determined from the DCF analysis described above.
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Analysis of Selected Publicly Traded Comparable Companies. Pacific Growth
Equities reviewed certain publicly available financial information as of the
most recently reported period and stock market information as of October 2,
1996 for certain selected publicly traded companies which Pacific Growth
Equities deemed comparable to STAT and American. For STAT, such comparable
companies consisted of: (i) Coastal Physician Group, Inc., EmCare Holdings,
Inc, InPhyNet Medical Management, Inc. Pediatrix Medical Group, Inc., Sheridan
Healthcare, Inc, and Sterling Healthcare Group, Inc. in the hospital
management sector, and (ii) Renal Care Group, Inc., Renal Treatment Centers,
Inc., Total Renal Care Holdings, Inc. and Vivra, Inc. in the dialysis services
sector. For American, such comparable companies consisted of Laidlaw, Inc. and
Rural Metro Corp. For each comparable company, Pacific Growth Equities
calculated multiples as of October 2, 1996 of market capitalization to LTM
revenues, LTM earnings before interest and taxes ("EBIT") and LTM earnings,
and the ratio ("P/E Ratio") of current stock prices per share to 1996 and 1997
fiscal year estimated earnings per share ("EPS") (such estimated earnings, for
each year, as reported by IBES and Zack's). Pacific Growth Equities calculated
an average of the various ratios for the comparable companies in each sector,
adjusted to eliminate, in the case of the STAT comparable companies, the high
and low ratios in each category. Pacific Growth Equities then calculated a
combined weighted average to the STAT comparable companies by assigning a 60%
weight to the hospital management sector adjusted averages and a 40% weight to
the dialysis services sector (including hyperbaric oxygen treatment and home
health services), with respect to the revenue ratio, and by assigning a 30%
weight to the hospital management sector and a 70% weight to the dialysis
services sector (including hyperbaric oxygen treatment and home health
services), with respect to the earnings and EBIT ratios. Pacific Growth
Equities then applied these multiples to the LTM revenues, LTM EBIT, LTM
earnings and forecasted 1996 and 1997 earnings for STAT and American,
respectively (utilizing estimates provided by management of STAT and American,
respectively), and divided the result by the number of outstanding shares of
STAT Common Stock and American Common Stock, respectively, to determine the
implied per share value of STAT and American. This analysis resulted in values
per share of STAT Common Stock ranging from $5.76 to $10.06, with an average
of $8.12 and an average excluding the high and low values of $8.26. This
analysis resulted in values per share of American Common Stock ranging from
$34.56 to $38.50, with an average of $36.56 and an average excluding the high
and low prices of $36.57.
Analysis of Selected Comparable Acquisition Transactions. Pacific Growth
Equities reviewed 41 selected transactions involving the acquisition of
companies in businesses which Pacific Growth Equities deemed relevant. Such
transactions were chosen based on a review of acquired companies which
possessed general business, operating and financial characteristics
representative of companies in the industry sectors in which STAT operates.
Pacific Growth Equities noted that none of the selected transactions reviewed
was identical to the Merger and that, accordingly, the analysis of comparable
transactions necessarily involves complex consideration and judgments
concerning differences in financial and operating characteristics of STAT and
other factors that would affect the acquisition value of comparable
transactions. For each comparable transaction, Pacific Growth Equities
calculated multiples of price to LTM revenues, stockholders' equity, LTM
earnings and LTM EBIT and calculated the average ratios and the average
excluding the high and low ratios. The resulting average ratio of price to LTM
revenues was 2.2x and the adjusted average ratio was 1.8x; the average and
adjusted average ratios of price to stockholders' equity were 7.3x and 5.8x,
respectively; the average and adjusted average ratios of price to LTM earnings
were 43.4x and 38.3x, respectively; and the average and adjusted average
ratios of price to LTM EBIT were 25.0x and 23.8x, respectively. Pacific Growth
Equities then applied the adjusted average ratios relating to LTM EBIT and LTM
earnings to STAT and divided the result by the number of outstanding shares of
STAT Common Stock to determine an implied value per share of STAT Common
Stock. This analysis resulted in implied values of STAT Common Stock of $7.48
and $7.51 per share, with an average of $7.49.
Premiums Paid Analysis. Pacific Growth Equities reviewed the relationship
between the prices paid in the comparable acquisition transactions described
in the preceding paragraph and the trading price of the target stock one day
prior to the announcement of the respective transactions to determine the
premium paid in such transactions. The review revealed that the average
premium was 33.7% and the average excluding the high and low premium was
27.0%. Pacific Growth Equities then applied the adjusted average premium to
the closing price of STAT Common Stock on October 3, 1996 ($8.25) to determine
an implied value of $10.48.
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The foregoing summary does not purport to be a complete description of the
analyses performed by Pacific Growth Equities or of its presentations to the
STAT Board. The preparation of financial analyses and a fairness opinion is a
complex process and is not necessarily susceptible to partial analyses or
summary description. Pacific Growth Equities believes that its analyses (and
the summary set forth above) must be considered as a whole, and that selecting
portions of such analyses and of the factors considered by Pacific Growth
Equities, without considering all of such analyses and factors, could create
an incomplete view of the processes underlying the analyses conducted by
Pacific Growth Equities and its opinion. Pacific Growth Equities did not
attempt to assign specific weights to particular analyses. Any estimates
contained in Pacific Growth Equities' analyses are not necessarily indicative
of actual values, which may be significantly more or less favorable than as
set forth therein. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may
actually be sold. Because such estimates are inherently subject to
uncertainty, Pacific Growth Equities does not assume responsibility for their
accuracy.
Pacific Growth Equities, as part of its investment banking business, has
engaged in the evaluation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, and private placements. In
the ordinary course of business, Pacific Growth Equities may from time to time
trade equity securities of STAT and American for its own account and for
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
Compensation. Pursuant to an engagement letter agreement dated September 23,
1996 between STAT and Pacific Growth Equities, STAT agreed to pay Pacific
Growth Equities a fee of $300,000, $150,000 of which was payable upon
execution of the engagement letter agreement and the remaining $150,000
payable when Pacific Growth Equities notified STAT that it was prepared to
render its opinion as to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of STAT Common Stock, regardless of the
conclusions reached by Pacific Growth Equities in such opinion and regardless
of whether any transaction is consummated. STAT has also agreed to reimburse
Pacific Growth Equities for its reasonable out-of-pocket expenses, including
reasonable fees and disbursements of counsel. STAT has also agreed to
indemnify Pacific Growth Equities, its affiliates and their respective
directors, officers, employees and agents and controlling persons against
certain liabilities relating to or arising out of its engagement, including
liabilities under the federal securities laws. In the past, Pacific Growth
Equities has provided investment banking services to STAT, including acting as
manager in connection with a proposed public offering of STAT Common Stock in
1996, which was suspended pending discussions with American concerning the
Merger. In connection with the proposed offering, Pacific Growth Equities was
to have received customary compensation for its services as managing
underwriter, and did receive reimbursement for certain expenses incurred by
Pacific Growth Equities in connection therewith. The September 23, 1996,
engagement letter agreement between Pacific Growth Equities and STAT provides
that if the Merger is not consummated and the proposed public offering
proceeds, Pacific Growth Equities will reduce dollar-for-dollar the amount of
underwriting discounts and commissions payable in connection with that
offering to the extent of the $300,000 fee paid to Pacific Growth Equities by
STAT under the September 23, 1996 engagement letter agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the STAT Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby,
STAT stockholders should be aware that certain members of STAT management and
the STAT Board of Directors have certain interests in the Merger that are in
addition to the interests of stockholders of STAT generally.
One of the conditions of the obligation of American and Merger Sub to
consummate the Merger is the execution and delivery by each of Russell D.
Schneider, Chairman of the Board and Chief Executive Officer of STAT, Ruben A.
Perez, President-Healthcare Management, Treasurer and Director of STAT, Daniel
A. Perez, Senior Vice President of STAT, William H. Rice, M.D., Vice Chairman
of the Board of STAT and Victor M.
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Miranda, M.D., President-Emergency Physicians and Director of STAT will enter
into employment agreements, effective as of the Effective Time in the forms
attached to the Merger Agreement. These agreements supersede their existing
employment agreements with STAT and provide, among other things, for the
continuation of the existing annual base salaries for Messrs. Schneider, R.
Perez and D. Perez and Drs. Rice and Miranda of $120,000, $120,000, $96,400,
$200,000 and $200,000, respectively. The agreements also provide that if such
person's employment with STAT is terminated other than for cause by STAT
within three years following the Effective Time, he will receive (i) base
compensation as in effect on the date prior to termination for an additional
period of nine months (except in the case of Russell D. Schneider, who shall
receive base compensation for an additional period of twelve months), and (ii)
continuation of coverage and participation in current medical and dental
insurance plans for the same periods of time described in clause (i) above. In
addition, each agreement provides that if the employee sells or otherwise
disposes of (or in the case of Drs. Miranda and Rice, if STAT Physicians I
sells or otherwise disposes of) shares of American Common Stock received in
the Merger (and, in the case of Drs. Miranda and Rice, shares received upon
exercise of existing options) in excess of the following percentages of such
shares held by him (or, in the case of Drs. Miranda and Rice by STAT
Physicians I) prior to the dates specified, such person will pay to STAT an
amount equal to the number of excess shares sold or disposed of multiplied by
the difference between the average selling price of such shares and the
closing price of American Common Stock on the first day such shares would not
be subject to such provisions: after June 30, 1997, not more than 25%; after
December 31, 1997, not more than 50%; after June 30, 1998, not more than 75%;
and after December 31, 1998, 100%.
Pursuant to the Merger Agreement, upon consummation of the Merger, Mr.
Schneider will be appointed to the Board of Directors of American by the
directors of American.
Upon consummation of the Merger, based on the number of outstanding shares
of American Common Stock and STAT Common Stock as of November 1, 1996,
directors and executive officers of STAT will own approximately 9.9% of the
outstanding shares of American Common Stock.
David C. Colby, who is a director of STAT, is also a director and an
executive officer of American. At the Effective Time, STAT's right under
STAT's 1996 Stock Option Plan to repurchase shares of STAT Common Stock
issuable upon exercise of options held by David C. Colby and by Ann N. James,
Ph.D., also a director of STAT, in each case, to purchase 20,000 shares of
STAT Common Stock, will terminate.
The Merger Agreement provides that STAT shall, to the fullest extent
permitted under applicable law or under STAT's Certificate of Incorporation or
By-Laws and regardless of whether the Merger becomes effective, indemnify and
hold harmless, each present and former director, officer or employee of STAT
or any of its subsidiaries against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to the transactions contemplated by the Merger
Agreement, or otherwise with respect to any acts or omissions occurring at or
prior to the Effective Time, to the same extent as provided in STAT's
Certificate of Incorporation or By-Laws or any applicable contract or
agreement as in effect on the date of the Merger Agreement, in each case for a
period of five years after the date of the Merger Agreement. The Merger
Agreement provides that American and the Surviving Corporation (as defined)
shall honor and fulfill in all respects the obligations of STAT pursuant to
indemnification agreements with STAT's directors and officers existing at or
before the Effective Time. The Merger Agreement further provides that for a
period of three years after the Effective Time, American shall cause the
Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by STAT's directors' and officers' liability insurance policy on terms
comparable to those now applicable to directors and officers of STAT;
provided, however, that in no event shall American or the Surviving
Corporation be required to expend in excess of 150% of the annual premium
currently paid by STAT for such coverage; and provided further, that if the
annual premium would exceed such amount, American shall cause the Surviving
Corporation to obtain a policy with the maximum coverage available at a cost
not exceeding such amount. See "The Merger Agreement --Conditions to the
Merger--Indemnification and Insurance."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The obligations of American and STAT to consummate the Merger are
conditioned on the receipt by American of an opinion from Ropes & Gray, its
counsel, and the receipt by STAT of an opinion from KPMG Peat Marwick LLP,
independent certified public accountants of STAT and American, that the Merger
constitutes a reorganization under Section 368 of the Internal Revenue Code of
1986 (the "Code"). No ruling has been sought from the Internal Revenue Service
as to the Federal income tax consequences of the Merger, and the opinions of
counsel and accountants will not be binding upon the Internal Revenue Service
or any court.
The opinions referred to above will be based in part upon representations,
made as of the Effective Time by STAT, American and certain stockholders of
STAT, which counsel and KPMG Peat Marwick LLP will assume to be true, correct
and complete. The representations will include representations of Ruben A.
Perez, Russell D. Schneider, Daniel A. Perez, William H. Rice, M.D., Victor M.
Miranda, M.D. and STAT Physicians I pursuant to the Stockholder Agreements
(see "Other Agreements--Stockholder Agreements") to the effect that as of the
Effective Time they will have no present plan to transfer or otherwise reduce
the risk of ownership of the American Common Stock they receive in the Merger
in excess of fifty percent (50%) of the aggregate fair market value,
immediately prior to the Merger, of all outstanding shares of STAT Common
Stock held by them immediately prior to the Merger. If any of the
representations made by STAT, American and certain stockholders of STAT is
inaccurate, the opinions of such counsel and accountants could be adversely
affected.
The opinion to be provided by Ropes & Gray will state that no gain or loss
will be recognized by STAT, American or Merger Sub as a result of the Merger.
The opinion to be provided by KPMG Peat Marwick LLP will state that the
material federal income tax consequences of the Merger are as follows:
1. Provided the proposed Merger qualifies as a statutory merger under the
DGCL, after the Merger STAT will hold substantially all of its assets and
the assets of Merger Sub (other than the value of the American Common Stock
distributed in the transaction), and in the Merger the stockholders of STAT
will exchange an amount of stock constituting control of STAT (within the
meaning of Section 368(c) of the Code) solely for American voting stock,
then the proposed Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Code. The reorganization will not be
disqualified by reason of the fact that the voting stock of American is
used in the Merger. For purposes of the opinion, "substantially all" means
at least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets of Merger Sub and STAT. STAT,
American and Merger Sub will each be "a party to a reorganization" within
the meaning of Section 368(b)(1) of the Code.
2. No gain or loss will be recognized to the stockholders of STAT upon
the receipt of solely American Common Stock in exchange for their shares of
STAT Common Stock (including any fractional share interest of American
Common Stock to which they may be entitled).
3. The basis of the American Common Stock received by the stockholders of
STAT (including any fractional share interest to which they may be
entitled) will be the same as the basis of STAT Common Stock surrendered in
exchange therefor.
4. The holding period of the American Common Stock received by the
stockholders of STAT (including any fractional share interest to which they
may be entitled) will include the period during which the STAT Common Stock
surrendered therefor was held, provided the stock of STAT is a capital
asset in the hands of the stockholder of STAT on the date of the exchange.
5. The payment of cash in lieu of fractional share interests in American
Common Stock will be treated for federal income tax purposes as if the
fractional shares were issued as part of the exchange and then were
redeemed by American for cash. The cash payments will be treated as having
been received as distributions in full payment in exchange for the stock
redeemed as provided in Section 302(a) of the Code.
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6. No gain or loss will be recognized to Merger Sub on the transfer of
its assets to STAT in exchange for STAT Common Stock and the assumption by
STAT of Merger Sub's liabilities, if any.
7. No gain or loss will be recognized to STAT upon the receipt of the
assets of Merger Sub in exchange for STAT Common Stock.
8. No gain or loss will be recognized to American upon the receipt of
stock of STAT solely in exchange for stock of Merger Sub.
Certain noncorporate STAT stockholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share
interest in American Common Stock. Backup withholding will not apply, however,
to a stockholder who furnishes a correct taxpayer identification number ("TIN")
and certifies that he or she is not subject to backup withholding on the
substitute Form W-9 included in the Transmittal Letter, who provides a
certificate of foreign status on Form W-8, or who is otherwise exempt from
backup withholding. A stockholder who fails to provide the correct TIN on Form
W-9 may be subject to a $50 penalty imposed by the Internal Revenue Service.
Each STAT stockholder will be required to retain records and file with such
holder's federal income tax return a statement setting forth certain facts
relating to the Merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN
FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. THE
DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
PARTICULAR STAT STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL
INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES,
TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND STOCKHOLDERS WHO
ACQUIRED STAT COMMON STOCK PURSUANT TO THE EXERCISE OF STAT OPTIONS OR
OTHERWISE AS COMPENSATION, AND DOES NOT ADDRESS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. MOREOVER, THE TAX
CONSEQUENCES TO HOLDERS OF STAT OPTIONS OR WARRANTS TO PURCHASE STAT COMMON
STOCK ARE NOT DISCUSSED. THE DISCUSSION IS BASED UPON THE CODE, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE
DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. STAT STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of American and STAT will be carried forward to the
combined corporation at their recorded amounts, subject to any adjustments
required to conform the accounting policies of the two companies; income of the
combined corporation will include income of American and STAT for the entire
fiscal year in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of the
combined corporation.
The Merger Agreement provides that a condition to the consummation of the
Merger is the receipt of a letter from KPMG Peat Marwick LLP, independent
certified public accountants of American and STAT, to the effect that the
Merger qualifies for "pooling of interests" accounting treatment.
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EFFECT ON STOCK OPTIONS AND WARRANTS
At the Effective Time, each then outstanding option to purchase STAT Common
Stock granted under the 1996 Stock Incentive Plan of STAT (the "STAT Stock
Option Plan") and the outstanding option to acquire 10,000 shares of STAT
Common Stock held by Mr. Schneider, in each case whether vested or unvested,
will be deemed assumed by American and will be deemed to constitute an option
to acquire the number of shares rounded to the nearest whole number of
American Common Stock as the holder of such option would have been entitled to
receive pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or
not such option was in fact exercisable) at a price per share equal to (x) the
aggregate exercise price for STAT Common Stock otherwise purchasable pursuant
to such option divided by (y) the number of shares of American Common Stock
purchasable pursuant to such option. As of September 30, 1996, there were
outstanding options to acquire 344,500 shares of STAT Common Stock under the
STAT Stock Option Plan.
At the Effective Time, each of the Class A redeemable common stock purchase
warrants expiring April 19, 1998 (the "Class A Warrants") to purchase one
share of STAT Common Stock and each of the 62,500 warrants expiring April 19,
2000 (the "Other Warrants") to purchase two shares of STAT Common Stock and
one Class A Warrant (the Class A Warrants and the Other Warrants are
hereinafter referred to collectively as the "Warrants"), shall be deemed to
constitute a warrant to acquire, on the same terms and conditions as were
applicable under such Warrant prior to the Effective Time (including anti-
dilution provisions), the number (rounded to the nearest whole number) of
shares of American Common Stock as the holder of such Warrant would have been
entitled to receive pursuant to the Merger had such holder exercised such
Warrant in full immediately prior to the Effective Time, at a price per share
equal to (x) the aggregate exercise price for STAT Common Stock otherwise
purchasable pursuant to such Warrant divided by (y) the number of shares of
American Common Stock deemed purchasable pursuant to such Warrant.
CERTAIN LEGAL MATTERS
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), American and STAT and certain
stockholders of STAT have each filed a Notification and Report Form for review
under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division").
The waiting period under the HSR Act with respect to such filings expires on
November 29, 1996.
American and STAT do not believe that any additional governmental filings in
the United States are required with respect to the Merger, other than the
filing of the Certificate of Merger with the Delaware Secretary of State and
notice of a change in ownership of dialysis operations with HCFA and the Texas
Department of Health. The FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking divestiture of substantial assets of American or
STAT if the Merger is consummated. Consummation of the Merger is conditioned
upon, among other things, the absence of any temporary restraining order,
preliminary or permanent injunction, or other order issued by any federal or
state court in the United States which prevents the consummation of the
Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All American Common Stock issued in connection with the Merger will be
freely transferable, except that any American Common Stock received by persons
who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of STAT or American prior to the Merger may be sold by them
only in transactions permitted by the resale provisions of Rule 145 under the
Securities Act with respect to affiliates of STAT, or Rule 144 under the
Securities Act with respect to persons who are or become affiliates of
American, or as otherwise permitted under the Securities Act. Persons who may
be deemed to be affiliates of STAT or American generally include individuals
or entities that control, are controlled by, or are under common control with,
such corporation and may include certain officers and directors of such
corporation as well as principal stockholders of such corporation.
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Affiliates of STAT or American may not sell their shares of American Common
Stock acquired in connection with the Merger, except pursuant to an effective
registration under the Securities Act covering such shares or in compliance
with Rule 145 (or Rule 144 under the Securities Act in the case of persons who
are or become affiliates of American) or another applicable exemption from the
registration requirements of the Securities Act. In general, under Rule 145,
for two years following the Effective Time an affiliate (together with certain
related persons) would be entitled to sell shares of American Common Stock
acquired in connection with the Merger only through unsolicited "brokers'
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 145. Additionally, the number of shares to be sold by an
affiliate (together with certain related persons and certain persons acting in
concert) within any three-month period for purposes of Rule 145 may not exceed
the greater of 1% of the outstanding shares of American Common Stock or the
average weekly trading volume of such stock during the four calendar weeks
preceding such sale. Rule 145 would only remain available, however, to
affiliates if American remained current with its informational filings with the
Commission under the Exchange Act. Two years after the Effective Time, an
affiliate would be able to sell such American Common Stock without such manner
of sale or volume limitations provided that American was current with its
Exchange Act informational filings and such affiliate was not then an affiliate
of American. Three years after the Effective Time, an affiliate would be able
to sell such shares of American Common Stock without any restrictions so long
as such affiliate had not been an affiliate of American for at least three
months prior thereto.
STOCK EXCHANGE LISTING
It is a condition to the Merger that the shares of American Common Stock to
be issued in connection with the Merger be authorized for listing on the NYSE,
subject to official notice of issuance.
DIVIDENDS
Under the terms of the Merger Agreement, STAT is not permitted to declare,
set aside, make or pay any dividend or other distribution in respect of its
capital stock from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement and the Effective Time. In addition,
pursuant to the Merger Agreement, American is not permitted to declare, set
aside, make or pay any dividend or other distribution in respect of its capital
stock from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement and the Effective Time.
APPRAISAL RIGHTS
Under the General Corporation Law of the State of Delaware, the holders of
STAT Common Stock and American Common Stock are not entitled to any appraisal
rights with respect to the Merger.
FEES AND EXPENSES
STAT has agreed to pay American a fee of $4.5 million plus reasonable,
documented out-of-pocket expenses of up to $500,000 if the Merger Agreement is
terminated under certain circumstances. See "The Merger Agreement--
Termination." American has agreed to pay STAT a fee of $4.5 million plus
reasonable, documented out-of-pocket expenses of up to $500,000 if the Merger
Agreement is terminated under certain circumstances. See "The Merger
Agreement--Termination."
American has agreed to pay the fee for filing this Proxy Statement/Prospectus
with the Commission. Except as aforesaid, each of American and STAT will pay
its own expenses in connection with the Merger.
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THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
Annex A and incorporated herein by reference. All stockholders are urged to
read the Merger Agreement in its entirety.
TERMS OF THE MERGER
The Merger. At the Effective Time and subject to and upon the terms and
conditions of the Merger Agreement and the Delaware General Corporation Law
("DGCL"), Merger Sub will be merged with and into STAT, the separate corporate
existence of Merger Sub will cease, and STAT will continue as the surviving
corporation ("Surviving Corporation") and a wholly-owned subsidiary of
American.
Effective Time. As promptly as practicable after the satisfaction or waiver
of the conditions to the Merger set forth in the Merger Agreement, the Merger
will be consummated by filing a certificate of merger, together with any
required related certificates, with the Secretary of State of the State of
Delaware in accordance with the provisions of the DGCL. The time of such
filing is referred to as the "Effective Time."
Certificate of Incorporation and By-Laws. The Merger Agreement provides that
the Certificate of Incorporation and By-Laws of STAT, as in effect immediately
prior to the Effective Time, will be the Certificate of Incorporation and By-
Laws of the Surviving Corporation until thereafter amended in accordance with
the DGCL, such Certificate of Incorporation and such By-Laws; provided that
the Board of Directors of the Surviving Corporation will consist of the same
number of directors as the number of directors of Merger Sub at the Effective
Time.
Directors and Officers. The directors of Merger Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
By-Laws of the Surviving Corporation, and persons specified in the Merger
Agreement shall be the initial officers of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified.
Conversion of STAT Common Stock in the Merger. At the Effective Time, each
share of STAT Common Stock (a "STAT Share") issued and outstanding immediately
prior to the Effective Time (excluding shares referred to in the following
paragraph) will be converted into the right to receive 0.25 of a share of
validly issued, fully paid and nonassessable shares ("American Shares") of
American Common Stock. Cash will be paid to the STAT stockholders in lieu of
fractional shares of American Common Stock and for any dividends or other
distributions to which such holders are entitled. See "The Merger Agreement--
Terms of the Merger--Fractional Shares" and "The Merger Agreement--Exchange of
Certificates."
Stock Options. At the Effective Time, (A) each outstanding option to
purchase STAT Common Stock granted under STAT's 1996 Stock Incentive Plan (the
"STAT Stock Option Plan"), and (B) the option to purchase 10,000 shares of
STAT Common Stock issued to Russell D. Schneider (together with the options
described in clause (A), "Stock Options") whether vested or unvested, shall be
deemed assumed by American and deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such Stock Option prior
to the Effective Time, the number (rounded to the nearest whole number) of
American Shares as the holder of such Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or
not such option was in fact exercisable), at a price per share equal to (x)
the aggregate exercise price for STAT Common Stock otherwise purchasable
pursuant to such Stock Option divided by (y) the number of American Shares
deemed purchasable pursuant to such Stock Option. It is intended that the
foregoing provisions shall be undertaken in a manner that will not constitute
a "modification" as defined in Section 425 of the Code, as to any Stock Option
which is an "incentive stock option."
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Warrants. At the Effective Time, each of the 598,726 Class A redeemable
common stock purchase warrants expiring April 19, 1998 (the "Class A
Warrants") to purchase one share of STAT Common Stock at a purchase price of
$4.50 and each of the 62,500 warrants expiring April 19, 2000 (the "Other
Warrants") to purchase two shares of STAT Common Stock and one Class A Warrant
at a purchase price of $10.875 (the Class A Warrants and the Other Warrants
are hereinafter known collectively as, the "Warrants"), shall be deemed to
constitute a warrant to acquire, on the same terms and conditions as were
applicable under such Warrant prior to the Effective Time (including anti-
dilution provisions), the number (rounded to the nearest whole number) of
shares of American Common Stock as the holder of such Warrant would have been
entitled to receive pursuant to the Merger had such holder exercised such
Warrant in full immediately prior to the Effective Time, at a price per share
equal to (x) the aggregate exercise price for STAT Common Stock otherwise
purchasable pursuant to such Warrant divided by (y) the number of shares of
American Common Stock deemed purchasable pursuant to such Warrant.
Conversion of Capital Stock of Merger Sub in the Merger. Each share of
common stock, $.01 par value, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock, $.01 par
value, of the Surviving Corporation.
Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into
American Common Stock), reorganization, recapitalization or other like change
with respect to American Common Stock or STAT Common Stock occurring after the
date of the Merger Agreement and prior to the Effective Time.
Fractional Shares. No certificates or scrip representing less than one
American Share shall be issued in connection with the Merger. In lieu of any
such fractional share, each holder of a certificate or certificates for STAT
Shares who would otherwise have been entitled to a fraction of an American
Share upon surrender of Certificates for exchange shall be paid upon such
surrender cash equal to the product of (i) such fraction, multiplied by (ii)
the average closing price per share on the New York Stock Exchange ("NYSE") of
American Common Stock as reported in The Wall Street Journal for the twenty
trading days ending on the fifth trading date prior to the date on which the
Effective Time occurs.
EXCHANGE OF CERTIFICATES
Exchange Agent. American shall supply, or shall cause to be supplied, to or
for the account of The First National Bank of Boston (the "Exchange Agent"),
in trust for the benefit of the holders of STAT Common Stock, for exchange in
accordance with the Merger Agreement, through the Exchange Agent, certificates
evidencing the American Shares issuable in exchange for outstanding STAT
Shares.
Exchange Procedures. As soon as reasonably practicable after the Effective
Time, American will instruct the Exchange Agent to mail to each holder of
record of STAT Common Stock a letter of transmittal and instructions to effect
the surrender of the certificates representing STAT Common Stock in exchange
for certificates evidencing American Common Stock. Upon surrender of a
certificate representing STAT Common Stock for cancellation to the Exchange
Agent together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
holder of such certificate will be entitled to receive in exchange therefor
(i) certificates evidencing that number of whole American Shares which such
holder has the right to receive in the Merger, (ii) any dividends or other
distributions on the shares of American Common Stock which such holder is
entitled to receive, and (iii) cash in respect of fractional shares of
American Common Stock (the American Shares, and cash described in clauses (ii)
and (iii) being, collectively, the "Merger Consideration"), and the
certificate representing STAT Common Stock so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of STAT Shares which is not
registered in the transfer records of STAT as of the Effective Time, American
Shares, dividends and distributions may be issued and paid to a transferee if
the certificate evidencing such STAT Shares is presented to the Exchange
Agent,
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accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding certificate that, prior to the Effective Time,
represented shares of STAT Common Stock will be deemed from and after the
Effective Time, for all corporate purposes (other than payment of dividends or
as described below under "No Liability and Withholding"), to evidence the
ownership of the number of full American Shares into which such STAT Shares
shall have been so converted.
Distributions With Respect to Unexchanged STAT Common Stock. No dividends or
other distributions declared or made after the Effective Time with respect to
American Common Stock with a record date after the Effective Time will be paid
to the holder of an unsurrendered certificate representing shares of STAT
Common Stock with respect to the American Shares they are entitled to receive
until the holder of such certificate surrenders such certificate. Subject to
applicable law, following surrender of any certificate representing shares of
STAT Common Stock, there shall be paid to the record holder of the
certificates representing whole shares of American Common Stock issued in
exchange therefor, without interest, at the time of surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of American Common Stock.
Transfers of Ownership. If any certificate for shares of American Common
Stock is to be issued in a name other than that in which the Certificate
representing shares of STAT Common Stock surrendered in exchange is
registered, it will be a condition of the issuance that the certificate
surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to
American or any designated agent any transfer or other taxes required by
reason of the issuance of a certificate for shares of American Common Stock in
any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of American or any designated
agent that such tax has been paid or is not payable.
No Liability and Withholding. None of American, Merger Sub or STAT will be
liable to any holder of STAT Common Stock for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. American or the Exchange Agent will be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant
to the Merger Agreement to any STAT stockholder such amounts as American or
the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under any provision of federal, state, local or foreign
tax law. To the extent that amounts are so withheld by American or the
Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares in respect of
which such deduction and withholding was made by American or the Exchange
Agent.
Lost, Stolen or Destroyed Certificates. In the event any certificates
representing shares of STAT Common Stock have been lost, stolen or destroyed,
the Exchange Agent will issue shares of American Common Stock in exchange for
such lost, stolen or destroyed certificates upon the making of an affidavit of
that fact by the owner of such certificates and, at the request of American,
upon delivery of a bond in such a sum as American may reasonably direct as
indemnity against any claim that may be made against American or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
STAT STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF STAT COMMON STOCK.
STAT STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES TO
THE EXCHANGE AGENT PRIOR TO RECEIPT OF THE TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties made by
STAT, in respect of itself and its subsidiaries, in favor of American and
Merger Sub, and made by American and Merger Sub, in respect
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of American and its subsidiaries, in favor of STAT, relating, among other
things, to the following matters (which representations and warranties are
subject, in certain cases, to specified exceptions): (i) corporate
organization, standing, qualification, approvals and similar matters, except
where failure to be so qualified or in good standing or to have such approvals
do not constitute a Material Adverse Effect (as defined below); (ii) the
absence of violation of provisions of charter documents; (iii) capitalization;
(iv) the authorization, execution, delivery and enforceability of the Merger
Agreement; (v) no breach or default of certain material agreements or absence
of required consents except as would not constitute a Material Adverse Effect;
(vi) the absence of conflict of the Merger Agreement with charter documents,
laws or agreements and required consents for the execution and delivery of the
Merger Agreement except as do not constitute a Material Adverse Effect; (vii)
the absence of conflict with, default under or violation of agreements and
laws, and the holding of permits necessary for the conduct of business, except
as do not constitute a Material Adverse Effect; (viii) reports and other
documents filed with the Commission, the absence of material misstatements or
omissions in the information contained therein, and the fair presentation of
the financial statements contained therein in accordance with generally
accepted accounting principles; (ix) conduct of business in the ordinary
course and the absence of certain changes or events since the close of the
most recent fiscal year of STAT or American, respectively, including the
absence of a Material Adverse Effect; (x) the absence of undisclosed
liabilities that constitute a Material Adverse Effect; (xi) the absence of
pending litigation or known threatened litigation that constitutes a Material
Adverse Effect; (xii) the absence of any material untrue statements or
omissions in the Registration Statement and this Proxy Statement/Prospectus;
(xiii) the following representations and warranties made only by STAT: (a)
employee benefit matters; (b) labor matters and claims known or threatened
which constitute a Material Adverse Effect; (c) the absence of restrictions on
business, except as do not constitute a Material Adverse Effect; (d) clear
title to property and valid leases, except the existence of a defect which
does not constitute a Material Adverse Effect; (e) payment of taxes and
certain other tax matters, except where non-payment does not constitute a
Material Adverse Effect; (f) compliance with environmental laws, except where
noncompliance, in the aggregate, does not constitute a Material Adverse
Effect; (g) ownership, rights to use and absence of violations or claims or
restrictions with respect to intellectual property, except as to restrictions
which do not constitute a Material Adverse Effect; (h) relationships or
transactions with affiliates; (i) maintenance of insurance; (j) collectibility
of accounts receivable and adequacy of reserves for accounts receivable not
collectible, except as would not have a Material Adverse Effect; (k) the
absence of actions that could affect the ability of American to account for
the business combination to be effected by the Merger as a pooling of
interests; (l) the opinion of STAT's financial advisor as to fairness; (m)
absence of brokers', finders' and investment bankers' fees; (n) action taken
by the STAT Board of Directors as to Section 203 of the DGCL; (o) absence of
change in control payments; (p) expenses; (q) compliance with laws and rules
of ethical conduct of applicable medical societies and accrediting bodies,
except where the failure to be in compliance would not have a Material Adverse
Effect and absence of knowing and willful violations of federal Medicare and
Medicaid statutes and related state statutes and regulations; and (xiv) the
following representation of American and Merger Sub: (a) the formation of
Merger Sub and the absence of obligations or liabilities on the part of Merger
Sub other than under the Merger Agreement.
"Material Adverse Effect" means any change, effect or circumstance that,
individually or when taken together with all other such changes, effects or
circumstances that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, (a) is or would be materially
adverse to the business, assets (including intangible assets), prospects,
financial condition or results of operations of STAT and its subsidiaries or
American and its subsidiaries, as the case may be, in each case taken as a
whole, or (b) is or would materially delay or prevent the consummation of the
transactions contemplated by the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by STAT. The Merger Agreement provides that, prior to
the Effective Time, unless American otherwise agrees in writing, STAT will
conduct its business and cause the businesses of its subsidiaries to be
conducted only in the ordinary course of business and in a manner consistent
with past practice; and STAT will use all reasonable efforts to preserve
substantially intact the business organization of STAT and its
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subsidiaries, to keep available the services of the present officers,
employees and consultants of STAT and its subsidiaries and to preserve the
present relationships of STAT and its subsidiaries with customers, suppliers
and other persons with which STAT or any of its subsidiaries has significant
business relations. Except as contemplated by the Merger Agreement, neither
STAT nor any of its subsidiaries, without the prior written consent of
American, will:
(i) amend or otherwise change STAT's Certificate of Incorporation or By-
Laws or similar organizational documents of any of its subsidiaries;
(ii) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) in STAT, any of its subsidiaries or affiliates (except
for the issuance of shares of STAT Common Stock issuable (A) pursuant to
Stock Options which were granted under the STAT Stock Option Plan and are
outstanding on the date hereof, (B) pursuant to the options to purchase
10,000 shares of STAT common stock issued to Russell D. Schneider and (C)
pursuant to the Warrants).
(iii) sell, pledge, dispose of or encumber any assets of STAT or any of
its subsidiaries (except for (A) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (B) dispositions of
obsolete or worthless assets, and (C) sales of immaterial assets not in
excess of $50,000 in the aggregate);
(iv) (A) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of STAT may declare and pay a dividend to its parent, (B) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (C) amend the terms or
change the period of exercisability of, accelerate the vesting of,
purchase, repurchase, redeem or otherwise acquire, or permit any subsidiary
to purchase, repurchase, redeem or otherwise acquire, any of its securities
or any securities of its subsidiaries, including, without limitation,
shares of STAT Common Stock or any option, warrant or right, directly or
indirectly, to acquire shares of STAT Common Stock, or propose to do any of
the foregoing;
(v) (A) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof, except that STAT may (1) acquire complementary businesses
or finance the acquisition by its affiliated physician groups of hospital
medical service contracts in an amount not to exceed $1,000,000 in any
single case and $2,750,000 in the aggregate, (2) with the prior written
consent of American (which consent will not be unreasonably withheld or
delayed) acquire certain businesses described in the Merger Agreement and
(3) finance the acquisition by its affiliated physician groups of the
hospital medical service contracts and not to exceed in the aggregate an
amount previously specified in writing by STAT to American; (B) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse or otherwise as an accommodation become responsible
for, the obligations of any person or, except in the ordinary course of
business consistent with past practice, make any loans or advances; (C)
enter into or amend any material contract or agreement, except that STAT
may amend its existing $6,500,000 bank credit agreement to increase the
amount of credit available thereunder to up to $25,000,000; (D) authorize
any capital expenditures or purchase of fixed assets which are, in the
aggregate, in excess of $100,000 for STAT and its subsidiaries taken as a
whole (except for purchases and leases of equipment not to exceed
$1,000,000 in aggregate payments required for the development of new HBO
therapy and dialysis treatment facilities); or (E) enter into or amend any
contract, agreement, commitment or arrangement to effect any of the matters
prohibited by the foregoing.
(vi) increase the compensation payable or to become payable to its
officers or employees (except for increases in compensation of employees
without employment agreements in accordance with past practices), grant
severance or termination pay to any director, officer or other employee of
STAT or any of its subsidiaries, or establish, adopt, enter into or amend
any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment,
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termination, severance or other plan, agreement, trust, fund, policy or
arrangement for any current or former directors, officers or employees,
except, in each case, as may be required by law;
(vii) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable);
(viii) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations;
(ix) pay, discharge or satisfy any claims, liabilities or obligations,
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in STAT's financial statements contained in reports
previously filed with the Commission or incurred in the ordinary course of
business and consistent with past practice; or
(x) take, or agree to take, any of the foregoing actions, any action
which would make any of the representations or warranties of STAT contained
in the Merger Agreement untrue or incorrect or prevent STAT from performing
its covenants under the Merger Agreement.
No Solicitation by STAT. The Merger Agreement provides that STAT will not,
directly or indirectly, through any officer, director, employee,
representative or agent of STAT or any of its subsidiaries, (i) solicit or
encourage the initiation of any inquiries or proposals regarding any merger,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving STAT or
any subsidiaries of STAT (the foregoing being referred to as "Acquisition
Proposals"), (ii) engage in negotiations or discussions concerning, or provide
any nonpublic information to any person relating to, any Acquisition Proposal
or (iii) agree to, approve or recommend any Acquisition Proposal. However, the
Board of Directors of STAT is not prevented from considering, negotiating,
approving and recommending to the stockholders of STAT a bona fide Acquisition
Proposal not solicited in violation of the Merger Agreement, provided the
Board of Directors of STAT determines in good faith (upon advice of
independent counsel) that it is required to do so in order to discharge
properly its fiduciary duties.
Under the Merger Agreement, STAT is required immediately to notify American
after receipt of any Acquisition Proposal, or any modification of or amendment
to any Acquisition Proposal, or any request for nonpublic information relating
to STAT or any of its subsidiaries in connection with an Acquisition Proposal
or for access to the properties, books or records of STAT or any subsidiary by
any person or entity that informs the Board of Directors of STAT or such
subsidiary that it is considering making, or has made, an Acquisition
Proposal.
If the Board of Directors of STAT receives a request for material nonpublic
information by a person who makes a bona fide Acquisition Proposal, and the
Board of Directors determines in good faith and upon the advice of independent
counsel that it is required to cause STAT to provide such information in order
to discharge properly the directors' fiduciary duties, then, provided the
person making the Acquisition Proposal has executed a confidentiality
agreement substantially similar to the one then in effect between STAT and
American, STAT may provide such person with access to information regarding
STAT.
The Merger Agreement also provides that STAT will immediately cease and
cause to be terminated any existing discussions or negotiations with any other
persons with respect to any of the foregoing, and STAT agrees not to release
any third party from the confidentiality provisions of any confidentiality
agreement to which STAT is a party.
STAT is required to ensure that the officers, directors and employees of
STAT and its subsidiaries and any investment banker or other advisor or
representative retained by STAT are aware of the foregoing restrictions.
Conduct of Business. The Merger Agreement provides that, prior to the
Effective Time, unless STAT otherwise agrees in writing, American will conduct
its business, and cause the businesses of its subsidiaries to be conducted, in
the ordinary course of business and consistent with past practice, other than
actions taken by
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American or its subsidiaries in contemplation of the Merger, and American
shall not directly or indirectly do, or propose to do, any of the following
without the prior written consent of STAT:
(a) amend or otherwise change the Certificate of Incorporation or By-Laws
of American;
(b) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of
American may declare and pay a dividend to its parent; or
(c) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of American contained in the
Merger Agreement untrue or incorrect or prevent American from performing or
cause American not to perform its covenants under the Merger Agreement.
ADDITIONAL AGREEMENTS
HSR Act; Etc. The Merger Agreement provides that STAT and American shall
file notifications under and in accordance with the HSR Act in connection with
the Merger and the transactions contemplated thereby. STAT and American shall
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") for additional information or documentation
and shall respond as promptly as practicable to all inquiries and requests
received from any State Attorney General or other governmental authority in
connection with antitrust matters.
Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of the Merger Agreement, STAT and American
shall prepare and file with the Commission preliminary proxy materials which
shall constitute the Proxy Statement/Prospectus and the Registration Statement
of American with respect to the American Stock to be issued in connection with
the Merger. As promptly as practicable after comments are received from the
Commission thereon and after the furnishing by STAT and American of all
information required to be contained therein, STAT and American shall file
with the Commission a combined proxy and Registration Statement on Form S-4
(or on such other form as shall be appropriate) relating to the adoption of
the Merger Agreement and approval of the transactions contemplated hereby by
the stockholders of STAT, and shall use all reasonable efforts to cause the
Registration Statement to become effective, and to mail the Proxy
Statement/Prospectus to the stockholders of STAT as soon thereafter as
practicable.
Stockholders Meeting. STAT shall call and hold a stockholders meeting as
promptly as practicable and in accordance with applicable laws for the purpose
of voting upon the approval of the Merger and STAT shall use its reasonable
best efforts to hold the stockholders meeting as soon as practicable after the
date on which the Registration Statement becomes effective. Unless otherwise
required under the applicable fiduciary duties of the directors of STAT, as
determined by such directors in good faith after consultation with and based
upon the advice of independent counsel, STAT shall use all reasonable efforts
to solicit from its stockholders proxies in favor of adoption of the Merger
Agreement and approval of the transactions contemplated thereby and shall take
all other action necessary or advisable to secure the vote or consent of
stockholders to obtain such approvals.
Access to Information; Confidentiality. Upon reasonable notice and subject
to restrictions contained in confidentiality agreements to which such party is
subject (from which such party shall use reasonable efforts to be released),
STAT and American shall each (and shall cause each of their subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, reasonable access, during the period prior to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, STAT and American each shall (and shall cause
each of their subsidiaries to) furnish promptly to the other all information
concerning its business, properties and personnel as such other party may
reasonably request, and each shall make available to the other the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion of the other's business, properties and personnel as either STAT or
American may reasonably request. Each party shall keep such information
confidential in accordance with the terms of the
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confidentiality letter, dated September 13, 1996 as amended as of October 1,
1996 (the "Confidentiality Letter"), between American and STAT.
Consents; Approvals. STAT and American will each use their best efforts to
obtain all consents, waivers, approvals, authorizations or orders, and STAT
and American shall make all filings required in connection with the
authorization, execution and delivery of the Merger Agreement and the
consummation by them of the transactions contemplated thereby.
Agreements with Respect to Affiliates. Each of American and STAT shall
deliver to the other, prior to the date the Registration Statement becomes
effective under the Securities Act, a letter (the "Affiliate Letters")
identifying all persons who are "affiliates" of American or STAT,
respectively, for purposes of Rule 145 under the Securities Act ("Rule 145").
Each of American and STAT shall use its reasonable best efforts to cause each
person who is identified as an "affiliate" in its Affiliate Letter to deliver,
prior to the Effective Time, a written agreement (an "Affiliate Agreement") in
connection with restrictions on affiliates under Rule 145 and pooling of
interests accounting treatment in a form previously agreed to by American and
STAT.
Indemnification and Insurance. The Merger Agreement provides that the
Certificate and By-Laws of the Surviving Corporation will contain the
provisions with respect to indemnification set forth in the Certificate and
By-Laws of STAT, which will not be amended, repealed or otherwise modified for
a period of five years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at the Effective
Time were directors, officers, employees or agents of STAT, unless such
modification is required by law.
STAT shall, to the fullest extent permitted under applicable law or under
STAT's Certificate of Incorporation or By-Laws and regardless of whether the
merger becomes effective, indemnify and hold harmless, each present and former
director, officer or employee of STAT or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to the
transactions contemplated by the Merger Agreement, or otherwise with respect
to any acts or omissions occurring at or prior to the Effective Time, to the
same extent as provided in STAT's Certificate of Incorporation or By-Laws or
any applicable contract or agreement as in effect on the date of the Merger
Agreement, in each case for a period of five years after the date of the
Merger Agreement. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to the Surviving Corporation, (ii) after
the Effective Time, American or the Surviving Corporation shall pay the
reasonable fees and expenses of such counsel, promptly after statements
therefor are received, and (iii) American or the Surviving Corporation will
cooperate in the defense of any such matter; provided, however, that neither
American nor the Surviving Corporation shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld); and provided, further, that, in the event that any claim or claims
for indemnification are asserted or made within such five-year period, all
rights to indemnification in respect of any such claim or claims shall
continue until the disposition of any and all such claims. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties.
American and the Surviving Corporation shall honor and fulfill in all
respects the obligations of STAT pursuant to indemnification agreements with
STAT's directors and officers existing at or before the Effective Time.
For a period of three years after the Effective Time, American shall cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by STAT's directors' and officers' liability insurance policy (a copy of which
has been made
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available to American) on terms comparable to those now applicable to
directors and officers of STAT; provided, however, that in no event shall
American or the Surviving Corporation be required to expend in excess of 150%
of the annual premium currently paid by STAT for such coverage; and provided
further, that if the annual premium would exceed such amount, American shall
cause the Surviving Corporation to obtain a policy with the maximum coverage
available at a cost not exceeding such amount.
Notification of Certain Matters. STAT and American will each give the other
prompt notice of the occurrence of any event which would be likely to cause
any representation or warranty of the notifying party contained in the Merger
Agreement to be materially untrue or inaccurate, or any failure of the
notifying party materially to comply with any covenant, condition or agreement
in the Merger Agreement.
Further Action; Tax Treatment. Each of the parties to the Merger Agreement
agrees to use all reasonable efforts to take all actions and do other things
necessary, proper or advisable to consummate as promptly as practicable the
transactions contemplated by the Merger Agreement, to obtain in a timely
manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
Each of American, Merger Sub and STAT shall use its best efforts to cause the
Merger to qualify, and will not (both before and after consummation of the
Merger) take any actions which to its knowledge could reasonably be expected
to prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368 of the Code.
Public Announcements. American and STAT have agreed to consult with each
other before issuing any press release with respect to the Merger or the
Merger Agreement and will not issue any such press release or make any such
public statement without the prior consent of the other party, which consent
will not be unreasonably withheld, except as required by law or the
regulations of the NYSE.
Conveyance Taxes. American and STAT shall cooperate in the preparation,
execution and filing of all returns, questionnaires, applications, or other
documents regarding any real property transfer or gains, sales, use, transfer,
value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed at or before the Effective Time.
Accountant's Letters. Upon reasonable notice from the other, STAT and
American will use their respective best efforts to cause KPMG Peat Marwick LLP
to deliver to American and STAT, a letter dated within 2 business days of the
Effective Date of the Registration Statement covering such matters as are
requested by American or STAT, as the case may be, and as are customarily
addressed in accountant's "comfort" letters.
Pooling Accounting Treatment. Each of American and STAT agrees not to take
any action that to its knowledge could reasonably be expected to adversely
affect the ability of American to treat the Merger as a pooling of interests,
and each of American and STAT agrees to take such action as may be reasonably
required to negate the impact of any past actions which to its knowledge could
reasonably be expected to adversely impact the ability of American to treat
the Merger as a pooling of interests.
Nasdaq Listing; Listing of American Shares. STAT shall use its best efforts
to continue the quotation of the STAT Common Stock on the Nasdaq National
Market during the term of the Merger Agreement. American shall use its best
efforts to cause the American Shares to be issued in the Merger to be approved
for listing, upon official notice of issuance, on the NYSE.
CONDITIONS TO THE MERGER
Conditions to Obligation of Each Party to Effect the Merger. The respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions:
(i) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the Commission under the
Securities Act. No stop order suspending the effectiveness of the
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Registration Statement shall have been issued by the Commission and no
proceedings for that purpose and no similar proceeding in respect of this
Proxy Statement/Prospectus shall have been initiated by the Commission;
(ii) Stockholder Approval. The Merger Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of
STAT;
(iii) HSR Act, Etc. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated; and
(iv) No Injunctions or Restraints; Illegality. No statute, rule,
regulation, executive order, decree, ruling, temporary restraining order,
preliminary or permanent injunction or other order shall have been enacted,
entered, promulgated, enforced or issued by any court or governmental
authority of competent jurisdiction or shall otherwise be in effect which
prohibits, restrains, enjoins or restricts the consummation of the Merger.
Governmental Actions. There shall not have been instituted, pending or
overtly threatened any action or proceeding having a reasonable possibility of
success by any governmental authority or administrative agency before any
governmental authority, administrative agency or court of competent
jurisdiction, nor shall there be in effect any judgment, decree or order of
any governmental authority, administrative agency or court of competent
jurisdiction, in either case, seeking to prohibit or limit American from
exercising all material rights and privileges pertaining to its ownership of
the Surviving Corporation or the ownership or operation by American or any of
its subsidiaries of all or a material portion of the business or assets of
American or any of its subsidiaries, or seeking to compel American or any of
its subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of American or any of its subsidiaries (including the
Surviving Corporation and its subsidiaries), as a result of the Merger or the
transactions contemplated by the Merger Agreement.
Additional Conditions to Obligations of American and Merger Sub. The
obligations of American and Merger Sub to effect the Merger are also subject
to the following conditions:
(i) Representations and Warranties. The representations and warranties of
STAT contained in the Merger Agreement shall be true and correct in all
respects on and as of the Effective Time, except for (1) changes
contemplated by the Merger Agreement, (2) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date, subject to clause 3 of this
paragraph), and (3) where the failure to be true and correct could not
reasonably be expected to have a Material Adverse Effect, with the same
force and effect as if made on and as of the Effective Time, and American
and Merger Sub shall have received a certificate to such effect signed by
the President and the Chief Financial Officer of STAT;
(ii) Agreements and Covenants. STAT shall have performed or complied in
all material respects with all agreements and covenants required by the
Merger Agreement to be performed or complied with by it on or prior to the
Effective Time, and American and Merger Sub shall have received a
certificate to such effect signed by the President and the Chief Financial
Officer of STAT;
(iii) Consents Obtained. All consents, waivers, approvals, permits,
licenses, authorizations or orders required to be obtained, and all filings
required to be made, by STAT for the due authorization, execution and
delivery of the Merger Agreement and the consummation by it of the
transactions contemplated hereby shall have been obtained and made by STAT,
except where the failure to receive such consents, etc. would not (i) have
a Material Adverse Effect on STAT or American, or (ii) materially delay or
prevent the consummation of the Merger;
(iv) Opinion of Counsel. American shall have received a written opinion
from Ropes & Gray, in form and substance reasonably satisfactory to
American, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code;
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(v) Opinion of Accountant. American shall have received an opinion of
KPMG Peat Marwick LLP, independent certified public accountants, to the
effect that the Merger qualifies for pooling of interests accounting
treatment if consummated in accordance with the Merger Agreement; and
(vi) Affiliate Agreements. American shall have received from each person
who is identified in the Affiliate Letters as an "affiliate" of STAT, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect.
(vii) Stockholder Agreements. The Stockholder Agreements shall be in full
force and effective at and as of the Effective Time; and
(viii) Employment Agreements. Each of Russell D. Schneider, Ruben A.
Perez, Daniel A. Perez and David A. Perez shall have executed and delivered
to STAT and American an employment agreement in the form attached as
Exhibit A to the Merger Agreement and each of William H. Rice and Victor M.
Miranda shall have executed and delivered to STAT and American an
employment agreement in the form attached as Exhibit B to the Merger
Agreement and all such employment agreements shall be in full force and
effect.
Additional Conditions to Obligation of STAT. The obligation of STAT to
effect the Merger is also subject to the following conditions:
(i) Representations and Warranties. The representations and warranties of
American and Merger Sub contained in the Merger Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (1)
changes contemplated by the Merger Agreement, (2) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date, subject to clause 3 of this
paragraph), and (3) where the failure to be true and correct could not
reasonably be expected to have a Material Adverse Effect, with the same
force and effect as if made on and as of the Effective Time, and STAT shall
have received a certificate to such effect signed by the President and
Chief Financial Officer of American;
(ii) Agreements and Covenants. American and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with
by them on or prior to the Effective Time, and STAT shall have received a
certificate to such effect signed by the President and the Chief Financial
Officer of American;
(iii) Consents Obtained. All consents, waivers, approvals, permits,
licenses, authorizations or orders required to be obtained, and all filings
required to be made, by American and Merger Sub for the authorization,
execution and delivery of the Merger Agreement and the consummation by them
of the transactions contemplated hereby shall have been obtained and made
by American and Merger Sub, except where the failure to receive such
consents, etc. would not have a Material Adverse Effect on STAT or
American;
(iv) Tax Opinions. STAT shall have received a written opinion of KPMG
Peat Marwick LLP, in form reasonably satisfactory to STAT, to the effect
that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code;
(v) Opinion of Accountant. STAT shall have received a copy of the opinion
of KPMG Peat Marwick LLP, independent certified public accountants,
regarding pooling of interests accounting treatment referred to above;
(vi) NYSE. The American Shares to be issued in the Merger shall have been
approved, upon official notice of issuance, for listing on the NYSE;
(vii) Affiliate Agreements. American shall have received from each person
who is identified in the Affiliate Letter as an "affiliate" of American, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect; and
(viii) American Board Seat. American shall have taken all actions
necessary to nominate and elect Russell D. Schneider as a member of its
Board of Directors.
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TERMINATION
Conditions to Termination. The Merger Agreement may be terminated at any
time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of STAT or American:
(i) by mutual written consent duly authorized by the Boards of Directors
of American and STAT; or
(ii) by American or STAT if the Merger shall not have been consummated by
March 31, 1997 (provided that such right to terminate shall not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date); or
(iii) by American or STAT if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other
action having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger (provided that the right to terminate the Merger
Agreement shall not be available to any party who has not complied with its
obligations under the Merger Agreement and such noncompliance materially
contributed to the issuance of any such order, decree or ruling or the
taking of such action); or
(iv) by American, if the requisite vote of the stockholders of STAT shall
not have been obtained at a duly held meeting of such stockholders or any
adjournment thereof by March 31, 1997; or
(v) by American or STAT, if: (1) the Board of Directors of STAT
withdraws, modifies or changes its approval or recommendation of the Merger
Agreement or the Merger in a manner adverse to American or shall have
resolved to do so in accordance with the Merger Agreement; (2) after the
receipt by STAT of an Acquisition Proposal, American requests in writing
that the Board of Directors of STAT reconfirm its recommendation of the
Merger Agreement and the Board of Directors of STAT fails to do so within
10 business days; (3) the Board of Directors of STAT recommends to the
stockholders of STAT an Alternative Transaction (as defined below); or (4)
a tender offer or exchange offer for 25% or more of the outstanding shares
of STAT Common Stock is commenced (other than by American or an affiliate
of American) and the Board of Directors of STAT recommends that the
stockholders of STAT tender their shares in such tender or exchange offer;
provided, that, STAT shall not be entitled to exercise any termination
rights under this section unless (x) any action of the Board of Directors
of STAT referred to in either such clause is required to be taken by the
Board of Directors in order to properly discharge its fiduciary duties and
(y) STAT has complied with its obligations in the Merger Agreement; or
(vi) by American or STAT if (1) any representation or warranty of STAT or
American, respectively, set forth in the Merger Agreement shall be untrue
when made, or (2) upon a breach of any covenant or agreement on the part of
STAT or American, respectively, set forth in the Merger Agreement and, in
the case of any such breach that is curable, if such breach shall not have
been cured within 10 days after the nonbreaching party gives the breaching
party written notice of such breach, in each case such that the
corresponding conditions set forth in the Merger Agreement would not be
satisfied (either (1) or (2) above being a "Terminating Breach"), provided,
that, if such Terminating Breach is curable prior to March 31, 1997 by STAT
or American, as the case may be, through the exercise of its reasonable
best efforts and for so long as STAT or American, as the case may be,
continues to exercise such reasonable best efforts, neither American nor
STAT, respectively, may terminate the Merger Agreement under this section;
or
(vii) by American, if any representation or warranty of STAT shall have
become untrue such that the corresponding condition set forth in the Merger
Agreement would not be satisfied, or by STAT, if any representation or
warranty of American shall have become untrue such that the corresponding
condition in the Merger Agreement would not be satisfied, in either case
other than by reason of a Terminating Breach.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than American or its
affiliates (a "Third Party") acquires or would acquire more than 25% of the
outstanding Shares, whether from STAT or pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving STAT pursuant to which any Third Party acquires more than 25% of the
outstanding equity securities of STAT or the entity surviving such merger or
business
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combination, or (iii) any other transaction pursuant to which any Third Party
acquires or would acquire control of assets (including for this purpose the
outstanding equity securities of subsidiaries of STAT, and the entity
surviving any merger or business combination including any of them) of STAT or
any of its subsidiaries having a fair market value (as determined by the Board
of Directors of STAT in good faith) equal to more than 25% of the fair market
value of all the assets of STAT and its subsidiaries, taken as a whole,
immediately prior to such transaction.
Effect of Termination. In the event of the termination of the Merger
Agreement, the Merger Agreement shall forthwith become void and there shall be
no liability on the part of any party thereto or any of its affiliates,
directors, officers or stockholders except (1) as otherwise set forth in the
Merger Agreement, and (2) nothing in the Merger Agreement shall relieve any
party from liability for any breach thereof.
Fees and Expenses.
(i) Except as set forth below, all fees and expenses incurred in
connection with the Merger Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not
the Merger is consummated.
(ii) STAT shall pay American a fee of $4,500,000 (the "STAT Fee"), plus
actual, documented and reasonable out-of-pocket expenses of American
relating to the transactions contemplated by the Merger Agreement not in
excess of $500,000 in the aggregate (including, but not limited to,
reasonable fees and expenses of American's counsel, accountants and
financial advisers) ("Expenses"), upon the termination of the Merger
Agreement by American on the basis described in clause (iv) of "--
Termination--Conditions to Termination" above if a proposal for an
Alternative Transaction shall have been made before the Special Meeting, by
American or STAT, on the basis described in clause (v) of "--Termination--
Conditions to Termination" above, or by American on the basis described in
clause (vi) of "--Termination--Conditions to Termination" above.
(iii) American shall pay STAT a fee of $4,500,000 (the "American Fee"),
plus actual, documented and reasonable out-of-pocket expenses of STAT (not
to exceed $500,000 in the aggregate) relating to the transactions
contemplated by the Merger Agreement (including, but not limited to, fees
and expenses of STAT's counsel, accountants and financial advisers) if STAT
terminates the Merger Agreement on the basis described in clause (vi) of
"--Termination--Conditions to Termination" above.
(iv) The STAT Fee and related expenses payable pursuant to (ii) above and
the American Fee and related expenses payable pursuant to (iii) above, as
the case may be, shall be paid within one business day after the first to
occur of any of the events described in (ii) or (iii) above; provided,
that, in no event shall STAT or American be required to pay such fee and
expenses to the other if, immediately prior to the termination of the
Merger Agreement, the party that was otherwise entitled to such fee was in
material breach of its obligations under the Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties by action
taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time, provided that after approval of the Merger by the
stockholders of STAT, no amendment may be made which by law requires further
approval by such stockholders without such further approval. The Merger
Agreement may not be amended except by an instrument in writing signed by the
parties thereto.
At any time prior to the Effective Time, any party to the Merger Agreement
may, with respect to any other party, extend the time for the performance of
any of the obligations or other acts, waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement, or waive compliance with
any of the agreements or conditions contained in the Merger Agreement. Any
such extension or waiver will be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
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OTHER AGREEMENTS
The description of the Stockholder Agreements set forth below does not
purport to be complete and is qualified in its entirety by reference to such
agreements, a form of which is filed as an exhibit to the Proxy
Statement/Prospectus.
STOCKHOLDER AGREEMENTS
Concurrently with the execution of the Merger Agreement, American entered
into a Stockholder Agreement (collectively, the "Stockholder Agreements") with
each of Ruben A. Perez, Russell D. Schneider, Daniel A. Perez, William H.
Rice, M.D., Victor M. Miranda, M.D., and South Texas Acute Trauma Physicians,
P.A. (the "Holders"). Pursuant to the Stockholder Agreements, each of the
Holders has agreed to vote all of the shares of STAT it owns of record or
beneficially or subsequently acquires ("Subject Securities") in favor of the
Merger and against other business combinations and actions which could
interfere with the Merger and has granted an irrevocable limited proxy with
respect to the Subject Securities (the "Proxy"). The Proxy appoints each of
Merger Sub, certain officers and their successors and any other designee of
Merger Sub as proxies with respect to such Holder's Subject Shares to vote in
accordance with the provisions described in above. Holders collectively owned
approximately 9,750,000 shares of STAT Common Stock outstanding as of the date
of the Merger Agreement.
Each Holder has agreed not, directly or indirectly, to solicit or respond to
any inquiries or the making of any proposal by any person or entity (other
than American or any affiliate of American) with respect to STAT that
constitutes or could reasonably be expected to lead to an Alternative
Transaction. Each Holder has also agreed that it will not, directly or
indirectly except pursuant to the terms of the Merger Agreement offer for
sale, sell, or otherwise dispose of any or all of such Holder's shares of
STAT.
The Stockholder Agreements shall terminate upon the earlier of the
termination of the Merger Agreement pursuant to its terms and March 31, 1997.
American and each Holder have agreed that none of the provisions of the
Stockholder Agreements shall restrict or limit any fiduciary duty the Holder
may have as a director or officer of STAT provided that no such duty shall
excuse the Holder from his obligation to vote the Subject Securities as
provided in the Stockholder Agreements and to otherwise comply with the
Stockholder Agreements.
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THE COMPANIES
AMERICAN
American is the leading provider of emergency and non-emergency ambulance
services in the United States. American provides pre-hospital emergency
medical care and ambulance services to patients in response to "911" emergency
medical calls. Additionally, American provides non-emergency ambulance
services to patients during transfer to and from healthcare facilities and
residences and non-medical transport services to the physically challenged and
the elderly. American completed approximately 1,710,000 transports in response
to calls for its services during 1995, expects to complete approximately
2,600,000 transports in response to calls for its services during 1996, and
currently provides ambulance services in 28 states.
STAT
STAT provides a continuum of disease management services primarily to
diabetic patients with complications such as end-stage renal disease ("ESRD"
or "chronic kidney failure") and non-healing wounds. STAT also provides
physician practice management services to affiliated physician groups which
staff hospital emergency departments. As of October 1, 1996 STAT operated five
kidney dialysis facilities, managed two hyperbaric oxygen ("HBO") therapy
facilities and had entered into contracts to manage three additional HBO
therapy facilities commencing in October 1996 and provided home healthcare
management and related ancillary services primarily in the Rio Grande Valley
of south Texas. As of October 1, 1996, through its affiliates physician
groups, STAT also provided physician practice management services to 24
hospital emergency departments, 17 of which are in the Houston greater
metropolitan area.
STAT's disease management services consist of a system of care for persons
with chronic kidney failure, including kidney dialysis treatment, HBO therapy
and related ancillary services. Chronic kidney failure is the state of
advanced renal impairment that generally is irreversible and requires routine
dialysis treatments an average of three times per week or kidney
transplantation in order to sustain life. In addition to the need for dialysis
treatment, chronic kidney failure patients frequently suffer from one or more
associated medical conditions, including non-healing wounds, hypertension,
coronary artery disease, anemia and nutritional problems. Qualified patients
with chronic kidney failure have been entitled since 1972 to Medicare benefits
regardless of age or financial circumstances under the federal ESRD program.
Through its affiliated physician groups, STAT also provides physician
practice management services for emergency departments at hospitals. Hospitals
frequently outsource key departmental functions to third-party management
companies in an effort to control and reduce operating costs and focus on
their core competencies. There are approximately 5,200 hospital emergency
departments in the U.S., many of which face numerous problems in managing
their emergency departments, including difficulties in recruiting, evaluating,
scheduling and retaining qualified emergency physicians, and the inefficient
use of emergency departments for routine primary care. STAT intends to
continue to focus on strategic relationships and outsourcing opportunities
with hospital networks rather than management contracts with individual
hospitals. In addition, STAT believes that in the future it can provide
physician practice management services to other hospital-based physician
practices, such as radiology, pathology and anesthesiology.
STAT's objective is to be the preferred provider of integrated kidney
disease management services and physician practice management services in its
current and future market areas. The principal elements of STAT's strategy are
to (i) expand its integrated disease management services, (ii) leverage its
existing relationships with hospital networks, (iii) expand into new
geographic markets and (iv) attract managed care contracts.
STAT's predecessor was incorporated in Delaware in July 1994 and completed
its initial public offering in April 1995. STAT was incorporated in Delaware
in March 1996 to facilitate the reorganization of STAT in connection with the
acquisition by STAT of AmHealth Corporation and its related healthcare
entities in exchange
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<PAGE>
(the "Exchange") for 11,200,000 shares of STAT Common Stock, representing
approximately 75% of STAT's Common Stock outstanding immediately after the
Exchange. In June 1996, pursuant to the consummation of the Exchange, (i)
STAT's predecessor merged with a wholly-owned subsidiary of STAT, (ii) each
outstanding share of common stock of STAT's predecessor was converted into one
share of STAT Common Stock and (iii) each option and warrant to purchase
common stock of STAT's predecessor was converted into a similar option or
warrant, respectively, to purchase shares of STAT Common Stock.
RECENT DEVELOPMENTS
EXCHANGE WITH AMHEALTH CORPORATION AND RELATED ENTITIES
In June 1996, pursuant to the Exchange (i) AmHealth Corporation, AmHealth
Enterprises of the Valley, Inc. and AmHealth Ambulatory Services, Inc., each a
Texas corporation (collectively, the "AmHealth Corporations"), were merged
into STAT, with STAT as the surviving corporation and (ii) all the general
partners and limited partners (excluding limited partners representing a 25%
interest in Brownsville Kidney Center, Ltd.) of AmHealth Kidney Centers of the
Valley, Ltd., Weslaco Kidney Center, Ltd., Starr Dialysis Center, Ltd.,
Mission Kidney Center, Ltd., Brownsville Kidney Center, Ltd., AmHealth Medical
Management, Ltd., Brownsville Hyperbaric Healthcare, Ltd., Southwestern
Infusion Healthcare, Ltd. and AmHealth Ambulatory Healthcare, Ltd., each a
Texas limited partnership (collectively, the "AmHealth Partnerships" and,
together with the AmHealth Corporations, "AmHealth"), received shares of STAT
Common Stock in exchange for their partnership interests in the AmHealth
Partnerships. The former owners of AmHealth received a total of 11,200,000
shares of STAT Common Stock (representing approximately 75% of the STAT Common
Stock outstanding immediately after the Exchange).
In connection with the Exchange, Mr. Schneider was elected Chairman of the
Board of Directors and Chief Executive Officer of STAT, Mr. R. Perez was
elected President--Healthcare Management, Treasurer and a director of STAT,
and Daniel A. Perez was elected Senior Vice President of STAT. Messrs.
Schneider, R. Perez and D. Perez, each of whom was an affiliate of AmHealth
prior to the Exchange, also entered into employment agreements with STAT.
Following the Exchange, Ned E. Chapman, STAT's Chief Financial Officer,
resigned from STAT's Board of Directors and Mr. R. Perez was elected to fill
the vacancy created by Mr. Chapman's resignation. The number of directors
constituting the Board was increased to six persons, and Ann N. James, Ph.D.
and David C. Colby, both of whom were designated by former affiliates of
AmHealth, were elected to fill the two newly created positions.
At the time of the Exchange, AmHealth operated kidney dialysis facilities,
managed HBO therapy facilities and provided home healthcare management and
related ancillary services primarily in the Rio Grande Valley of south Texas.
The Exchange was accounted for as a pooling of interests, and STAT's
consolidated financial statements as of and for the years ended December 31,
1993, 1994 and 1995 have been restated to give retroactive effect to the
consummation of the Exchange. See STAT's Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Proxy Statement/Prospectus.
COLUMBIA AGREEMENT
Effective February 1996, one of STAT's affiliated physician groups entered
into an agreement (the "Columbia Agreement") to provide emergency medical
services to 15 of Columbia's hospitals in the Houston greater metropolitan
area, six of which hospitals were then being served by STAT under individual
contracts with hospitals. The Columbia Agreement has an initial term ending in
January 1998 with provisions for automatic renewal, and may be terminated by
Columbia in certain circumstances, including the loss of Columbia's
certification as a Medicare provider or unsatisfactory service by STAT or its
affiliated physician groups. During the term of the Columbia Agreement and for
two years thereafter, STAT has agreed not to organize, or provide
administrative or advisory services to, independent physician or similar
associations whose practices relate to areas other than emergency medicine and
who are located in proximity to specified Columbia medical centers. There can
be no assurance that the Columbia Agreement will be renewed at the conclusion
of
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its initial term, that it will be renewed on substantially the same terms and
conditions, or that it will not be terminated prior to the conclusion of its
term.
ACQUISITION OF ASSETS OF AMEDICA, LTD.
In February 1996, STAT acquired certain intangible assets of Amedica, Ltd.
for a total purchase price of $270,000, consisting of $200,000 in cash and
15,730 shares of STAT Common Stock. These assets consisted of certain contract
rights and the right to use the name "Amedica."
ACQUISITION OF HEMA CONTRACT
In January 1996, in contemplation of the Columbia Agreement, STAT acquired
the rights to a contract (the "HEMA Contract") for the provision of physician
practice management services at one of Columbia's Houston-area hospitals for a
total purchase price of $1.2 million, consisting of $960,000 in cash and
52,174 shares of STAT Common Stock. STAT also agreed to pay to the assignor of
the HEMA Contract up to $100,000 in each of the three 12-month periods
following the acquisition of the contract subject to certain conditions. The
rights to provide services under the HEMA Contract have been incorporated into
the Columbia Agreement.
OTHER MATTERS
STAT is in varying stages of discussions with healthcare providers to
provide physician practice management services to emergency departments in
different geographic areas and to acquire dialysis facilities. In particular,
STAT is discussing contracts with a hospital network to provide physician
practice management services in at least two major metropolitan areas outside
of Houston. STAT is also in discussions with the owners of at least two
dialysis facilities which, if acquired, would be expected to significantly
increase STAT's revenues from disease management services during 1997. There
can be no assurance, however, that STAT will be successful in obtaining all or
any of these or other similar contracts or facilities, or that, if such
contracts or facilities are obtained the profit margins would be consistent
with STAT's existing business.
DIVIDEND POLICY
To date, STAT has not paid or declared any cash dividends and does not
anticipate paying or declaring any dividends on the Common Stock in the
foreseeable future. In addition, STAT's credit agreement with two commercial
banks and the Merger Agreement prohibit the payment of dividends. Certain of
the AmHealth entities made and have declared distributions to their
shareholders and partners for periods prior to the Exchange. Any future change
in STAT's dividend policy rests solely within the discretion of the Board of
Directors of STAT and will depend upon, among other things, STAT's earnings,
capital requirements, financial condition and any restrictions under credit
agreements, as well as other factors deemed relevant by the Board of Directors
of STAT.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. STAT's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those included elsewhere in this Proxy
Statement/Prospectus.
GENERAL
The following discussion and analysis reviews consolidated financial data
for companies which previously reported separately. The consolidation has been
made because of the June 1996 merger of STAT's predecessor ("Old STAT") and
AmHealth into STAT in connection with the Exchange. AmHealth is comprised of a
group of corporations and partnerships with related ownership which were
formed at various dates commencing in October 1992 and which commenced
operating activities in April 1993. The Exchange was accounted for as a
pooling of interests.
Old STAT was incorporated on July 29, 1994, and commenced active operations
effective September 1, 1994, pursuant to a Management Agreement with STAT
Physicians I which had been in effect since January 1, 1986. To provide
comprehensive historical operating data, the operating results of STAT
Physicians I for the year ended December 31, 1993 and the eight months ended
August 31, 1994, which are reported separately, have been combined in the
comparative statements of income data discussed herein. Subsequent to August
1994, STAT Physicians' operating results were reported on a consolidated basis
with the results of Old STAT.
Historically, Old STAT's operations were limited to a single business
segment: emergency medical management services. AmHealth's operations were
focused on integrated disease management services comprised of two
identifiable segments: kidney dialysis services and medical management
services encompassing HBO therapy and home healthcare management services.
The following discussion should be read in conjunction with STAT's
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
For purposes of this discussion, the term "same store" refers to facilities
which were open for the duration of each comparable period.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net Service Revenues. Net service revenues increased by $6.3 million, or
61%, to $16.7 million in the six months ended June 30, 1996 from $10.4 million
in the comparable period of 1995. This increase is comprised of a $3.2 million
(93%) increase in disease management revenues and a $3.1 million (45%)
increase in emergency medical management revenues.
The increase in disease management revenues, to $6.7 million in the six
months ended June 30, 1996 from $3.5 million in the comparable period of 1995,
was primarily attributable to the introduction of new services and facilities.
Kidney dialysis services accounted for approximately $3.8 million of 1996
revenues and approximately $2.6 million of 1995 revenues, while medical
management services accounted for $2.9 million of 1996 revenues compared to
$0.9 million of 1995 revenues.
At June 30, 1996, STAT operated five kidney dialysis facilities compared
with three facilities at June 30, 1995. Revenues during 1996 attributable to
the new facilities approximated $0.6 million while revenues attributable to
facilities open during both periods increased to $3.2 million from $2.6
million or a same store growth rate of approximately 19%. Per patient revenue
rates remained relatively constant between the periods.
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At June 30, 1996, STAT had approximately 270 dialysis patients compared with
approximately 185 patients at June 30, 1995.
At June 30, 1996, STAT provided management services to one home healthcare
agency, which services commenced in June 1995, and managed two HBO therapy
facilities, one of which opened in May 1995 and one of which opened in April
1996. The increase in comparative medical management revenues of $2.0 million
is attributable to a combination of the short operating history as of June 30,
1995 and the opening of the second HBO therapy facility in April 1996. In July
1996, STAT announced contracts for three additional HBO therapy facilities
which are expected to be opened during the fourth quarter of 1996.
The increase in emergency medical management revenues, to $10.0 million in
the six months ended June 30, 1996 from $6.9 million in the comparable period
of 1995, was primarily attributable to an increase in the number of patients
treated in 1996 (approximately 124,000) compared with 1995 (approximately
90,000). The increase in patients relates to an increase in the number of
emergency departments being served, 18 as of June 30, 1996 compared with 13 as
of June 30, 1995. During the 1996 period, STAT began providing services at
nine additional emergency departments. In July 1996, STAT announced contracts
for services to five additional emergency departments, two of which commenced
July 1 with the remaining three to commence during the fourth quarter of 1996.
Services were terminated by STAT at four emergency departments (two in April
1996 and two during the second half of 1995) which were served at June 30,
1995. Also contributing to the increase in revenues is a 5% increase in
average revenue per patient to $80.31 in 1996 from $76.27 in 1995. The
increase in per patient revenue was due to a pricing increase implemented in
February 1996.
Operating Expenses. Operating expenses increased by $5.2 million, or 60%, to
$13.8 million in the six months ended June 30, 1996 from $8.6 million in the
comparable period of 1995. This percentage increase approximated the
comparative increase in net service revenues.
Significant elements comprising operating expenses included: (i)
professional medical fees which increased $2.1 million or 47%; (ii) human
resource costs which increased $1.9 million or 116%; (iii) billing and
collection costs which increased $0.3 million or 43%; (iv) supplies costs
which increased $0.3 million or 38%; and (v) liability insurance which
increased $0.2 million or 54%. Other combined costs accounted for the
remaining increase of $0.4 million. Comments relating to the five identified
costs are as follows:
Professional medical fees, liability insurance, and billing and collection
costs, which increased by 47%, 54% and 43%, respectively, were all directly
related to emergency medical management services, which revenues increased by
45%. The percentage increase in professional medical fees exceeded the
percentage increase in related revenues because of rate increases in fees paid
to independent contract physicians. The percentage increase in liability
insurance exceeded the percentage increase in patients treated (38%) because
of an increase in premiums which are paid on a per patient basis. The average
cost for 1996 was approximately $4.00 per patient compared to approximately
$3.60 per patient in the 1995 period. The increase in billing and collection
costs was slightly less than the increase in revenues because of a May 1996
negotiated reduction in the cost of this contracted service which is based on
a percentage of collections.
The rate of increase in human resource costs exceeded the rate of increase
in revenues. Such costs increased by 75% (compared to a revenue increase of
45%) or $0.5 million in emergency medical management services and by 146%
(compared to a revenue increase of 93%) or $1.4 million relating to disease
management services. The disproportionate percentage increases were
attributable to the hiring of administrative and support personnel to
accommodate the expanded operations and contracted future business.
Additionally, the home healthcare and HBO services businesses which were
started late in the 1995 period are highly labor intensive and contributed to
an increase in these costs as a percentage of revenues.
The 38% increase in supply costs was most directly related to a 46% increase
in dialysis net service revenues. These costs did not increase at as great a
rate as revenues because of economies of scale in purchasing supplies for
expanded operations.
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Reorganization Costs. The reorganization costs incurred during the six
months ended June 30, 1996 relate entirely to the Exchange and consist of
legal, accounting and other transactional costs.
Taxes and Proforma Income Taxes. Combined income taxes and proforma income
taxes have been calculated using estimated effective tax rates of 36% for the
six months ended June 30, 1996 and 34% for the comparable period of 1995.
Because the AmHealth entities were S corporations or partnerships for federal
income tax purposes, no income taxes were provided on their pre-Exchange
incomes. Pro forma income taxes represent the additional taxes which would
have been provided had they been subject to income taxes at the established
rates.
Shares Used in Computing Net Income Per Share. Shares used in computing net
income per share is based on the weighted average common shares and common
share equivalents outstanding during the periods presented. For the six months
ended June 30, 1996, this includes 14,902,472 shares outstanding plus
approximately 418,000 common share equivalents relating to warrants and
options. For the comparable period of 1995, there were no common share
equivalents because the warrants and options were anti-dilutive. Additionally,
shares allocable to AmHealth entities included in the Exchange which were not
yet operational as of June 30, 1995 were excluded from the 1995 average.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Service Revenues. Net service revenues increased by $8.6 million, or
59%, to $23.1 million in 1995 from $14.5 million in 1994. This increase was
comprised of a $5.0 million (127%) increase in disease management revenues and
a $3.6 million (34%) increase in emergency medical management revenues.
The increase in disease management revenues, to $9.0 million in 1995 from
$5.0 in 1994, was primarily attributable to the introduction of new services
and facilities from year to year. Kidney dialysis services accounted for
approximately $6.3 million of 1995 revenues and approximately $3.8 million of
1994 revenues, while medical management services accounted for $2.7 million of
1995 revenues compared to $0.2 million of 1994 revenues.
At December 31, 1995, STAT operated four kidney dialysis facilities compared
with three facilities at December 31, 1994. Two facilities were open
throughout 1994 and 1995, one facility was open for seven months of 1994 and
throughout 1995 and the fourth facility was opened in August 1995. Of the $2.5
million increase in dialysis revenues, approximately $1.4 million was
attributable to new facilities and $1.1 million was attributable to a same
store growth rate of approximately 28%.
Medical management services consisting of one HBO therapy facility and
management and personnel services to a home healthcare agency commenced in May
1995 and June 1995, respectively, and generated approximately $2.6 million of
revenues in 1995 with no comparable revenues for 1994.
The increase in emergency medical management revenues, to $14.1 million in
1995 from $10.5 million in 1994, was attributable to an 18% increase in
patients treated (approximately 180,000 in 1995 compared with approximately
153,000 in 1994) and a 14% increase in average revenue per patient ($78.47 in
1995 compared with $68.94 in 1994). The comparative increase in patients is
attributable to new emergency department contracts which commenced in mid-
December 1994 and in March 1995. Patient volumes under contracts serviced
throughout both periods were mostly unchanged. The increase in average revenue
per patient is attributable to the conversion between 1994 and 1995 of
additional contracts to fee-for-service arrangements and to increases in
levels of service which were required by patients treated. Standard billing
rates for medical procedures were identical between the two years.
Operating Expenses. Operating expenses increased by $6.3 million, or 49%, to
$19.4 million in 1995 from $13.1 million in 1994. Significant elements
comprising this increase included: (i) human resource costs which increased
$2.7 million or 138%; (ii) professional medical fees which increased $1.5
million or 20%; (iii) supply
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costs which increased $0.7 million or 59%; and (iv) billing and collection
costs which increased $0.7 million or 84%. Other combined costs accounted for
the remaining increase of $0.7 million. Comments relating to the four
identified costs follow:
Approximately $1.2 million of the increase in human resource costs was
attributable to additional personnel associated with the medical management
services contracts which commenced operations in May and June 1995.
Approximately $0.4 million is attributable to personnel associated with
expanded dialysis operations and approximately $0.3 million was associated
with a recharacterization of compensation paid to the principal physician
stockholders of Old STAT who received higher compensation as contract
physicians. The remaining $0.8 million increase in attributable to increases
in general administrative personnel required by the expanding operations and
general salary increases awarded to employees.
The percentage increase in professional medical fees approximates the
percentage increase in patients treated between 1995 and 1994. The increase in
supply costs was largely attributable to the expansion of the dialysis
business which increased at a rate of 66% over 1994. The 84% increase in
billing and collection costs, an outsourced service, exceeded the rate of
increase in emergency medical management revenues (34%) because of a shift in
reimbursement methods from direct hospital payments in 1994 to fee-for-service
in 1995. Billing and collection costs were borne by the hospitals under the
direct payment arrangements.
Interest Income. Interest income of $1.1 million in 1995 was attributable to
the investment of net proceeds received in Old STAT's April 1995 initial
public offering.
Interest Expense. Interest expense of $0.2 million in 1995 was attributable
to borrowings associated with equipment for dialysis and HBO therapy
facilities and the interest component of capitalized leases.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net Service Revenues. Net service revenues increased by $4.5 million, or
45%, to $14.5 million in 1994 from $10.0 million in 1993. This increase was
comprised of a $2.8 million (240%) increase in disease management revenues and
a $1.7 million (19%) increase in emergency medical management revenues.
Disease management revenues for both years were comprised almost entirely of
dialysis service revenues which increased to $4.0 million in 1994 from $1.2
million in 1993. This increase is attributable to an expansion of operations
and length of time that dialysis services were provided. The three dialysis
centers which were operational at December 31, 1994 commenced operations at
the following dates: April 1993, November 1993 and June 1994.
The increase in emergency medical management revenues, to $10.5 million in
1994 from $8.8 million in 1993, was attributable to an 18% increase in
patients treated (approximately 153,000 in 1994 compared with approximately
130,000 in 1993). This increase was attributable to additional emergency
department contracts added in 1994.
Operating Expenses. Operating expenses increased by $3.7 million, or 39%, to
$13.1 million in 1994 from $9.4 million in 1993. Significant elements
comprising this increase included: (i) professional medical fees which
increased $0.9 million or 13%; (ii) human resources which increased $0.8
million or 76%; (iii) supply costs which increased $0.8 million or 205%; and
(iv) billing and collection costs which increased $0.5 million or 162%. Other
combined costs accounted for the remaining increase of $0.7 million. Comments
relating to the identified costs are as follows.
Professional medical fees increased at a slightly lower rate than the
increase in patients treated. This was attributable to increased physician
productivity (more patients treated per physician) from 1993 to 1994. Human
resources costs increased at a greater rate than revenues because of the need
for additional contracts, the staffing of new dialysis centers which had not
yet achieved optimum productivity and annual salary increases for personnel
working throughout both periods. The increase in supply costs was attributable
to the commencement
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of services at the dialysis centers which are supply cost intensive
operations. Billing and collection costs increased at a disproportionate rate
compared to emergency medical management revenues because of a shift in 1994
to fee-for-service business from direct reimbursement contracts in 1993 which
had no related billing and collection costs.
Quarterly Financial Results
The following tables set forth unaudited consolidated income statement data
for the eleven quarters ended September 30, 1996, as well as such data
expressed as a percentage of STAT's total net service revenues for the periods
indicated. This data has been derived from unaudited interim consolidated
financial statements that, in the opinion of management, have been prepared on
a basis consistent with STAT's Consolidated Financial Statements appearing
elsewhere herein and include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with STAT's Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Proxy Statement/Prospectus. The
operating results for any quarter are not necessarily indicative of results
for any future period.
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<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------ ------------------------------ -------------------------
MAR 31(1) JUN 30(1) SEP 30(1) DEC 31 MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUNE 30 SEP 30
--------- --------- --------- ------ ------ ------ ------ ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Net service revenues.... $3,342 $3,368 $3,718 $4,093 $4,873 $5,502 $6,148 $6,618 $ 7,549 $9,114 $10,643
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Operating expenses:
Professional medical
fees.................. 1,862 1,918 1,950 1,984 2,200 2,348 2,367 2,326 2,824 3,871 4,746
Human resources........ 398 424 530 597 696 929 1,352 1,663 1,747 1,769 2,000
Supplies............... 168 228 334 413 382 440 473 523 566 570 589
Billing and collection
costs................. 170 176 199 250 316 381 395 369 445 551 617
Other costs............ 314 324 389 413 400 499 648 668 704 733 937
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Total operating
expenses............ 2,912 3,070 3,402 3,657 3,994 4,597 5,235 5,549 6,286 7,494 8,889
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Operating income........ 430 298 316 436 879 905 913 1,069 1,263 1,620 1,754
Interest and other
(income) expense, net.. 30 26 32 (83) 30 (1) 56 36 52 81 105
Reorganization costs.... -- -- -- -- -- -- -- -- -- 1,269 --
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income before income
taxes.................. 400 272 284 519 849 906 857 1,033 1,211 270 1,649
Income taxes............ 58 27 29 55 77 104 111 55 77 (121) 594
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Net income.............. $ 342 $ 245 $ 255 $ 464 $ 772 $ 802 $ 746 $ 978 $ 1,134 $ 391 $ 1,055
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =======
Pro forma data (2):
Pro forma income
taxes................. 78 66 67 121 212 204 180 296 359 218 --
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Pro forma net income... $ 264 $ 179 $ 188 $ 343 $ 560 $ 598 $ 566 $ 682 $ 775 $ 173 $ 1,055
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =======
Pro forma net income
per common share...... $ 0.04 $ 0.03 $ 0.02 $ 0.05 $ 0.07 $ 0.06 $ 0.04 $ 0.05 $ 0.05 $ 0.01 $ 0.07
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =======
Number of shares used
in computing pro
forma net income per
share................. 6,365 6,766 7,583 7,583 7,583 10,556 14,465 14,823 15,180 15,424 15,444
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =======
AS A PERCENTAGE OF NET
SERVICE REVENUES:
Net service revenues.... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Operating expenses:
Professional medical
fees.................. 55.7 56.9 52.4 48.5 45.1 42.7 38.5 35.1 37.4 42.5 44.6
Human resources........ 11.9 12.6 14.3 14.6 14.3 16.9 22.0 25.1 23.1 19.4 18.8
Supplies............... 5.0 6.8 9.0 10.1 7.8 8.0 7.7 7.9 7.5 6.3 5.5
Billing and collection
costs................. 5.1 5.2 5.4 6.1 6.5 6.9 6.4 5.6 5.9 6.0 5.8
Other costs............ 9.4 9.6 10.5 10.1 8.2 9.1 10.5 10.1 9.3 8.0 8.8
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Total operating
expenses............ 87.1 91.2 91.5 89.4 82.0 83.6 85.1 83.8 83.2 82.2 83.5
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Operating Income........ 12.9 8.8 8.5 10.6 18.0 16.4 14.9 16.2 16.8 17.8 16.5
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =======
</TABLE>
- --------
(1) Represents consolidated financial data for STAT for the year ended December
31, 1994 combined with financial data for STAT Physicians I for the eight
months ended August 31, 1994.
(2) Reflects the effects of income taxes not otherwise payable by entities
which were partnerships or S corporations prior to the Exchange.
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LIQUIDITY AND CAPITAL RESOURCES
Capital requirements of STAT relate principally to three areas: (i) funds
required to purchase capital assets for dialysis facilities and equipment for
the expansion of existing and opening of new HBO therapy facilities; (ii)
working capital needs associated with financing the acquisition and start-up
of new emergency department contracts; and (iii) availability of funds for
acquisitions which complement STAT's growth strategy.
Management is actively evaluating new markets for the expansion of STAT's
disease management services and considers either dialysis facilities or HBO
therapy facilities to be the optimum vehicles for market entry. These ventures
are the most capital intensive of STAT's businesses and require funds to
purchase dialysis and HBO therapy equipment. At June 30, 1996, STAT had
commitments for approximately $0.5 million of HBO therapy equipment for new
facilities expected to open during the fourth quarter of 1996.
In evaluating individual business segments of STAT, working capital needs
are most extensive as they relate to increases in emergency department
contracts. Experience indicates that upon commencement of new contracts,
periods ranging from 90 to 150 days are required to achieve normal cash flows.
Accordingly, the more rapidly STAT is able to add new contracts, the greater
the working capital needs.
In evaluating growth opportunities, management expects to consider
acquisitions as well as growth through internal development. Some acquisitions
may be accomplished through the issuance of additional stock; however, it is
expected that cash will be a significant medium in STAT's acquisition
strategy.
Historically, capital requirements have been met through a combination of
sources including: (i) cash flows from operations; (ii) proceeds from Old
STAT's April 1995 initial public offering; and (iii) lease and bank financing.
STAT currently has a $6.5 million Revolving and Term Credit Facility with two
commercial banks (the "Revolving and Term Credit Facility"). The revolving
portion of the facility has a borrowing limit of up to $3.0 million, based
upon qualified accounts receivable, bears interest, at STAT's option, at
either (i) the prime rate or (ii) the London Interbank Offered Rate plus 1.50%
to 2.25% per annum, depending on STAT's debt to cash flow ratio, and matures
in August 1997. The term portion of the facility has a borrowing limit equal
to the lesser of $3.5 million or 75% of new equipment purchases, bears
interest at the prime rate, and matures in August 1999. Accrued interest is
payable monthly. All borrowings under the term facility must be made prior to
August 1997. Until August 1997, outstanding principal under the term facility
is payable monthly in installments equal to 1/36 of the principal then
outstanding. After August 1997, principal outstanding under the term facility
will be payable in 24 equal monthly installments. In addition, STAT is
required to pay to the banks a quarterly commitment fee of up to 0.25% of the
unused revolving credit commitment. The Revolving and Term Credit Facility
also contains customary restrictive covenants, prohibits the payment of
dividends, requires STAT to maintain certain financial ratios and guaranteed
by all of STAT's subsidiaries and affiliated physician groups. At September
30, 1996, there was $2.3 million outstanding under the revolving facility and
approximately $425,000 outstanding under the term facility. Discussions
recently commenced to increase the borrowing limits of the proposed Revolving
and Term Credit Facility. However, no assurances can be made that STAT will be
able to achieve this objective.
Management believes that cash flows from operations and its borrowing
capacity should be sufficient to meet its anticipated capital expenditures and
other operating requirements and to substantially fund its growth strategy for
the next 12 months. However, because future cash flows and the availability of
financing are subject to a number of variables, such as the timing and size of
dialysis and HBO therapy developments and acquisitions and new emergency
medical management contracts, there can be no assurance that STAT's capital
resources will be sufficient to maintain currently planned levels of growth.
Accordingly, STAT may be required to seek additional equity or debt financing
from other sources to fund its growth strategy. If financing is not available
or is not available on terms acceptable to STAT, STAT may not be able to
maintain currently planned levels of growth.
INFLATION
Inflation has not had a material impact on the operations or financial
condition of STAT during the last three years.
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NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The financial accounting standards of SFAS No.
123 permit companies to either continue accounting for stock-based
compensation under existing rules or adopt SFAS No.123 and begin reflecting
the fair value of stock options and other forms of stock-based compensation in
the results of operations as additional expense. The disclosure requirements
of SFAS No. 123 require companies which elect not to record the fair value in
the statement of operations to provide pro forma disclosures of net income and
earnings per share in the notes to the financial statements as if the fair
value of stock-based compensation had been recorded. The disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995. STAT will provide the pro forma
disclosures beginning with its 1996 Annual Report and will continue accounting
for such plans under the existing accounting rules.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The requirements
are effective for financial statements for fiscal years beginning after
December 15, 1995. STAT does not anticipate that adoption of SFAS No. 121 will
have a significant effect on its financial condition or results of operations.
HEALTHCARE INDUSTRY OVERVIEW
General. Healthcare in the U.S. traditionally has been delivered through a
fragmented system of healthcare providers. Diverse treatment protocols among
providers of chronic disease care have contributed to increased costs. The
role of healthcare providers is changing dramatically. Third-party payors,
including HMOs, increasingly are turning to specialized disease management
companies that offer integrated care solutions to improve quality and reduce
costs. In addition, hospital networks are outsourcing departmental functions
to specialized management companies to reduce the administrative burdens of
providing healthcare and permit hospitals to focus on their core competencies.
Disease Management Services. Certain chronic diseases, including chronic
kidney failure, require frequent and specialized healthcare services to
maximize the benefits of advanced treatment protocols. Chronic kidney failure
is the state of advanced renal impairment that generally is irreversible and
requires routine dialysis treatments an average of three times per week or
kidney transplantation in order to sustain life. In addition to the need for
dialysis treatment, chronic kidney failure patients frequently suffer from one
or more associated medical conditions, including diabetes, non-healing wounds,
hypertension, coronary artery disease, anemia and nutritional problems.
Qualified patients with chronic kidney failure have been entitled since 1972
to Medicare benefits regardless of age or financial circumstances under the
federal ESRD program. Industry sources estimate that diabetes accounts for
approximately 36% of all new cases of chronic kidney failure, and that in 1995
there were approximately 16 million diagnosed and undiagnosed cases of
diabetes in the U.S. According to HCFA, the number of patients requiring
chronic dialysis services in the U.S. has grown at a 9% compounded annual
growth rate to 187,000 patients in 1994 from 66,000 in 1982.
Advanced-stage diabetics typically have decreased sensation and oxygenation
in their lower extremities and, as a result, are predisposed to non-healing,
ulcerating lower extremity wounds which can become gangrenous and lead to
amputation. Historically, nearly one-third of all diabetics have required
lower extremity amputation after chronic kidney failure. HBO therapy is
considered an important adjunctive treatment for infected, non-healing wounds
and other chronic conditions caused by diminished tissue oxygenation. During
HBO therapy, a
57
<PAGE>
patient breathes 100% oxygen in a pressurized chamber at two to three times
the atmospheric pressure at sea level. There are currently only approximately
260 HBO therapy facilities in the U.S. HBO therapy can help avoid amputation
and its costs and complications and is also considered a vital and primary
treatment for resolution of certain emergency situations such as air embolism,
decompression sickness, carbon monoxide poisoning and burns. Medicare
reimbursement is generally available for all these conditions other than
treatment for burns.
The healthcare needs of patients with chronic kidney failure are complex and
costly and require frequent, specialized care. When specifically tailored to
care for patients with chronic kidney failure, home healthcare helps identify
problems early, often reducing the need for more expensive in-patient care.
Home healthcare organizations also assist in administering special medical
services to persons with ESRD, including the administration of erythropoietin
("EPO") and general nutrition analysis. Management believes that the
healthcare needs of patients with chronic kidney failure are better served by
an integrated approach including kidney dialysis, HBO therapy and home
healthcare and related ancillary services.
Emergency Physician Practice Management Services. Hospitals frequently
outsource key departmental functions, including emergency medicine, radiology,
anesthesiology and pathology, to third-party management companies in an effort
to control and reduce operating costs and focus on their core competencies.
There are approximately 5,200 hospitals in the U.S., many of which face
numerous problems in managing their emergency departments, including
difficulties in recruiting, evaluating, scheduling and retaining qualified
emergency physicians, increased patient volumes, and the inefficient use of
emergency departments for routine primary care. Competitive pressures have
focused the attention of many hospital administrators on the need for better
management of their emergency departments. Hospitals frequently turn to
physician practice management firms with specialized skills to help solve
physician contract and scheduling problems, to strengthen the management of
their professional medical staff and specific clinical departments, to better
control costs, and to assist in meeting their healthcare coverage needs and
obligations to patients who are indigent, uninsured or unassigned to a
referring private physician.
OPERATIONS
Disease Management Services
General. As of October 1, 1996, STAT operated five dialysis facilities,
managed two HBO therapy facilities and had entered into contracts to manage
three additional HBO therapy facilities commencing in October 1996, and
provided home healthcare management and related ancillary services primarily
in the Rio Grande Valley of south Texas.
Treatment Options for End-Stage Renal Disease. Treatment options for chronic
kidney failure include hemodialysis, peritoneal dialysis and kidney
transplantation. HCFA estimates that as of December 31, 1994, 82% of the ESRD
patients in the United States were receiving hemodialysis treatment in
outpatient facilities, with the remaining patients being treated in the home
either through peritoneal dialysis (17%) or home hemodialysis (1%).
Hemodialysis is generally performed on an outpatient basis in a freestanding
facility. Hemodialysis uses an artificial kidney, called a dialyzer, to remove
certain toxins, fluids and salt from a patient's blood combined with a machine
to control external blood flow and to monitor certain vital signs of the
patient. A hemodialysis treatment usually lasts approximately three hours and
is performed three times per week per patient.
Peritoneal dialysis is generally performed by the patient at home. There are
several variations of peritoneal dialysis. The most common are continuous
ambulatory peritoneal dialysis ("CAPD") and continuous cycling peritoneal
dialysis ("CCPD") or automated peritoneal dialysis ("APD"). All forms of
peritoneal dialysis use the patient's peritoneal (abdominal) cavity to
eliminate fluid and toxins from the patient. Toxins in the blood continuously
cross the peritoneal membrane into the dialysis solution. After several hours,
the patient drains the used dialysis solution and replaces it with fresh
solution. CCPD and APD are performed in a manner similar to CAPD, but use a
mechanical device to cycle dialysis solution while the patient is sleeping or
at rest.
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<PAGE>
An alternative treatment not provided by STAT is kidney transplantation.
While transplantation, when successful, is generally the most desirable form
of therapeutic intervention, the shortage of suitable donors limits the
availability of this treatment option. STAT currently has transplantation
agreements with the University of Texas Medical Branch-Galveston and the
University of Texas Health Science Center, San Antonio, to provide assessment
and evaluation of STAT's patients for possible kidney transplant services and
to facilitate patient transfers. No fees are involved or paid in connection
with such relationship.
Dialysis Facilities. STAT currently operates 83 dialysis stations at five
facilities. STAT expects to open one additional facility with ten dialysis
stations in the fourth quarter of 1996. The following table sets forth certain
information as of October 1, 1996 regarding STAT's dialysis facilities:
<TABLE>
<CAPTION>
NO. OF SERVICE
INSTALLED STATION COMMENCEMENT
FACILITY LOCATION STATIONS CAPACITY(1) DATE
----------------- --------- ----------- -------------
<S> <C> <C> <C>
McAllen, Texas.......................... 27 30 April 1993
Rio Grande City, Texas.................. 10 16 November 1993
Weslaco, Texas.......................... 20 20 June 1994
Mission, Texas.......................... 15 24 August 1995
Brownsville, Texas (2).................. 11 24 May 1996
El Paso, Texas (2)...................... 10 24 (3)
--- ---
Total............................... 93 138
=== ===
</TABLE>
- --------
(1) Number of dialysis stations for which plumbed, certified space is
currently available.
(2) Owned by a limited partnership in which physicians hold a non-controlling
interest.
(3) Operations expected to commence in the fourth quarter of 1996.
STAT's dialysis facilities are designed specifically for outpatient
hemodialysis and generally contain, in addition to space for dialysis
treatments, a nurses' station, a patient weigh-in area, a supply room, a water
treatment space used to purify the water used in hemodialysis treatments, a
dialyzer reprocessing room (where dialyzers are sterilized for reuse), staff
work areas, offices and a staff lounge and kitchen. Many of STAT's facilities
also have a designated area for training patients in home dialysis. Each
currently installed dialysis unit is generally operated at or near capacity
ten to 13 hours per day, six days per week. As demand for dialysis increases,
STAT intends to increase capacity by purchasing and installing additional
dialysis units in vacant stations and/or expanding operating hours.
In accordance with conditions for participation in the Medicare ESRD
program, each facility has a qualified physician who serves as medical
director and an Administrator who supervises the day-to-day operations of the
facility and the staff. Generally, the medical director must be board eligible
or board certified in internal medicine and have had at least 12 months of
experience or training in the care of patients at ESRD facilities. The staff
of each facility typically consists of registered nurses, licensed practical
or vocational nurses, patient care technicians, a social worker, a registered
dietician, a unit clerk and bio-medical technicians.
All of STAT's dialysis facilities offer both high-efficiency and
conventional hemodialysis, which physicians practicing at STAT's facilities
deem suitable for their patients. STAT considers the equipment installed and
supplies utilized at its facilities to be among the most technologically
advanced presently available.
STAT also offers CAPD and various other forms of home dialysis. Home
dialysis services consist of providing equipment and supplies, training,
patient monitoring and follow-up assistance to patients who prefer and are
able to receive dialysis treatments in their homes. Patients and their
families are trained by a registered nurse to perform either CAPD or CCPD at
home.
HBO Therapy Services. Approximately 85% of the patients with chronic kidney
failure served by STAT during 1995 also suffer from diabetes or vascular
disease. These diseases generally cause decreased sensation
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<PAGE>
and oxygenation in the lower extremities. As a result, these individuals are
predisposed to problem wounds which fail to respond to established
medical/surgical management, including diabetic feet, compromised amputation
sites, non-healing traumatic wounds, and vascular insufficiency ulcers. HBO
therapy provides a significant increase in tissue oxygenation in the poorly
perfused, infected wound. This elevation in oxygen induces significant
positive changes in the wound repair process. HBO therapy is prescribed,
either as a primary or adjunctive treatment, and only for those physical
conditions approved by the Undersea and Hyperbaric Medical Society. In the
case of problem wounds, the average treatment consists of approximately 20
treatments, each with a duration of approximately two hours. Specially-trained
personnel observe and monitor the entire treatment. Governmental regulations
require that HBO therapy be hospital-based.
STAT currently manages the operations of six monoplace chambers at two HBO
therapy facilities, and expects to open six monoplace chambers at three
additional facilities in the fourth quarter of 1996. The following table sets
forth certain information as of October 1, 1996 regarding the HBO therapy
facilities managed by STAT:
<TABLE>
<CAPTION>
NO. OF
INSTALLED CHAMBER EXPIRATION OF INITIAL
FACILITY CHAMBERS (1) CAPACITY (2) CONTRACT TERM
-------- ------------ ------------ ---------------------
<S> <C> <C> <C>
Brownsville, Texas.............. 3 3 May 2000
Corpus Christi, Texas........... 3 3 April 1999(3)
Kingsville, Texas............... 2 2 Fall 1999(4)
Mission, Texas.................. 2 4 Fall 2001(4)
Eagle Pass, Texas............... 2 4 Fall 2001(4)
--- ---
Total....................... 12 16
=== ===
</TABLE>
- --------
(1) Number of monoplace chambers currently installed or expected to be
installed upon commencement of facility operations.
(2) Number of monoplace chambers for which plumbed, certified space is
currently available.
(3) Upon commencement of operations at the Kingsville facility, the contract
term of the Corpus Christi facility will restart for a new three-year
period.
(4) Assumes operations commence as expected in the fourth quarter of 1996.
STAT administers HBO therapy to patients in monoplace chambers pursuant to
contracts with hospitals, which, except with respect to the Kingsville
facility, may be automatically renewed for additional, one-year periods after
the initial term. Under the terms of each contract, STAT provides and
maintains HBO and related medical equipment at each hospital and furnishes
qualified supervising physicians, nurses and medical technicians specially
trained in HBO therapy to administer the HBO therapy to patients. STAT
receives from the hospitals a fixed fee for each outpatient HBO therapy, with
fees for inpatient treatments determined on a case-by-case basis. Each
currently installed chamber is generally operated at or near capacity 12 to 14
hours per day, six days per week. As demand for HBO therapy increases, STAT
intends to increase capacity by purchasing and installing additional chambers
in available space and/or expanding operating hours.
Home Healthcare and Other Ancillary Services. Approximately 45% of the
patients served by STAT's home health services during 1995 had chronic kidney
failure or diabetes. In addition, a number of STAT's patients are elderly, are
often immobile and have medical conditions requiring frequent at-home
healthcare. To serve the special needs of these patients, STAT has entered
into a management services agreement with a local provider of home healthcare
services. Under the terms of the agreement, STAT furnishes nursing staff to
perform basic nursing services as well as a nursing staff specially trained
for the care of renal, diabetic, transplant, cancer and cardiac patients. In
addition, STAT provides continuing education and training for its employees on
an on-going basis and provides a number of administrative, financial and
management services to the home health agency such as quality assurance, risk
management, employee safety and physician relations services. For its
services, STAT receives a fixed fee for each visit made to a patient's home
and a fixed hourly management
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support services fee for other enumerated services. Fees are subject to
amendment based on changes in Medicare or Medicaid laws. The agreement expires
in December 2002 and contains non-competition provisions throughout its term
and for a one-year period thereafter.
STAT's dialysis facilities also provide a comprehensive range of related
ancillary services to ESRD patients, the most significant of which is the
administration of EPO upon a physician's prescription. EPO is a bio-engineered
protein which stimulates the production of red blood cells and is used in
connection with all forms of dialysis to treat anemia, a medical complication
frequently experienced by ESRD patients. Other ancillary services include: (i)
certain laboratory tests required by Medicare to determine the effectiveness
of dialysis treatments; (ii) general nutrition analysis; (iii) studies to test
the degree of bone deterioration; (iv) electrocardiograms; (v) nerve
conduction studies to test for deterioration of a patient's nerves; (vi)
doppler flow testing to test the effectiveness of a patient's vascular access
for dialysis; and (vii) blood transfusions.
Physician Relationships. A key factor in the success of any of STAT's
dialysis facilities is its relationship with local nephrologists. ESRD
patients generally seek treatment at a facility near home and where the
attending nephrologist has practice privileges. Consequently, STAT's dialysis
business relies upon its ability to meet the needs of the referring physicians
and the ESRD patients in the communities STAT serves. During 1995, two
nephrologists who are also principal stockholders of STAT collectively
accounted for approximately 80% of STAT's net service revenues from dialysis
services (approximately 27% of STAT's total net service revenues).
The medical directors of STAT's dialysis facilities, each of whom is a
nephrologist, enter into written contracts with STAT which specify their
duties and establish their compensation (which is fixed for periods of three
years or more). The compensation of the medical directors and other physicians
for services under contract is separately negotiated for each facility and
generally depends upon competitive factors in the local market, the
physician's professional qualifications and responsibilities and the size and
utilization of the facility or relevant program.
Sources of Reimbursement. Under the Medicare ESRD program, Medicare
reimburses dialysis providers for the treatment of individuals who are
diagnosed to have chronic kidney failure and are eligible for participation in
the Medicare program, regardless of age or financial circumstances. For each
treatment, Medicare pays 80% of the amount set by the Medicare prospective
reimbursement system, and a secondary payor (usually Medicare supplemental
insurance or the state Medicaid program) pays approximately 20% of the amount
set by the Medicare prospective reimbursement system. Texas (currently the
only state where STAT provides dialysis services) provides Medicaid benefits
to qualified recipients to supplement their Medicare entitlement. The Medicare
and Medicaid programs are subject to statutory and regulatory changes,
administrative rulings, interpretations of policy and governmental funding
restrictions, some of which may have the effect of decreasing program
payments, increasing costs or modifying the way STAT operates its dialysis
business. See "--Medicare Reimbursement," below.
Assuming a patient is eligible for participation in the Medicare program,
the commencement date of Medicare benefits for ESRD patients electing
hemodialysis is dependent on several factors. ESRD patients under 65 years of
age who are not covered by an employer group health plan (for example, the
uninsured, those covered by Medicaid and those covered by an individual health
insurance policy) must wait 90 days after commencing dialysis treatment to be
eligible for Medicare benefits. During the first 90 days of treatment, the
patient, Medicaid or the private insurer is responsible for payment (and, in
the case of the individual covered by private insurance, such responsibility
is limited to the terms of the policy, with the patient being responsible for
the balance). ESRD patients under 65 years of age who are covered by an
employer group health plan must wait 21 months after commencing dialysis
treatment before Medicare becomes the primary payor. Medicare generally covers
those who are ages 65 and over, except that Medicare coverage is secondary for
some patients who have qualifying employer group health insurance. During the
first 21 months of treatment, the employer group health plan is responsible
for payment at its negotiated rate or, in the absence of such a rate, at
STAT's usual and customary rates and the patient is responsible for
deductibles and co-payments, if applicable, under the terms of the employer
group health plan.
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<PAGE>
If an ESRD patient with an employer group health plan elects home dialysis
training during the first 90 days of dialysis, Medicare becomes the primary
payor after 18 months. If an ESRD patient without an employer group health
plan begins home dialysis training during the first three months of dialysis,
Medicare immediately becomes the primary payor.
Medicare Reimbursement. STAT is reimbursed by Medicare under a prospective
reimbursement system for chronic dialysis services provided to ESRD patients.
Under this system, the reimbursement rates are fixed in advance and have been
adjusted from time to time by Congress. Although this form of reimbursement
limits the allowable charge per treatment, it provides STAT with predictable
and recurring per treatment revenues and allows STAT to retain any profit
earned. Medicare has established a composite rate set by HCFA that governs the
Medicare reimbursement available for a designated group of dialysis services,
including the dialysis treatment, supplies used for such treatment, certain
laboratory tests and certain medications. The Medicare composite rate is
subject to regional differences based upon certain factors, including regional
differences in wage earnings. Certain other services and items are eligible
for separate reimbursement under Medicare and are not part of the composite
rate, including certain drugs (including EPO), blood (for amounts in excess of
three units per patient per year), and certain physician-ordered tests
provided to dialysis patients. Claims for Medicare reimbursement must
generally be presented within 15 to 27 months of treatment depending on the
month in which the service was rendered and for Medicaid secondary
reimbursement, if applicable, within 60 to 90 days after payment of the
Medicare claim. STAT generally submits claims monthly and is usually paid by
Medicare within 30 days of the submission. If in the future Medicare were to
include in its composite reimbursement rate any of the ancillary services
presently reimbursed separately, STAT would not be able to seek separate
reimbursement for these services and this would adversely affect STAT's
results of operations to the extent a corresponding increase were not provided
in the Medicare composite rate.
STAT receives reimbursement for outpatient dialysis services provided to
Medicare-eligible patients at rates that are currently $117 per treatment. The
Medicare ESRD composite reimbursement rate is subject to change by legislation
and recommendations by the Prospective Payment Assessment Commission
("PROPAC"). The Medicare ESRD composite reimbursement rate currently ranges
from $117 to $138 per treatment, depending on regional wage variations. STAT
is unable to predict what, if any, future changes may occur in the rate of
reimbursement, or, if made, whether any such changes will have a material
effect on STAT's revenues and net earnings.
On June 1, 1989, the FDA approved the production and sale of EPO, and HCFA-
approved Medicare reimbursement for EPO's use by dialysis patients. EPO
stimulates the production of red blood cells and is beneficial in the
treatment of anemia, with the effect of reducing or eliminating the need for
blood transfusions for dialysis patients. Physicians began prescribing EPO for
their patients in STAT's dialysis facilities in April 1993. The Medicare ESRD
reimbursement rate for EPO is currently $10 per 1,000 units. Legislation has
been enacted in recent years to reduce the Medicare reimbursement rate for
EPO, and the reimbursement rate may be further reduced in the future. There
can be no assurance that STAT can maintain current operating margins in the
future for EPO administrations due to potential reimbursement decreases, or to
potential increases in product costs from its sole manufacturer.
Medicaid Reimbursement. Medicaid programs are state administered programs
partially funded by the federal government. These programs are intended to
provide coverage for patients whose income and assets fall below state defined
levels and who are otherwise uninsured. The programs also serve as
supplemental insurance programs for the Medicare co-insurance portion and
provide certain coverages (e.g., oral medications) that are not covered by
Medicare. State regulations generally follow Medicare reimbursement levels and
coverages without any co-insurance amounts. STAT is a licensed ESRD Medicaid
provider in Texas.
Private Reimbursement/Certain Payor Arrangements. STAT receives
reimbursement from private payors for ESRD treatments prior to Medicare
becoming a patient's primary payor at rates significantly higher than the
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per treatment rate set by Medicare. After Medicare becomes a patient's primary
payor, private secondary payors generally reimburse STAT for 20% of the
Medicare per treatment rate. In addition, STAT has entered into non-exclusive
contracts with third-party payors, including many leading HMOs in STAT's
service areas, to provide dialysis services to their beneficiaries.
Emergency Physician Practice Management Services
General. STAT also provides physician practice management services to its
affiliated physician groups, which in turn provide emergency medical and
related services to hospitals. Through the affiliated physician groups, STAT
currently provides emergency medical services at 24 hospitals primarily in the
Houston greater metropolitan area.
Management Agreements with Affiliated Physician Groups. Under Management
Services Agreements between STAT and its affiliated physician groups (the
"Management Agreements"), which are generally perpetual and without provision
for cancellation or termination, STAT identifies, recruits and screens
potential candidates to serve as emergency room physicians in hospitals which
have contracted with STAT's affiliated physician groups to provide physician
contract management services. The affiliated physician groups then enter into
contracts with physicians meeting the groups' qualifications and present those
physicians as candidates for admission to the hospital's medical staff. STAT
also coordinates, on behalf of and with the assistance of the affiliated
physician groups, the scheduling of staff physicians to provide coverage on a
24-hour, 365-day-a-year basis for the hospital's emergency departments. In
addition, STAT assists the hospital's administration and medical staff in such
areas as quality assurance, risk management, departmental accreditation and
marketing.
STAT also manages and administers the affiliated physician groups' day-to-
day business functions, which include but are not limited to, assuring
responsibility for the administrative, accounting, payroll and personnel
functions related to the practice of medicine. Under the Management
Agreements, STAT is also required to bill and collect the professional fees
for the medical services provided on behalf of the affiliated physician
groups, maintains all files and records, negotiates and administers all
hospital contracts, and provides consulting services to the affiliated
physician groups in connection with the procurement and administration of
professional liability insurance and the employment of personnel. All final
decisions relating to medical care are solely that of the affiliated physician
groups.
In consideration of the services provided by STAT under the Management
Agreements, each affiliated physician group pays a management fee and provides
reimbursement of all related expenses to STAT. Each affiliated physician group
has also appointed STAT its attorney-in-fact to act on its behalf for the
purposes of collecting and receiving all fees and revenues payable to the
affiliated physician groups as a result of professional services rendered and
for the purpose of carrying out its management functions under its hospital
contracts.
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Hospital Contracts. STAT's affiliated physician groups currently provide
emergency medical services through their independent contracting physicians
with the following hospitals:
<TABLE>
<CAPTION>
SERVICE
COMMENCEMENT
FACILITY (1) LOCATION DATE
- ------------ -------------------- -------------
<S> <C> <C>
San Jacinto Methodist Hospital (2)......... Baytown, Texas July 1987
Twelve Oaks Hospital (3)................... Houston, Texas May 1989
Columbia Fort Bend Medical Center.......... Missouri City, Texas April 1990
Columbia Alvin Medical Center.............. Alvin, Texas February 1991
Columbia North Houston Medical Center...... Houston, Texas August 1991
Columbia Katy Medical Center............... Katy, Texas December 1992
Columbia Kingwood Medical Center........... Kingwood, Texas January 1993
Columbia Alice Physicians & Surgeons
Hospital.................................. Alice, Texas January 1994
Columbia Mainland Regional Health
Hospital.................................. Texas City, Texas December 1994
Columbia Conroe Regional Medical Center.... Conroe, Texas February 1996
Columbia Spring Branch Medical Center...... Houston, Texas February 1996
Columbia Bellaire Hospital................. Houston, Texas March 1996
Columbia North Houston Medical Center -
Airline Campus............................ Houston, Texas March 1996
Columbia West Houston Medical Center....... Houston, Texas March 1996
Columbia Doctors Hospital East Loop........ Houston, Texas April 1996
Columbia Rosewood Medical Center........... Houston, Texas April 1996
Columbia East Houston Medical Center....... Houston, Texas April 1996
Brownsville Medical Center (3)............. Brownsville, Texas June 1996
Columbia Gulf Coast Medical Center......... Wharton, Texas July 1996
Columbia Bayshore Medical Center........... Pasadena, Texas July 1996
Columbia Doctors Hospital of Laredo........ Laredo, Texas October 1996
Columbia Valley Regional Medical Center.... Brownsville, Texas October 1996
Columbia Rio Grande Regional Hospital...... McAllen, Texas October 1996
Medical Center of Southeastern Oklahoma
(4)....................................... Durant, Oklahoma October 1996
</TABLE>
- --------
(1)Except as otherwise noted, all hospitals are owned by Columbia.
(2)Facility owned by The Methodist Healthcare Network.
(3)Facility owned by Tenet Health System.
(4)Facility owned by Health Management Associates.
Through its affiliated physician groups, STAT provides contract management
services to hospitals under fee-for-service contracts. Hospitals entering into
fee-for-service contracts agree to authorize the affiliated physician group to
bill and collect the professional component of the charges for medical
services rendered by the group's contracted physicians. Under fee-for-service
arrangements, the affiliated physician groups receive directed disbursements
of the amounts collected and, depending on the hospital's patient volume and
payor mix, may also receive a stand-by or on-call fee from the hospital.
Pursuant to such contracts, the affiliated physician groups assume
responsibility for billing and collection and assume the risks of non-payment,
changes in patient volume or payor mix and delays attendant to reimbursement
through government programs or third-party payors. All of these factors are
taken into consideration by the affiliated physician groups, in consultation
with STAT, in arriving at appropriate contractual arrangements with healthcare
institutions and professionals. The affiliated physician groups' service
contracts with hospitals generally have a term of two years, and contain
provisions permitting renewal for additional periods.
Pursuant to the Columbia Agreement, one of STAT's affiliated physician
groups has agreed to be the exclusive provider of emergency medical services
to 15 of Columbia's hospitals in the Houston greater metropolitan area. The
Columbia Agreement has an initial term ending in January 1998 with provisions
for automatic renewal, and may be terminated by Columbia in certain
circumstances, including unsatisfactory service
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by STAT or its affiliated physician group. During the term of the Columbia
Agreement and for two years thereafter, STAT has agreed not to organize or
provide administrative or advisory services to independent physician or
similar associations whose practices relate to areas other than emergency
medicine and who are located in proximity to specified Columbia medical
centers. There can be no assurance that the Columbia Agreement will be renewed
at the conclusion of its initial term, that it will be renewed on
substantially the same terms and conditions, or that it will not be terminated
prior to the conclusion of its term.
Physician Contracts. STAT's affiliated physician groups contract with
physicians as independent contractors to fulfill their contractual obligations
to provide qualified doctors to hospital clients. While each hospital with
which each affiliated physician group contracts ultimately determines whether
a physician must be board certified in emergency medicine to provide medical
services in its emergency room, hospitals generally do not require physicians
to be so certified. Each affiliated physician group requires all physicians to
be currently licensed to practice medicine and to be Advanced Cardiac Life
Support ("ACLS") certified before entering into a contract for the physician's
service. Professional fees payable to the physician are disbursed by STAT
pursuant to the Management Agreements. As independent contractors, the
physicians are responsible for their own income and social security taxes, as
well as workers compensation insurance. The contracts with independent
contractor physicians can be terminated by the affiliated physician group or
the independent contractor physicians with 30 days' notice, or immediately by
the affiliated physician group for cause.
QUALITY ASSURANCE
As part of STAT's continuing efforts to increase the quality of its services
and reduce its professional liability exposure with respect to potential
negligent acts of its employees and contractors, STAT manages and monitors the
quality and performance of its physicians and services.
Disease Management Services. In order to optimize therapy and improve
outcomes, STAT monitors patient outcomes in all of its dialysis facilities.
Regular monitoring of the prescribed dialysis treatments and the key
physiological parameters of patients (including periodic measurements to
assess anemia, nutritional status and adequacy of dialysis) constitutes part
of the continuous quality improvement conducted by STAT. Pursuant to Medicare
requirements, each dialysis facility has a quality assurance committee that
typically includes the facility's medical director, administrator and nurses,
as well as other technical personnel. This committee meets regularly to
monitor the quality of care in the facility and to assure compliance with
applicable regulations. At the patient level, STAT attempts to ensure quality
care through the provision of instruction to all ESRD patients before and
after the initiation of dialysis treatment. Patients are encouraged to
participate in their own care to the fullest extent possible.
A comprehensive wound monitoring, measurement and documentation process
provides consistency and quality of the wound management systems associated
with HBO therapy. Clinical records are monitored to assure compliance with
treatment standards, clinical improvements and outcomes. Side effect and
infection profiling are also a routine part of the quality monitoring process.
The complete quality measurement program of HBO therapy is incorporated into
each hospital-wide continuous quality improvement process and is regularly
reported.
Emergency Physician Practice Management Services. STAT employs an ongoing
quality management system for its emergency physician practice management
services which measures both clinical and non-clinical outcomes. For clinical
outcomes, the system is focused on high frequency or high criticality
diagnoses with diagnosis-specific standards reported in a physician- and
hospital-specific format providing feedback to physicians and support staff.
For non-clinical outcomes, the system tracks and studies waiting times,
interpersonal interactions, and patient perceptions in order to measure
overall patient satisfaction and identify areas for improvement. The non-
clinical system includes a patient questionnaire program, a patient complaint
program, and a patient call-back program and complies with Joint Commission on
Accreditation of Healthcare Organizations (JCAHO) standards. Both the clinical
and non-clinical portions of the quality management system are incorporated
into each individual hospital's continuous quality improvement program and are
reported on a monthly basis.
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MANAGEMENT INFORMATION SYSTEMS
STAT has implemented information systems designed to enhance the quality of
its disease management and emergency physician practice management services.
STAT's management information systems collect and report data regarding
patient flow, utilization, physician efficiency, patient demographics, managed
care participation and other important data used by STAT, hospital clients and
medical directors. In addition to assisting STAT in developing staffing
patterns and marketing strategies, STAT believes these systems improve
efficiency of service, cost effectiveness and patient outcomes.
GOVERNMENT REGULATION
General. STAT's operations are subject to extensive governmental regulations
at the federal, state and local levels. These regulations require STAT to meet
various standards relating to, among other things, the management of
facilities, personnel, maintenance of proper records, equipment and quality
assurance programs. STAT's facilities are subject to periodic inspection by
state agencies and other governmental authorities to determine if the
premises, equipment, personnel and patient care meet applicable standards. Any
loss by STAT of its various federal certifications, its authorization to
participate in the Medicare or Medicaid programs or its license under the laws
of any state or other governmental authority from which a substantial portion
of its revenues is derived, or a change resulting from reforms that reduce
reimbursement or reduce or eliminate coverage for services would have a
material adverse effect on STAT's business. To date, STAT has not had any
difficulty in maintaining the required licenses or its Medicare and Medicaid
certifications. The healthcare services industry will continue to be subject
to intense regulation at the federal and state levels, the scope and effect of
which cannot be predicted. No assurance can be given that the activities of
STAT will not be reviewed and challenged or that healthcare reform will not
result in a material adverse change to STAT's business.
Fee-Splitting; Corporate Practice of Medicine. The laws of many states
prohibit physicians from splitting professional fees with non-physicians and
prohibit non-physician entities, such as STAT, from practicing medicine and
from employing physicians to practice medicine. In the states in which STAT
conducts or may conduct business, including Texas, general business
corporations are not permitted to practice medicine, exercise control over
physicians who practice medicine or engage in certain practices such as fee-
splitting with physicians. The corporate practice of medicine refers to the
rendering directly, or through employment, of medical services by a business
corporation. The laws in most states regarding the corporate practice of
medicine have been subject to limited judicial and regulatory interpretation.
Management believes STAT's current and planned activities do not constitute
fee-splitting or the corporate practice of medicine as contemplated by these
statutes or case law interpretations. STAT believes that it is not engaged in
the corporate practice of medicine because the physicians who provide patient
care services do so as independent professionals. Physicians who are paid
directly by STAT are paid for specific administrative and management services
under medical director agreements. These agreements also reserve to the
physicians exclusive authority to make all decisions regarding medical care.
Under STAT's Management Agreements with its affiliated physician groups, STAT
is paid for administrative and other services provided at rates which STAT
believes reflect the fair market value of such services. In addition, these
agreements specifically acknowledge that the affiliated physician groups have
the exclusive authority and responsibility for making all decisions regarding
medical care. Based on current interpretations of state law in Texas where
STAT now operates, STAT believes its arrangements with physicians and
affiliated physician groups do not violate the prohibition against the
corporate practice of medicine. However, all such laws are subject to
interpretation by the courts as well as administrative agencies, and any
restructuring required by such change could be detrimental to STAT's business,
financial condition and results of operations. There can be no assurance that
future interpretations of such laws will not require structural and
organizational modifications of STAT's existing relationships with physicians
and its affiliated physician groups.
Self-Referral. Certain provisions contained in the Omnibus Budget
Reconciliation Act of 1989 ("Stark I") and the Omnibus Budget Reconciliation
Act of 1993 ("Stark II"), and subsequent amendments, prohibit physician
referrals for clinical laboratory services and certain other "designated
health services," including without limitation outpatient prescription drugs,
parenteral and enteral nutrients, equipment and supplies, durable
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medical equipment and supplies, home health services, and inpatient and
outpatient hospital services, to entities with which a physician or an
immediate family member has a financial relationship (the "Stark Law"). The
Stark Law also prohibits entities from presenting or causing to be presented a
claim or bill to any individual, third-party payor or other entity for
designated health services furnished under a prohibited referral. A violation
of the Stark Law may result in significant civil penalties, which may include
exclusion or suspension of the physician and entity from future participation
in the Medicare and Medicaid programs and substantial fines.
In August 1995, HCFA published regulations interpreting Stark I. These
regulations only address the original scope of Stark I (clinical laboratories)
but representatives of HCFA assert in the preamble to the regulations that
these regulations will be used by HCFA as the basis for interpretation of
matters involving the other designated health services. The regulations
specifically provide that clinical laboratory services that are reimbursed as
part of the Medicare composite billing rate for renal dialysis services are
excluded from the coverage of Stark I. However, laboratory services not
included in the Medicare composite rate could be included within the coverage
of Stark I. Although STAT provides a limited number of such laboratory
services, STAT believes that it is not a provider of clinical laboratory
services subject to the Stark Law.
In addition, STAT believes it is not a provider of any designated health
services which would subject it to application of Stark II. Based upon the
preamble to the regulations, as described above, STAT believes that the
provision of other services that are paid for under the composite billing rate
is outside of the scope of the Stark Law. STAT believes that EPO and other
pharmaceuticals that STAT uses in connection with its dialysis services and
bills HCFA for separately from the composite billing rate do not constitute
outpatient prescription drugs for purposes of the Stark Law and that,
therefore, STAT is not a provider of outpatient prescription drugs as a
designated health service. However, if it is determined that STAT is providing
a designated health service, then each financial relationship between STAT and
any physician who refers Medicare or Medicaid covered patients to STAT for the
provision of a designated health service must qualify under an exception to
the Stark Law or STAT will be unable to submit a bill for payment for such
service.
A financial relationship consists of either a compensation arrangement
between a physician, a member of the physician's immediate family and STAT or
an ownership interest in STAT held by a physician or a member of the
physician's immediate family. STAT has entered into medical director
agreements with certain physicians who are in a position to refer patients to
STAT's dialysis facilities. STAT has structured these medical director
agreements to comply with the Stark Law exception for personal service
arrangements. Four of STAT's dialysis facilities lease space from joint
ventures in which physicians who refer patients to the facilities hold
interests. STAT has structured the leases to comply with the Stark Law
exception for the rental of office space. Two nephrologists who are in a
position to refer patients to STAT are significant equity owners of STAT as
well as medical directors of STAT. In addition, physicians who refer patients
to two of STAT's dialysis facilities own minority interests as limited
partners in such facilities. A determination that STAT provides designated
health services could have a material adverse effect on STAT's business,
financial condition and results of operations because certain relationships
between STAT and referring physicians do not fall squarely within a safe-
harbor exception of the Stark Law.
Although HBO therapy services constitute outpatient and inpatient hospital
services and are therefore a designated health service, STAT does not own or
control such services, but merely administers HBO therapy services, and
performs certain non-professional functions related thereto, pursuant to
management contracts with hospitals. The hospitals, as the licensed entities,
provide and bill for the HBO therapy services. STAT is not a licensed provider
of inpatient and outpatient hospital services and has no control over or
financial interest in any of these hospitals. The only relationship between
the hospital and STAT is through STAT's HBO management agreements.
Accordingly, STAT believes its HBO administrative operations fall outside the
purview of the Stark Law. Nevertheless, a determination that the Stark Law is
applicable to STAT's HBO activities would require that STAT's financial
relationships with referring physicians comply with a specified exception set
forth in the Stark Law, or that STAT take steps to ensure that the physician
does not refer patients covered under the
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Medicare or Medicaid programs to any hospital with which STAT has an agreement
to administer HBO therapy services.
STAT also provides nursing staff and certain administrative, financial and
management services to a local home healthcare agency that provides home
health services to patients, including many of the patients of STAT's dialysis
facilities. The home healthcare agency, as the licensed entity, provides and
bills for the home health services. Since STAT is not a licensed home
healthcare agency and has no control over nor financial interest in this
agency other than through STAT's management agreement, STAT believes that it
is not a provider of home health services as designated health services under
the Stark Law. However, if a court or regulatory or enforcement agent
determines that the Stark Law applies to STAT's home health management
activities, STAT would have to ensure that each of its financial relationships
with referring physicians complies with an exception to the Stark Law. In such
event, a determination that any financial relationship between STAT and
affiliated physicians described in the second preceding paragraph fails to
comply with an exception to the Stark Law could have a material adverse effect
on STAT's business, financial condition and results of operations.
The list of designated health services under the Stark Law does not include
the management of a physician healthcare practice such as STAT performs for
its affiliated physician groups. STAT does not consider these operations to
include the provision of a designated health service. In addition, STAT
believes that the Stark Law does not apply to its affiliated physician groups'
contracts with hospitals. The affiliated physician groups have entered into
agreements with hospitals whereby the hospitals authorize the physician groups
to bill and collect the professional component of the charges for medical
services rendered by the groups' independent contractor physicians. Depending
upon a hospital's patient volume and payor mix, a hospital may pay an
affiliated physician group a stand-by or on-call fee. In such an event, the
agreement could constitute a financial relationship between the affiliated
physician group and the hospital that would prohibit the physicians from
referring covered patients to the hospital for designated health services.
STAT believes that each of the hospital contracts either does not constitute a
financial relationship between the affiliated physician group and the hospital
because no remuneration is paid to the group by the hospital, or if the
relationship qualifies as a financial relationship, it complies with the Stark
Law exception for remuneration paid to a physician by a hospital that does not
relate to the provision of designated health services. Because the STAT Common
Stock is publicly held, a determination of the ownership of such shares by a
referring physician, or any member of his or her immediate family, may be
extraordinarily difficult.
It is STAT's belief that it does not provide, directly or indirectly, any
designated health service and that the Stark Law does not apply to STAT's
activities. Because there have been no cases or other interpretations of the
Stark Law or regulations applicable to organizations like STAT, STAT cannot
ascertain how its activities might be assessed if reviewed. Furthermore, STAT
has no ability to obtain advisory opinions from the regulatory and enforcement
agencies that govern the Stark Law. If it is determined that STAT is a
provider of designated health services, then no physician who owns, or who has
an immediate family member who owns, shares of the capital stock of STAT, may
refer a Medicare or Medicaid covered patient to STAT for designated health
services.
Violations of the Stark Law are punishable by civil penalties, which may
include exclusion or suspension of the provider from future participation in
Medicare and Medicaid programs and substantial fines. A determination that any
of STAT's activities constitutes a violation of the Stark Law could have a
material adverse effect upon STAT's business, financial condition and results
of operations.
Medicare and State Fraud and Abuse Provisions. Federal law prohibits the
offer, payment, solicitation or receipt of any form of remuneration in return
for the referral of Medicare or Medicaid program patients or patient care
opportunities, or in return for the purchase, lease or order of any item or
service that is covered by Medicare or certain other federal and state
healthcare programs (the "Anti-Kickback Laws"). For an entity to violate the
Anti-Kickback Laws, the entity must provide services that are reimbursable
under the Medicare or other federal or state healthcare programs, must offer
or receive remuneration, and must have an intent to induce referrals.
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Pursuant to the Anti-Kickback Laws, the federal government released a
special alert which announced a policy of increased scrutiny of joint ventures
and other transactions among healthcare providers in an effort to reduce
potential fraud and abuse relating to Medicare and Medicaid costs. The
applicability of these provisions to many business transactions in the
healthcare industry has not yet been subject to judicial and regulatory
interpretation.
In 1991, the Inspector General of the U.S. Department of Health and Human
Services published "Safe Harbor Regulations" defining safe harbors for certain
arrangements that, if complied with, would not violate the Anti-Kickback Laws.
A failure to comply with the safe harbors does not, however, mean that a
person or entity has violated the Anti-Kickback Laws. Among the safe harbors
specifically provided for are safe harbors for ownership interests, personal
service contracts, management contracts and space rentals.
The Anti-Kickback Laws provide civil and criminal penalties for individuals
or entities participating in the Medicare and Medicaid programs who knowingly
and willfully offer, pay, solicit or receive remuneration in order to induce
referrals for items or services reimbursed under such programs. In addition to
federal criminal penalties, the Social Security Act also establishes the
intermediate sanctions of excluding violators from participation in the
Medicare or Medicaid programs.
STAT believes that its medical director agreements for its dialysis centers,
HBO therapy operations and affiliated physician groups described above comply
with the safe harbor provisions for personal service arrangements.
Four of STAT's dialysis facilities are leased from entities in which
physicians who refer patients to the facility hold ownership interests. STAT
believes that the leases comply with the space rental safe harbor and are in
compliance with the Anti-Kickback Laws.
Although certain other of STAT's financial relationships with affiliated
physicians relating to ownership interests in STAT (as described in the fourth
paragraph under "--Self-Referral" above) do not fully comply with the safe
harbor for investment interests, STAT believes these relationships are in
compliance with the Anti-Kickback Laws, and STAT has no intent to compensate
any party for the referral of any patients.
STAT is compensated under its various management agreements for providing
management services to affiliated physician groups, home health agencies and
hospital-based HBO therapy operations. The fees payable under these agreements
are intended by STAT to be consistent with fair market value in arms' length
transactions for the nature and amount of management services rendered, and
therefore, would not constitute unlawful remuneration under the Anti-Kickback
Laws. Furthermore, STAT does not believe it is in a position to make or
influence referrals of patients or services reimbursed under Medicare or
Medicaid programs to any provider of covered services. Consequently, STAT does
not believe that the management fees payable to it should be viewed as
remuneration for referring or influencing referrals of patient or services
covered by such programs as prohibited by the Anti-Kickback Laws. Except for
its dialysis services, STAT is not a provider or supplier of services or items
reimbursed by Medicare or state healthcare programs.
No assurance can be made, however, that a court or regulatory or enforcement
agency would view these above-described arrangements in a similar manner.
Should any of STAT's business arrangements be deemed to constitute an
arrangement designed to induce the referral of Medicare, Medicaid or other
covered patients, then such arrangement could be viewed as violating the Anti-
Kickback Laws. Noncompliance with the Anti-Kickback Laws can result in
exclusion from all such governmental programs as well as civil and criminal
penalties. A determination of liability under any such law could have a
material adverse effect on STAT's business, financial condition and results of
operations.
In 1991, Texas enacted a law similar to the federal Anti-Kickback Laws which
is referred to as the "Illegal Remuneration Statute" and which covers patients
sponsored by private payors as well as governmental programs. The Illegal
Remuneration Statute prohibits, among other things, a person from
intentionally offering
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to pay or accepting any remuneration directly or indirectly to or from any
person or corporation in exchange for a healthcare referral if the person, at
the time of initial contact and at the time of the referral, does not disclose
to the patient the person's affiliation with the person for whom the patient
is secured and that the person will receive remuneration for securing the
patient. STAT believes it is in compliance with the Illegal Remuneration
Statute and that none of its business arrangements constitute a payment in
exchange for a referral. However, a determination that STAT has violated the
Illegal Remuneration Statute could subject STAT to injunctive relief, civil
penalties or both, which could have a material adverse effect on STAT's
business, financial condition and results of operations.
The False Claims Act. An increasing number of healthcare providers and other
entities are being faced with lawsuits alleging fraudulent billing practices
under the federal Civil False Claims Act. The Civil False Claims Act permits a
person (generally employees or former employees of the healthcare provider or
other entity) to assert the rights of the government by initiating a qui tam
action against a healthcare provider or other entity if such person has or
purports to have information that the healthcare provider or other entity
submitted a claim to the government for payment that could be false or
fraudulent. Upon filing, the government has the opportunity to intervene and
assume control of the case. Penalties of up to $10,000 for each false or
fraudulent claim presented to the government for payment may be awarded as
well as treble damages. Defendants also may be excluded permanently or for a
period of time from participation in the Medicare and Medicaid programs.
Because of penalties and treble damages, many of these lawsuits involve large
monetary claims and substantial defense costs. In the event that STAT as a
dialysis provider is named as a defendant in a qui tam action and is
successfully prosecuted, no assurance can be made that such event would not
have a material adverse effect on STAT and its operations.
Medicare. The Medicare program represents a substantial portion of the
federal budget, and Congress takes action in almost every legislative session
to modify the Medicare program for the purpose of reducing the amounts
otherwise payable from the program to healthcare providers. Legislation or
regulations may be enacted in the future that may significantly modify the
ESRD program or substantially reduce the amount paid for STAT's services.
Further, statutes or regulations may be adopted which impose additional
requirements for STAT to be eligible to participate in the federal and state
healthcare payment programs. Such new legislation or regulations may adversely
affect STAT's business operations.
Recently, HCFA has promulgated regulations to implement the Omnibus Budget
Reconciliation Act of 1993 ("OBRA 93") with respect to the coordination-of-
benefits period for Medicare beneficiaries. HCFA has established rules for
Medicare beneficiaries who are eligible for, or entitled to, Medicare on the
basis of ESRD and are also entitled on the basis of age or disability. There
are essentially four rules currently in effect for primary payor determination
during the coordination-of-benefits period.
. The first rule provides that if the 18-month period ended before August
1993, Medicare is primary payor from the first month of dual eligibility
entitlement.
. The second rule provides that if the first month of ESRD-based eligibility
or entitlement and the first month of dual eligibility/entitlement both
fall after February 1992 and before August 10, 1993, Medicare is (i)
primary payor from the first month of dual eligibility/entitlement through
August 9, 1993; (ii) secondary payor from August 10, 1993 through the 18th
month of ESRD-based eligibility or entitlement; and (iii) primary payor
again after the 18th month of ESRD-based eligibility or entitlement.
. The third rule provides that if the first month of dual eligibility or
entitlement is after February 1992, and the first month of dual eligibility
or entitlement is after August 9, 1993, Medicare is secondary payor during
the first 18 months of ESRD-based eligibility or entitlement, and primary
payor after the 18th month of ESRD-based eligibility or entitlement.
. The fourth rule, and the most controversial, provides in part that Medicare
remains the primary payor if a group health plan was already secondary
payor for an individual entitled on the basis of age or disability when the
individual becomes eligible on the basis of ESRD.
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Initially, HCFA had interpreted OBRA 93 to require a private plan to become
primary payor under these circumstances. HCFA later corrected its
interpretation of the statute and issued guidance on April 24, 1995 that
Medicare remains the primary payor. On June 6, 1995, a federal court issued a
preliminary injunction precluding HCFA from retroactively implementing its
corrected program instruction for items and services furnished between August
10, 1993 (the enactment of OBRA 93) and April 24, 1995, pending the courts
decision on the merits. HCFA has stated that it will modify the rules if
required by the final ruling of the court.
If the court determines that Medicare is the primary payor during the period
between August 10, 1993 and April 24, 1995, then this decision could have a
material adverse effect on STAT in that it would require STAT to refund
certain payments to private insurers for services during that time period, and
then re-bill the Medicare Program for such payments. This retroactive
application of HCFA's April 1995 program instruction could cause STAT to incur
a significant amount of cost in terms of work hours and office expenses. If
the court maintains its current position that these rules cannot be
retroactively applied, then STAT does not anticipate any impact on its
earnings from such finding. However, STAT cannot estimate with any certainty,
at the present time, the potential impact that any final ruling or
interpretation or the timing of same may have upon its earnings.
Other Regulations. STAT's operations are also subject to various state
hazardous waste disposal laws. Those laws as currently in effect do not
classify most of the waste produced during the provision of dialysis services
to be hazardous, although disposal of non-hazardous medical waste is also
subject to regulation. Occupational Safety and Health Administration
regulations require employers of workers who are occupationally subject to
blood or other potentially infectious materials to provide those workers with
certain prescribed protections against blood borne pathogens. The regulatory
requirements apply to all healthcare facilities, including dialysis
facilities, and require employers to make a determination as to which
employees may be exposed to blood or other potentially infectious materials
and to have in effect a written exposure control plan. In addition, employers
are required to provide or employ hepatitis B vaccinations, personal
protective equipment, infection control training, post-exposure evaluation and
follow-up, waste disposal techniques and procedures, and engineering and work
practice controls. Employers are also required to comply with certain record-
keeping requirements. STAT believes it is in material compliance with the
foregoing laws and regulations.
Although STAT believes it complies in all material respects with current
applicable laws and regulations, the healthcare service industry will continue
to be subject to substantial regulation at the federal and state levels, the
scope and effect of which cannot be predicted by STAT. No assurance can be
given that STAT's activities will not be reviewed or challenged by regulatory
authorities.
Regulatory Compliance and Possible Negative Effects of Prospective
Healthcare Reform. Various plans have been proposed and are being considered
on federal, state and local levels to reduce costs in healthcare spending.
Although STAT believes it responds to the concerns addressed by such plans, it
is not possible to assess the likelihood of whether any of these proposals
will be enacted or to assess the impact any of these proposals may have on
reimbursement to healthcare providers. Lower rates of reimbursement may reduce
the amounts paid by any government payor and, accordingly, may have a material
adverse effect on STAT's businesses and the results of its operations.
Healthcare reforms may expand the existing Anti-Kickback Law and the Stark
Law to apply to all healthcare payors, not just Medicare and Medicaid. It is
unclear how any reform legislation would affect healthcare provider networks
or other types of managed care arrangements. There can be no assurance that
STAT will be able to comply with any new laws.
STAT believes it is in material compliance with current applicable laws and
regulations. No assurance can be made that in the future STAT's business
arrangements, past or present, will not be the subject of an investigation or
prosecution by a federal or state governmental authority. Such an
investigation or prosecution could result in any, or a combination, of the
penalties discussed above depending upon the agency involved in such
investigation and prosecution. None of STAT's business arrangements with
physicians, vendors, patients or others have been the subject of investigation
by any governmental authority. No assurance can be given that
71
<PAGE>
STAT's activities will not be reviewed or challenged by regulatory
authorities. STAT monitors legislative developments and would seek to
restructure a business arrangement if STAT determined that one or more of its
business relationships placed it in material noncompliance with such a
statute.
STAT believes that healthcare regulations will continue to change and, as a
result, regularly monitors developments in healthcare law. STAT expects to
modify its agreements and operations from time to time as the business and
regulatory environment changes. While STAT believes it will be able to
structure all its agreements and operations in accordance with applicable law,
there can be no assurance that its arrangements will not be successfully
challenged.
CORPORATE LIABILITY AND INSURANCE
STAT's business entails an inherent risk of claims of physician professional
and other liability. STAT currently maintains professional liability insurance
underwritten by an insurance company unaffiliated with STAT for itself, its
affiliated physician groups and its contracted physicians, in amounts it deems
to be appropriate, based upon historical claims and the nature and risks of
its business. The professional liability insurance coverage is on a claims-
made basis (the coverage includes claims reported during the period that the
insured was covered by the policy) and includes certain self-insurance
retention. There can be no assurance that a future claim for professional
liability will not exceed the scope or limits of STAT's available insurance
coverage or that such coverage will continue to be available at acceptable
costs or at all. Such insurance provides coverage, subject to policy limits,
in the event that STAT is held liable as a co-defendant in a lawsuit against
an independent contractor physician or hospital or other client. STAT does not
control the practice of medicine by physicians or the compliance with certain
other regulatory and other requirements directly applicable to physicians or
hospitals or other clients. The likelihood that STAT could be held liable for
the negligence of a physician would be increased if such physician were
determined to be an employee or other agent of STAT.
In addition to any potential tort liability of STAT, the affiliated
physician groups' contracts with hospitals generally contain provisions under
which STAT agrees to indemnify the hospital for losses resulting from the
contracted physician's malpractice and the hospital agrees to indemnify STAT
for losses resulting from the negligence of the hospital or hospital
personnel.
COMPETITION
The markets for dialysis, HBO therapy, home healthcare and physician
practice management services are highly competitive. STAT competes not only
with other national and regional management companies and treatment facilities
but also with local physician groups and with hospitals themselves, many of
which are also trying to combine their own services with those of physicians
into integrated delivery networks. STAT is also, in effect, competing against
the traditional structure of practicing physician management and hospital
management operations. Competition in the industry is based on the scope,
quality, and cost of services provided. Certain of STAT's competitors are
significantly larger and have substantially greater financial and other
resources available to them than STAT.
LEGAL PROCEEDINGS
STAT and its affiliated physician groups are involved in various legal
proceedings incidental to their business, substantially all of which involve
claims related to the alleged medical malpractice of contracted physicians. In
the opinion of STAT's management, no individual item of litigation or group of
similar items of litigation, taking into account the insurance coverage
available to STAT, is likely to have a material adverse effect on STAT's
financial position.
EMPLOYEES AND INDEPENDENT CONTRACTOR PHYSICIANS
At September 30, 1996, STAT had 268 full-time employees, of whom 13 were in
general executive positions, 50 were in administration and 205 were registered
nurses or technicians. In addition, as of such
72
<PAGE>
date approximately 215 physicians were under contract with STAT's affiliated
physician groups or were engaged as medical directors of STAT's dialysis
operations. None of STAT's employees is represented by a collective bargaining
agreement, and STAT considers its employee relations to be satisfactory.
PROPERTIES
STAT's principal executive offices are located in approximately 10,000
square feet of leased space in Houston, Texas 77060 under an agreement
terminating in June 1998.
All of STAT's operations are conducted from leased facilities. STAT leases
four facilities from entities in which referring physicians hold an interest.
The leases for STAT's operating facilities generally cover periods from three
to ten years and typically contain renewal options of one to five years at the
fair rental value at the time of renewal or at rates subject to consumer price
index increases since the inception of the lease. STAT's facilities range in
size from approximately 900 to approximately 7,200 square feet. STAT considers
its physical properties to be in good operating condition and suitable for the
purposes for which they are being used.
CERTAIN INFORMATION REGARDING A DIRECTOR AND AN EXECUTIVE OFFICER OF STAT WHO
WILL BECOME A DIRECTOR OF AMERICAN
The Merger Agreement provides that the obligation of STAT to effect the
merger is subject to the condition that American shall have taken all actions
necessary to nominate and elect Mr. Schneider as a member of the Board of
Directors of American. No other director or executive officer of STAT will
serve as a director or executive officer of American immediately following the
Merger.
Mr. Schneider, age 41, has been Chairman of the Board and Chief Executive
Officer of STAT since June 1996 and a director since July 1995. STAT's
certificate of incorporation and by-laws provide for a classified board of
directors. Mr. Schneider is a Class I director of STAT and his term as a
director expires at STAT's 1998 annual stockholders meeting. Mr. Schneider had
not served as an executive officer of STAT prior to June 1996. Schneider co-
founded AmHealth Corporation with Messrs. Ruben and Daniel Perez in October
1992. Mr. Schneider was a co-founder of Columbia/HCA Healthcare Corporation in
1988 and served on its Board of Directors from 1988 to 1993 and as Senior Vice
President of Market Development from 1993 to 1994, overseeing Columbia's
involvement in physician ventures, mergers, acquisitions and business
development.
In 1995, STAT granted to Mr. Schneider options to purchase 10,000 shares of
STAT Common Stock at an exercise price of $2.75 per share, which was the fair
market value of the shares on the date of grant.
In June 1996, upon consummation of the Exchange, Mr. Schneider received
2,811,922 shares of STAT Common Stock in exchange for his interests in the
AmHealth Corporations and related entities, was elected Chairman of the Board
and Chief Executive Officer of the STAT, and entered into an employment
agreement with STAT.
Mr. Schneider's employment agreement with STAT provides that he will receive
an annual salary of $120,000. Additionally, Mr. Schneider is entitled to an
incentive compensation award in the form of a bonus, the amount of which is at
the discretion of the Compensation Committee of the Board of Directors. In
addition, subject to the approval of the Board of Directors, Mr. Schneider has
been granted the right to participate in the 1996 Stock Option Plan. The
employment agreement provides for an initial term of employment of three years
ending in June 1999, provided that the Company may terminate the agreement for
cause at any time. In addition, under the terms of the employment agreement,
Mr. Schneider has agreed not to compete with, nor to disclose confidential
information of, STAT for a period of two years after the termination of the
employment agreement.
The Merger Agreement provides that the obligations of American and Merger
Sub to effect the Merger are subject to the condition that Mr. Schneider enter
into an employment agreement with American and STAT in the form attached to
the Merger Agreement, which will supersede his existing employment agreement
with STAT. The terms of the employment agreement among Mr. Schneider, STAT,
and American are the same as his existing
73
<PAGE>
employment agreement with STAT, except that: (i) American is a party to the
new employment agreement; (ii) the new employment agreement has a term of
three years following the Effective Time; (iii) the new employment agreement
provides that if Mr. Schneider's employment with STAT is terminated by STAT
other than for cause, Mr. Schneider will receive one year's salary plus the
continuation of certain benefits for one year; (iv) the new employment
agreement provides that if Mr. Schneider sells or otherwise disposes of shares
of American Common Stock received by him in the Merger prior to certain dates
specified therein, he shall pay a portion of the proceeds of such disposition
to American; and (v) the new employment agreement provides that Mr. Schneider
will not compete with STAT or any of its subsidiaries or affiliates in certain
specified types of businesses within 100 miles of any location in which STAT
or any of its subsidiaries or affiliates conduct non-transportation business.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF STAT
The following table sets forth certain information regarding the beneficial
ownership of STAT Healthcare Common Stock as of September 30, 1996, assuming
the exercise of all options exercisable on, or within 60 days of, such date by
(i) each director, (ii) the Chief Executive Officer and each of the other four
most highly compensated executive officers of STAT, (iii) all executive
officers and directors as a group and (iv) STAT's principal stockholders.
Other than as set forth in the table below, there are no persons known to STAT
to beneficially own more than 5% of STAT Common Stock.
<TABLE>
<CAPTION>
NAME NUMBER(1) PERCENTAGE
---- --------- ----------
<S> <C> <C>
Ruben A. Perez(2).................................... 3,868,917 25.8%
Russell D. Schneider(3).............................. 2,824,922(4) 18.9
Daniel A. Perez(5)................................... 1,509,231 10.1
William Restrepo, M.D.(6)............................ 1,043,018 7.0
M.K. Razdan, M.D.(7)................................. 1,026,038 6.9
William H. Rice, M.D.(3)............................. 783,756(8) 5.2
Victor M. Miranda, M.D.(3)........................... 805,677(9) 5.4
Ned E. Chapman(3).................................... 90,136(10) *
David C. Colby....................................... 20,000(11) *
Ann N. James, Ph.D................................... 20,000(11) *
All officers and directors as a group (eight per-
sons)............................................... 9,922,639(12) 65.9%
</TABLE>
- --------
* Indicates less than 1%.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or become exercisable within 60 days are
deemed outstanding. However, such shares are not deemed outstanding for
the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated in the footnotes to this table, the persons
and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable.
(2) The address for Mr. R. Perez is 8200 I.H. 10 West, Suite 710, San
Antonio, Texas 78230.
(3) The address for Mr. Schneider, Dr. Rice, Dr. Miranda and Mr. Chapman is
12450 Greenspoint Drive, Suite 1200, Houston, Texas 77060.
(4) Includes 10,000 shares purchasable upon the exercise of options.
(5) The address for Mr. D. Perez is 1300 North 10th, Suite 220, McAllen,
Texas 78501.
(6) The address for Dr. Restrepo is 1801 South 5th Street, Suite 209,
McAllen, Texas 78503.
(7) The address for Dr. Razdan is 222 East Ridge Road, Suite 116, McAllen,
Texas 78503.
(8) Includes 5,414 shares purchasable upon the exercise of options and
778,342 shares owned of record by STAT Physicians I. Drs. Rice and
Miranda each own 50% of the outstanding equity interest in STAT
Physicians I and share the power to vote and dispose of the shares owned
by STAT Physicians I. Excludes
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<PAGE>
778,342 shares attributable to Dr. Rice's equity interest in STAT
Physicians I, of which Dr. Miranda disclaims beneficial ownership.
(9) Includes 27,335 shares purchasable upon the exercise of options and
778,342 shares owned of record by STAT Physicians I. Drs. Rice and
Miranda each own 50% of the outstanding equity interest in STAT
Physicians I and share the power to vote and dispose of the shares owned
by STAT Physicians I. Excludes 778,342 shares attributable to Dr.
Miranda's equity interest in STAT Physicians I, of which Dr. Rice
disclaims beneficial ownership.
(10) Includes 11,250 shares purchasable upon the exercise of options.
(11) Represents shares purchasable upon the exercise of options. The shares
underlying such options are subject to repurchase by STAT.
(12) Includes 93,999 shares purchasable upon the exercise of options.
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<PAGE>
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
AMERICAN
American Common Stock is listed and traded on the NYSE. The following table
sets forth the high and low sales prices per share of American Common Stock as
reported in the NYSE Composite Transactions Tape, for the quarterly periods
presented below:
<TABLE>
<CAPTION>
AMERICAN COMMON
----------------
HIGH LOW
----------------
<S> <C> <C>
Calendar 1994:
First quarter............................................ 28 1/8 $ 23 1/8
Second quarter........................................... 26 1/4 21 5/8
Third quarter............................................ 26 1/4 21 1/2
Fourth quarter........................................... 28 7/8 24 5/8
Calendar 1995:
First quarter............................................ 28 3/4 24 5/8
Second quarter........................................... 28 22 3/4
Third quarter............................................ 31 5/8 27
Fourth quarter........................................... 32 1/2 26 1/4
Calendar 1996:
First quarter............................................ 35 3/4 28 7/8
Second quarter........................................... 38 1/2 33 3/4
Third quarter............................................ 38 1/4 32 5/8
Fourth quarter (through November 1, 1996)................ 37 5/8 29
</TABLE>
On October 7, 1996, the last trading day prior to announcement of the
execution of the Merger Agreement, the closing price per share of American
Common Stock as reported in the NYSE Composite Transactions Tape was $37 1/2.
On November 1, 1996, the most recent date for which prices were available
prior to printing this Proxy Statement/Prospectus, the closing price per share
of American Common Stock as reported in the NYSE Composite Transactions Tape
was $30 1/4. Stockholders are urged to obtain current market quotations.
STAT
STAT Common Stock has traded on the Nasdaq National Market since August 23,
1996 and was quoted on the Nasdaq SmallCap Market from April 21, 1995 to
August 22, 1996. The following table sets forth the high and low closing sales
prices per share of STAT Common Stock as reported by the Nasdaq National
Market and the Nasdaq SmallCap Market, for the calendar quarters presented
below:
<TABLE>
<CAPTION>
STAT COMMON STOCK
------------------
HIGH LOW
--------- --------
<S> <C> <C>
Calendar 1995:
Second quarter (beginning April 21)..................... 3 3/16 2
Third quarter........................................... 3 7/8 2
Fourth quarter.......................................... 5 2 3/4
Calendar 1996:
First quarter........................................... 6 3/4 3
Second quarter.......................................... 9 5/8 5 1/2
Third quarter........................................... 8 3/8 5 3/4
Fourth quarter (through November 1, 1996)............... 9 7
</TABLE>
On October 7, 1996, the last trading day prior to announcement of the
execution of the Merger Agreement, the closing price per share of STAT Common
Stock as reported on the Nasdaq National Market was $8.375. On November 1,
1996, the most recent date for which prices were available prior to printing
this Proxy Statement/Prospectus, the closing price per share of STAT Common
Stock as reported on the Nasdaq National Market was $7 3/8. Stockholders are
urged to obtain current market quotations.
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<PAGE>
PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the merger of American and STAT as if the transaction was accounted for as
a pooling of interests and occurred, for balance sheet purposes, on June 30,
1996 and, for statements of earnings purposes, on January 1, 1993. These
unaudited pro forma combined financial statements should be read in
conjunction with American's and STAT's consolidated financial statements and
notes thereto that are either incorporated herein by reference or included
elsewhere herein. The pro forma information is not necessarily indicative of
the results that would have been reported had such events actually occurred on
the dates specified, nor is it indicative of American's future results.
The pro forma combined financial statements do not include any one-time,
nonrecurring Merger-related costs, nor do they incorporate any benefits from
any potential cost savings or synergies following the Merger.
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<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN STAT COMBINED
-------- ------- --------
<S> <C> <C> <C>
ASSETS
Cash................................................. $ 11,668 $ 1,324 $ 12,992
Accounts receivable.................................. 130,085 7,109 137,194
Other current assets................................. 42,449 573 43,022
-------- ------- --------
Total current assets............................... 184,202 9,006 193,208
-------- ------- --------
Property & equipment................................. 70,602 3,149 73,751
-------- ------- --------
Goodwill............................................. 291,140 1,408 292,548
Other assets......................................... 9,182 196 9,378
-------- ------- --------
Total assets....................................... $555,126 $13,759 $568,885
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses................ $100,304 $ 3,259 $103,563
Current maturities of debt........................... 19,841 1,558 21,399
-------- ------- --------
Total current liabilities.......................... 120,145 4,817 124,962
-------- ------- --------
Long-term debt....................................... 26,869 2,282 29,151
Convertible subordinated notes....................... 125,000 -- 125,000
Other liabilities.................................... 8,249 -- 8,249
-------- ------- --------
Total liabilities.................................. 280,263 7,099 287,362
-------- ------- --------
Stockholders' equity................................. 274,863 6,660 281,523
-------- ------- --------
Total liabilities and stockholders' equity......... $555,126 $13,759 $568,885
======== ======= ========
</TABLE>
See notes to pro forma combined financial statements.
78
<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN STAT(1) COMBINED
-------- ------- --------
<S> <C> <C> <C>
Total revenue.................................... $483,846 $29,802 $513,648
-------- ------- --------
Operating expenses:
Salaries and benefits.......................... 245,142 14,047 259,189
Uncompensated care............................. 92,345 6,661 99,006
Other operating expenses....................... 77,875 4,940 82,815
Depreciation................................... 15,671 388 16,059
Amortization of intangibles.................... 5,288 -- 5,288
Restructuring.................................. 23,000 -- 23,000
-------- ------- --------
Total operating expenses..................... 459,321 26,036 485,357
-------- ------- --------
Earnings from operations......................... 24,525 3,766 28,291
Interest expense, net.......................... 3,222 121 3,343
-------- ------- --------
Earnings before income taxes..................... 21,303 3,645 24,948
Income taxes................................... 10,866 347 11,213
-------- ------- --------
Net earnings................................. $ 10,437 $ 3,298 $ 13,735
======== ======= ========
PRO FORMA DATA
Historical net earnings.......................... $ 10,437 $ 3,298 $ 13,735
Salaries and benefits............................ (96) -- (96)
Income taxes..................................... (417) 892 475
-------- ------- --------
Net earnings................................... $ 10,950 $ 2,406 $ 13,356
======== ======= ========
Earnings per common share:
Primary........................................ $ 0.60 $ 0.01 $ 0.61
======== ======= ========
Fully diluted.................................. $ 0.60 $ 0.01 $ 0.61
======== ======= ========
Weighted average common shares outstanding:
Primary........................................ 18,126 3,744(4) 21,870
======== ======= ========
Fully diluted.................................. 18,126 3,744(4) 21,870
======== ======= ========
</TABLE>
See notes to pro forma combined financial statements.
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<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN STAT(1)(2) COMBINED
-------- ---------- --------
<S> <C> <C> <C>
Total revenue.................................. $327,364 $17,274 $344,638
-------- ------- --------
Operating expenses:
Salaries and benefits........................ 168,474 9,801 178,275
Uncompensated care........................... 64,217 2,753 66,970
Other operating expenses..................... 52,278 3,017 55,295
Depreciation................................. 10,594 223 10,817
Amortization of intangibles.................. 2,741 -- 2,741
-------- ------- --------
Total operating expenses................... 298,304 15,794 314,098
-------- ------- --------
Earnings from operations....................... 29,060 1,480 30,540
Interest expense, net........................ 1,592 5 1,597
-------- ------- --------
Earnings before income taxes................... 27,468 1,475 28,943
Income taxes................................. 11,644 65 11,709
-------- ------- --------
Net earnings............................... $ 15,824 $ 1,410 $ 17,234
======== ======= ========
PRO FORMA DATA
Historical net earnings........................ $ 15,824 $ 1,410 $ 17,234
Salaries and benefits.......................... (1,461) -- (1,461)
Income taxes................................... 1,182 436 1,618
-------- ------- --------
Net earnings............................... $ 16,103 $ 974 $ 17,077
======== ======= ========
Earnings per common share:
Primary...................................... $ 1.06 $ (0.16) $ 0.90
======== ======= ========
Fully diluted................................ $ 1.06 $ (0.16) $ 0.90
======== ======= ========
Weighted average common shares outstanding:
Primary...................................... 15,181 3,744(4) 18,925
======== ======= ========
Fully diluted................................ 15,181 3,744(4) 18,925
======== ======= ========
</TABLE>
See notes to pro forma combined financial statements.
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<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN STAT(1)(3) COMBINED
---------- ---------- ---------
<S> <C> <C> <C>
Total revenue............................... $ 217,883 $ 10,748 $ 228,631
---------- --------- ---------
Operating expenses:
Salaries and benefits..................... 110,298 7,883 118,181
Uncompensated care........................ 44,656 705 45,361
Other operating expenses.................. 36,211 1,429 37,640
Depreciation.............................. 6,805 81 6,886
Amortization of intangibles............... 1,664 -- 1,664
---------- --------- ---------
Total operating expenses................ 199,634 10,098 209,732
---------- --------- ---------
Earnings from operations.................... 18,249 650 18,899
Interest expense, net..................... 959 33 992
---------- --------- ---------
Earnings before income taxes................ 17,290 617 17,907
Income taxes.............................. 7,489 -- 7,489
---------- --------- ---------
Net earnings............................ $ 9,801 $ 617 $ 10,418
========== ========= =========
PRO FORMA DATA
Historical net earnings..................... $ 9,801 $ 617 $ 10,418
Salaries and benefits....................... (1,380) -- (1,380)
Income taxes................................ 718 210 928
---------- --------- ---------
Net earnings............................ $ 10,463 $ 407 $ 10,870
========== ========= =========
Earnings per common share:
Primary................................... $ 0.80 $ (0.15) $ 0.65
========== ========= =========
Fully diluted............................. $ 0.80 $ (0.15) $ 0.65
========== ========= =========
Weighted average common shares outstanding:
Primary................................... 13,009 3,744(4) 16,753
========== ========= =========
Fully diluted............................. 13,009 3,744(4) 16,753
========== ========= =========
</TABLE>
See notes to pro forma combined financial statements.
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<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN STAT(1) COMBINED
-------- -------- --------
<S> <C> <C> <C>
Total revenue...................................... $322,595 $ 23,263 $345,858
-------- -------- --------
Operating expenses:
Salaries and benefits............................ 161,349 10,082 171,431
Uncompensated care............................... 61,573 6,600 68,173
Other operating expenses......................... 51,077 3,440 54,517
Depreciation..................................... 10,707 258 10,965
Amortization of intangibles...................... 4,585 -- 4,585
Merger costs..................................... -- 1,269 1,269
-------- -------- --------
Total operating expenses....................... 289,291 21,649 310,940
-------- -------- --------
Earnings from operations........................... 33,304 1,614 34,918
Interest expense, net............................ 4,669 133 4,802
-------- -------- --------
Earnings before income taxes....................... 28,635 1,481 30,116
Income taxes..................................... 12,828 (44) 12,784
-------- -------- --------
Net earnings................................... $ 15,807 $ 1,525 $ 17,332
======== ======== ========
PRO FORMA DATA
Historical net earnings............................ $ 15,807 $ 1,525 $ 17,332
Salaries and benefits.............................. -- -- --
Income taxes....................................... -- 577 577
-------- -------- --------
Net earnings................................... $ 15,807 $ 948 $ 16,755
======== ======== ========
Earnings per common share:
Primary.......................................... $ 0.78 $ (0.08) $ 0.70
======== ======== ========
Fully diluted.................................... $ 0.77 $ (0.07) $ 0.70
======== ======== ========
Weighted average common shares outstanding:
Primary.......................................... 20,186 3,744(4) 23,930
======== ======== ========
Fully diluted.................................... 22,933 3,744(4) 26,677
======== ======== ========
</TABLE>
See notes to pro forma combined financial statements.
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<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN STAT (1) COMBINED
-------- -------- --------
<S> <C> <C> <C>
Total revenue................................... $220,567 $13,137 $233,704
-------- ------- --------
Operating expenses:
Salaries and benefits......................... 112,491 6,247 118,738
Uncompensated care............................ 42,585 2,762 45,347
Other operating expenses...................... 35,573 2,232 37,805
Depreciation.................................. 7,023 112 7,135
Amortization of intangibles................... 1,939 -- 1,939
-------- ------- --------
Total operating expenses.................... 199,611 11,353 210,964
-------- ------- --------
Earnings from operations........................ 20,956 1,784 22,740
Interest expense, net......................... 1,432 29 1,461
-------- ------- --------
Earnings before income taxes.................... 19,524 1,755 21,279
Income taxes.................................. 9,196 181 9,377
-------- ------- --------
Net earnings................................ $ 10,328 $ 1,574 $ 11,902
======== ======= ========
PRO FORMA DATA
Historical net earnings......................... $ 10,328 $ 1,574 $ 11,902
Salaries and benefits........................... (96) -- (96)
Income taxes.................................... (417) 416 (1)
-------- ------- --------
Net earnings................................ $ 10,841 $ 1,158 $ 11,999
======== ======= ========
Earnings per common share:
Primary....................................... $ 0.65 $ (0.06) $ 0.59
======== ======= ========
Fully diluted................................. $ 0.65 $ (0.06) $ 0.59
======== ======= ========
Weighted average common shares outstanding:
Primary....................................... 16,674 3,744(4) 20,418
======== ======= ========
Fully diluted................................. 16,674 3,744(4) 20,418
======== ======= ========
</TABLE>
See notes to pro forma combined financial statements.
83
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Certain amounts of STAT have been reclassified to conform with American's
financial statement presentation.
(2) Represents consolidated financial data of STAT for the year ended December
31, 1994 combined with financial data for STAT Physicians I for the eight
months ended August 31, 1994.
(3) Represents consolidated financial data of STAT combined with financial
data of STAT Physicians I.
(4) Assumes that 0.25 of a share of American Common Stock was issued in
exchange for each share of STAT Common Stock outstanding.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF AMERICAN
The following description does not purport to be complete and is subject in
all respects to the applicable provisions of American's Certificate of
Incorporation, as amended, and By-Laws, copies of which are filed as exhibits
to the Proxy Statement/Prospectus.
The authorized capital stock of American consists of 75,000,000 shares of
Common Stock, $.01 par value, and 500,000 shares of preferred stock, $.01 par
value.
COMMON STOCK
Subject to the preferences of any outstanding preferred stock, the holders
of American Common Stock are entitled to receive dividends when and as
declared by the Board of Directors and paid by American. The holders of
American Common Stock are entitled to one vote per share and to share ratably,
after provision for payment of creditors and for any payments to which the
holders of any outstanding preferred stock may be entitled, in the assets of
American in the event of any liquidation, dissolution or winding-up of
American. There is no cumulative voting. Holders of American Common Stock have
no preemptive or other subscription rights, and there are no conversion,
redemption or sinking fund provisions applicable thereto. The Board of
Directors of American is authorized to issue from time to time all of the
authorized and unissued shares of American Common Stock.
The First National Bank of Boston is the registrar and transfer agent of the
shares of American Common Stock.
PREFERRED STOCK
The American Board of Directors is authorized to fix the terms of one or
more series of the class of preferred stock and to issue from time to time any
or all of the authorized and unissued shares of preferred stock. Issues of
preferred stock may limit or qualify the rights of holders of the American
Common Stock.
COMPARATIVE RIGHTS OF STOCKHOLDERS
The following is a summary of the material differences between the rights of
holders of STAT Common Stock and holders of American Common Stock. Since both
STAT and American are organized under the laws of the State of Delaware, such
differences arise from differences between various provisions of the
Certificate of Incorporation (the "STAT Certificate"), and By-Laws of STAT and
the Certificate of Incorporation, as amended (the "American Certificate") and
By-Laws of American. This summary does not purport to be complete and is
qualified in its entirety by reference to the STAT Certificate and By-Laws,
the American Certificate and By-Laws and the relevant provisions of Delaware
law.
SPECIAL MEETING OF STOCKHOLDERS
Delaware law provides that special meetings of stockholders may be called
only by the directors or by any other person as may be authorized by the
corporation's certificate of incorporation or by-laws. STAT's By-Laws provide
that special meetings may be called by the Chairman of the Board of Directors,
by the President, by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of authorized directors or by the holders of
shares entitled to cast not less than the majority of the votes at the
meeting. American's By-Laws provide that special meetings may be called at any
time by the Chairman of the Board of Directors, if any, the President or the
Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law, unless the charter provides otherwise, any action
required to be taken or which may be taken at a meeting of stockholders may be
taken without a vote, without a meeting and without prior notice,
85
<PAGE>
with the written consent of not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. The American
Certificate and the STAT Certificate prohibit stockholder action by written
consent and any stockholder action must be elected at a duly called annual or
special meeting of such stockholders.
ADVANCE NOTICE OF STOCKHOLDER PROPOSALS AND BOARD NOMINATIONS
The respective By-Laws of STAT and American provide that a stockholder must
give advance written notice to the respective company if the stockholder
intends to bring any business before a meeting of stockholders or to make
nominations for the board of directors. STAT's advance notice provisions
require stockholders to give such notice not less than 120 days prior to the
meeting at which the business would be acted upon. The advance notice
provisions for American require that the notice be received not less than 60
days nor more than 90 days prior to the meeting.
QUORUMS
Delaware law provides that the number of shares necessary to constitute a
quorum for voting purposes may be fixed by the certificate of incorporation or
the By-Laws of a corporation, but in no event shall such number consist of
less than one third of the shares entitled to vote at the meeting. The STAT
By-Laws provide that a quorum of stockholders requires the presence, in person
or by proxy, of a majority of the outstanding shares of stock entitled to vote
and that a majority of the total number of directors is a quorum for the
transaction of all business. The American By-Laws provide that a majority of
votes entitled to vote on any matter shall constitute a quorum for a
stockholders' meeting, while a majority of the total number of directors is a
quorum for the transaction of all business. In no event shall a quorum be less
than one-third of the total number of directors constituting the whole board.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Delaware law permits (but does not require) classification of a
corporation's board of directors into one, two or three classes. The STAT
Certificate and By-Laws provide for three classes, designated Class I, Class
II and Class III. Each class consists, as nearly as is possible, of one-third
of the total number of directors on the board. Each director serves a three
year term except for the initial Class I and Class II directors who serve
approximately one and two years, respectively. The American Certificate and
By-Laws do not provide for a classified board.
REMOVAL OF DIRECTORS
Under Delaware law, although stockholders may generally remove directors
with or without cause by a majority vote, stockholders may remove members of
classified boards only for cause unless the certificate of incorporation
provides otherwise. The STAT Certificate provides that a director may only be
removed for cause, by the holders of a majority of shares then entitled to
vote at an election of directors. The By-Laws of American, which does not have
a classified board of directors, provide that a director may be removed, with
or without cause, by the majority of the shares issued and outstanding and
entitled to vote in the election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless otherwise provided in the charter or by-laws,
vacancies on the board of directors and newly created directorships resulting
from any increase in the authorized number of directors may be filled by the
remaining directors. The STAT Certificate provides that any vacancy on the
Board of Directors, however created, may be filled by a majority of the
remaining directors, even if less than a quorum, at any meeting of the Board
of Directors. The American By-Laws provide that vacancies arising from any
increase in the number of directors may be filled by the vote of stockholders
at a meeting called for that purpose, or by a majority of the directors then
in office, or by a sole remaining director. Vacancies arising from the
resignation of
86
<PAGE>
one or more directors shall be filled by a majority of the directors then in
office, including those who have resigned.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Delaware law generally permits indemnification of directors and officers for
expenses incurred by them by reason of their position with the corporation, if
the director or officer has acted in good faith and with the reasonable belief
that his conduct was in the best interest of the corporation. However,
Delaware law does not permit a corporation to indemnify persons against
judgments in actions brought by or in the right of the corporation (although
it does permit indemnification in such situations if approved by the Delaware
Court of Chancery and for expenses of such actions). STAT's By-Laws provide
that STAT shall indemnify directors to the fullest extent permitted by
Delaware law. American's By-Laws provide for indemnification of current or
former directors or officers of the corporation to the full extent authorized
by Delaware law.
AMENDMENTS TO CHARTER
Under Delaware law, charter amendments require the approval of the directors
and the vote of the holders of a majority of the outstanding stock and a
majority of each class of stock outstanding and entitled to vote thereon as a
class, unless the certificate of incorporation requires a greater proportion.
In addition, Delaware law requires a class vote when, among other things, an
amendment will adversely affect the powers, preferences or special rights of a
class of stock. The provisions of the STAT Certificate may be amended by
either the majority of all stockholders entitled to vote in the annual
election of directors or the majority of the entire board of directors, except
that the provisions regarding the board of directors and amendments to the
certificate may only be amended by the vote of a majority of stockholders. The
American Certificate requires a two-thirds vote of the then-outstanding shares
of capital stock entitled to vote generally in the election of directors to
amend the provisions of the certificate regarding (a) the requirement of a
vote of two-thirds of the then-outstanding shares of capital stock entitled to
vote generally in the election of directors whenever a stockholder vote is
required under the DGCL regarding a merger or, consolidation or sale or lease
of all or substantially all of American's assets, and (b) amendment of the
Certificate.
BY-LAWS
Under Delaware law, the authority to adopt, amend or repeal the by-laws of a
Delaware corporation is held exclusively by the stockholders entitled to vote
unless such authority is conferred upon the board of directors in the
corporation's certificate of incorporation. The STAT Certificate grants to its
board of directors the powers to adopt, amend, supplement or repeal the STAT
By-Laws. The STAT By-Laws also provide that the By-Laws may be changed or
repealed by the affirmative vote of the majority of the voting stock of the
corporation, and that no amendment or supplement to the By-Laws adopted by the
board of directors shall vary or conflict with any amendment or supplement
thus adopted by the stockholders. The American Certificate provides that the
board of directors shall have power to make, adopt, alter, amend and repeal
the By-Laws, subject to the right of stockholders entitled to vote to alter
and repeal By-Laws made by the board of directors.
VOTE REQUIRED FOR MERGERS
Delaware law generally requires the affirmative vote of a majority of a
corporation's outstanding shares entitled to vote, unless the certificate of
incorporation requires a greater proportion, to authorize a merger,
consolidation, share exchange, dissolution or disposition of all or
substantially all of its assets, except that, (a) unless required by its
charter, no authorizing stockholder vote is required of a corporation
surviving a merger if (i) such corporation's charter is not amended by the
merger; (ii) each share of stock of such corporation will be an identical
share of the surviving corporation after the merger; and (iii) the number of
shares to be issued in the merger does not exceed twenty percent (20%) of such
corporation's outstanding common stock immediately prior to the effective date
of the merger and (b) unless a dissolution is adopted by a majority of the
board of directors, a dissolution must be approved by all stockholders
entitled to vote thereon. The STAT Certificate does
87
<PAGE>
not provide otherwise. The American Certificate provides that the affirmative
vote of two-thirds of the outstanding shares of capital stock entitled to vote
generally in the election of directors is required to approve mergers,
consolidations and sales and leases of all or substantially all of American's
assets that require shareholder approval.
OTHER MATTERS
It is not expected that any matters other than those described in this Proxy
Statement/Prospectus will be brought before the STAT Special Meeting. If any
other matters are presented, however, it is the intention of the persons named
in the STAT proxy to vote the proxy in accordance with the discretion of the
persons named in such proxy.
VALIDITY OF THE SHARES AND TAX MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby and the Merger will be passed upon for American by Ropes & Gray,
Boston, Massachusetts. Certain tax matters in connection with the Merger will
be passed upon for STAT by KPMG Peat Marwick LLP.
EXPERTS
The consolidated financial statements of American as of December 31, 1995
and 1994 and for each of the years in the three year period ended December 31,
1995 have been incorporated by reference herein and in the Registration
Statement, in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements and schedule of STAT Healthcare, Inc.
and subsidiaries as of December 31, 1994 and 1995 and for the years then ended
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and in reliance upon the report of Long, Chilton,
Payte & Hardin, LLP, independent certified public accountants, with respect to
the combined financial statements of AmHealth Corporation and its related
healthcare entities as of December 31, 1994 and for the year then ended, and
upon the authority of said firms as experts in accounting and auditing.
The consolidated financial statements and schedule of STAT Healthcare, Inc.
and subsidiaries as of December 31, 1993 and for the year then ended have been
included herein and in the Registration Statement in reliance upon the report
of Long, Chilton, Payte & Hardin, LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
The financial statements of South Texas Acute Trauma Physicians, P.A. as of
December 31, 1993 and August 31, 1994 and for the year ended December 31, 1993
and the eight months ended August 31, 1994 have been included herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
Representatives of KPMG Peat Marwick LLP expect to be present at the STAT
Special Meeting, and, while such representatives do not plan to make a
statement at such meetings, they will be available to respond to questions
from stockholders in attendance.
88
<PAGE>
STOCKHOLDER PROPOSALS
Any STAT stockholder who wishes to submit a proposal for presentation to
STAT's 1997 Annual Meeting of Stockholders (if the Merger has not been
consummated prior to the date the meeting is to be held) must submit the
proposal to STAT, 12450 Greenspoint Drive, Suite 1200, Houston, Texas 77060,
Attention: Secretary. Such proposal must be received not later than January
22, 1997 for inclusion, if appropriate, in STAT's proxy statement and form of
proxy relating to its 1997 Annual Meeting.
89
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-2
Independent Auditors' Report............................................ F-3
Independent Auditors' Report............................................ F-4
Consolidated Balance Sheets at December 31, 1993, 1994 and 1995......... F-5
Consolidated Statements of Income for the years ended December 31, 1993,
1994 and 1995.......................................................... F-6
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1993, 1994 and 1995................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995.................................................... F-8
Notes to Consolidated Financial Statements.............................. F-9
STAT HEALTHCARE, INC. AND SUBSIDIARIES (UNAUDITED)
Consolidated Balance Sheet at June 30, 1996 (unaudited)................. F-22
Consolidated Statements of Income for the six months ended June 30, 1995
and 1996 (unaudited)................................................... F-23
Consolidated Statement of Changes in Stockholders' Equity for the six
months ended June 30, 1996 (unaudited)................................. F-24
Consolidated Statement of Cash Flows for the six months ended June 30,
1996 (unaudited)....................................................... F-25
Notes to Unaudited Consolidated Financial Statements.................... F-26
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
Independent Auditors' Report............................................ F-27
Balance Sheets at December 31, 1993 and August 31, 1994................. F-28
Statements of Income for the year ended December 31, 1993 and the eight
months ended
August 31, 1994........................................................ F-29
Statements of Changes in Shareholders' Equity for the year ended
December 31, 1993 and the
eight months ended August 31, 1994..................................... F-30
Statements of Cash Flows for the year ended December 31, 1993 and the
eight months ended August 31, 1994..................................... F-31
Notes to Financial Statements........................................... F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of STAT
Healthcare, Inc. and subsidiaries (the Company) as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1994 financial
statements of AmHealth Corporation and its related health care entities, a
wholly-owned subsidiary, which statements reflect total assets constituting
57% and total net service revenues constituting 52% of the related
consolidated totals in 1994. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for AmHealth Corporation and its related health care
entities, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors for 1994 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors for
1994, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of STAT Healthcare, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
August 9, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors/Partners
AmHealth Corporation and its Related Health Care Entities:
We have audited the combined balance sheets of AmHealth Corporation and its
related health care entities (collectively referred to as the Company) as of
December 31, 1994, and the related combined statements of income, changes in
shareholders' equity and partners' capital, and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of AmHealth
Corporation and its related health care entities as of December 31, 1994, and
the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
Long, Chilton, Payte & Hardin, LLP
Certified Public Accountants
McAllen, Texas
February 22, 1995
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
We have audited the accompanying consolidated balance sheet of STAT
Healthcare, Inc. and subsidiaries (the Company) as of December 31, 1993, and
the related consolidated statements of income, changes in stockholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of STAT
Healthcare, Inc. and subsidiaries as of December 31, 1993, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Long, Chilton, Payte & Hardin, LLP
Certified Public Accountants
McAllen, Texas
August 9, 1996
F-4
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 114,000 $ 470,000 $ 2,538,000
Accounts receivable, net (notes 5 and 8)..... 339,000 2,382,000 4,565,000
Notes receivable (note 6).................... 8,000 8,000 266,000
Inventories (note 8)......................... 32,000 63,000 103,000
Prepaid and other current assets............. 71,000 143,000 709,000
---------- ---------- -----------
Total current assets..................... 564,000 3,066,000 8,181,000
Property and equipment, net (notes 7 and 8).. 526,000 1,446,000 2,261,000
Other non-current assets..................... 53,000 312,000 133,000
---------- ---------- -----------
Total assets............................. $1,143,000 $4,824,000 $10,575,000
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt (note 8)... $ 122,000 $ 470,000 $ 88,000
Current portion of capital lease obligations
(note 9).................................... 80,000 37,000 48,000
Accrued physicians' fees..................... -- 724,000 706,000
Accounts payable............................. 116,000 352,000 925,000
Accrued liabilities.......................... 49,000 268,000 513,000
Distributions payable........................ -- -- 283,000
---------- ---------- -----------
Total current liabilities................ 367,000 1,851,000 2,563,000
Long-term debt (note 8)...................... 87,000 95,000 156,000
Long-term capital lease obligations (note
9).......................................... 243,000 1,099,000 1,484,000
---------- ---------- -----------
Total liabilities........................ 697,000 3,045,000 4,203,000
---------- ---------- -----------
Stockholders' equity (notes 8, 11 and 12):
Preferred stock, $.01 par value.
Authorized 5,000,000 shares; series A
convertible, issued and outstanding
74,000 shares at December 31, 1994....... -- 370,000 --
Common stock, $.01 par value.
Authorized 40,000,000 shares; issued and
outstanding 4,165,166, 6,183,552 and
14,823,332 shares, respectively.......... 42,000 62,000 148,000
Capital in excess of par value............. 269,000 589,000 4,204,000
Retained earnings.......................... 135,000 758,000 2,020,000
---------- ---------- -----------
Total stockholders' equity............... 446,000 1,779,000 6,372,000
---------- ---------- -----------
Commitments and contingencies (notes 9, 13
and 15)
Total liabilities and stockholders'
equity.................................. $1,143,000 $4,824,000 $10,575,000
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Net service revenues (note 4)............ $1,170,000 $7,645,000 $23,141,000
---------- ---------- -----------
Operating expenses:
Professional medical fees.............. -- 2,601,000 9,241,000
Human resources........................ 394,000 1,424,000 4,640,000
Supplies............................... 336,000 1,127,000 1,818,000
Billing and collection costs........... -- 322,000 1,461,000
Outside services and other............. 226,000 624,000 970,000
Liability insurance.................... -- 167,000 706,000
Furniture and equipment................ 59,000 204,000 400,000
Occupancy.............................. -- 17,000 139,000
---------- ---------- -----------
Total operating expenses............. 1,015,000 6,486,000 19,375,000
---------- ---------- -----------
Operating income..................... 155,000 1,159,000 3,766,000
Interest income.......................... -- -- 75,000
Interest expense......................... (21,000) (143,000) (225,000)
Other income............................. 1,000 153,000 29,000
---------- ---------- -----------
Income before income taxes........... 135,000 1,169,000 3,645,000
Income taxes (note 10)................... -- 65,000 347,000
---------- ---------- -----------
Net income........................... 135,000 1,104,000 3,298,000
Proforma income taxes (note 2)........... 46,000 332,000 892,000
---------- ---------- -----------
Proforma net income.................. $ 89,000 $ 772,000 $ 2,406,000
========== ========== ===========
Proforma net income per common share
(note 2)............................ $ 0.02 $ 0.11 $ 0.20
========== ========== ===========
Number of shares used in computing
proforma net income per common share.... 5,257,954 7,079,131 11,897,371
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ -------------------
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------- --------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1993................... -- $ -- 339,604 $ 4,000 $ 18,000 $ -- $ 22,000
Capital contributions... -- -- 3,825,562 38,000 251,000 -- 289,000
Net income.............. -- -- -- -- -- 135,000 135,000
------- --------- ---------- -------- ---------- ----------- -----------
Balances at December 31,
1993................... -- -- 4,165,166 42,000 269,000 135,000 446,000
Sale of common stock at
par.................... -- -- 450,000 5,000 -- -- 5,000
Sale of Series A,
Convertible Preferred
stock.................. 74,000 370,000 -- -- -- -- 370,000
Sale of common stock at
$.10 per share......... -- -- 100,000 1,000 9,000 -- 10,000
Sale of common stock at
$1.00 per share, net of
issuance cost.......... -- -- 250,000 2,000 233,000 -- 235,000
Capital contributions... -- -- 1,218,386 12,000 78,000 -- 90,000
Distributions to
shareholders........... -- -- -- -- -- (481,000) (481,000)
Net income.............. -- -- -- -- -- 1,104,000 1,104,000
------- --------- ---------- -------- ---------- ----------- -----------
Balances at December 31,
1994................... 74,000 370,000 6,183,552 62,000 589,000 758,000 1,779,000
Initial public offering
of common stock, net of
issuance cost.......... -- -- 1,250,000 12,000 3,243,000 -- 3,255,000
Conversion of 10%
secured notes to common
stock.................. -- -- 93,332 1,000 17,000 -- 18,000
Conversion of Series A,
Convertible Preferred
stock to common stock.. (74,000) (370,000) 1,480,000 15,000 355,000 -- --
Capital contributions... -- -- 5,816,448 58,000 -- (31,000) 27,000
Distributions to
shareholders........... -- -- -- -- -- (2,005,000) (2,005,000)
Net income.............. -- -- -- -- -- 3,298,000 3,298,000
------- --------- ---------- -------- ---------- ----------- -----------
Balances at December 31,
1995................... -- $ -- 14,823,332 $148,000 $4,204,000 $ 2,020,000 $ 6,372,000
======= ========= ========== ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
--------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 135,000 $1,104,000 $ 3,298,000
--------- ---------- -----------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 59,000 196,000 360,000
Changes in assets and liabilities:
(Increase) in net accounts receivable... (337,000) (2,043,000) (2,183,000)
(Increase) in inventories............... (32,000) (31,000) (40,000)
(Increase) in prepaid and other current
assets................................. (71,000) (72,000) (566,000)
(Increase) in organization and start-up
costs.................................. (59,000) (43,000) (68,000)
(Increase) in other non-current assets.. -- -- (9,000)
Increase (decrease) in accrued
physicians' fees....................... -- 724,000 (18,000)
Increase in accounts payable............ 116,000 236,000 573,000
Increase in accrued liabilities......... 49,000 219,000 245,000
Increase in distributions payable....... -- -- 283,000
--------- ---------- -----------
Total adjustments....................... (275,000) (814,000) (1,423,000)
--------- ---------- -----------
Net cash provided by (used in)
operating activities................. (140,000) 290,000 1,875,000
--------- ---------- -----------
Cash flows from investing activities:
Increase in notes receivable.............. (8,000) -- (258,000)
Purchase of property and equipment........ (219,000) (186,000) (548,000)
--------- ---------- -----------
Net cash used in investing
activities........................... (227,000) (186,000) (806,000)
--------- ---------- -----------
Cash flows from financing activities:
Capital contributions..................... 289,000 90,000 27,000
Proceeds from sale of common stock........ -- 250,000 3,255,000
Proceeds from sale of preferred stock..... -- 370,000 --
Proceeds from issuance of convertible
secured notes............................ -- 350,000 --
Distributions to shareholders............. -- (481,000) (2,005,000)
Issuance of long-term debt................ 220,000 360,000 278,000
Repayment of long-term debt............... (11,000) (354,000) (249,000)
Repayment of convertible secured notes.... -- -- (332,000)
Repayments of capital lease obligations... (34,000) (99,000) (209,000)
Decrease (increase) in deferred offering
costs.................................... -- (234,000) 234,000
--------- ---------- -----------
Net cash provided by financing
activities........................... 464,000 252,000 999,000
--------- ---------- -----------
Net increase in cash and cash equivalents.. 97,000 356,000 2,068,000
Cash and cash equivalents at beginning of
year...................................... 17,000 114,000 470,000
--------- ---------- -----------
Cash and cash equivalents at end of year... $ 114,000 $ 470,000 $ 2,538,000
========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(1) BUSINESS OF THE COMPANY AND ORGANIZATION
Business of the Company
STAT Healthcare, Inc. (STAT) was incorporated in the state of Delaware on
July 29, 1994. STAT provides emergency medical management services. On June
24, 1996, STAT, through a successor entity formed for the purpose of effecting
a business combination, acquired all the common stock and partnership
interests of AmHealth Corporation and its related health care entities
(AmHealth) (see note 3). AmHealth provides disease management services focused
primarily on ailments associated with diabetes. STAT and AmHealth merged into
the successor entity which became the parent and registrant and which then
changed its name to STAT Healthcare, Inc.
Consolidated Financial Statements
The merger of STAT and AmHealth has been accounted for as a pooling of
interests. Accordingly, the consolidated financial statements of STAT
Healthcare, Inc. and subsidiaries (the Company) have been restated to include
the accounts and results of operations of both STAT and AmHealth for all
periods presented.
Following the merger, the Company is an integrated disease management and
medical services company which provides a continuum of disease management
services primarily to patients with end-stage renal disease and also provides
physician practice management services to hospital-based emergency
departments.
Operations and Organization of STAT
Upon incorporation in July 1994, STAT negotiated a Management Agreement with
South Texas Acute Trauma Physicians, P.A. (STAT Physicians). The Management
Agreement became effective September 1, 1994 and is perpetual. The Management
Agreement has no termination or cancellation provisions. In addition, the
Company has the ability to control the designation of physician owner(s) of
STAT Physicians. Prior to the merger with AmHealth, the Company's income was
derived exclusively from revenues associated with the Management Agreement,
less direct expenses paid by the Company on behalf of STAT Physicians, as
provided in the Management Agreement and less the operating expenses of the
Company. Additionally, on September 1, 1994, the Company assumed the
employment of all personnel previously employed at STAT Physicians and the
operating costs associated therewith from that date forward.
Prior to the merger with AmHealth, the Company operated in a single business
segment, emergency medical management services. The Company's principal
business related to management and administrative services provided to those
engaged in physician staffing of hospital emergency departments. At December
31, 1994 and 1995, the Company managed contracts for physician services with
12 and 11 hospitals, respectively, primarily located in the Houston greater
metropolitan area. Under these contracts, 24-hour physician coverage of the
emergency departments is provided.
Physicians providing services are independent contractors to STAT Physicians
and are paid monthly on a basis of fixed hourly rates. As independent
contractors, these physicians are responsible for their own income and Social
Security taxes as well as workers compensation insurance.
The contracts between STAT Physicians and hospitals are generally written
for an initial term of two years and automatically renew for extended periods
after the initial term. STAT Physicians' contractual arrangements with
hospitals are principally fee-for-service contracts under which the Company
bills and collects the professional component of medical services on behalf of
STAT Physicians. At December 31, 1994, 9 of 12
F-9
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
contracts were fee-for-service contracts, while at December 31, 1995, all
contracts were fee-for-service contracts. Services performed under contracts
not subject to fee-for-service arrangements at December 31, 1994 were
compensated by the hospitals on a fixed fee basis.
Operations and Organization of AmHealth
AmHealth operates in two business segments, kidney dialysis services and
healthcare management services. It operates outpatient kidney dialysis
facilities, provides management services for hospital-based hyperbaric oxygen
therapy facilities, and provides management and personnel services to
outpatient home health providers in the Rio Grande Valley of south Texas.
The AmHealth entities, their pre-merger structure and their dates of
inception are as follows:
<TABLE>
<CAPTION>
ENTITY STRUCTURE DATE OF INCEPTION
------ --------- -----------------
<S> <C> <C>
Management operations:
AmHealth Corporation..................... S Corporation Oct 1992
Kidney dialysis center operations:
AmHealth Enterprises of the Valley,
Inc. ................................... S Corporation Oct 1992
AmHealth Kidney Center of the Valley,
Ltd. ................................... Partnership Apr 1993
Starr Dialysis Center, Ltd. ............. Partnership Nov 1993
Weslaco Kidney Center, Ltd. ............. Partnership Jun 1994
Mission Kidney Center, Ltd. ............. Partnership Aug 1995
Brownsville Kidney Center, Ltd. ......... Partnership Apr 1996
Healthcare management operations:
Southwestern Infusion Healthcare, Ltd. .. Partnership Jun 1994
AmHealth Ambulatory Services, Inc. ...... C Corporation Apr 1995
AmHealth Ambulatory Healthcare, Ltd. .... Partnership Apr 1995
Brownsville Hyperbaric Healthcare,
Ltd. ................................... Partnership May 1995
AmHealth Medical Management, Ltd. ....... Partnership Jun 1995
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of STAT
Healthcare, Inc., AmHealth Corporation and its related health care entities
(all wholly-owned), and the results of operations of STAT Physicians since
September 1, 1994, the effective date of the Company's Management Agreement
with STAT Physicians.
Because of the existence of a parent-subsidiary relationship by means other
than record ownership of STAT Physicians' voting stock and because of the
unilateral control, notwithstanding the lack of technical majority ownership,
which the Company has over the assets and operation of STAT Physicians,
consolidation of its results of operations is necessary to present fairly the
results of operations of the Company.
All significant intercompany balances and transactions have been eliminated
in consolidation.
F-10
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in
preparing its consolidated financial statements are reasonable and prudent.
Actual results could differ from these estimates.
Cash Equivalents
Investments in highly liquid, short-term instruments purchased with original
maturities of three months or less are deemed to be cash equivalents.
Service Revenues and Accounts Receivable
Patient service revenues are recorded at established billing rates, net of
an allowance for contractual adjustments and a provision for uncollectible
accounts. Management services revenue for hospital and home health agency
accounts are recorded net of an allowance for doubtful accounts.
Patient accounts receivable are reduced to an estimated realizable value
taking into consideration contractual adjustments mandated by payors
(Medicare, Medicaid and private insurers) and expected write-offs of
uncollectible accounts. These estimates are based upon management judgements
and historical experience.
Inventories
Inventories, consisting primarily of dialysis and pharmacy supplies, are
stated at the lower of cost or market. Cost is determined using the first-in,
first-out method.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line depreciation method over the estimated useful lives of the
assets by class: minor equipment, 3 years; major equipment, 5 years;
improvements, 5 years.
Equipment under capital lease is stated at the lesser of the present value
of the minimum lease payments or the fair value of the leased property at the
inception of the lease. Equipment under capital lease is amortized using the
straight-line method over the term of the leases which is 4 to 7 years.
Buildings and land under capital lease are stated at the fair value of the
properties and are amortized using the straight-line method over the term of
the leases which is 10 years.
Organization and Start-Up Costs
Organization and start-up costs have been capitalized and are being
amortized using the straight-line method over five years.
Deferred Offering Costs
Deferred offering costs totaling $234,000 at December 31, 1994 were included
in other non-current assets. Such assets were combined with additional
offering costs incurred during 1995 and were recorded as a reduction of the
proceeds from the initial public offering of common stock during 1995.
F-11
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
Deferred Acquisition Costs
Costs incurred to effect an expected pooling of interests business
combination are deferred and charged to expense in the period that the
business combination is consummated. If a plan of combination is abandoned,
costs that have been deferred are expensed. At December 31, 1995, deferred
acquisition costs of $134,000 were included in prepaid and other current
assets. These costs were combined with additional acquisition costs incurred
in 1996 and were expensed in the second quarter of 1996 when the AmHealth
merger was consummated.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Prior to consummation of the merger, each of the AmHealth entities (except
AmHealth Ambulatory Services, Inc.) was a partnership or had elected to be
treated as an S Corporation. Accordingly, each entity's income or loss was
allocated to that entity's shareholders or partners for inclusion in their
personal federal income tax returns. No federal income taxes were assessed to
any of the entities (except AmHealth Ambulatory Services, Inc.), and
accordingly, no provision for federal income taxes for these entities has been
reflected in the accompanying consolidated statements of income prior to
consummation of the merger. AmHealth Ambulatory Services, Inc. began
operations in April 1995. Taxable income of this corporation from its date of
inception through December 31, 1995 was not material.
Net Income Per Common Share
Net income per common share is computed based on the sum of STAT and
AmHealth common and common equivalent shares calculated as follows:
. STAT. From inception through the date of STAT's initial public offering,
the number of common and common equivalent shares is computed as if all
shares were outstanding for the entire period, less the number of
treasury shares assumed to have been purchased (at the initial offering
price of STAT's common stock) from the proceeds of actual sales of stock.
Following the initial public offering, the number of common and common
equivalent shares is computed based on the weighted average number of
common shares outstanding adjusted for the incremental shares attributed
to outstanding options and warrants to purchase common stock.
. AmHealth. The number of common and common equivalent shares is computed
based on the number of shares of the Company's common stock issued to the
shareholders or partners of each AmHealth entity upon consummation of the
merger, as if such shares were outstanding since the date of inception
for each entity.
Pro Forma Net Income and Pro Forma Net Income Per Share
Pro forma income taxes are calculated to reflect the effect of income taxes
not otherwise payable by the AmHealth entities which were partnerships or S
Corporations prior to consummation of the merger. The pro
F-12
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
forma income taxes are based on an effective rate of 34%. Pro forma net income
per share is computed based on the pro forma net income amount.
Fair Value of Financial Instruments
Methods and assumptions used to estimate the fair value of each class of
financial instruments are as follows:
. Cash equivalents, trade accounts receivable, notes receivable and
payables--The carrying amounts approximate fair value because of the
short maturity of these instruments.
. Long-term debt--The carrying amount approximates fair value because the
notes generally have an adjustable interest rate based on the prime rate.
(3) MERGER
On June 24, 1996, the Company acquired all the common stock and partnership
interests of AmHealth Corporation and its related health care entities
(AmHealth) for 11,200,000 shares of the Company's common stock. AmHealth
operates outpatient kidney dialysis facilities, provides management services
for hospital-based hyperbaric oxygen therapy facilities, and provides
management and personnel services to outpatient home health providers in the
Rio Grande Valley of south Texas. The transaction has been accounted for as a
pooling of interests and, accordingly, the consolidated financial statements
for all periods presented have been restated to include the accounts of
AmHealth.
Separate and combined results of STAT and AmHealth during the years ended
December 31, 1993, 1994 and 1995 (periods preceding the merger) were as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Net service revenues:
STAT.................................. $ -- $3,672,000 $14,124,000
AmHealth.............................. 1,170,000 3,973,000 9,017,000
---------- ---------- -----------
Combined............................ $1,170,000 $7,645,000 $23,141,000
========== ========== ===========
Net income:
STAT.................................. $ -- $ 128,000 $ 674,000
AmHealth.............................. 135,000 976,000 2,624,000
---------- ---------- -----------
Combined............................ 135,000 1,104,000 3,298,000
Proforma income taxes................. (46,000) (332,000) (892,000)
---------- ---------- -----------
Proforma net income................. $ 89,000 $ 772,000 $ 2,406,000
========== ========== ===========
</TABLE>
(4) NET SERVICES REVENUES
Under the contracts between STAT Physicians and the hospitals and under the
Company's Management Agreement with STAT Physicians, the Company has the
ability, subject to hospital concurrence, to establish the rates to be billed
to patients for services provided. Gross service revenues represent the billed
value of physician services provided at hospital locations, and patient
service and management services revenue recorded at established billing rates.
Billings discounts represent the difference between gross service revenues and
the amount which is ultimately expected to be received. These discounts relate
principally to contractual adjustments
F-13
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
mandated by payors such as Medicare and Medicaid and also to contracted
arrangements with private insurers. Discounts also include provisions for
indigent patients without the means of paying for services provided.
Gross service revenues and billings discounts for the years ended December
31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- ------------
<S> <C> <C> <C>
Gross service revenues.............. $1,418,000 $12,180,000 $ 40,143,000
Billings discounts.................. (248,000) (4,535,000) (17,002,000)
---------- ----------- ------------
Net service revenues................ $1,170,000 $ 7,645,000 $ 23,141,000
========== =========== ============
</TABLE>
Service revenues have been primarily generated in south Texas and the
Houston greater metropolitan area. Although subject to individual contracts,
net service revenues derived from hospitals which, at December 31, 1995, were
owned by Columbia/HCA Healthcare Corporation accounted for 46% and 41% of 1994
and 1995 net service revenues, respectively.
(5) ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ----------- -----------
<S> <C> <C> <C>
Gross patient accounts receivable....... $436,000 $ 4,617,000 $ 8,892,000
Allowance for contractual adjustments... (81,000) (1,943,000) (2,938,000)
-------- ----------- -----------
Estimated accounts receivable......... 355,000 2,674,000 5,954,000
Allowance for doubtful accounts......... (17,000) (539,000) (1,882,000)
-------- ----------- -----------
Net patient accounts receivable....... 338,000 2,135,000 4,072,000
Other accounts receivable............... 1,000 188,000 371,000
Due from STAT Physicians................ -- 59,000 122,000
-------- ----------- -----------
Accounts receivable, net.............. $339,000 $ 2,382,000 $ 4,565,000
======== =========== ===========
</TABLE>
(6) NOTES RECEIVABLE
Notes receivable at December 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ --------
<S> <C> <C> <C>
Non interest-bearing note receivable from Mission
Medical Properties................................. $ -- $ -- $ 50,000
Note receivable from officer/shareholders, interest
at 6%, due October 31, 1996........................ -- -- 200,000
Other............................................... 8,000 8,000 16,000
------ ------ --------
Notes receivable.................................. $8,000 $8,000 $266,000
====== ====== ========
</TABLE>
Mission Medical Properties leases buildings and land under capital leases to
the Company and is owned by certain stockholders of the Company.
F-14
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(7) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Land and buildings....................... $ -- $ 619,000 $ 969,000
Equipment and furnishings................ 515,000 915,000 1,705,000
Improvements............................. 63,000 142,000 155,000
-------- ---------- ----------
578,000 1,676,000 2,829,000
Less accumulated depreciation and amor-
tization.............................. (52,000) (230,000) (568,000)
-------- ---------- ----------
Property and equipment, net.......... $526,000 $1,446,000 $2,261,000
======== ========== ==========
</TABLE>
Depreciation and amortization of property and equipment charged to
operations was $52,000, $178,000 and $338,000 during the years ended December
31, 1993, 1994 and 1995, respectively.
(8) LONG-TERM DEBT
Long-term debt at December 31, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- --------
<S> <C> <C> <C>
Convertible secured notes; interest at 10%.. $ -- $ 350,000 $ --
Revolving credit payable to bank, due in
quarterly installments of $9,375 plus
interest through March 1999; interest at
prime plus .5%............................. -- -- 122,000
Revolving credit payable to bank; interest
at prime plus 1%........................... 79,000 75,000 --
Note payable to TransAmerican Insurance
Finance, due January 1, 1996; interest at
11.64%..................................... -- -- 4,000
Note payable to bank, due April 2, 1996;
interest at prime plus 1%.................. 54,000 27,000 10,000
Noninterest-bearing note payable to Palmco,
Inc., for construction allowance on leased
building, due April 1, 1996................ 26,000 15,000 4,000
Note payable to bank, due October 30, 1997;
interest at prime plus 1%.................. 50,000 38,000 6,000
Note payable to bank, due June 15, 1998;
interest at prime plus 1%.................. -- 60,000 48,000
Note payable to bank, due November 6, 1999;
interest at prime plus 1%.................. -- -- 50,000
--------- --------- --------
Total debt................................ 209,000 565,000 244,000
Less current portion...................... (122,000) (470,000) (88,000)
========= ========= ========
Long-term debt............................ $ 87,000 $ 95,000 $156,000
========= ========= ========
</TABLE>
The convertible secured notes were issued in October and November 1994 in
connection with a bridge financing. A total of $332,000 was repaid and the
balance of $18,000 was converted to common stock in connection with STAT's
initial public offering during 1995. The conversion of convertible secured
notes to common stock is a non cash investing and financing transaction and is
excluded from the 1995 consolidated statement of cash flows.
F-15
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
The revolving credit payables to bank and notes payable to bank are secured
by the Company's accounts receivable, inventories and equipment. Long-term
debt totaling $240,000 at December 31, 1995 was guaranteed by a stockholder of
the Company.
Future payments of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 88,000
1997.............................................................. 66,000
1998.............................................................. 68,000
1999.............................................................. 22,000
--------
$244,000
========
</TABLE>
Cash paid for interest was $21,000, $126,000 and $214,000 during the years
ended December 31, 1993, 1994 and 1995, respectively.
(9) LEASE OBLIGATIONS
Future minimum lease payments under capital leases, together with the
present value of the net minimum lease payments, at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996........................................................... $ 476,000
1997........................................................... 426,000
1998........................................................... 341,000
1999........................................................... 261,000
2000........................................................... 203,000
Later years.................................................... 781,000
----------
Total minimum lease payments................................... 2,488,000
Less amount representing interest.............................. (956,000)
----------
Present value of net minimum lease payments.................... 1,532,000
Less current portion......................................... (48,000)
----------
Long-term capital lease obligations.......................... $1,484,000
==========
</TABLE>
At December 31, 1995, the Company's capital lease obligations include
amounts payable to entities owned or controlled by stockholders of the
Company. Total payments to these entities under the capital leases were
$87,000 and $147,000 for the years ended December 31, 1994 and 1995,
respectively.
On September 10, 1995, the Company entered into an agreement to lease a
facility located in Brownsville, Texas, to be constructed and owned by an
entity owned by stockholders of the Company. Lease payments begin 45 days
after completion and are $7,600 per month for a term of 120 months. Based on
an estimated fair market value of $490,000 and the terms of the lease, the
lease will be a capital lease.
Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................. $265,000
1997............................................................. 268,000
1998............................................................. 121,000
1999............................................................. 16,000
--------
Total minimum lease payments..................................... $670,000
========
</TABLE>
F-16
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
Rental expense under operating leases was $16,000, $31,000 and $60,000 for
the years ended December 31, 1993, 1994 and 1995, respectively.
Obligations under capital lease incurred for property and equipment were
$358,000, $912,000 and $605,000 during the years ended December 31, 1993, 1994
and 1995, respectively. These non cash investing and financing transactions
have been excluded from the consolidated statements of cash flows.
(10) INCOME TAXES
Income taxes for the years ended December 31, 1993, 1994 and 1995 are as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------- --------
<S> <C> <C> <C>
Federal................................................ $-- $58,000 $330,000
State.................................................. -- 7,000 17,000
---- ------- --------
Total................................................ $-- $65,000 $347,000
==== ======= ========
</TABLE>
The actual income tax expense for the years ended December 31, 1993, 1994
and 1995 differs from the expected federal income tax computed by applying the
U.S. corporate rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- --------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense............ $ 46,000 $ 398,000 $1,239,000
Taxes on income earned and reported by
shareholders of S corporations and
partners of partnerships.................. (46,000) (332,000) (892,000)
Increase in tax resulting from
nondeductible expenses.................... -- 1,000 2,000
State tax provision, net of federal
benefit................................... -- 4,000 11,000
Other...................................... -- (6,000) (13,000)
-------- --------- ----------
Actual income tax expense................ $ -- $ 65,000 $ 347,000
======== ========= ==========
</TABLE>
For the years ended December 31, 1993, 1994 and 1995, there were no
significant temporary differences which created deferred tax assets or
liabilities. Income taxes payable of $65,000 are included in accrued
liabilities at December 31, 1994. Refundable income taxes of $31,000 are
included in other current assets at December 31, 1995. No income taxes were
paid during the years ended December 31, 1993 and 1994. Income taxes of
$440,000 were paid during the year ended December 31, 1995.
(11) CAPITAL STOCK
Authorized capital stock of the Company consists of 5,000,000 shares of $.01
par value preferred stock and 40,000,000 shares of $.01 par value common
stock. In September 1994, STAT sold 74,000 shares of Series A convertible
preferred stock (Preferred Stock) to STAT Physicians for $370,000. The
Preferred Stock was converted into common stock at a rate of 20 shares of
common stock for each share of Preferred Stock (1,480,000 common shares) upon
the completion of STAT's initial public offering of common stock in 1995. The
conversion of Preferred Stock into common stock is a non cash investing and
financing transaction and is excluded from the 1995 consolidated statement of
cash flows.
F-17
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
At December 31, 1995, shares of common stock are reserved for issuance in
connection with the future exercise of Class A warrants to purchase common
stock at the price of $4.50 per share (734,166 shares) and underwriter
warrants for 125,000 shares of common stock at $5.44 per share. These warrants
were issued in connection with STAT's initial public offering of common stock
and the related conversion of 10% convertible secured notes. Additionally, at
December 31, 1995, 300,000 shares of common stock are reserved for issuance in
connection with the Company's stock option plan.
(12) STOCK OPTION PLAN
The Company has a stock option plan, providing for the granting of incentive
stock options or nonqualified stock options, for the benefit of its employees
and directors. Under this plan, options may be granted to purchase an
aggregate of 300,000 shares of common stock at no less than 100% (90% in the
event of a nonqualified stock option) of the fair market value of the common
stock at the time of the grant. At December 31, 1995, 10,000 unoptioned shares
were available for granting. All options which have been granted expire five
years from the date of grant. Information relating to stock options is as
follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS OPTION PRICE PER SHARE
--------- ----------------------
<S> <C> <C>
Outstanding at December 31, 1994........... -- --
Granted.................................... 290,000 $2.88-3.17
-------
Outstanding at December 31, 1995........... 290,000 $2.88-3.17
=======
Shares exercisable at December 31, 1995.... 2,500 $3.00
======= ==========
</TABLE>
(13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has certain pending and threatened litigation and claims
incurred in the ordinary course of business; however, management believes that
the probable resolution of such contingencies will not materially affect the
liquidity, the financial position, or the results of the Company's operations.
The Company procures professional liability insurance on behalf of STAT
Physicians which provides coverage on a claims-made basis during the policy
period. The coverage is purchased on a "slot" basis and extends to the
Company, to STAT Physicians and to contract physicians who perform services.
Individual policies are not provided to physicians; however, they must be
prequalified for coverage as a routine credentialing process. If a claims-made
policy is not renewed or replaced by a new policy which provides coverage
retroactively, it becomes necessary to purchase an extended reporting period
endorsement. Management intends to renew the existing claims-made policy and
in the past has either renewed or successfully purchased retroactive coverage.
Although the Company does not directly contract with hospitals or physicians
for the provision or procurement of medical services, its contractual
relationship with STAT Physicians exposes it to potential claims from
litigants. Accordingly, the Company is named as an additional insured under
the professional liability coverage of STAT Physicians.
Effective October 1, 1995, the Company established a 401(k) plan (the Plan)
for its employees. The Plan allows participants with at least one year of
prior service to make elective deferrals of up to 15% of their
F-18
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
compensation. The Plan also allows discretionary matching employer
contributions as well as additional discretionary contributions which shall be
allocated to each eligible employee in proportion to his or her compensation as
a percentage of the compensation of all eligible employees. Employer
contributions vest at the rate of 20% per year of service. No discretionary
contributions were made to the Plan by the Company during the year ended
December 31, 1995.
(14) BUSINESS SEGMENTS
The Company operates in three business segments; emergency services, kidney
dialysis services and health care management services. Information by business
segment as of and for the years ended December 31, 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Net service revenues:
Emergency services....................... $ -- $3,672,000 $14,124,000
Kidney dialysis.......................... 1,170,000 3,766,000 6,262,000
Healthcare management.................... -- 207,000 2,755,000
---------- ---------- -----------
Total.................................. $1,170,000 $7,645,000 $23,141,000
========== ========== ===========
Operating income:
Emergency services....................... $ -- $ 202,000 $ 977,000
Kidney dialysis.......................... 210,000 998,000 1,715,000
Healthcare management.................... -- 123,000 1,120,000
General corporate........................ (55,000) (164,000) (46,000)
---------- ---------- -----------
Total.................................. $ 155,000 $1,159,000 $ 3,766,000
========== ========== ===========
Identifiable assets:
Emergency services....................... $ -- $2,094,000 $ 5,860,000
Kidney dialysis.......................... 1,117,000 2,557,000 3,642,000
Healthcare management.................... -- 103,000 970,000
General corporate........................ 26,000 70,000 103,000
---------- ---------- -----------
Total.................................. $1,143,000 $4,824,000 $10,575,000
========== ========== ===========
Depreciation and amortization:
Emergency services....................... $ -- $ -- $ 16,000
Kidney dialysis.......................... 57,000 192,000 301,000
Healthcare management.................... -- 2,000 40,000
General corporate........................ 2,000 2,000 3,000
---------- ---------- -----------
Total.................................. $ 59,000 $ 196,000 $ 360,000
========== ========== ===========
Capital expenditures:
Emergency services....................... $ -- $ -- $ 112,000
Kidney dialysis.......................... 572,000 1,094,000 742,000
Healthcare management.................... -- 4,000 282,000
General corporate........................ 5,000 -- 17,000
---------- ---------- -----------
Total.................................. $ 577,000 $1,098,000 $ 1,153,000
========== ========== ===========
</TABLE>
F-19
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(15) SUBSEQUENT EVENTS
In January 1996 the Company reached an agreement with the Greater Houston
Division of Columbia/HCA Healthcare Corporation (Columbia) to provide
emergency medicine services to all but one of Columbia's emergency departments
in the Greater Houston Division. This agreement will result in the addition of
nine hospitals to the Company's service base between February 1 and July 1,
1996 resulting in a total of 18 hospitals served (16 of which are owned by
Columbia). The contract for services relating to this agreement was finalized
in April 1996. The Houston Division hospitals (15) are covered by this
contract which has an initial term of two years and which renews
automatically. This contract will account for a significant portion of the
Company's net service revenues and operating expenses.
On January 31, 1996, and in conjunction with the Columbia agreement noted
above, the Company acquired the rights to a one-hospital contract for the
provision of emergency department medical services. Consideration paid for the
contract and certain non-competition covenants consisted of $960,000 in cash
and 52,174 shares of the Company's common stock. Up to an additional $100,000
may be paid in each of the three twelve-month periods following the
acquisition of the contract based on profits realized at that hospital.
On February 1, 1996, the Company acquired intangible assets of Amedica, Ltd.
(Amedica) in a transaction that will be accounted for by the purchase method
of accounting. Amedica provides healthcare services relating to the management
of independent physician associations. Consideration paid consisted of
$200,000 in cash and 15,730 shares of the Company's common stock.
Unaudited financial information of Amedica as of December 31, 1995 and for
the year then ended is as follows:
<TABLE>
<S> <C>
Balance sheet information:
Current assets................................................ $ 128,000
Total assets.................................................. 135,000
Current liabilities........................................... 25,000
Total liabilities............................................. 150,000
Partners' capital............................................. (15,000)
===========
Operations information:
Revenue....................................................... $ 439,000
Expenses...................................................... 518,000
Net loss...................................................... (79,000)
===========
Unaudited proforma results of operations for the year ended December 31,
1995, giving effect to the Amedica acquisition as though it had occurred on
January 1, 1995, are as follows:
Net service revenues............................................ $23,580,000
Net income...................................................... 3,222,000
===========
Net income per common share..................................... $ 0.20
===========
</TABLE>
STAT was advised in May 1996 that the common stock (67,904 shares, with an
ascribed value of $310,000) issued in connection with the acquisitions
described in this note, may have been issued in violation of Section 5 of the
Securities Act. Such a violation would entitle the recipients to recission
rights. In July 1996, the Company offered the right of recission, which right
included the payment of the ascribed value plus accrued interest from
F-20
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1993, 1994 AND 1995
the acquisition dates, to the recipients. The recipients declined such offer
and asserted their right to exchange their STAT common stock for common stock
of the Company pursuant to the merger and exchange agreement between STAT and
AmHealth. Accordingly, the $310,000 will be reported as permanent equity.
In June 1996, stockholders of STAT and stockholders and partners of AmHealth
approved the New STAT Healthcare, Inc. 1996 Stock Incentive Plan under which
1,500,000 shares of common stock of the Company became reserved for future
issuance to officers, employees, consultants and non-employee directors of the
Company. The 290,000 options outstanding at December 31, 1995 (see note 12)
are considered to be options outstanding under this 1996 plan.
On July 22, 1996, the Company signed a commitment letter for a $6,500,000
bank credit facility comprised of a $3,000,000 revolving line of credit and a
$3,500,000 three year, non-revolving line of credit. The formal agreement is
expected to be finalized during August 1996 and pursuant to the commitment
agreement will provide for interest at prime. Borrowings under the lines will
be collateralized by security interests in the Company's accounts receivable
and in capital assets.
F-21
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
<S> <C>
ASSETS
Cash and cash equivalents.......................................... $ 1,324,000
Accounts receivable, net........................................... 7,109,000
Notes receivable................................................... 200,000
Inventories........................................................ 78,000
Prepaid and other current assets................................... 295,000
-----------
Total current assets........................................... 9,006,000
Property and equipment, net........................................ 3,149,000
Intangible assets, net............................................. 1,408,000
Other non-current assets........................................... 196,000
-----------
Total assets................................................... $13,759,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.................................. $ 1,486,000
Current portion of capital lease obligations....................... 72,000
Accrued physicians' fees........................................... 1,095,000
Accounts payable................................................... 1,194,000
Accrued liabilities................................................ 505,000
Distributions payable.............................................. 465,000
-----------
Total current liabilities...................................... 4,817,000
Long-term debt..................................................... 289,000
Long-term capital lease obligations................................ 1,993,000
-----------
Total liabilities.............................................. 7,099,000
-----------
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares; no
shares outstanding.............................................. --
Common stock, $.01 par value. Authorized 40,000,000 shares;
issued and outstanding, 14,902,472 shares....................... 149,000
Capital in excess of par value................................... 4,563,000
Retained earnings................................................ 1,948,000
-----------
Total stockholders' equity..................................... 6,660,000
-----------
Commitments and contingencies
Total liabilities and stockholders' equity..................... $13,759,000
===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-22
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Net service revenues.............................. $10,375,000 $16,663,000
----------- -----------
Operating expenses:
Professional medical fees....................... 4,548,000 6,695,000
Human resources................................. 1,625,000 3,516,000
Supplies........................................ 822,000 1,136,000
Billing and collection costs.................... 697,000 996,000
Liability insurance............................. 324,000 499,000
Other costs..................................... 575,000 938,000
----------- -----------
Total operating expenses...................... 8,591,000 13,780,000
----------- -----------
Operating income.............................. 1,784,000 2,883,000
Interest income................................... 31,000 17,000
Interest expense.................................. (60,000) (150,000)
Reorganization costs.............................. -- (1,269,000)
----------- -----------
Income before income taxes.................... 1,755,000 1,481,000
Income taxes...................................... 181,000 (44,000)
----------- -----------
Net income.................................... 1,574,000 1,525,000
Proforma income taxes............................. 416,000 577,000
----------- -----------
Proforma net income............................. $ 1,158,000 $ 948,000
=========== ===========
Proforma net income per common share............ $ 0.13 $ 0.06
=========== ===========
Number of shares used in computing proforma net
income per common share.......................... 9,077,613 15,320,433
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
CAPITAL IN TOTAL
EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1995................... 14,823,332 $148,000 $4,204,000 $ 2,020,000 $ 6,372,000
Common stock issued for:
Acquisitions.......... 67,904 1,000 309,000 -- 310,000
Compensation.......... 11,236 -- 50,000 -- 50,000
Distributions to
shareholders........... -- -- -- (1,597,000) (1,597,000)
Net income.............. -- -- -- 1,525,000 1,525,000
---------- -------- ---------- ----------- -----------
Balances at June 30,
1996................... 14,902,472 $149,000 $4,563,000 $ 1,948,000 $ 6,660,000
========== ======== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996
-------------
<S> <C>
Cash flows from operating activities:
Net income...................................................... $ 1,525,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 238,000
Increase in deferred tax liability............................. 50,000
Changes in assets and liabilities:
Increase in net accounts receivable.......................... (2,544,000)
Decrease in inventories...................................... 25,000
Decrease in prepaid and other current assets................. 464,000
Increase in other non-current assets......................... (68,000)
Increase in accrued physicians' fees......................... 389,000
Increase in accounts payable................................. 269,000
Decrease in accrued liabilities.............................. (58,000)
-----------
Total adjustments.......................................... (1,235,000)
-----------
Net cash provided by operating activities.................. 290,000
-----------
Cash flows from investing activities:
Repayment of notes receivable................................... 66,000
Purchase of HEMA assets......................................... (960,000)
Purchase of Amedica assets...................................... (200,000)
Purchase of property and equipment.............................. (243,000)
-----------
Net cash used in investing activities...................... (1,337,000)
-----------
Cash flows from financing activities:
Distributions to stockholders................................... (1,415,000)
Net borrowings under line of credit agreement................... 1,250,000
Issuance of long-term debt...................................... 285,000
Repayment of long-term debt..................................... (203,000)
Repayments of capital lease obligations......................... (84,000)
-----------
Net cash used in financing activities...................... (167,000)
-----------
Net decrease in cash and cash equivalents....................... (1,214,000)
Cash and cash equivalents at beginning of period................ 2,538,000
-----------
Cash and cash equivalents at end of period...................... $ 1,324,000
===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements of STAT Healthcare, Inc.
and subsidiaries (the Company) present financial information as of June 30,
1996, and for the six month periods ended June 30, 1995 and 1996. Because
these financial statements are unaudited and do not include all disclosures
required by generally accepted accounting principles, they should be read in
conjunction with the Company's audited consolidated financial statements. In
the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the periods reported have been made. Results of operations for
the six month period ended June 30, 1996 are not necessarily indicative of the
results that may be achieved for the year ending December 31, 1996.
(2) NET INCOME PER COMMON SHARE
Net income per common share is computed based on the number of common and
common equivalent shares of the Company. Equivalent shares are attributable to
outstanding warrants and options to purchase common shares.
(3) REORGANIZATION COSTS
Reorganization costs relate to the Company's merger with AmHealth
Corporation and its related healthcare entities and consist of legal,
accounting and other transactional costs.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
South Texas Acute Trauma
Physicians, P.A.:
We have audited the accompanying balance sheets of South Texas Acute Trauma
Physicians, P.A. (the Company) as of August 31, 1994 and December 31, 1993,
and the related statements of income, changes in shareholders' equity and cash
flows for the eight months ended August 31, 1994 and the year ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of South Texas Acute Trauma
Physicians, P.A. as of August 31, 1994 and December 31, 1993, and the results
of its operations and its cash flows for the eight months ended August 31,
1994 and the year ended December 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
March 10, 1995, except as tothe last paragraph of note 6,which is as of April
11, 1995
F-27
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1993 1994
------------ ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 10,000 $ 63,000
Accounts receivable (notes 5 and 6):
Patient accounts, net................................ 840,000 1,312,000
Hospital accounts.................................... 439,000 316,000
---------- ----------
Net accounts receivable............................ 1,279,000 1,628,000
Prepaid assets......................................... 55,000 186,000
---------- ----------
Total current assets............................... 1,344,000 1,877,000
Other assets........................................... 8,000 15,000
---------- ----------
Total assets....................................... $1,352,000 $1,892,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term debt (note 6)........ $ 176,000 $ 210,000
Notes payable to hospitals (note 7).................... 70,000 203,000
Accrued physicians' fees............................... 605,000 681,000
Accrued liabilities.................................... 37,000 71,000
Accounts payable....................................... 62,000 126,000
Bank overdraft......................................... 22,000 --
---------- ----------
Total current liabilities.......................... 972,000 1,291,000
Long-term debt, excluding current liabilities (note
6).................................................... 3,000 --
---------- ----------
Total liabilities.................................. 975,000 1,291,000
---------- ----------
Shareholders' equity:
Common Stock, $1 par value. Authorized 100,000
shares; issued and outstanding 1,000 shares......... 1,000 1,000
Retained earnings.................................... 376,000 600,000
---------- ----------
Total shareholders' equity......................... 377,000 601,000
Commitments and contingencies (notes 3, 8 and 9).......
---------- ----------
Total liabilities and shareholders' equity......... $1,352,000 $1,892,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
<S> <C> <C>
Net service revenue (note 4).......................... $8,873,000 $6,876,000
Direct expenses:
Physicians' fees.................................... 6,823,000 5,113,000
Liability insurance................................. 368,000 314,000
Billing and collection.............................. 304,000 473,000
---------- ----------
Total direct expenses............................. 7,495,000 5,900,000
---------- ----------
Gross profit...................................... 1,378,000 976,000
---------- ----------
Operating expenses:
Human resources..................................... 713,000 525,000
Occupancy........................................... 38,000 27,000
Furniture and equipment............................. 30,000 19,000
Supplies............................................ 39,000 16,000
Outside services and other.......................... 62,000 68,000
---------- ----------
Total operating expenses.......................... 882,000 655,000
---------- ----------
Operating income.................................. 496,000 321,000
Interest expense...................................... 14,000 15,000
---------- ----------
Net income........................................ 482,000 306,000
Proforma income taxes (note 3)........................ 164,000 104,000
---------- ----------
Proforma net income............................... $ 318,000 $ 202,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balances at December 31, 1992................... $1,000 $ 58,000 $ 59,000
Net income.................................... -- 482,000 482,000
Shareholder distributions..................... -- (164,000) (164,000)
------ --------- ---------
Balances at December 31, 1993................... 1,000 376,000 377,000
Net income.................................... -- 306,000 306,000
Shareholder distributions..................... -- (82,000) (82,000)
------ --------- ---------
Balances at August 31, 1994..................... $1,000 $ 600,000 $ 601,000
====== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 482,000 $ 306,000
Adjustments to reconcile net income to net cash
used in operating activities: Changes in assets
and liabilities:
Increase in net accounts receivable.............. (669,000) (349,000)
Increase in prepaids and other assets............ (42,000) (138,000)
Increase in accrued physicians' fees............. 79,000 76,000
Increase in accrued liabilities.................. 34,000 34,000
Increase in accounts payable..................... 62,000 64,000
--------- ---------
Total adjustments............................... (536,000) (313,000)
--------- ---------
Net cash used in operating activities........... (54,000) (7,000)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 150,000 51,000
Proceeds from issuance of hospital notes........... 70,000 200,000
Principal payments on long-term debt............... (37,000) (20,000)
Principal payments on hospital notes............... -- (67,000)
Shareholder distributions.......................... (164,000) (82,000)
Increase (decrease) in bank overdraft.............. 22,000 (22,000)
--------- ---------
Net cash provided by financing activities....... 41,000 60,000
--------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ (13,000) 53,000
Cash and cash equivalents at beginning of period.... 23,000 10,000
--------- ---------
Cash and cash equivalents at end of period.......... $ 10,000 $ 63,000
========= =========
Supplemental disclosure of cash flow information--
cash payments during the period for interest....... $ 8,000 $ 9,000
========= =========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND AUGUST 31, 1994
(1) THE COMPANY
South Texas Acute Trauma Physicians, P.A., dba STAT Physicians (the Company)
was incorporated as a professional association in the state of Texas on
November 22, 1985. The Company's principal business is the physician staffing
of hospital emergency departments. At December 31, 1993 and August 31, 1994,
the Company had contracts for physician services with eleven hospitals located
in south Texas. Under these contracts the Company provides 24-hour physician
coverage of the emergency departments, and one of the Company's physicians
acts as the designated Director of Emergency Medicine for each hospital. At
December 31, 1993, the Company also provided weekend physician coverage under
another contract. The Company terminated this weekend contract effective June
30, 1994 for economic reasons.
Physicians providing services on behalf of the Company are independent
contractors and are paid monthly on the basis of either a fixed hourly rate or
on the basis of a minimum hourly rate which is adjustable upward based on
monthly volume. As independent contractors, these physicians are responsible
for their own income and Social Security taxes as well as workers compensation
insurance.
Hospital contracts are generally written for an initial term of two years
and automatically renew each year after the initial term. These contracts have
cancellation clauses which provide for 90-day cancellation by either party
without significant penalty. Certain terms and conditions are routinely
modified. The Company's management believes that relations with all hospitals
are good and does not anticipate the cancellation of any contracts.
Contractual agreements with hospitals are primarily (a) contracts where the
Company bills and collects the professional component for the charges for
medical services, and (b) contracts where the Company receives fees from the
hospital based on a fixed fee, hourly rate or percentage of gross billings.
Effective September 1, 1994, the Company entered into a management agreement
with STAT Healthcare, Inc. (STAT Healthcare). Under this agreement, the
Company assigned all revenues and related accounts receivable from September
1, 1994 forward to STAT Healthcare. In consideration thereof, STAT Healthcare
assumed responsibility for collection of receivables and agreed to pay for all
direct and operating costs associated with the hospital contracts from
September 1, 1994 forward.
Additionally, on September 1, 1994 STAT Healthcare employed all
administrative personnel previously employed by the Company and assumed
responsibility for all administrative matters relating to these contracts,
pursuant to a management agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash invested in short-term investments purchased with original maturities
of three months or less is deemed to be cash equivalents for financial
statement purposes. At December 31, 1993 and August 31, 1994, cash equivalents
of $3,000 and $3,000, respectively, consisted of money market funds.
Service Revenues and Accounts Receivable
Service revenues under contracts where fees are received from hospitals are
recorded at established billing rates, net of amounts to be retained by the
hospital. Service revenues under contracts where the Company bills and
collects for services provided are recorded at established billing rates, net
of contractual adjustments and the provision for uncollectible accounts.
F-32
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993 AND AUGUST 31, 1994
Patient accounts receivable are reduced to an estimated realizable value
taking into consideration contractual adjustments mandated by payors
(Medicare, Medicaid and private insurers) and expected write-offs of
uncollectible accounts. These estimates are based upon historical experience
at individual hospitals.
(3) INCOME TAXES
For federal income tax purposes, the Company has elected to be treated as an
"S corporation." Accordingly, the Company's income is allocated to the
Company's shareholders, included in their personal income tax returns and
taxed at their respective individual rates. No federal income taxes will be
assessed the corporation. The proforma income taxes reflected in the
accompanying statements of income are based on an effective corporate rate of
34%.
The federal income tax return of the Company for the tax year ended January
31, 1992, is currently under examination by the Internal Revenue Service.
Management believes that the examination is routine in nature and does not
anticipate any significant adjustments from the examination.
(4) NET SERVICE REVENUES
Gross service revenues represent the billed value of physician services
provided at hospital locations. Under the contracts between the Company and
the hospitals, the Company has the ability, subject to hospital concurrence,
to establish the rates to be billed to patients for services provided.
Billings discounts represent the difference between gross service revenues
and the amount which the Company ultimately expects to receive. Net service
revenues consist of contractual payments from hospitals and estimated
collectible fees from patients and third-party payors where the Company is
responsible for billing and collection functions. Net service revenues for the
year ended December 31, 1993 and for the eight months ended August 31, 1994
are as follows:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Net service revenues:
From hospitals....................................... $6,250,000 $2,695,000
From patients........................................ 2,623,000 4,181,000
---------- ----------
$8,873,000 $6,876,000
========== ==========
</TABLE>
Hospital account payments are usually received by the 15th day of the month
following service. Some hospitals make partial payments during the service
month. Patient accounts are collected over normal collection cycles from a
variety of payors including Medicare, Medicaid, private insurers and patients.
Gross and net service revenues for the year ended December 31, 1993 and for
the eight months ended August 31, 1994 are as follows:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Gross service revenues........................... $14,900,000 $14,369,000
Billings discounts............................... (6,027,000) (7,493,000)
----------- -----------
Net service revenues............................. $ 8,873,000 $ 6,876,000
=========== ===========
</TABLE>
For the eight months ended August 31, 1994, four hospitals accounted for
between 10% and 14% each of net service revenues.
F-33
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993 AND AUGUST 31, 1994
(5) NET PATIENT ACCOUNTS RECEIVABLE
Net patient accounts receivable at December 31, 1993 and at August 31, 1994
are as follows:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Gross patient accounts receivable................... $1,867,000 $ 3,486,000
Allowance for contractual adjustments............... (615,000) (1,427,000)
---------- -----------
Estimated accounts receivable....................... 1,252,000 2,059,000
Allowance for doubtful accounts..................... (412,000) (747,000)
---------- -----------
Net patient accounts receivable..................... $ 840,000 $ 1,312,000
========== ===========
</TABLE>
(6) LONG-TERM DEBT
Long-term debt at December 31, 1993 and at August 31, 1994 is as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
13% note payable, due in monthly installments of
$1,878 including interest through April 1994. Paid
in full in April 1994............................... $ 8,000 $ --
10% note payable, due in monthly installments of
$1,616 including interest through February 1995.
Paid in full in February 1995....................... 21,000 10,000
Revolving credit note (up to $200,000), interest due
quarterly at the bank's prime rate (7.75% at August
31, 1994) plus 2%, principal due August 1995........ 150,000 200,000
--------- ---------
Total debt........................................... 179,000 210,000
Less current installments............................ (176,000) (210,000)
--------- ---------
Long-term debt..................................... $ 3,000 $ --
========= =========
</TABLE>
The notes payable are secured by the Company's accounts receivable. The
revolving credit note is secured by the Company's accounts receivable and the
corporate guarantee and accounts receivable of STAT Healthcare. Subsequent to
August 31, 1994, the bank increased the revolving line of credit to $400,000.
On April 11, 1995, the line of credit was repaid by STAT Healthcare and was
canceled.
(7) NOTES PAYABLE TO HOSPITALS
Notes payable to hospitals December 31, 1993 and at August 31, 1994 are as
follows:
<TABLE>
<CAPTION>
1993 1994
------- --------
<S> <C> <C>
8% unsecured note, due in 16 monthly installments of
$4,690, including interest, commencing in January 1995... $70,000 $ 70,000
Noninterest-bearing unsecured note, due in monthly
installments of $33,333 through December 1994. Paid in
full in December 1994.................................... -- 133,000
------- --------
$70,000 $203,000
======= ========
</TABLE>
Notes payable to hospitals arose as unsecured advances designed to provide
cash flow assistance during the inception of fee-for-service activities.
F-34
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1993 AND AUGUST 31, 1994
(8) LEASES
The Company leases its office space under a month-to-month lease. The
Company also leases certain equipment and vehicles under operating leases.
Future minimum lease payments under noncancelable operating leases at August
31, 1994 are as follows:
<TABLE>
<S> <C>
1994.............................................................. $ 8,000
1995.............................................................. 6,000
1996.............................................................. 4,000
1997.............................................................. 4,000
-------
$22,000
=======
</TABLE>
Rental expense for the year ended December 31, 1993 and for the eight months
ended August 31, 1994 was $27,000 and $17,000 respectively.
(9) CONTINGENCIES
The Company procures professional liability insurance which provides
coverage on a claims-made basis during the policy period. The coverage is
purchased on a "slot" basis and extends to the Company and to contract
physicians who perform services. Individual policies are not provided to
physicians; however, they must be prequalified for coverage as a routine
credentialing process. If a claims-made policy is not renewed or replaced by a
new policy which provides coverage retroactively, it becomes necessary to
purchase an extended reporting period endorsement. Management intends to renew
its existing claims-made policy and in the past has either renewed or
successfully purchased retroactive coverage.
The Company has certain pending and threatened litigation and claims
incurred in the ordinary course of business; however, management believes that
the probable resolution of such contingencies will not materially affect the
liquidity, the financial position, or the results of the Company's operations.
F-35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN MEDICAL RESPONSE, INC.
SHI ACQUISITION CORP.
AND
STAT HEALTHCARE, INC.
DATED AS OF OCTOBER 7, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I -- THE MERGER.................................................... 1
SECTION 1.1 The Merger................................................ 1
SECTION 1.2 Effective Time............................................ 2
SECTION 1.3 Effect of the Merger...................................... 2
SECTION 1.4 Certificate of Incorporation, By-Laws..................... 2
SECTION 1.5 Directors and Officers.................................... 2
SECTION 1.6 Effect on Capital Stock................................... 2
SECTION 1.7 Exchange of Certificates.................................. 4
SECTION 1.8 Stock Transfer Books...................................... 5
SECTION 1.9 No Further Ownership Rights in Company Common Stock....... 5
SECTION 1.10 Lost, Stolen or Destroyed Certificates.................... 5
SECTION 1.11 Tax and Accounting Consequences........................... 5
SECTION 1.12 Taking of Necessary Action; Further Action................ 5
SECTION 1.13 Material Adverse Effect................................... 5
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 6
SECTION 2.1 Organization and Qualification; Subsidiaries.............. 6
SECTION 2.2 Certificate of Incorporation and By-Laws.................. 6
SECTION 2.3 Capitalization............................................ 6
SECTION 2.4 Authority Relative to this Agreement...................... 7
SECTION 2.5 No Conflict; Required Filings and Consents................ 7
SECTION 2.6 Compliance, Permits....................................... 8
SECTION 2.7 SEC Filings; Financial Statements......................... 8
SECTION 2.8 Absence of Certain Changes or Events...................... 9
SECTION 2.9 No Undisclosed Liabilities................................ 9
SECTION 2.10 Absence of Litigation..................................... 9
SECTION 2.11 Employee Benefit Plans, Employment Agreements............. 9
SECTION 2.12 Labor Matters............................................. 10
SECTION 2.13 Registration Statement, Proxy Statement/Prospectus........ 11
SECTION 2.14 Restrictions on Business Activitie........................ 11
SECTION 2.15 Title to Property......................................... 11
SECTION 2.16 Taxes..................................................... 11
SECTION 2.17 Environmental Matters..................................... 12
SECTION 2.18 Intellectual Property..................................... 13
SECTION 2.19 Interested Party Transactions............................. 13
SECTION 2.20 Insurance................................................. 13
SECTION 2.21 Accounts Receivable....................................... 13
SECTION 2.22 Pooling Matters........................................... 13
SECTION 2.23 Opinion of Financial Advisor.............................. 13
SECTION 2.24 Brokers................................................... 13
SECTION 2.25 Section 203 of the DGCL Not Applicable.................... 14
SECTION 2.26 Change in Control Payments................................ 14
SECTION 2.27 Expenses.................................................. 14
SECTION 2.28 Healthcare Regulatory Compliance.......................... 14
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... 14
SECTION 3.1 Organization and Qualification; Subsidiaries.............. 14
SECTION 3.2 Charter and By-Laws....................................... 15
SECTION 3.3 Capitalization............................................ 15
SECTION 3.4 Authority Relative to this Agreement...................... 15
SECTION 3.5 No Conflict, Required Filings and Consents................ 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 3.6 Compliance; Permits.......................................................... 16
SECTION 3.7 SEC Filings; Financial Statements............................................ 17
SECTION 3.8 Absence of Certain Changes or Events......................................... 17
SECTION 3.9 Registration Statement; Proxy Statement/Prospectus........................... 17
SECTION 3.10 Pooling Matters.............................................................. 18
SECTION 3.11 No Undisclosed Liabilities................................................... 18
SECTION 3.12 Absence of Litigation........................................................ 18
SECTION 3.13 Ownership of Merger Sub; No Prior Activities................................. 18
ARTICLE IV -- CONDUCT OF BUSINESS PENDING THE MERGER........................................ 18
SECTION 4.1 Conduct of Business by the Company Pending the Merger........................ 18
SECTION 4.2 No Solicitation.............................................................. 20
SECTION 4.3 Conduct of Business by Parent Pending the Merger............................. 21
ARTICLE V -- ADDITIONAL AGREEMENTS.......................................................... 21
SECTION 5.1 HSR Act...................................................................... 21
SECTION 5.2 Proxy Statement Prospectus; Registration Statement........................... 21
SECTION 5.3 Stockholders Meeting......................................................... 22
SECTION 5.4 Access to Information; Confidentiality....................................... 22
SECTION 5.5 Consents; Approvals.......................................................... 22
SECTION 5.6 Agreements with Respect to Affiliates........................................ 22
SECTION 5.7 Indemnification and Insurance................................................ 22
SECTION 5.8 Notification of Certain Matters.............................................. 23
SECTION 5.9 Further Action/Tax Treatment................................................. 23
SECTION 5.10 Public Announcements......................................................... 24
SECTION 5.11 Conveyance Taxes............................................................. 24
SECTION 5.12 Accountants' Letters......................................................... 24
SECTION 5.13 Pooling Accounting Treatment................................................. 24
SECTION 5.14 Nasdaq Listing............................................................... 24
SECTION 5.15 Listing of Parent Shares..................................................... 24
ARTICLE VI -- CONDITIONS TO THE MERGER...................................................... 24
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger.................. 24
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger Sub................ 25
SECTION 6.3 Additional Conditions to Obligation of the Company........................... 26
ARTICLE VII -- TERMINATION.................................................................. 27
SECTION 7.1 Termination.................................................................. 27
SECTION 7.2 Effect of Termination........................................................ 28
SECTION 7.3 Fees and Expenses............................................................ 28
ARTICLE VIII -- GENERAL PROVISIONS.......................................................... 28
SECTION 8.1 Effectiveness of Representations, Warranties and Agreements; Knowledge, Etc.. 28
SECTION 8.2 Notices...................................................................... 29
SECTION 8.3 Certain Definitions.......................................................... 29
SECTION 8.4 Amendment.................................................................... 30
SECTION 8.5 Waiver....................................................................... 30
SECTION 8.6 Headings..................................................................... 30
SECTION 8.7 Severability................................................................. 30
SECTION 8.8 Entire Agreement............................................................. 31
SECTION 8.9 Assignment; Guarantee of Merger Sub.......................................... 31
SECTION 8.10 Parties in Interest.......................................................... 31
SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative........................ 31
SECTION 8.12 Governing Law................................................................ 31
SECTION 8.13 Counterparts................................................................. 31
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 7, 1996 (this
"Agreement"), among American Medical Response, Inc., a Delaware corporation
("Parent"), SHI Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and STAT Healthcare, Inc., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the
"Merger") of Merger Sub with and into the Company in accordance with the
applicable provisions of the Delaware General Corporation Law (the "DGCL"),
and upon the terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests under both generally accepted
accounting principles and regulations of the Securities and Exchange
Commission (the "SEC");
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, $.01 par value (the "Company Common Stock"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.7(b)), upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement and the DGCL,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger will take place as promptly as
practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Ropes &
Gray, One International Place, Boston, Massachusetts, unless another date,
time or place is agreed to in writing by the parties hereto.
1
<PAGE>
Section 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the DGCL (the "Certificate of Merger"), together
with any required related certificates, with the Secretary of State of the
State of Delaware, in such form as required by, and executed in accordance
with the relevant provisions of, the DGCL (the time of such filing being the
"Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of
the Company and Merger Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
Section 1.4 Certificate of Incorporation, By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, but in all cases subject to Section 5.7(a), at
the Effective Time the Certificate of Incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with the DGCL and such Certificate of Incorporation.
(b) By-Laws. Unless otherwise determined by Parent prior to the Effective
Time, but in all cases subject to Section 5.7(a), the By-Laws of the Company,
as in effect immediately prior to the Effective Time, shall be the By-Laws of
the Surviving Corporation until thereafter amended in accordance with the
DGCL, the Certificate of Incorporation of the Surviving Corporation and such
By-Laws; provided, however, that the Company shall take such actions as may be
necessary to ensure that, at the Effective Time, the authorized number of
directors of the Surviving Corporation shall consist of the same number of
directors as the number of directors of Merger Sub at the Effective Time.
Section 1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the persons listed
on Schedule 1.5 shall serve as the initial officers of the Surviving
Corporation in the capacity or capacities specified on Schedule 1.5, in each
case until their respective successors are duly elected or appointed and
qualified.
Section 1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be
canceled pursuant to Section 1.6(b)) shall be converted, subject to
Section 1.6(f), into the right to receive 0.25 of a share (the "Exchange
Ratio") of validly issued, fully paid and nonassessable shares ("Parent
Shares") of the Common Stock, $.01 par value, of Parent ("Parent Common
Stock").
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding, be canceled and retired without
payment of any consideration therefor and cease to exist.
(c) Stock Options and Warrants.
(i) At the Effective Time, (A) each outstanding option to purchase
Company Common Stock granted under the Company's 1996 Stock Incentive
Plan, (the "Company Stock Option Plan") and (B) each outstanding option
to purchase Company Common Stock described in Section 1.6(c) of the
Company Disclosure Schedule (collectively with the options described in
clause (A) ("Stock
2
<PAGE>
Options")), whether vested or unvested, shall be deemed assumed by
Parent and deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Stock Option prior to the
Effective Time, the number (rounded to the nearest whole number) of
Parent Shares as the holder of such Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the Effective Time (not taking
into account whether or not such option was in fact exercisable), at a
price per share equal to (x) the aggregate exercise price for Company
Common Stock otherwise purchasable pursuant to such Stock Option
divided by (y) the number of Parent Shares deemed purchasable pursuant
to such Stock Option. It is intended that the foregoing provisions
shall be undertaken in a manner that will not constitute a
"modification" as defined in Section 425 of the Code, as to any Stock
Option which is an "incentive stock option."
(ii) As soon as practicable after the Effective Time, Parent shall
deliver to each holder of an outstanding Stock Option an appropriate
notice setting forth such holder's rights pursuant thereto, and such
Stock Option shall continue in effect on the same terms and conditions
(including antidilution provisions).
(iii) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant to
the terms set forth in this Section 1.6(c).
(iv) Subject to any applicable limitations under the Securities Act
of 1933, as amended, and the rules and regulations thereunder (the
"Securities Act"), Parent shall either (in consultation with the
Company and its advisors) (A) file a Registration Statement on Form S-8
(or any successor form), effective as of the Effective Time, with
respect to the shares of Parent Common Stock issuable upon exercise of
the Stock Options, or (B) file any necessary amendments to the
Company's previously-filed Registration Statement(s) on Form S-8 in
order that the Parent will be deemed a "successor registrant"
thereunder, and, in either event the Parent shall use all reasonable
efforts to maintain the effectiveness of such registration statement(s)
(and maintain the current status of the prospectus or prospectuses
relating thereto) for so long as such options shall remain outstanding.
(v) At the Effective Time, each of the 599,726 Class A redeemable
common stock purchase warrant expiring April 19, 1998 (the "Class A
Warrants") to purchase one share of Company Common Stock at a purchase
price of $4.50 and each of the 62,500 warrants expiring April 19, 2000
(the "Other Warrants") to purchase two shares of Company Common Stock
and one Class A Warrant at a purchase price of $10.875 (the Class A
Warrants and the Other Warrants are hereinafter known collectively as,
the "Warrants"), shall be deemed to constitute a warrant to acquire, on
the same terms and conditions as were applicable under such Warrant
prior to the Effective Time (including anti-dilution provisions), the
number (rounded to the nearest whole number) of Parent Shares as the
holder of such Warrant would have been entitled to receive pursuant to
the Merger had such holder exercised such Warrant in full immediately
prior to the Effective Time, at a price per share equal to (x) the
aggregate exercise price for Company Common Stock otherwise purchasable
pursuant to such Warrant divided by (y) the number of Parent Shares
deemed purchasable pursuant to such Warrant.
(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, $.01 par value,
of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible
into Parent Common Stock), reorganization, recapitalization or other like
change with respect to Parent Common Stock occurring after the date hereof
and prior to the Effective Time.
(f) No Fractional Shares. No certificates or scrip representing less than
one Parent Share shall be issued upon the surrender for exchange of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"). In lieu of any such
fractional share,
3
<PAGE>
each holder of Shares who would otherwise have been entitled to a fraction
of a Parent Share upon surrender of Certificates for exchange shall be paid
upon such surrender (without interest) cash equal to the product of (i)
such fraction, multiplied by (ii) the average closing price per share of
Parent Common Stock as reported in the Wall Street Journal for the twenty
trading days on the New York Stock Exchange ending on the fifth day prior
to the date on which the Effective Time occurs.
Section 1.7 Exchange of Certificates.
(a) Exchange Agent. Parent shall supply, or shall cause to be supplied, to
or for the account of The First National Bank of Boston, or such other bank or
trust company as shall be designated by Parent (the "Exchange Agent"), in
trust for the benefit of the holders of Company Common Stock, for exchange in
accordance with this Section 1.7, through the Exchange Agent, certificates
evidencing the Parent Shares issuable pursuant to Section 1.6 in exchange for
outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify), and (ii) instructions to effect the surrender
of the Certificates in exchange for the certificates evidencing Parent Shares.
Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor
(A) certificates evidencing that number of whole Parent Shares which such
holder has the right to receive in accordance with the Exchange Ratio in
respect of the Shares formerly evidenced by such Certificate, (B) any
dividends or other distributions to which such holder is entitled pursuant to
Section 1.7(c), and (C) cash in respect of fractional shares as provided in
Section 1.6(f) (the Parent Shares and the cash described in clauses (B) and
(C) being, collectively, the "Merger Consideration"), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Company as of the Effective Time, Parent Shares, dividends and distributions
may be issued and paid in accordance with this Article I to a transferee if
the Certificate evidencing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
pursuant to this Section 1.7(b) and by evidence that any applicable stock
transfer taxes have been paid. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented Shares of Company
Common Stock will be deemed from and after the Effective Time, for all
corporate purposes, other than the payment of dividends and subject to Section
1.6(f), to evidence only the right to receive the number of full Parent Shares
into which such shares of Company Common Stock shall have been so converted.
(c) Distributions With Respect to Unexchanged Parent Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares they
are entitled to receive until the holder of such Certificate shall surrender
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares.
(d) Transfers of Ownership. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance
thereof that the Certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for Parent
Shares in any name other than that of the registered holder of the certificate
surrendered, or have established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
4
<PAGE>
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be liable
to any holder of Company Common Stock for any Merger Consideration delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant
to this Agreement to any holder of Company Common Stock such amounts as Parent
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the Shares in respect of
which such deduction and withholding was made by Parent or the Exchange Agent.
Section 1.8 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
Section 1.9 No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation
of Shares which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article I.
Section 1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such Parent
Shares as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against
any claim that may be made against Parent or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
Section 1.11 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment
as a pooling of interests. The parties hereto hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-
3(a) of the United States Treasury Regulations.
Section 1.12 Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and
directors of the Company and Merger Sub immediately prior to the Effective
Time are fully authorized in the name of their respective corporations to
take, and will take, all such lawful and necessary action.
Section 1.13 Material Adverse Effect. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its subsidiaries, as
the case may be, the term "Material Adverse Effect" means any change, effect
or circumstance that, individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, (a) is or
would be materially adverse to the business, assets (including intangible
assets), prospects, financial condition or results of operations of the
Company and its subsidiaries or Parent and its subsidiaries, as the case may
be, in each case taken as a whole or (b) is or would materially delay or
prevent the consummation of the transactions contemplated hereby.
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ARTICLE II
Representations and Warranties of the Company
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on or prior
to the date hereof by the Company to Parent that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Article II and discloses the exception to the representation or warranty with
reasonable particularity (the "Company Disclosure Schedule"):
Section 2.1 Organization and Qualification; Subsidiaries. Each of the
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
("Approvals") necessary to own, lease and operate the properties it purports
to own, operate or lease and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority and Approvals would not have a
Material Adverse Effect. Each of the Company and each of its subsidiaries is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not have a Material
Adverse Effect. A true and complete list of all of the Company's subsidiaries,
together with the jurisdiction of incorporation of each subsidiary, the
authorized capitalization of each subsidiary, and the percentage of each
subsidiary's outstanding capital stock owned by the Company or another
subsidiary, is set forth in Section 2.1 of the Company Disclosure Schedule.
Except as set forth in Section 2.1 of the Company Disclosure Schedule, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity, with respect to which interest the
Company or any of its subsidiaries has invested or is required to invest
$50,000 or more, excluding securities in any publicly traded company held for
investment by the Company and comprising less than five percent of the
outstanding stock of such company.
Section 2.2 Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate
of Incorporation and By-Laws as most recently restated and subsequently
amended to date, and has furnished or made available to Parent the Certificate
of Incorporation and By-Laws (or equivalent organizational documents) of each
of its subsidiaries (the "Subsidiary Documents"). Such Certificate of
Incorporation, By-Laws and Subsidiary Documents are in full force and effect.
Neither the Company nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or By-Laws or Subsidiary
Documents, except for immaterial violations of the Subsidiary Documents which
may exist.
Section 2.3 Capitalization. The authorized capital stock of the Company
consists of (1) 40,000,000 shares of Company Common Stock and (ii) 5,000,000
shares of preferred stock, $.01 par value per share, none of which is issued
and outstanding and none of which is held in treasury. As of September 30,
1996, (i) 14,975,412 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable,
and no shares were held in treasury, (ii) no shares of Company Common Stock
were held by subsidiaries of the Company, (iii) 344,500 shares of Company
Common Stock were reserved for future issuance pursuant to outstanding stock
options granted under the Company Stock Option Plan, (iv) 10,000 shares of
Company Common Stock were reserved for future issuance pursuant to the options
described in Section 1.6(c) of the Company Disclosure Schedule, (v) 598,726
shares of Company Common Stock were reserved for future issuance upon exercise
of the Class A Warrants and (vi) 187,500 shares of Company Common Stock were
reserved for future issuance upon exercise of the Other Warrants (including
the Class A Warrants underlying the Other Warrants). No material change in
such capitalization has occurred between September 30, 1996 and the date
hereof. Except as set forth in Section 2.3 or Section 2.11 of the Company
Disclosure Schedule, there are no
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options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company
or any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any of its subsidiaries. All shares of Company
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. Except
as disclosed in Section 2.3 of the Company Disclosure Schedule, there are no
obligations, contingent or otherwise, of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock of any subsidiary or to provide funds to or
make any investment (in the form of a loan, capital contribution, guaranty or
otherwise) in any such subsidiary or any other entity. Except as set forth in
Sections 2.1 and 2.3 of the Company Disclosure Schedule, all of the
outstanding shares of capital stock of each of the Company's subsidiaries are
duly authorized, validly issued, fully paid and nonassessable, and all such
shares are owned by the Company or another subsidiary of the Company free and
clear of all security interests, liens, claims, pledges, agreements,
limitations in voting rights, charges or other encumbrances of any nature
whatsoever (collectively, "Liens").
Section 2.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, subject to the required approval of its stockholders, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions so contemplated (other than
the adoption of this Agreement by the holders of at least a majority of the
outstanding shares of Company Common Stock entitled to vote in accordance with
the DGCL and the Company's Certificate of Incorporation and By-Laws). The
Board of Directors of the Company has determined that it is advisable and in
the best interest of the Company's stockholders for the Company to enter into
a business combination with Parent upon the terms and subject to the
conditions of this Agreement, and has recommended that the Company's
stockholders approve and adopt this Agreement and the Merger. This Agreement
has been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by Parent and Merger Sub, as
applicable, constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
Section 2.5 No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list of (i)
all loan agreements, indentures, mortgages, notes, pledges, conditional sale
or title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which the Company or any of its subsidiaries is a party or by
which any of them is bound each in an amount equal to or exceeding $50,000,
but excluding any such agreement between the Company and its wholly owned
subsidiaries or between two or more wholly owned subsidiaries of the Company;
and (ii) all contracts, agreements, commitments or other understandings or
arrangements to which the Company or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets are bound or
affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of business
and involving, in each case, payments or receipts by the Company or any of its
subsidiaries of less than $50,000 in any single instance but not more than
$250,000 in the aggregate; and (iii) all agreements which, as of the date
hereof, are required to be filed as "material contracts" with the SEC pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, and
the SEC's rules and regulations thereunder (the "Exchange Act").
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (i) neither the Company nor any of its subsidiaries has breached, is
in default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments referred to in
clauses (i), (ii) or (iii) of Section 2.5(a), (ii) to the best knowledge of
the Company, no other party to any of the agreements, contracts or other
instruments referred to in clauses (i), (ii) or (iii) of Section 2.5 (a) has
breached or is in default of any of
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its obligations thereunder, and (iii) each of the agreements, contracts and
other instruments referred to in clauses (i), (ii) or (iii) of Section 2.5(a)
is in full force and effect, except in any such case for breaches, defaults or
failures to be in full force and effect that would not have a Material Adverse
Effect.
(c) Except as set forth in Section 2.5(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does
not, and, assuming that the conditions described in Sections 6.1(a), (b) and
(c) are satisfied, the performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby will not, (i) conflict
with or violate the Certificate of Incorporation or By-Laws of the Company,
(ii) conflict with or violate any federal, foreign, state or provincial law,
rule, regulation, order, judgment or decree (collectively, "Laws") applicable
to the Company or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under or impair the Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties
or assets of the Company or any of its subsidiaries pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, except in any
such case for any such conflicts, violations, breaches, defaults or other
occurrences that would not have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, state
securities laws ("Blue Sky Laws"), the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the filing and recordation of appropriate merger or other documents
as required by the DGCL, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or materially delay the Company from
performing its obligations under this Agreement, or would not otherwise have a
Material Adverse Effect.
Section 2.6 Compliance, Permits.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is in conflict with,
or in default or violation of, (i) any Law applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is
bound or affected or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective
properties is bound or affected, except for any such conflicts, defaults or
violations which would not have a Material Adverse Effect.
(b) The Company and its subsidiaries are in compliance with the terms of all
Approvals from governmental authorities, except where the failure to so comply
would not have a Material Adverse Effect.
Section 2.7 SEC Filings; Financial Statements.
(a) The Company has filed and has made available to Parent all forms,
reports and documents required to be filed by the Company with the SEC since
September 1, 1994 (collectively, the "Company SEC Reports"). Except as
disclosed in Section 2.7 of the Company Disclosure Schedule, the Company SEC
Reports (i) were prepared in all material respects in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Company's subsidiaries is required to file
any forms, reports or other documents with the SEC.
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(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows and changes in stockholders' equity for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected
to be material in amount and the addition of footnotes.
Section 2.8 Absence of Certain Changes or Events. Except as set forth in
Section 2.8 of the Company Disclosure Schedule or the Company SEC Reports
filed with the SEC prior to the date hereof, since January 1, 1996, the
Company has conducted its business in the ordinary course and there has not
occurred: (a) any Material Adverse Effect; (b) any amendments or changes in
the Certificate of Incorporation or By-laws of the Company; (c) any damage to,
destruction or loss of any asset of the Company or any of its subsidiaries
(whether or not covered by insurance) that would have a Material Adverse
Effect; (d) any material change by the Company in its accounting methods,
principles or practices; (e) any material revaluation by the Company of any of
its assets, including, without limitation, writing down the value of inventory
or writing off notes or accounts receivable other than in the ordinary course
of business; (f) any other action or event that would have required the
consent of Parent pursuant to Section 4.1 had such action or event occurred
after the date of this Agreement; or (g) any sale of a material amount of
assets of the Company or any of its subsidiaries, except in the ordinary
course of business.
Section 2.9 No Undisclosed Liabilities. Except as is disclosed in Section
2.9 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for in the
Company's audited balance sheet (including any related notes thereto) for the
fiscal year ended December 31, 1995 (the "1995 Company Balance Sheet")
included in the Company's S-1 Registration Statement dated August 29, 1996,
(b) incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected on the 1995 Company
Balance Sheet, (c) incurred since December 31, 1995 in the ordinary course of
business consistent with past practice, (d) incurred in connection with this
Agreement, or (e) which would not have a Material Adverse Effect.
Section 2.10 Absence of Litigation. Except as set forth in Section 2.10 of
the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties
or rights of the Company or any of its subsidiaries, before any federal,
foreign, state or provincial court, arbitrator or administrative, governmental
or regulatory authority or body that would have a Material Adverse Effect.
Section 2.11 Employee Benefit Plans, Employment Agreements.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all material employee welfare
plans (as defined in Section 3(1) of ERISA), and all other material bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements, and any material current or former employment,
executive compensation, consulting or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of or consultant
to the Company, any trade or business (whether or not incorporated) which is a
member of a controlled group including the Company or which is under common
control with the Company (an "ERISA Affiliate") within the meaning of Section
414 of the Code, or any subsidiary of the Company, as well as each plan with
respect to which the Company or an ERISA Affiliate could incur liability under
Section 4069 (if such plan has been or were terminated) or Section 4212(c) of
ERISA (all such plans, practices and programs are referred to as the "Company
Employee Plans"). There have been made available to Parent copies of (i) each
such written Company Employee Plan (other than those referred to in Section
4(b)(4) of ERISA), (ii) the most
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recent annual report on Form 5500 series, with accompanying schedules and
attachments, filed with respect to each Company Employee Plan required to make
such a filing, and (iii) the most recent actuarial valuation for each Company
Employee Plan subject to Title IV of ERISA. For purposes of this Section 2.11
(a), the term "material," used with respect to any Company Employee Plan,
shall mean that the Company or an ERISA Affiliate has incurred or may incur
obligations in an annual amount exceeding $50,000 with respect to such Company
Employee Plan.
(b) (i) Except in each case as set forth in Section 2.11(b) of the Company
Disclosure Schedule, none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, and none of
the Company Employee Plans is a "multiemployer plan" as such term is defined
in Section 3(37) of ERISA; (ii) there has been no "prohibited transaction," as
such term is defined in Section 406 of ERISA and Section 4975 of the Code,
with respect to any Company Employee Plan, which could result in any material
liability of the Company or any of its subsidiaries; (iii) all Company
Employee Plans are in compliance in all material respects with the
requirements prescribed by any and all Laws (including ERISA and the Code),
currently in effect with respect thereto (including all applicable
requirements for notification to participants or the Department of Labor,
Pension Benefit Guaranty Corporation (the "PBGC"), Internal Revenue Service
(the "IRS") or Secretary of the Treasury), and the Company and each of its
subsidiaries have performed all material obligations required to be performed
by them under, are not in any material respect in default under or violation
of, and have no knowledge of any default or violation by any other party to,
any of the Company Employee Plans; (iv) each Company Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code is the subject of a favorable determination
letter from the IRS, and nothing has occurred which may reasonably be expected
to impair such determination; (v) all contributions required to be made to any
Company Employee Plan pursuant to Section 412 of the Code, or the terms of the
Company Employee Plan or any collective bargaining agreement, have been made
on or before their due dates; (vi) with respect to each Company Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding
any such event for which the 30 day notice requirement has been waived under
the regulations to Section 4043 of ERISA) nor any event described in Section
4062, 4063 or 4041 of ERISA has occurred; and (vii) neither the Company nor
any ERISA Affiliate has incurred, nor reasonably expects to incur, any
liability under Title IV of ERISA (other than liability for premium payments
to the PBGC arising in the ordinary course).
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds (i) any option to purchase
Company Common Stock as of the date hereof, together with the number of shares
of Company Common Stock subject to such option, the option price of such
option (to the extent determined as of the date hereof), whether such option
is intended to qualify as an incentive stock option within the meaning of
Section 422(b) of the Code (an "ISO"), and the expiration date of such option;
(ii) any other right, directly or indirectly, to acquire Company Common Stock
(other than the Warrants), together with the number of shares of Company
Common Stock subject to such right. Section 2.11(c) of the Company Disclosure
Schedule also sets forth the total number of such ISOs, such nonqualified
options and such other rights.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true and
complete list of: (i) all employment agreements with officers of the Company
or any of its subsidiaries; (ii) all agreements with consultants who are
individuals obligating the Company or any of its subsidiaries to make annual
cash payments in an amount exceeding $25,000; (iii) all employees of, or
consultants to, the Company or any of its subsidiaries who have executed a
non-competition agreement with the Company or any of its subsidiaries; (iv)
all severance agreements, programs and policies of the Company or any of its
subsidiaries with or relating to its employees, in each case with outstanding
commitments exceeding $25,000, excluding programs and policies required to be
maintained by law; and (v) all plans, programs, agreements and other
arrangements of the Company or any of its subsidiaries with or relating to its
employees which contain change in control provisions.
Section 2.12 Labor Matters. Except as set forth in Section 2.12 of the
Company Disclosure Schedule: (i) there are no claims or proceedings pending
or, to the knowledge of the Company or any of its subsidiaries,
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threatened, between the Company or any of its subsidiaries and any of their
respective employees, asserting that the Company has committed an unfair labor
practice which claims or proceedings have or would have a Material Adverse
Effect; (ii) neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or its subsidiaries, nor does the Company or
any of its subsidiaries know of any activities or proceedings of any labor
union to organize any such employees; and (iii) neither the Company nor any of
its subsidiaries has any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the
Company or any of its subsidiaries.
Section 2.13 Registration Statement, Proxy Statement/Prospectus. The
information supplied by the Company for inclusion in the Registration
Statement (as defined in Section 3.9) shall not at the time the Registration
Statement is declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The information
supplied by the Company for inclusion in the proxy statement/prospectus (such
proxy statement/prospectus as amended or supplemented is referred to herein as
the "Proxy Statement/Prospectus") to be sent to the stockholders of the
Company in connection with the meeting of the stockholders of the Company to
consider the Merger (the "Stockholders Meeting"), will not, on the date the
Proxy Statement/Prospectus (or any amendment thereof or supplement thereto) is
first mailed to stockholders, at the time of the Stockholders Meetings, or at
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances in which they were made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly
inform Parent and Merger Sub. Notwithstanding the foregoing, the Company makes
no representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in any of the foregoing documents.
Section 2.14 Restrictions on Business Activities. Except for this Agreement
or as set forth in Section 2.14 of the Company Disclosure Schedule, to the
best of the Company's knowledge, there is no agreement, judgement, injunction,
order or decree binding upon the Company or any of its subsidiaries which has
or would have the effect of prohibiting or impairing any business practice of
the Company or any of its subsidiaries, acquisition of property by the Company
or any of its subsidiaries or the conduct of business by the Company or any of
its subsidiaries as currently conducted or as proposed to be conducted by the
Company, except for any prohibition or impairment as would not have a Material
Adverse Effect.
Section 2.15 Title to Property. Except as set forth in Section 2.15 of the
Company Disclosure Schedule, the Company and each of its subsidiaries have
good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances, except liens for taxes not yet
due and payable and such liens or other imperfections of title, which would
not have a Material Adverse Effect; and, to the knowledge of the Company, all
leases pursuant to which the Company or any of its subsidiaries lease from
others material amounts of real or personal property, are in good standing,
valid and effective in accordance with their respective terms, and there is
not, to the knowledge of the Company, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default), except where the lack of such good
standing, validity and effectiveness or the existence of such default or event
of default would not have a Material Adverse Effect.
Section 2.16 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes, fees,
levies, duties, tariffs, imposts, and governmental impositions or charges of
any kind in the nature of (or similar to) taxes, payable to
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any federal, state, local or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, net
worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall profits,
transfer and gains taxes, and (ii) interest, penalties, additional taxes and
additions to tax imposed with respect thereto; and "Tax Returns" shall mean
returns, reports, and information statements with respect to Taxes required to
be filed with the IRS or any other federal, foreign, state or provincial
taxing authority, domestic or foreign, including, without limitation,
consolidated, combined and unitary tax returns.
(b) Other than as disclosed in Section 2.16(b) of the Company Disclosure
Schedule, (i) the Company and its subsidiaries have filed all Tax Returns
required to be filed by them, (ii) the Company and its subsidiaries have paid
and discharged all Taxes due in connection with or with respect to the periods
or transactions covered by such Tax Returns and have paid all other Taxes as
are due, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) and with
respect to which the Company is maintaining adequate reserves, and (iii) there
are no other Taxes that would be due if asserted by a taxing authority, except
with respect to which the Company is maintaining reserves to the extent
currently required unless the failure to do so would not have a Material
Adverse Effect. Except as does not involve or would not result in liability to
the Company or any of its subsidiaries that would have a Material Adverse
Effect: (i) there are no tax liens on any assets of the Company or any
subsidiary thereof; and (ii) neither the Company nor any of its subsidiaries
has granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any Tax. The accruals and
reserves for Taxes (including deferred taxes) reflected in the 1995 Company
Balance Sheet are in all material respects adequate to cover all Taxes
required to be accrued through the date thereof (including interest and
penalties, if any, thereon and Taxes being contested) in accordance with
generally accepted accounting principles.
(c) Neither the Company nor any of its subsidiaries is, or has been, a
United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. To the best knowledge of the Company, neither
the Company nor any of its subsidiaries owns any property of a character, the
indirect transfer of which, pursuant to this Agreement, would give rise to any
material documentary, stamp or other transfer tax.
Section 2.17 Environmental Matters. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, and except in all cases as, in the aggregate,
have not had and would not have a Material Adverse Effect, the Company and
each of its subsidiaries: (i) have obtained all Approvals which are required
to be obtained under all applicable federal, state, foreign or local laws or
any regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder relating to pollution or
protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials or wastes into ambient air, surface water, ground
water, or land or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials or wastes by the
Company or its subsidiaries or their respective agents ("Environmental Laws");
(ii) are in compliance with all terms and conditions of such required
Approvals, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) as
of the date hereof, are not aware of nor have received notice of any past or
present violations of Environmental Laws or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the
basis of any claim, action, suit or proceeding, against the Company or any of
its subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.
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Section 2.18 Intellectual Property.
(a) The Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, technology,
know-how, computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material that are material to the business of the Company and its subsidiaries
as currently conducted or as proposed to be conducted by the Company or its
subsidiaries (the "Company Intellectual Property Rights").
(b) Section 2.18(b) of the Company Disclosure Schedule sets forth a complete
list of all patents, trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by the Company are valid and subsisting.
Section 2.19 Interested Party Transactions. Except as set forth in Section
2.19 of the Company Disclosure Schedule or in the Company SEC Reports filed
with the SEC prior to the date hereof, no event has occurred that would be
required to be reported as a Certain Relationship or Related Transaction,
pursuant to Item 404 of Regulation S-K promulgated by the SEC.
Section 2.20 Insurance. Section 2.20 of the Company Disclosure Schedule sets
forth a complete list of all material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company or any of its
subsidiaries. All such policies are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident to the business of
the Company and its subsidiaries and their respective properties and assets
and are in character and amount at least equivalent to that carried by persons
engaged in similar businesses and subject to the same or similar perils or
hazards, except as would not have a Material Adverse Effect.
Section 2.21 Accounts Receivable. The accounts receivable of the Company and
its subsidiaries as reflected in the most recent financial statements
contained in the Company SEC Reports, to the extent uncollected on the date
hereof and the accounts receivable reflected on the books of the Company and
its subsidiaries are valid and existing and represent monies due, and the
Company has made reserves reasonably considered adequate for receivables not
collectible in the ordinary course of business, and (subject to the aforesaid
reserves) are subject to no refunds or other adjustments and to no defenses,
rights of setoff, assignments, restrictions, encumbrances or conditions
enforceable by third parties on or affecting any thereof, except for such
refunds, adjustments, defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions as would not have a Material Adverse Effect.
Section 2.22 Pooling Matters. Neither the Company nor any of its affiliates
has, to the best of the Company's knowledge and based upon consultation with
its independent accountants, taken or agreed to take any action that could
affect the ability of Parent to account for the business combination to be
effected by the Merger as a pooling of interests. The failure of this
representation to be true and correct, shall, if the Merger is not able to be
accounted for as a pooling of interests, constitute a breach of this Agreement
by the Company for the purposes of Section 7.1(f).
Section 2.23 Opinion of Financial Advisor. The Company has been advised by
its financial advisor, Pacific Growth Equities, Inc., that in its opinion, as
of the date hereof, the Exchange Ratio set forth herein is fair to the holders
of Shares from a financial point of view.
Section 2.24 Brokers. No broker, finder or investment banker (other than
Pacific Growth Equities, Inc., the fees and expenses of whom will be paid by
the Company) is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or its subsidiaries. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and Pacific Growth Equities, Inc. pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated hereunder.
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Section 2.25 Section 203 of the DGCL Not Applicable. The Board of Directors
of the Company has taken all actions so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the respective Stockholders Agreements dated as of the date
hereof between Parent and certain stockholders of the Company (collectively,
the "Stockholders Agreements") or the consummation of the Merger or the other
transactions contemplated by this Agreement or by the Stockholders Agreements.
Section 2.26 Change in Control Payments. Except as set forth in Section
2.11(d) or Section 2.26 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries have any plans, programs or agreements to
which they are parties, or to which they are subject, pursuant to which
payments may be required or acceleration of benefits may be required upon a
change of control of the Company.
Section 2.27 Expenses. The Company has provided to Parent a good faith
estimate and description of the expenses of the Company and its subsidiaries
which the Company expects to incur, or has incurred, in connection with the
transactions contemplated by this Agreement.
Section 2.28 Healthcare Regulatory Compliance. (a) The relationships among
the Company, its subsidiaries and third parties are in compliance with all
applicable Laws and the rules of ethical conduct of applicable medical
societies and accrediting bodies, except where the failure to be in compliance
would not have a Material Adverse Effect.
(b) To the best knowledge of the Company, the Company and its subsidiaries
have not engaged knowingly and willfully in any activities which are
prohibited under federal Medicare and Medicaid statutes, including, without
limitation, 42 U.S.C. 1395 nn et seq., 42 U.S.C. (S) 1320a-7b et seq. and
related state or local statutes or regulations or which otherwise constitutes
fraud or false claims, including, without limitation, the following: (i)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or
payment; (ii) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights
to any benefit or payment; (iii) failing to disclose knowledge of the
occurrence of any event affecting the initial or continued right to any
benefit or payment on its behalf or on behalf of another, with intent to
secure such benefit or payment fraudulently; and (iv) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay such remuneration (A) in return for referring an individual to
a person for the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part by Medicare or
Medicaid or (B) in return for purchasing, leasing, or ordering or arranging
for or recommending purchasing, leasing or ordering any good, facility,
service or item for which payment may be made in whole or in part by Medicare
or Medicaid.
ARTICLE III
Representation and Warrants of Parent and Merger Sub
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by Parent to the Company that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III and discloses the exception to the
representation or warranty with reasonable particularity (the "Parent
Disclosure Schedule"):
Section 3.1 Organization and Qualification; Subsidiaries. Each of Parent and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such
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power, authority and Approvals would not have a Material Adverse Effect. Each
of Parent and each of its subsidiaries is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated
by it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not have a Material Adverse Effect. A true and
complete list as of the date hereof of all of Parent's subsidiaries, together
with the jurisdiction of incorporation of each subsidiary and the percentage
of each subsidiary's outstanding capital stock owned by Parent or another
subsidiary, is set forth in Section 3.1 of the Parent Disclosure Schedule.
Except as set forth in Section 3.1 of the Parent Disclosure Schedule as of the
date hereof, Parent does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity, with respect to which Parent
has invested or is required to invest $250,000 or more, excluding securities
in any publicly traded Company held for investment by Parent and comprising
less than five percent of the outstanding capital stock of such company.
Section 3.2 Charter and By-Laws. Parent has heretofore furnished to the
Company a complete and correct copy of the Certificates of Incorporation and
By-Laws, as amended to date, of each of Parent and Merger Sub. Such
Certificate of Incorporation and By-Laws are in full force and effect. Neither
Parent nor Merger Sub is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws.
Section 3.3 Capitalization. As of September 30, 1996, the authorized capital
stock of Parent consisted of (i) 75,000,000 shares of Parent Common Stock, of
which 21,029,705 shares were issued and outstanding, all of which are validly
issued, fully paid and non-assessable, no shares were held in treasury,
2,579,709 shares were reserved for future issuance under Parent's stock plans
and arrangements and 3,311,258 were reserved for issuance upon exercise of
Parent's 5 1/4% Convertible Subordinated Notes due February 1, 2001 and (ii)
500,000 shares of preferred stock, $.01 par value per share, none of which was
issued and outstanding and none of which was held in treasury. No material
change in such capitalization has occurred between September 30, 1996 and the
date hereof. Except as set forth in Section 3.3 of the Parent Disclosure
Schedule, as of the date hereof there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to
the issued or unissued capital stock of Parent or any of its subsidiaries or
obligating Parent or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, Parent or any of its
subsidiaries. Except as set forth in Section 3.3 of the Parent Disclosure
Schedule as of the date hereof, there are no obligations, contingent or
otherwise, of Parent or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Parent Common Stock or the capital stock of
any subsidiary or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any such subsidiary other than
guarantees of bank obligations of subsidiaries entered into in the ordinary
course of business. Except as set forth in Section 3.1 or 3.3 of the Parent
Disclosure Schedule, all of the outstanding shares of capital stock of each of
Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Parent or another subsidiary of
Parent free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Parent's voting rights, charges or other
encumbrances of any nature whatsoever.
Section 3.4 Authority Relative to this Agreement. Each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. The Board of Directors of Parent has determined that it is advisable
and in the best interest of Parent's stockholders for Parent to enter into a
business combination with the Company upon the terms and subject to the
conditions of this Agreement. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of Parent and Merger Sub enforceable against each
of them in accordance with its terms.
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Section 3.5 No Conflict, Required Filings and Consents.
(a) Section 3.5(a) of the Parent Disclosure Schedule includes a list as of
the date hereof (or such other date specified in Section 3.5(a) of the Parent
Disclosure Schedule) of: (i) all loan agreements, indentures, mortgages,
notes, pledges, conditional sale or title retention agreements, security
agreements, equipment obligations, guaranties, standby letters of credit,
equipment leases or lease purchase agreements to which Parent or any of its
subsidiaries is a party or by which any of them is bound, each in an amount
equal to or exceeding $500,000, but excluding any such agreement between
Parent and its wholly-owned subsidiaries or between two or more wholly-owned
subsidiaries of Parent; (ii) all contracts, agreements, commitments or other
understandings or arrangements to which Parent or any of its subsidiaries is a
party or by which any of them or any of their respective property or assets
are bound or affected, but excluding contracts, agreements, commitments or
other understandings or arrangements entered into in the ordinary course of
business and involving, in each case, payments or receipts by Parent or any of
its subsidiaries of less than $1,000,000 in any single instance but not more
than $2,000,000 in the aggregate; and (iii) all agreements which, as of the
date hereof, are required to be filed with the SEC pursuant to the
requirements of the Exchange Act as "material contracts."
(b) Except as disclosed in Section 3.5(b) of the Parent Disclosure Schedule,
(i) neither the Parent nor any of its subsidiaries has breached, is in default
under, or has received written notice of any breach of or default under, any
of the agreements, contracts or other instruments referred to in clauses (i),
(ii) or (iii) of Section 3.5(a), (ii) to the best knowledge of Parent, no
other party to any of the agreements, contracts or other instrument referred
to in clauses (i), (ii) or (iii) of Section 3.5(a) has breached or is in
default of any of its obligations thereunder, and (iii) each of the
agreements, contracts and other instruments referred to in clauses (i), (ii)
or (iii) of Section 3.5(a) is in full force and effect, except in any such
case for breaches, defaults or failures to be in full force and effect that
would not have a Material Adverse Effect.
(c) Except as set forth in Section 3.5(c) of the Parent Disclosure Schedule,
the execution and delivery of this Agreement by Parent and Merger Sub do not,
and assuming that the conditions described in Sections 6.1(b) and (c) are
satisfied, the performance of this Agreement by Parent and Merger Sub will
not, (i) conflict with or violate the Certificate of Incorporation or By-Laws
of Parent or Merger Sub, (ii) conflict with or violate any Law applicable to
Parent or any of its subsidiaries or by which its or their respective
properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or impair Parent's or any of its subsidiaries'
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a Lien on any of the properties or assets of
Parent or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their
respective properties are bound or affected, except in any such case for any
such conflicts, violations, breaches, defaults or other occurrences that would
not have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, the
Blue Sky Laws, the pre-merger notification requirements of the HSR Act, and
the filing and recordation of appropriate merger or other documents as
required by the DGCL, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or materially delay Parent or Merger Sub from
performing their respective obligations under this Agreement or would not
otherwise have a Material Adverse Effect.
Section 3.6 Compliance; Permits.
(a) Except as disclosed in Section 3.6(a) of the Parent Disclosure Schedule,
neither Parent nor any of its subsidiaries is in conflict with, or in default
or violation of, (i) any law, rule, regulation, order, judgment or decree
applicable to Parent or any of its subsidiaries or by which its or any of
their respective properties is bound or
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affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or its or any of their respective properties is bound or
affected, except for any such conflicts, defaults or violations which would
not have a Material Adverse Effect.
(b) Parent and its subsidiaries are in compliance with the terms of all
Approvals from governmental authorities, except where the failure to so comply
would not have a Material Adverse Effect.
Section 3.7 SEC Filings; Financial Statements.
(a) Parent has filed and has made available to the Company all forms,
reports and documents required to be filed by Parent with the SEC since
January 1, 1994 (collectively, the "Parent SEC Reports"). The Parent SEC
Reports (i) were prepared in all material respects in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and each fairly presents in all material
respects the consolidated financial position of Parent and its subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows and changes in stockholders' equity for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected
to be material in amount and the addition of footnotes.
Section 3.8 Absence of Certain Changes or Events. Except as set forth in
Section 3.8 of the Parent Disclosure Schedule or in the Parent SEC Reports
filed with the SEC prior to the date hereof, since January 1, 1996, Parent has
conducted its business in the ordinary course and there has not occurred: (i)
any Material Adverse Effect; (ii) any amendments or changes in the Certificate
of Incorporation or By-Laws of Parent; (iii) any damage to, destruction or
loss of any assets of the Parent or any of its subsidiaries (whether or not
covered by insurance) that would have a Material Adverse Effect; (iv) any
material change by Parent in its accounting methods, principles or practices;
(v) any material revaluation by Parent of any of its assets, including without
limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; (vi) any
other action or event that would have required the consent of the Company
pursuant to Section 4.3 had such action or event occurred after the date of
this Agreement; or (vii) any sale of a material amount of assets of Parent or
any of its subsidiaries except in the ordinary course of business.
Section 3.9 Registration Statement; Proxy Statement/Prospectus. Subject to
the accuracy of the representations of the Company in Section 2.13, the
registration statement (the "Registration Statement") pursuant to which the
Parent Common Stock to be issued in the Merger will be registered with the SEC
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein not false or misleading. The
information supplied by Parent for inclusion in the Proxy Statement/Prospectus
will not, on the date the Proxy Statement/Prospectus is first mailed to
stockholders, at the time of the Stockholders Meeting and at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with
respect to any material fact, or will omit to state any material fact
necessary in order to make the statements therein not false or misleading; or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Stockholders Meeting which has become false or misleading. If at any time
prior to the Effective Time any event relating to Parent, Merger Sub or any of
their
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respective affiliates, officers or directors should be discovered by Parent or
Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement/Prospectus, Parent or Merger
Sub will promptly inform the Company. Notwithstanding the foregoing, Parent
and Merger Sub make no representation or warranty with respect to any
information supplied by the Company which is contained in any of the foregoing
documents. The Registration Statement and Proxy Statement/Prospectus shall
comply in all material respects as to form and substance with the requirements
of the Securities Act, the Exchange Act and the rules and regulations
thereunder. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by the Company which is
contained in, or furnished in connection with the preparation of, the
Registration Statement.
Section 3.10 Pooling Matters. Neither Parent nor any of its affiliates has,
to Parent's knowledge and based upon consultation with its independent
accountants, taken or agreed to take any action that could affect the ability
of Parent to account for the business combination to be effected by the Merger
as a pooling of interests. The failure of this representation to be true and
correct, shall, if the Merger is not able to be accounted for as a pooling of
interests, constitute a breach of the Agreement by Parent for the purposes of
Section 7.1(f).
Section 3.11 No Undisclosed Liabilities. Except as is disclosed in Section
3.11 of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for in the
Parent's audited balance sheet (including any related notes thereto) for the
fiscal year ended December 31, 1995 (the "1995 Parent Balance Sheet") included
in Parent's Annual Report on Form 10-K for the year ended December 31, 1995,
(b) incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected on the 1995 Parent
Balance Sheet, (c) incurred since December 31, 1995 in the ordinary course of
business consistent with past practice, (d) incurred in connection with this
Agreement, or (e) which would not have a Material Adverse Effect.
Section 3.12 Absence of Litigation. Except as set forth in Section 3.12 of
the Parent Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Parent,
threatened against Parent or any of its subsidiaries, or any properties or
rights of the Parent or any of its subsidiaries, before any federal, foreign,
state or provincial court, arbitrator or administrative, governmental or
regulatory authority or body that would have a Material Adverse Effect.
Section 3.13 Ownership of Merger Sub; No Prior Activities.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement,
Merger Sub has not and will not have incurred, directly or indirectly, through
any subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE IV
Conduct of Business Pending the Merger
Section 4.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, unless Parent shall otherwise agree in
writing, the Company shall conduct its business and shall cause the businesses
of its subsidiaries to be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent
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with prudent industry practice; and the Company shall use all reasonable
commercial efforts to preserve substantially intact the business organization
of the Company and its subsidiaries, to keep available the services of the
present officers, employees and consultants of the Company and its
subsidiaries and to preserve the present relationships of the Company and its
subsidiaries with customers, suppliers and other persons with which the
Company or any of its subsidiaries has significant business relations. By way
of amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its subsidiaries shall, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, directly or indirectly do, or propose
to do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change the Certificate of Incorporation or By-Laws
of the Company or any of its subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) in the Company, any of its subsidiaries or affiliates
(except for the issuance of shares of Company Common Stock issuable (i)
pursuant to Stock Options which were granted under the Company Stock Option
Plan and are outstanding on the date hereof, (ii) pursuant to options
described in Section 1.6(c) of the Company Disclosure Schedule outstanding
on the date hereof and (iii) pursuant to the Warrants).
(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its subsidiaries (except for (i) sales of assets in the ordinary course
of business and in a manner consistent with past practice, (ii)
dispositions of obsolete or worthless assets, and (iii) sales of immaterial
assets not in excess of $50,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (iii) amend
the terms or change the period of exercisability of, accelerate the vesting
of, purchase, repurchase, redeem or otherwise acquire, or permit any
subsidiary to purchase, repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, including, without
limitation, shares of Company Common Stock or any option, warrant or right,
directly or indirectly, to acquire shares of Company Common Stock, or
propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof, except that the Company may (1) acquire complementary
businesses or finance the acquisition by its affiliated physician groups of
hospital medical service contracts in an amount not to exceed $1,000,000 in
any single case and $2,750,000 in the aggregate, (2) with the prior written
consent of Parent (which consent will not be unreasonably withheld or
delayed) acquire the businesses described on Section 4.1(e) of the Company
Disclosure Schedule and (3) finance the acquisition by its affiliated
physician groups of the hospital medical service contracts described in
Section 4.1(e) of the Company Disclosure Schedule not to exceed in the
aggregate the amount previously specified in writing by the Company to
Parent; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person or, except in the
ordinary course of business consistent with past practice, make any loans
or advances; (iii) enter into or amend any material contract or agreement,
except that the Company may amend its existing $6,500,000 bank credit
agreement to increase the amount of credit available thereunder to up to
$25,000,000; (iv) authorize any capital expenditures or purchase of fixed
assets which are, in the aggregate, in excess of $100,000 for the Company
and its subsidiaries taken as a whole (except for purchases and leases of
equipment not to exceed $1,000,000 in aggregate payments required for the
development of new hyperbaric oxygen therapy and dialysis treatment
facilities); or (v) enter into or amend any contract, agreement, commitment
or arrangement to effect any of the matters prohibited by this Section
4.1(e);
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(f) increase the compensation payable or to become payable to its
officers or employees (except for increases in compensation of employees
without employment agreements in amounts consistent with past practices),
or grant any severance or termination pay to, or enter into any employment
or severance agreement with any director, officer or other employee of the
Company or any of its subsidiaries, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees, except, in each case, as may be required
by law;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements contained in the Company SEC
Reports filed prior to the date of this Agreement or incurred in the
ordinary course of business and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (i) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing
or cause the Company not to perform its covenants hereunder.
Section 4.2 No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
subsidiaries, (i) solicit, initiate or knowingly encourage the initiation of
any inquiries or proposals regarding any merger, sale of substantial assets,
sale of shares of capital stock (including without limitation by way of a
tender offer) or similar transactions involving the Company or any
subsidiaries of the Company other than the Merger (any of the foregoing
inquiries or proposals being referred to herein as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any
nonpublic information to any person relating to, any Acquisition Proposal or
(iii) agree to, approve or recommend any Acquisition Proposal. Nothing
contained in this Section 4.2(a) shall prevent the Board of Directors of the
Company from considering, negotiating, approving and recommending to the
stockholders of the Company a bona fide Acquisition Proposal not solicited in
violation of this Agreement, provided the Board of Directors of the Company
determines in good faith (upon advice of independent counsel) that it is
required to do so in order to discharge properly its fiduciary duties.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or any subsidiary by
any person or entity that informs the Board of Directors of the Company or
such subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice to Parent shall be made orally and in writing, and shall
indicate whether the Company is providing or intends to provide the person
making the Acquisition Proposal with access to information concerning the
Company as provided in Section 4.2(c).
(c) If the Board of Directors of the Company receives a request for material
nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of
Directors determines in good faith and upon the advice of independent counsel
that it is required to cause the Company to act as provided in this Section
4.2(c) in order to discharge properly the directors' fiduciary duties,
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then, provided the person making the Acquisition Proposal has executed a
confidentiality agreement substantially similar to the one then in effect
between the Company and Parent, the Company may provide such person with
access to information regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section 4.2.
Section 4.3 Conduct of Business by Parent Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and
agrees that, unless the Company shall otherwise agree in writing, Parent shall
conduct its business, and cause the businesses of its subsidiaries to be
conducted, only in the ordinary course of business and in a manner consistent
with past practices, other than actions taken by Parent or its subsidiaries in
contemplation of the Merger, and shall not directly or indirectly do, or
propose to do, any of the following without the prior written consent of the
Company:
(a) amend or otherwise change Parent's Certificate of Incorporation or
By-Laws;
(b) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of
Parent may declare and pay a dividend to its parent; or
(c) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder.
ARTICLE V
Additional Agreements
Section 5.1 HSR Act. As promptly as practicable after the date of the
execution of this Agreement, the Company and Parent shall file notifications
under and in accordance with the HSR Act in connection with the Merger and the
transactions contemplated hereby and to respond as promptly as practicable to
any inquiries received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other governmental authority in connection with antitrust matters.
Section 5.2 Proxy Statement Prospectus; Registration Statement. As promptly
as practicable after the execution of this Agreement, the Company and Parent
shall prepare and file with the SEC preliminary proxy materials which shall
constitute the Proxy Statement/Prospectus and the Registration Statement of
the Parent with respect to the Parent Common Stock to be issued in connection
with the Merger. As promptly as practicable after comments are received from
the SEC thereon and after the furnishing by the Company and Parent of all
information required to be contained therein, the Company and Parent shall
file with the SEC a combined proxy and Registration Statement on Form S-4 (or
on such other form as shall be appropriate) (the "S-4 Registration Statement")
relating to the adoption of this Agreement and approval of the transactions
contemplated hereby by the stockholders of the Company, and shall use all
reasonable efforts to cause the Registration Statement to become effective,
and to mail the Proxy Statement/Prospectus to the stockholders of the Company
as soon thereafter as practicable. The Proxy Statement/Prospectus shall
include the recommendation of the Board of Directors of the Company in favor
of the Merger, subject to the last sentence of Section 5.3.
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Section 5.3 Stockholders Meeting. The Company shall call and hold a
Stockholders Meeting as promptly as practicable and in accordance with
applicable laws for the purpose of voting upon the approval of the Merger, and
the Company shall use its reasonable best efforts to hold the Stockholders
Meeting as soon as practicable after the date on which the Registration
Statement becomes effective. Unless otherwise required under the applicable
fiduciary duties of the directors of the Company, as determined by such
directors in good faith after consultation with and based upon the advice of
independent counsel, the Company shall use all reasonable efforts to solicit
from its stockholders proxies in favor of adoption of this Agreement and
approval of the transactions contemplated hereby and shall take all other
action necessary or advisable to secure the vote or consent of stockholders to
obtain such approvals.
Section 5.4 Access to Information; Confidentiality. Upon reasonable notice
and subject to restrictions contained in confidentiality agreements to which
such party is subject (from which such party shall use reasonable efforts to
be released), the Company and Parent shall each (and shall cause each of their
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during the period to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, the Company and Parent each shall (and shall
cause each of their subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and
personnel as either Parent or the Company may reasonably request. Each party
shall keep such information confidential in accordance with the terms of the
confidentiality letter dated September 13, 1996 as amended as of October 1,
1996 (the "Confidentiality Letter"), between Parent and the Company.
Section 5.5 Consents; Approvals. The Company and Parent shall each use all
reasonable efforts to obtain all consents, waivers, approvals, authorizations
or orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the
Company and Parent and the consummation by them of the transactions
contemplated hereby, in each case as promptly as practicable. The Company and
Parent shall furnish promptly all information required to be included in the
Proxy Statement/Prospectus and the Registration Statement, or for any
application or other filing to be made pursuant to the rules and regulations
of any United States or foreign governmental body in connection with the
transactions contemplated by this Agreement.
Section 5.6 Agreements with Respect to Affiliates. Each of Parent and the
Company shall deliver to the other, prior to the date the Registration
Statement becomes effective under the Securities Act, a letter (the "Affiliate
Letters") identifying all persons who are "affiliates" of the Parent or the
Company, respectively, for purposes of Rule 145 under the Securities Act
("Rule 145"). Each of Parent and the Company shall use its reasonable best
efforts to cause each person who is identified as an "affiliate" in its
Affiliate Letter to deliver, prior to the Effective Time, a written agreement
(an "Affiliate Agreement") in connection with restrictions on affiliates under
Rule 145 and pooling of interests accounting treatment, in substantially the
form of Exhibit 5.6.
Section 5.7 Indemnification and Insurance.
(a) The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the Certificate of Incorporation and By-Laws of the Company,
respectively, which provisions shall not be amended, repealed or otherwise
modified for a period of five years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors, officers, employees or agents of
the Company, unless such modification is required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Certificate of Incorporation or By-Laws and regardless
of whether the Merger becomes effective, indemnify and
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hold harmless, and, after the Effective Time, Parent and the Surviving
Corporation shall, to the fullest extent permitted under applicable law or
under the Surviving Corporation's Certificate of Incorporation or By-Laws,
indemnify and hold harmless, each present and former director, officer or
employee of the Company or any of its subsidiaries (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, (x)
arising out of or pertaining to the transactions contemplated by this
Agreement or (y) otherwise with respect to any acts or omissions occurring at
or prior to the Effective Time, to the same extent as provided in the
Company's Certificate of Incorporation or By-Laws or any applicable contract
or agreement as in effect on the date hereof, in each case for a period of
five years after the date hereof. In the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) any counsel retained by the Indemnified Parties for any
period after the Effective Time shall be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, Parent or the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel,
promptly after statements therefor are received, and (iii) Parent and the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that neither Parent nor the Surviving Corporation shall be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and provided, further, that, in the event
that any claim or claims for indemnification are asserted or made within such
five-year period, all rights to indemnification in respect of any such claim
or claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any single action unless there is, under applicable standards
of professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties.
(c) Parent and the Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time.
(d) For a period of three years after the Effective Time, Parent shall cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy
of which has been made available to Parent) on terms comparable to those now
applicable to directors and officers of the Company; provided, however, that
in no event shall Parent or the Surviving Corporation be required to expend in
excess of 150% of the annual premium currently paid by the Company for such
coverage; and provided further, that if the annual premium would exceed such
amount, Parent shall cause the Surviving Corporation to obtain a policy with
the maximum coverage available at a cost not exceeding such amount.
(e) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding, jointly and severally, on all
successors and assigns of Parent and the Surviving Corporation and shall be
enforceable by the Indemnified Parties.
Section 5.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to become materially untrue or inaccurate, or (ii) any failure
of the Company, Parent or Merger Sub, as the case may be, materially to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice; and provided further
that failure to give such notice shall not be treated as a breach of covenant
for the purposes of Sections 6.2(a) or 6.3(a) unless the failure to give such
notice results in material prejudice to the other party.
Section 5.9 Further Action/Tax Treatment. Upon the terms and subject to the
conditions hereof each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause
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to be done, all other things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by
this Agreement, to obtain in a timely manner all necessary waivers, consents
and approvals and to effect all necessary registrations and filings, and
otherwise to satisfy or cause to be satisfied all conditions precedent to its
obligations under this Agreement. The foregoing covenant shall not include any
obligation by Parent to agree to divest, abandon, license or take similar
action with respect to any assets (tangible or intangible) of Parent or the
Company. Each of Parent, Merger Sub and the Company shall use its best efforts
to cause the Merger to qualify, and will not (both before and after
consummation of the Merger) take any actions which to its knowledge could
reasonably be expected to prevent the Merger from qualifying, as a
reorganization under the provisions of Section 368 of the Code.
Section 5.10 Public Announcements. Parent and the Company shall consult with
each other before issuing any press release with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the rules
and regulations of the New York Stock Exchange ("NYSE") or Nasdaq National
Market System ("Nasdaq"), if it has used all reasonable efforts to consult
with the other party prior thereto.
Section 5.11 Conveyance Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees, and any similar taxes which
become payable in connection with the transactions contemplated hereby that
are required or permitted to be filed at or before the Effective Time.
Section 5.12 Accountants' Letters. Upon reasonable notice from the other,
the Company and Parent shall use their respective best efforts to cause KPMG
Peat Marwick LLP to deliver to Parent and the Company a letter, dated within 2
business days of the Effective Date of the S-4 Registration Statement covering
such matters as are requested by Parent or the Company, as the case may be,
and as are customarily addressed in accountant's "comfort" letters.
Section 5.13 Pooling Accounting Treatment. Each of Parent and the Company
agrees not to take any action that to its knowledge could reasonably be
expected to adversely affect the ability of Parent to treat the Merger as a
pooling of interests, and each of Parent and the Company agrees to take such
action as may be reasonably required to negate the impact of any past actions
which to its knowledge could reasonably be expected to adversely impact the
ability of Parent to treat the Merger as a pooling of interests. The taking by
Parent or the Company of any action prohibited by the previous sentence, or
the failure of Parent or the Company to take any action required by the
previous sentence, shall, if the Merger is not able to be accounted for as a
pooling of interests, constitute a breach of this Agreement by Parent or the
Company, as the case may be, for the purposes of Section 7.1(f).
Section 5.14 Nasdaq Listing. The Company shall use its best efforts to
continue the quotation of the Company Common Stock on the Nasdaq National
Market during the term of this Agreement.
Section 5.15 Listing of Parent Shares. Parent shall use its best efforts to
cause the Parent Shares to be issued in the Merger to be approved for listing,
upon official notice of issuance, on the NYSE.
ARTICLE VI
Conditions to the Merger
Section 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
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(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose and no similar proceeding in respect of the Joint Proxy
Statement/Prospectus shall have been initiated by the SEC;
(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the
Company;
(c) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; and there shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger
illegal; and
(e) Governmental Actions. There shall not have been instituted, pending
or overtly threatened any action or proceeding having a reasonable
possibility of success by any governmental authority or administrative
agency before any governmental authority, administrative agency or court of
competent jurisdiction, nor shall there be in effect any judgment, decree
or order of any governmental authority, administrative agency or court of
competent jurisdiction, in either case, seeking to prohibit or limit Parent
from exercising all material rights and privileges pertaining to its
ownership of the Surviving Corporation or the ownership or operation by
Parent or any of its subsidiaries of all or a material portion of the
business or assets of Parent or any of its subsidiaries, or seeking to
compel Parent or any of its subsidiaries to dispose of or hold separate all
or any material portion of the business or assets of Parent or any of its
subsidiaries (including the Surviving Corporation and its subsidiaries), as
a result of the Merger or the transactions contemplated by this Agreement.
Section 6.2 Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
respects at and as of the Effective Time as if made at and as of such time,
except for (i) changes contemplated by this Agreement, (ii) those
representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date,
subject to clause (iii)), and (iii) where the failure to be true and
correct would not have a Material Adverse Effect, with the same force and
effect as if made at and as of the Effective Time, and Parent and Merger
Sub shall have received a certificate to such effect signed by the
President and the Chief Financial Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Effective Time, and Parent and Merger Sub shall have received
a certificate to such effect signed by the President and the Chief
Financial Officer of the Company;
(c) Consents Obtained. All consents, waivers, approvals, permits,
licenses, authorizations or orders required to be obtained, and all filings
required to be made, by the Company for the due authorization, execution
and delivery of this Agreement and the consummation by it of the
transactions contemplated hereby shall have been obtained and made by the
Company, except where the failure to receive such consents, etc. would not
(i) have a Material Adverse Effect on the Company or Parent, or (ii)
materially delay or prevent the consummation of the Merger;
(d) Opinion of Counsel. Parent shall have received a written opinion from
Ropes & Gray, in form and substance reasonably satisfactory to Parent, to
the effect that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code;
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(e) Opinion of Accountant. Parent shall have received an opinion (the
fees and expenses of which shall be borne by Parent) of KPMG Peat Marwick
LLP, independent certified public accountants, to the effect that the
Merger qualifies for pooling of interests accounting treatment if
consummated in accordance with this Agreement;
(f) Affiliate Agreements. Parent shall have received from each person who
is identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect.
(g) Stockholders Agreement. The Stockholders Agreement shall be in full
force and effective at and as of the Effective Time; and
(h) Employment Agreements. Each of Russell D. Schneider, Ruben A. Perez,
Daniel A. Perez and David Perez shall have executed and delivered to the
Company and Parent an Employment Agreement in the form of Exhibit A
providing for such salaries and severance benefits and specifying the
number of Parent Shares that will be owned by each such person, as are
specified for such person in Schedule 6.2(h), and each of William H. Rice
and Victor R. Miranda shall have executed and delivered to the Company and
Parent an Employment Agreement in the form of Exhibit B providing for such
salaries and severance benefits and specify the number of Parent Shares
that will be subject to options held by such person as are specified for
such person in Schedule 6.2(h), and all such Employment Agreements shall be
in full force and effect.
Section 6.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the
following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct
in all respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall have been
true and correct as of such date, subject to clause (iii)), and (iii) where
the failure to be true and correct would not have a Material Adverse
Effect, with the same force and effect as if made on and as of the
Effective Time, and the Company shall have received a certificate to such
effect signed by the President and the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by the President and the Chief Financial
Officer of Parent;
(c) Consents Obtained. All consents, waivers, approvals, permits,
licenses, authorizations or orders required to be obtained, and all filings
required to be made, by Parent and Merger Sub for the authorization,
execution and delivery of this Agreement and the consummation by them of
the transactions contemplated hereby shall have been obtained and made by
Parent and Merger Sub, except where the failure to receive such consents,
etc. would not have a Material Adverse Effect on the Company or Parent;
(d) Tax Opinions. The Company shall have received a written opinion of
KPMG Peat Marwick LLP, in form and substance reasonably satisfactory to the
Company, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code;
(e) Opinion of Accountant. The Company shall have received a copy of the
opinions referred to in Section 6.2(e) above;
(f) NYSE. The Parent Shares to be issued in the Merger shall have been
approved, upon official notice of issuance, for listing on the NYSE;
(g) Affiliate Agreements. Parent shall have received from each person who
is identified in the Affiliate Letter as an "affiliate" of Parent, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect; and
(h) Parent Board Seat. Parent shall have taken all actions necessary to
nominate and elect Russell D. Schneider as a member of its Board of
Directors.
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ARTICLE VII
Termination
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, notwithstanding approval thereof by the stockholders of
the Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by March 31, 1997 (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall
have issued a nonappealable final order, decree or ruling or taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger (provided that the right to terminate this
Agreement under this Section 7.1(c) shall not be available to any party who
has not complied with any obligation under this Agreement and such
noncompliance materially contributed to the issuance of any such order,
decree or ruling or the taking of such action); or
(d) by Parent, if the requisite vote of the stockholders of the Company
shall not have been obtained by March 31, 1997; or
(e) by Parent or the Company, if: (i) the Board of Directors of the
Company shall withdraw, modify or change its approval or recommendation of
this Agreement or the Merger in a manner adverse to Parent or shall have
resolved to do so in accordance with Section 5.3 hereof; (ii) after the
receipt by the Company of an Acquisition Proposal, Parent requests in
writing that the Board of Directors of the Company reconfirm its
recommendation of this Agreement and the Merger and the Board of Directors
of the Company fails to do so within 10 business days; (iii) the Board of
Directors of the Company shall have recommended to the stockholders of the
Company an Alternative Transaction (as defined below); or (iv) a tender
offer or exchange offer for 25% or more of the outstanding shares of
Company Common Stock is commenced (other than by Parent or an affiliate of
Parent) and the Board of Directors of the Company recommends that the
stockholders of the Company tender their shares in such tender or exchange
offer; provided, that, the Company shall not be entitled to exercise any
termination rights under this Section 7.1(e) unless (x) any action of the
Board of Directors of the Company referred to in either such clause is
required to be taken by the Board of Directors in order to properly
discharge its fiduciary duties and (y) the Company has complied with its
obligations in Section 4.2; or
(f) by Parent or the Company, (i) if any representation or warranty of
the Company or Parent, respectively, set forth in this Agreement shall be
untrue when made, or (ii) upon a breach of any covenant or agreement on the
part of the Company or Parent, respectively, set forth in this Agreement
and, in the case of any such breach that is curable, if such breach shall
not have been cured within 10 days after the nonbreaching party gives the
breaching written notice of such breach, in each case such that the
conditions set forth in Section 6.2(a) or 6.2(b), or Section 6.3(a) or
6.3(b), as the case may be, would not be satisfied (either (i) or (ii)
above being a "Terminating Breach"), provided, that, if such Terminating
Breach is curable prior to March 31, 1997 by the Company or Parent, as the
case may be, through the exercise of its reasonable best efforts and for so
long as the Company or Parent, as the case may be, continues to exercise
such reasonable best efforts, neither Parent nor the Company, respectively,
may terminate this Agreement under this Section 7.1(f); or
(g) by Parent, if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 6.2(a)
would not be satisfied, or by the Company, if any representation or
warranty of Parent shall have become untrue such that the condition set
forth in Section 6.3(a) would not be satisfied, in either case other than
by reason of a Terminating Breach.
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As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "Third Party") acquires or would acquire more than 25% of the
outstanding Shares, whether from the Company or pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving the Company pursuant to which any Third Party acquires more than 25%
of the outstanding equity securities of the Company or the entity surviving
such merger or business combination, or (iii) any other transaction pursuant
to which any Third Party acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of subsidiaries
of the Company, and the entity surviving any merger or business combination
including any of them) of the Company or any of its subsidiaries having a fair
market value (as determined by the Board of Directors of the Company in good
faith) equal to more than 25% of the fair market value of all the assets of
the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 and Section 8.1 hereof, and (ii) nothing herein shall relieve any
party from liability for any breach hereof.
Section 7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated.
(b) The Company shall pay Parent a fee of $4,500,000 (the "Company Fee"),
plus actual, documented and reasonable out-of-pocket expenses of Parent (not
to exceed $500,000 in the aggregate) relating to the transactions contemplated
by this Agreement (including, but not limited to, fees and expenses of
Parent's counsel, accountants and financial advisers), upon the first to occur
of the following events:
(i) the termination of this Agreement by Parent pursuant to Section
7.1(d) if a proposal for an Alternative Transaction shall have been made
prior to the Stockholders Meeting; or
(ii) the termination of this Agreement by Parent or the Company pursuant
to Section 7.1(e); or
(iii) the termination of this Agreement by Parent pursuant to Section
7.1(f) on account of a Terminating Breach by the Company.
(c) Parent shall pay the Company a fee of $4,500,000 (the "Parent Fee"),
plus actual, documented and reasonable out-of-pocket expenses of the Company
(not to exceed $500,000 in the aggregate) relating to the transactions
contemplated by this Agreement (including, but not limited to, fees and
expenses of the Company's counsel, accountants and financial advisers) if the
Company terminates this Agreement pursuant to Section 7.1(f) on account of a
Terminating Breach by Parent.
(d) The Company Fee and related expenses payable pursuant to Section 7.3(b)
and the Parent Fee and related expenses payable pursuant to Section 7.3(c), as
the case may be, shall be paid within one business day after the first to
occur of any of the events described in Sections 7.3(b)(i), (ii) or (iii) or
7.3(c); provided, that, in no event shall the Company or Parent be required to
pay such Fee and expenses to the other if, immediately prior to the
termination of this Agreement, the party that was otherwise entitled to such
Fee was in material breach of its obligations under this Agreement.
ARTICLE VIII
General Provisions
Section 8.1 Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc.
(a) Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on
28
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behalf of any other party hereto, any person controlling any such party or any
of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this
Agreement shall terminate at the Effective Time or upon the termination of
this Agreement pursuant to Section 7.1, as the case may be, except that the
agreements set forth in Article I and Section 5.7 shall survive the Effective
Time indefinitely and those set forth in Section 7.3 shall survive such
termination indefinitely. The Confidentiality Letter shall survive termination
of this Agreement as provided therein.
(b) Any disclosure made with reference to one or more sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed only with respect to such section.
Section 8.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when delivered personally or by overnight courier to the
parties at the following addresses or sent by electronic transmission, with
confirmation received, to the telecopy numbers specified below (or at such
other address or telecopy number for a party as shall be specified by like
notice):
(a) If to Parent or Merger Sub:
American Medical Response, Inc.
2821 S. Parker Road, 10th Floor
Aurora, Colorado 80014
Telecopier No.: (303) 614-8549
Telephone No.: (303) 614-8500
Attention: General Counsel
With a copy to:
Ann L. Milner, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7000
(b) If to the Company:
12450 Greenspoint Drive, Suite 1200
Houston, Texas 77060
Attention: President
Telecopier No.: (713) 876-2999
Telephone No.: (713) 872-6900
Attention: Chairman
With a copy to:
Carmelo M. Gordian, Esq.
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, TX 78701
Telecopier No.: (512) 477-5813
Telephone No.: (512) 477-5495
Section 8.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without
29
<PAGE>
limitation, any partnership or joint venture in which the first mentioned
person (either alone, or through or together with any other subsidiary)
has, directly or indirectly, an interest of 10% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 of the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates
orassociates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding, or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares;
(c) "business day" means any day other than a day on which banks in the
State of Colorado and the State of Texas are required or authorized to be
closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(e) "generally accepted accounting principles" shall mean United States
generally accepted accounting principles.
(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal
entity of which the Company, the Surviving Corporation, Parent or such
other person, as the case may be (either alone or through or together with
any other subsidiary), owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are generally entitled
to vote for the election of the board of directors or other governing body
of such corporation or other legal entity.
Section 8.4 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 8.5 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
Section 8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good
30
<PAGE>
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 8.8 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letters), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
Section 8.9 Assignment; Guarantee of Merger Sub Obligations. This Agreement
shall not be assigned by operation of law or otherwise, except that Parent and
Merger Sub may assign all or any of their rights hereunder to any affiliate
thereof provided that no such assignment shall relieve the assigning party of
its obligations hereunder. Parent guarantees the full and punctual performance
by Merger Sub of all the obligations hereunder of Merger Sub or any such
assignees.
Section 8.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, including, without limitation, by way of
subrogation, other than Section 5.6 (which is intended to be for the benefit
of the Indemnified Parties and may be enforced by such Indemnified Parties).
Section 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available; provided, however, that if
this Agreement shall be terminated in accordance with Sections 7.1(d), (e) or
(f) by Parent, then the Company Fee and related expenses provided for in
Section 7.3 shall be deemed liquidated damages to Parent for the loss of its
bargain hereunder, and shall be Parent's sole and exclusive remedy in the
event of termination of this Agreement by the Parent pursuant to Sections
7.1(d), (e) or (f); and provided further, that if this Agreement is terminated
in accordance with Section 7.1(f) by the Company, then the Parent Fee and
related expenses provided for in Section 7.3 shall be deemed liquidated
damages to the Company for the loss of its bargain hereunder, and shall be the
Company's sole and exclusive remedy in the event of termination of this
Agreement by the Company pursuant to Section 7.1(f).
Section 8.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware.
Section 8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
[This space intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
AMERICAN MEDICAL RESPONSE, INC.
/s/ Paul T. Shirley
By: _________________________________
Name: Paul T. Shirley
Title: President
SHI ACQUISITION CORP.
/s/ Paul T. Shirley
By: _________________________________
Name: Paul T. Shirley
Title: President
STAT HEALTHCARE, INC.
/s/ Russell D. Schneider
By: _________________________________
Name: Russell D. Schneider
Title: Chief Executive Officer
32
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ANNEX B
[LETTERHEAD OF PACIFIC GROWTH EQUITIES, INC.]
October 7, 1996
Board of Directors
STAT Healthcare, Inc.
12450 Greenspoint Drive, Suite 1200
Houston, Texas 77060
Ladies and Gentlemen:
STAT Healthcare, Inc. (the "Company") proposes to enter into an Agreement
and Plan of Merger (the "Agreement") with American Medical Response, Inc.
("AMR") and SHI Acquisition Corp., a wholly-owned subsidiary of AMR ("Merger
Sub"). Pursuant to the Agreement, at the Effective Time (as defined in the
Agreement), Merger Sub will be merged with and into the Company (the "Merger")
and each outstanding share of common stock, par value of $0.01 per share, of
the Company ("Company Common Stock") (other than shares held by the Company,
AMR or any of their respective subsidiaries) will be converted into the right
to receive 0.25 shares of common stock, par value of $0.01 per share, of AMR
("AMR Common Stock") (the "Exchange Ratio"). We understand that the Merger
will qualify as a tax-free reorganization under the Internal Revenue Code of
1986, as amended, and that, for accounting purposes, the Merger will be
accounted for as a pooling of interests in accordance with generally accepting
accounting principles as described in Accounting Principles Board Opinion
Number 16.
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio to the holders of Company Common Stock.
Pacific Growth Equities, Inc. ("PGE"), as part of its investment banking
business, is engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, and private placements.
In conducting our investigation and analysis and in arriving at our opinion,
we have reviewed such information and taken into account such financial and
economic factors as we have deemed relevant under the circumstances. In that
connection, we have, among other things: (i) reviewed forecasts concerning the
business and operations of AMR furnished to us by or on behalf of AMR for
purposes of our analysis, as well as publicly available information including
but not limited to Annual Reports on Form 10-K, Quarterly Reports on Form 10-
Q, proxy and information statements and other information filed with the
Securities and Exchange Commission (the "SEC") by AMR and equity analyst
research reports prepared by various investment banking firms; (ii) reviewed
forecasts concerning the business and operations of the Company furnished to
us by or on behalf of the Company for purposes of our analysis, as well as
publicly available information, including but not limited to Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, proxy and information statements
and other information filed with the SEC by the Company and equity analyst
research reports prepared by various investment banking firms; (iii) reviewed
the draft of the Agreement in the form presented to the Company's Board of
Directors on the date hereof; (iv) compared the historical market prices and
trading activity of the Company Common Stock and the AMR Common Stock with
those of certain other publicly traded companies we deemed relevant; (v)
compared the financial position and operating results of the Company and AMR
with those of other publicly traded companies we deemed relevant; and (vi)
reviewed, to the extent publicly available, the financial terms of certain
other business combinations we deemed relevant. We have held discussions with
certain members of the Company's and AMR's senior management concerning the
Company's and AMR's respective historical and current financial condition and
operating results, as well as the future prospects of the
B-1
<PAGE>
Company and AMR, respectively. We have also considered such other information,
financial studies, analysis and investigations and financial, economic and
market criteria which we deemed relevant for the preparation of this opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to us by
or on behalf of the Company and AMR, or publicly available, and have not
attempted independently to verify any such information. We have also assumed,
with your consent that (i) the Merger will be accounted for as a pooling of
interests and will be treated as a tax free reorganization for federal income
tax purposes; (ii) all material assets and liabilities (contingent or
otherwise, known or unknown) of the Company and AMR are as set forth in the
consolidated financial statements of the Company (including the consolidated
financial statements of the Company's affiliated physician group, South Texas
Acute Trauma Physicians, P.A.) and AMR, respectively; and (iii) the Merger
will be consummated in accordance with the terms of the Agreement, without any
amendment thereto and without waiver by the Company or AMR of any of the
conditions to their respective obligations thereunder. We have assumed that
the financial forecasts examined by us were reasonably prepared on bases
reflecting the best available estimates and good faith judgments of the senior
managements of the Company and AMR, respectively, as to future performance of
their respective companies. PGE relied upon assurances of management of STAT
and AMR that such management was unaware of any fact that would make their
respective information and forecasts provided to PGE incomplete or misleading.
In conducting our review, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to us by
or on behalf of the Company and AMR, and have not made nor obtained (or
assumed any responsibility for making or obtaining) an independent evaluation
or appraisal of any of the assets or liabilities (contingent or otherwise) of
the Company or AMR, nor have we made a physical inspection of the properties
or facilities of the Company or AMR.
Our opinion necessarily is based upon economic, monetary and market
conditions as they exist and can be evaluated on the date hereof, and does not
predict or take into account any changes which may occur, or information which
may become available, after the date hereof. It should be understood that
subsequent developments may affect this opinion and that we do not have any
obligation to update, revise or reaffirm this opinion. This opinion does not
address the relative merits of the Merger and any other potential transactions
or business strategies considered by the Company's Board of Directors, and
does not constitute a recommendation to any shareholder of the Company as to
how any such shareholder should vote with respect to the Merger. This opinion
does not imply any conclusion as to the likely trading range of the AMR Common
Stock following the consummation of the Merger, which may vary depending upon,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities.
PGE will receive a fee for rendering this opinion. In the past, we have
provided certain investment banking services to the Company and have received
customary compensation in connection with these services. In the ordinary
course of our business, we may from time to time trade the securities of the
Company or AMR for our own account or the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view,
to the holders of Company Common Stock.
Our opinion has been prepared solely for the information of the Company's
Board of Directors, and shall not be used for any other purpose or disclosed
to or relied upon by any other party without the prior written consent of PGE;
provided, however, that this letter may be reproduced in full in the Proxy
Statement/Prospectus to be provided to the Company's shareholders in
connection with the Merger.
Very truly yours,
PACIFIC GROWTH EQUITIES, INC.
B-2
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any
such person serving in any such capacity who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor, against expenses actually and reasonably incurred in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent
that the Delaware Court of Chancery or such other court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law
(relating to unlawful payment of dividends and unlawful stock purchase and
redemption) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Registrant's Certificate of Incorporation provides that the Registrant's
Directors shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liabilities is not permitted under the Delaware
General Corporation Law as in effect at the time such liability is determined.
The Certificate of Incorporation further provides that the Registrant shall
indemnify its directors and officers to the full extent permitted by the law
of the State of Delaware.
The Registrant has obtained an insurance policy that insures its directors
and officers against certain liabilities.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed with, or incorporated by reference in,
this Registration Statement:
Exhibits
<TABLE>
<C> <S>
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger by and among the Registrant, SHI
Acquisition Corp. and STAT Healthcare, Inc. ("STAT"), dated as of
October 7, 1996 (the "Merger Agreement") (attached as Annex A to
the Proxy Statement/Prospectus contained in this Registration
Statement). The Exhibits to the Merger Agreement and the
Disclosure Schedules of the Registrant and of STAT are not
included with the Merger Agreement. A list briefly identifying the
contents of such omitted schedules is included herein. The
Registrant agrees to furnish supplementally to the Commission,
upon request, a copy of such Exhibits and Disclosure Schedules.
4.1 Specimen stock certificate representing American Medical Response
Common Stock, which is incorporated by reference to Exhibit 4.1 of
the Registrant's Registration Statement on Form S-3,
as amended, No. 33-67408.
4.2 Indenture dated February 1, 1996 by the Registrant and Bankers
Trust as Agent with respect to the Registrant's 5- 1/4%
Convertible Subordinated Notes, which is incorporated by reference
to Exhibit 4.2 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
5.1 Opinion of Ropes & Gray as to the legality of the securities being
issued.
8.1 Form of Opinion of Ropes & Gray as to certain federal income tax
consequences of the Merger.
8.2 Form of Opinion of KPMG Peat Marwick LLP as to certain federal
income tax consequences of the Merger.
23.1 Consent of Ropes & Gray (included in its opinion filed as Exhibit
5.1).
23.2 Consent of KPMG Peat Marwick LLP with respect to its form of
opinion as to certain federal income tax consequences of the
Merger.
23.3 Consent of KPMG Peat Marwick LLP with respect to the Registrant's
financial statements.
23.4 Consent of KPMG Peat Marwick LLP with respect to STAT's financial
Statements.
23.5 Consent of KPMG Peat Marwick LLP with respect to South Texas Acute
Trauma Physicians, P.A.
23.6 Consent of Long, Chilton, Payte & Hardin, LLP with respect to
AmHealth Corporation.
23.7 Consent of Long, Chilton, Payte & Hardin, LLP with respect to
STAT's financial statements.
23.8 Consent of Pacific Growth Equities.
24.1 Power of Attorney (part of the signature page of this Registration
Statement).
99.1 Consent of Russell D. Schneider.
</TABLE>
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<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(3) That every prospectus (i) that is filed pursuant to the immediately
preceding paragraph, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(4) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when it
became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AURORA, STATE OF
COLORADO.
AMERICAN MEDICAL RESPONSE, INC.
By /s/ Paul T. Shirley
___________________________________
Paul T. Shirley
President and Chief Executive
Officer
Dated: November 4, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY
AUTHORIZES PAUL T. SHIRLEY, DAVID C. COLBY AND WILLIAM GEORGE AND EACH WITH
FULL POWER OF SUBSTITUTION, TO EXECUTE IN THE NAME AND ON BEHALF OF SUCH
PERSON ANY AMENDMENT OR ANY POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION
STATEMENT AND TO FILE THE SAME, WITH EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, MAKING SUCH CHANGES IN THIS REGISTRATION STATEMENT AS
THE REGISTRANT DEEMS APPROPRIATE, AND APPOINTS EACH OF PAUL T. SHIRLEY, DAVID
C. COLBY AND WILLIAM GEORGE, EACH WITH FULL POWER OF SUBSTITUTION, ATTORNEY-
IN-FACT TO SIGN ANY AMENDMENT AND ANY POST-EFFECTIVE AMENDMENT TO THIS
REGISTRATION STATEMENT AND TO FILE THE SAME, WITH EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Paul T. Shirley President, Chief Executive November 4, 1996
____________________________________ Officer (principal
Paul T. Shirley executive officer) and
Director
/s/ David C. Colby Executive Vice President, November 4, 1996
____________________________________ Chief Financial Officer and
David C. Colby Director (principal
financial and accounting
officer)
/s/ Paul M. Verrochi Chairman of the Board and November 4, 1996
____________________________________ Director
Paul M. Verrochi
/s/ Charles D. Baker Director November 4, 1996
____________________________________
Charles D. Baker
____________________________________ Director
Michael A. Baker
/s/ David B. Hammond Director November 4, 1996
____________________________________
David B. Hammond
/s/ James E. McGrath Director November 4, 1996
____________________________________
James E. McGrath
____________________________________ Director
Joseph R. Paolella
/s/ Dominic J. Puopolo Director November 4, 1996
____________________________________
Dominic J. Puopolo
/s/ John Larkin Thompson Director November 1, 1996
____________________________________
John Larkin Thompson
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
2.1 Agreement and Plan of Merger by and among the
Registrant, SHI Acquisition Corp. and STAT Healthcare,
Inc. ("STAT"), dated as of October 7, 1996 (the "Merger
Agreement") (attached as Annex A to the Proxy
Statement/Prospectus contained in this Registration
Statement). The Exhibits to the Merger Agreement and
the Disclosure Schedules of the Registrant and of STAT
are not included with the Merger Agreement. A list
briefly identifying the contents of such omitted
schedules is included herein. The Registrant agrees to
furnish supplementally to the Commission, upon request,
a copy of such Exhibits and Disclosure Schedules.......
4.1 Specimen stock certificate representing American
Medical Response Common Stock, which is incorporated by
reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-3, as amended, No. 33-
67408..................................................
4.2 Indenture dated February 1, 1996 by the Registrant and
Bankers Trust as Agent with respect to the Registrant's
5- 1/4% Convertible Subordinated Notes, which is
incorporated by reference to Exhibit 4.2 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995................................
5.1 Opinion of Ropes & Gray as to the legality of the
securities being issued................................
8.1 Form of Opinion of Ropes & Gray as to certain federal
income tax consequences of the Merger..................
8.2 Form of Opinion of KPMG Peat Marwick LLP as to certain
federal income tax consequences of the Merger..........
23.1 Consent of Ropes & Gray (included in its opinion filed
as Exhibit 5.1)........................................
23.2 Consent of KPMG Peat Marwick LLP with respect to its
form of opinion as to certain federal income tax
consequences of the Merger.............................
23.3 Consent of KPMG Peat Marwick LLP with respect to the
Registrant's financial statements......................
23.4 Consent of KPMG Peat Marwick LLP with respect to STAT's
financial Statements...................................
23.5 Consent of KPMG Peat Marwick LLP with respect to South
Texas Acute Trauma Physicians, P.A. ...................
23.6 Consent of Long, Chilton, Payte & Hardin, LLP with
respect to AmHealth Corporation........................
23.7 Consent of Long, Chilton, Payte & Hardin, LLP with
respect to STAT's financial statements.................
23.8 Consent of Pacific Growth Equities ....................
Power of Attorney (part of the signature page of this
24.1 Registration Statement)................................
99.1 Consent of Russell D. Schneider........................
</TABLE>
<PAGE>
EXHIBIT 2.1
LIST OF OMITTED SCHEDULES AND EXHIBITS
AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
SCHEDULES
---------
<C> <S>
1.5 Officers of the Surviving Corporation
6.2(h) Salary and Severance under Employment Agreements and Shares and
Options subject to
Employment Agreements
<CAPTION>
EXHIBITS
--------
<C> <S>
5.6 Form of Affiliate Agreement
A Form of Employment Agreement
B Form of Employment Agreement
PARENT DISCLOSURE STATEMENT
<CAPTION>
SCHEDULES
---------
<C> <S>
3.1 Subsidiaries
3.3 Capitalization
3.5(a) Loan Agreements/Contracts
3.5(b) Breach of Contract
3.5(c) Breach/Default
3.6 Compliance; Permits
3.8 Absence of Certain Changes or Events
3.11 Undisclosed Liabilities
3.12 Litigation
COMPANY DISCLOSURE SCHEDULE
<CAPTION>
SCHEDULES
---------
<C> <S>
1.6(c) Other Stock Options
2.1 Subsidiaries
2.3 Capitalization
2.5(a) Agreements
2.5(b) Defaults
2.5(c) Conflicts
2.5(d) Required Consents
2.6(a) Compliance; Permits
2.7 SEC Filings; Financial Statements
2.8 Changes or Events
2.9 Undisclosed Liabilities
2.10 Material Litigation
2.11(a) Employee Plans
2.11(b) ERISA Matters
2.11(c) Outstanding Options
2.11(d) Employment Agreements
2.12 Labor Claims and Union Activities
2.14 Restrictions on Business Activities
2.15 Liens on and Encumbrances to Property
2.16(a) Taxes
2.16(b) Taxes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
2.17 Environmental Matters
2.18(b) Intellectual Property
2.19 Interested Party Transactions
2.20 Insurance
2.26 Change in Control Payments
4.1(e) Proposed Acquisitions
</TABLE>
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ROPES & GRAY]
November 6, 1996
American Medical Response, Inc.
2821 South Parker Road, 10th Floor
Aurora, Colorado 80014
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration statement
on Form S-4 (the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 3,975,003 shares of Common Stock, $.01 par
value per share (the "Shares"), of American Medical Response, Inc., a Delaware
corporation (the "Company"). The Shares are to be issued in exchange for
shares of common stock, $.01 par value per share, of STAT Healthcare, Inc.
("STAT") pursuant to an Agreement and Plan of Merger dated as of October 7,
1996, as amended (the "Merger Agreement") among the Company, STAT and SHI
Acquisition Corp. ("Sub"), a Delaware corporation and a wholly-owned
subsidiary of the Company, which provides for the merger of Sub with and into
STAT (the "Merger").
We have acted as counsel for the Company in connection with the issuance of
the Shares in connection with the Merger. For purposes of our opinion, we have
examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
We express no opinion as to the applicability of, compliance with or effect
of federal law or the law of any jurisdiction other than The Commonwealth of
Massachusetts and the General Corporation Law of the State of Delaware.
Based upon the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued in accordance with the Merger Agreement, will
be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion, and our form of opinion
attached as Exhibit 8.1 to the Registration Statement, as part of the
Registration Statement and to the use of our name in the Registration
Statement and in the related joint proxy statement/prospectus under the
captions "SUMMARY--Certain Federal Income Tax Consequences," "THE MERGER--
Certain Federal Income Tax Consequences," and "VALIDITY OF THE SHARES AND TAX
MATTERS." By giving such consent we do not thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "expert" as used in, or that we come within the category of persons
whose consent is required under, the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
This opinion is to be used only in connection with the issuance of the
Shares while the Registration Statement is in effect.
Very truly yours,
ROPES & GRAY
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF ROPES AND GRAY]
, 1996
American Medical Response, Inc.
2821 South Parker Road
Aurora, Colorado 80014
Ladies and Gentlemen:
We have acted as legal counsel to American Medical Response, Inc., a
Delaware corporation ("AMR") and SHI Acquisition Corp., a Delaware corporation
("Merger Sub"), in connection with the planned merger (the "Merger") of Merger
Sub with and into STAT Healthcare, Inc., a Delaware corporation ("STAT"),
pursuant to an Agreement and Plan of Merger dated October 7, 1996 among AMR,
Merger Sub and STAT (the "Merger Agreement"). In the Merger, Merger Sub will
merge with and into STAT, and STAT will become a wholly-owned subsidiary of
AMR. Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the meanings set forth in the Merger Agreement.
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement and the Registration Statement on Form S-4 filed
by AMR with the Securities and Exchange Commission on November , 1996 (the
"Registration Statement"), (ii) the tax representation letters, dated as of
the date hereof, delivered to us by AMR, Merger Sub and STAT in connection
with this opinion and attached as exhibits hereto, (iii) the continuity of
interest certificates dated , 1996 delivered by the stockholders of STAT
holding five percent (5%) or more of the outstanding STAT stock in connection
with this opinion and attached as exhibits hereto, and (iv) such other
documents, records and instruments as we have deemed necessary or appropriate
as a basis for our opinion.
We have assumed without investigation or verification that all statements
contained in the foregoing documents (including without limitation all
representations and warranties contained in the Merger Agreement) are true,
correct, and complete as of the date hereof, that no actions inconsistent with
such statements have occurred or will occur, and that all such statements made
"to the best of the knowledge of" any persons or parties are true, correct and
complete as if made without such qualification. We have also assumed that the
Merger will be consummated in accordance with the Merger Agreement (including
satisfaction of all covenants and conditions to the obligations of the parties
without amendment or waiver thereof), that the Merger will be effective as a
merger under the applicable laws of Delaware, and that each of AMR, STAT and
Merger Sub will comply with all reporting obligations with respect to the
Merger required under the Code and the Treasury regulations promulgated
thereunder.
Our opinion is based on current federal income tax law and Internal Revenue
Service practice, which are subject to change with retroactive effect.
Based upon and subject to the foregoing as well as the limitations set forth
below, it is our opinion that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368 of the
Code, and that no gain or loss will be recognized by American, Merger Sub, or
STAT as a result of the Merger.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations and assumptions, or any change after the date hereof in
applicable federal income tax law or Internal Revenue Service practice could
adversely affect our opinion. No ruling has been sought from the Internal
Revenue Service by AMR, STAT or Merger Sub as to the federal income tax
consequences of any aspect of the Merger, and the Internal Revenue Service is
not bound by our opinion herein.
<PAGE>
No opinion is expressed as to any matter not specifically addressed above,
including the tax consequences of the Merger under any foreign, state, or
local tax law, or the tax consequences of any other transactions contemplated
or previously entered into by AMR, STAT or Merger Sub. We do not undertake to
advise you as to any changes in federal income tax law or Internal Revenue
Service practice after the date hereof that may affect our opinion.
This opinion has been delivered to you as contemplated by Section 6.2(d) of
the Merger Agreement and is intended solely for your benefit. It is not to be
used for any other purpose without our express written permission.
Very truly yours,
Ropes & Gray
<PAGE>
EXHIBIT 8.2
December __, 1996
STAT Healthcare, Inc.
12450 Greenspoint Drive, Suite 1200
Houston, Texas 77060
RE: MERGER OF SHI ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY OF AMERICAN MEDICAL RESPONSE, INC.,
WITH AND INTO STAT HEALTHCARE, INC.
Dear Sirs:
You have requested the opinion of KPMG Peat Marwick LLP ("KPMG") as to certain
federal income tax consequences of the merger (the "Merger") of SHI Acquisition
Corp., a Delaware corporation ("Transitory Sub"), with and into STAT Healthcare,
Inc., a Delaware corporation ("STAT"), pursuant to the Agreement and Plan of
Merger dated as of October 7, 1996 (the "Merger Agreement") among STAT, American
Medical Response, Inc., a Delaware corporation ("AMR"), and Transitory Sub. Our
opinion is based on the representations and warranties set forth in the Merger
Agreement and the representations and warranties set forth in the respective
Stockholder Agreements dated as of October 7, 1996 between American and certain
stockholders of STAT.
With respect to the pertinent facts and circumstances regarding the proposed
transaction our opinion is based solely upon information provided to us in the
Agreements and information and representations provided to us as set forth in
the sections of this letter entitled "FACTS," "PROPOSED TRANSACTION" and
"REPRESENTATIONS."
You have advised us that the information contained herein and in the Agreements
and Proxy Statement/Prospectus of STAT related to the Merger provides an
accurate and complete description of the facts and circumstances concerning the
proposed transaction, and you are aware that KPMG has made no independent
inquiry into them. Any variance or omission in the facts, circumstances,
assumptions, or representations set forth below may adversely affect the views
stated herein. We have reviewed no other legal documents which are necessary to
effectuate the transaction. We assume that all steps will be properly
effectuated under the applicable state and federal law and will be consistent
with the information submitted to us.
<PAGE>
Page 2
STAT Healthcare, Inc.
December__,1996
Further, in rendering our opinion, we are relying upon the Internal Revenue Code
of 1986 and Treasury Department regulations thereunder, both as amended and in
effect on the date hereof, and Revenue Rulings, Revenue Procedures and reported
judicial decisions as they existed on the date of this opinion letter. Each of
the foregoing is subject to change or modification by subsequent legislation, or
regulatory, administrative or judicial decisions. Any such change could also
have an effect on the validity of the conclusions set forth herein retroactively
or prospectively. Further, the opinion which is rendered should be considered
together with various risks set forth in the "CAVEAT" section of this letter.
Unless requested otherwise, we undertake no responsibility to update our opinion
in the event of any subsequent change in the foregoing.
Our opinion is limited solely to the federal income tax consequences of the
transaction to STAT Healthcare, Inc. American Medical Response, Inc., its
transitory subsidiary, and the shareholders of STAT Healthcare, Inc. as set
forth in the "OPINION" section of this letter and more specifically to the
particular parties described in each separate paragraph therein. No opinion is
rendered, expressed or implied with respect to the tax consequences of the
proposed transaction to any other party. Furthermore, no opinion is expressed
with respect to issues not specifically discussed herein or any other federal,
state or local tax or the legal aspects of the proposed transaction.
FACTS
-----
STAT Healthcare, Inc. ("STAT") is a Delaware corporation engaged in business as
a holding company. STAT's subsidiaries are engaged in the businesses of (1)
offering physician practice management services to affiliated physician groups
which staff hospital emergency rooms and (2) providing a continuum of disease
management services primarily to patients with end-stage renal disease (chronic
kidney failure). The authorized capital of STAT consists of 40,000,000 shares
of $.01 par value common stock and 5,000,000 shares of $.01 par value preferred
stock./1/ As of September 30, 1996, it had 14,975,412 shares of common stock
issued and outstanding. Its common shares are traded on the NASDAQ National
Market System. In addition, STAT has outstanding options to purchase 354,500/2/
__________________________________
/1/ In September 1994, STAT sold 74,000 shares of Series A convertible preferred
stock (Preferred Stock) to STAT Physicians for $370,000. The Preferred Stock
was converted into common stock at a rate of 20 shares of common stock for each
share of Preferred Stock (1,480,000 common shares) upon the completion of STAT's
initial public offering of common stock in 1995.
/2/ 304,500 Incentive Stock Options and 50,000 Non-Statutory Stock Options.
<PAGE>
Page 3
STAT Healthcare, Inc.
December__,1996
shares of its stock ("Options") and warrants to purchase 786,226 shares of its
stock ("Warrants"). No shares of preferred stock have ever been outstanding
other than as described in footnote 1.
AMR is a Delaware corporation engaged in the business of providing emergency and
non-emergency ambulance services. As of September 30, 1996, the authorized
stock of AMR consisted of 75,000,000 shares of voting common stock, $.01 par
value per share ("AMR Common Stock") of which 21,029,705 were issued and
outstanding and 500,000 shares of $.01 par value preferred stock, none of which
was issued and outstanding. The stock of AMR is publicly traded.
Transitory Sub is a wholly-owned Delaware subsidiary of AMR created to
accomplish the proposed transaction described below.
STAT and AMR believe that a combination of their respective businesses will
enable both companies to diversify, grow and to operate more efficiently.
Specifically, the complementary nature of the businesses of AMR and STAT creates
the expectation that AMR and STAT could obtain synergistic benefits from a
combination.
PROPOSED TRANSACTION
--------------------
In order to accomplish the aforementioned goals, the following transaction is
proposed:
(1) AMR has established Transitory Sub as a wholly-owned subsidiary.
(2) Pursuant to the Merger Agreement, Transitory Sub will merge with and
into STAT ("the Merger") and STAT shall survive. As a result, the STAT
shareholders will receive solely shares of AMR Common Stock in exchange
for their STAT common shares (other than cash paid in lieu of
fractional shares).
As a result of the Merger, each share of STAT common stock issued and
outstanding at the time thereof shall be converted into the right to receive .25
of a share of AMR Common Stock. No fractional shares of AMR Common Stock will
be issued to STAT shareholders in the proposed transaction. Cash in lieu of
such fractional shares will be paid to the STAT shareholders otherwise entitled
to receive same.
<PAGE>
Page 4
STAT Healthcare, Inc.
December__,1996
Furthermore, each outstanding Option to purchase STAT common stock shall be
assumed by AMR and the holder of such Option shall be entitled to purchase the
number of AMR shares as the holder would have been entitled to receive pursuant
to the Merger had such holder exercised the Option in full immediately prior to
the Merger, at an exercise price determined pursuant to the Merger Agreement.
In addition, the Warrants that are not exercised or redeemed prior to the Merger
shall be deemed to constitute a warrant to acquire the number of AMR shares as
the holder of such Warrant would have been entitled to receive pursuant to the
Merger had the holder exercised the Warrant in full immediately prior to the
Merger, at an exercise price determined pursuant to the Merger Agreement.
REPRESENTATIONS
---------------
The following representations have been made to KPMG with respect to the
proposed transaction described above. It is understood that KPMG is relying on
these representations in rendering its opinions and that KPMG has not verified
any of the representations.
(a) The fair market value of the AMR Common Stock to be received by the
shareholders of STAT will, in each instance, be approximately equal to
the fair market value of the STAT stock surrendered in exchange therefor.
(b) There is no plan or intention on the part of shareholders of STAT to sell
or otherwise dispose of any AMR Common Stock to be received in the proposed
transaction which will reduce STAT's shareholders' holdings to a number of
shares having, in the aggregate, a value of less than 50 percent of the
total value of all the formerly outstanding stock of STAT as of the same
date. For purposes of their representation, all sales, redemptions or
other dispositions of stock, including the receipt of cash in lieu of
fractional shares of AMR Common Stock, occurring prior to or after the
Merger which are part of the plan of reorganization will be considered in
determining if there will be a 50 percent continuing interest through
ownership in AMR Common Stock.
(c) AMR does not presently own, directly or indirectly, nor has it owned within
the preceding 5 years, directly or indirectly, any of the stock of STAT.
<PAGE>
Page 5
STAT Healthcare, Inc.
December__,1996
(d) There is no indebtedness between STAT and AMR or STAT and Transitory Sub
and there will be no indebtedness created between or among STAT and AMR as
a result of the proposed transaction.
(e) STAT is not under the jurisdiction of a court in a title 11 or similar case
(within the meaning of Section 368(a)(3)(A))./3/
(f) AMR, STAT, and the shareholders of STAT will each pay their own expenses,
if any, related to the proposed transaction./4/
(g) Following the proposed transaction, STAT will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets. For purposes of this representation,
amounts paid by STAT to dissenters, amounts paid by STAT to shareholders
who receive cash or other property, amounts used by STAT to pay
reorganization expenses, and all redemptions, and distributions (except for
regular, normal dividends) made by STAT will be included as the assets of
STAT immediately prior to the transaction.
(h) Prior to the proposed transaction, AMR will be in control of Transitory Sub
within the meaning of Section 368(c).
(i) STAT has no plan or intention to issue additional shares of its stock that
would result in AMR losing control of STAT within the meaning of Section
368(c).
(j) AMR has no plan or intention to reacquire any of its stock issued in the
transaction, other than in the ordinary course of its business.
(k) AMR has no plan or intention to liquidate STAT; to merge STAT with and into
another corporation; to sell or otherwise dispose of the stock of STAT
except for transfers of stock to corporations controlled by AMR; or to
cause STAT to sell or otherwise dispose of any of its assets or of any of
the assets
_______________________________
/3/ Unless otherwise noted, all references herein to "Section" are to provisions
of the Internal Revenue Code of 1986, as amended.
/4/ Two STAT shareholders have received an advance from AMR for fees payable in
connection with applications filed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
<PAGE>
Page 6
STAT Healthcare, Inc.
December__,1996
acquired from Transitory Sub, except for dispositions made in the ordinary
course of business or transfers of assets to a corporation controlled by
AMR.
(l) Transitory Sub will have no liabilities assumed by STAT, and will not
transfer to STAT any assets subject to liabilities in the transaction.
(m) Following the transaction, STAT will continue its historic business or use
a significant portion of its historic business assets in a business.
(n) In the Merger, shares of stock representing control of STAT, as defined in
Section 368(c), will be exchanged solely for voting stock of AMR. For
purposes of this representation, shares of STAT stock exchanged for cash or
other property originating with AMR will be treated as outstanding STAT
stock on the date of the transaction.
(o) At the time of the transaction, STAT will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in STAT that, if exercised
or converted, would affect AMR's acquisition or retention of control of
STAT, as defined in Section 368(c).
(p) No two parties to the proposed transaction are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv).
(q) On the date of the proposed transaction, the fair market value of the
assets of STAT will exceed the sum of its liabilities assumed, plus the
amount of liabilities, if any, to which the assets are subject.
(r) The issuance of cash in lieu of fractional shares merely represents the
mechanical rounding off of the fractional share interests. This step will
be undertaken solely for the purpose of saving the expense and
inconvenience of issuing and transferring fractional shares, and is not
separately bargained for consideration.
<PAGE>
Page 7
STAT Healthcare, Inc.
December__,1996
(s) The total amount of cash distributed in lieu of fractional shares will
constitute less than one percent in value of the total consideration
distributed in the proposed transaction.
OPINION
-------
Based solely on the Agreements, the above facts, and representations set forth
in items (a) through (s) above, it is the opinion of KPMG that the Federal
income tax consequences of the merger of Transitory Sub with and into STAT are
as follows:
(1) Provided the proposed merger of Transitory Sub with and into STAT qualifies
as a statutory merger under State law, after the transaction STAT will hold
substantially all of its assets and the assets of Transitory Sub (other
than the value of the AMR Common Stock distributed in the transaction), and
in the transaction the shareholders of STAT will exchange an amount of
stock constituting control of STAT (within the meaning of Section 368(c))
solely for AMR voting stock, then the proposed merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A). The
reorganization will not be disqualified by reason of the fact that the
voting stock of AMR is used in the merger (Section 368(a)(2)(E)). For
purposes of this opinion, "substantially all" means at least 90 percent of
the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets of Transitory Sub and STAT. STAT, AMR and
Transitory Sub will each be "a party to a reorganization" within the
meaning of Section 368(b)(1).
(2) No gain or loss will be recognized to the shareholders of STAT upon the
receipt of solely AMR Common Stock in exchange for their shares of STAT
common stock, (including any fractional share interest of AMR Common Stock
to which they may be entitled). Section 354(a)(1).
(3) The basis of the AMR Common Stock received by the shareholders of STAT
(including any fractional share interest to which they may be entitled)
will be the same as the basis of STAT common stock surrendered in exchange
therefor. Section 358(a)(1).
<PAGE>
Page 8
STAT Healthcare, Inc.
December__,1996
(4) The holding period of the AMR Common Stock received by the shareholders of
STAT (including any fractional share interest to which they may be
entitled) will include the period during which the STAT common stock
surrendered therefor was held, provided the stock of STAT is a capital
asset in the hands of the shareholders of STAT on the date of the exchange.
Section 1223(l).
(5) The payment of cash in lieu of fractional share interests in AMR Common
Stock will be treated for Federal income tax purposes as if the fractional
shares were issued as part of the exchange and then were redeemed by AMR
for cash. The cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a). (Rev. Proc. 77-41, 1977-2 C.B. 574).
(6) No gain or loss will be recognized to Transitory Sub on the transfer of its
assets to STAT in exchange for common stock of STAT and the assumption by
STAT of Transitory Sub's liabilities, if any. (Sections 361(a) and
357(a)).
(7) No gain or loss will be recognized to STAT upon the receipt of the assets
of Transitory Sub in exchange for STAT common stock. (Section 1032(a)).
(8) No gain or loss will be recognized to AMR upon the receipt of stock of STAT
solely in exchange for stock of Transitory Sub. (Section 354(a)(1)).
DISCUSSION
----------
Section 368(a)(1)(A) provides that the term "reorganization" includes a
statutory merger or consolidation. Section 1.368-2 of the Income Tax
Regulations provides that for a reorganization to qualify under (S)368(a)(1)(A),
it must be "effected pursuant to the corporation laws of the United States or a
State or territory or the District of Columbia." With regard to a statutory
merger in which a controlled subsidiary of an acquiring corporation merges into
the target corporation, (S)368(a)(2)(E) proves that such a merger will qualify
as a (S)368(a)(1)(A) reorganization if certain requirements are met.
Specifically, (S)368(a)(2)(E) provides as follows:
<PAGE>
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STAT Healthcare, Inc.
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STATUTORY MERGER USING VOTING STOCK OF CORPORATION CONTROLLING MERGED
CORPORATION. -- A transaction otherwise qualifying under paragraph (1)(A)
shall not be disqualified by reason of the fact that stock of a corporation
(referred to in this subparagraph as the "controlling corporation") which
before the merger was in control of the merged corporation is used in the
transaction, if --
(i) after the transaction, the corporation surviving the merger holds
substantially all of its properties and the properties of the merged
corporation (other than stock of the controlling corporation
distributed in the transaction); and
(ii) in the transaction, former shareholders of the surviving
corporation exchanged, for an amount of voting stock of the
controlling corporation, an amount of stock in the surviving
corporation which constitutes control of such corporation.
Accordingly, the merger of a controlled subsidiary into a target corporation in
exchange for stock of its parent will meet the requirements of this provision of
the Code if: (a) after the transaction, the target corporation holds
"substantially all" of its properties and properties of the merged corporation;
(b) the merged corporation is merged into the target corporation pursuant to
state law; and (c) the target shareholders transfer "control" of the target
corporation solely for voting stock of the acquiring corporation.
Statutory Requirements
- ----------------------
With respect to the first requirement of (S)368(a)(2)(E), (S)1.368-2(j)(3)(iii)
of the Income Tax Regulations provides, in part, as follows:
After the transaction, .... the surviving corporation must hold
substantially all of its own properties and substantially all of the
properties of the merged corporation (other than stock of the controlling
corporation distributed in the transaction). .... The "substantially all"
test applies separately to the merged corporation and to the surviving
corporation .......
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STAT Healthcare, Inc.
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For Internal Revenue Service advance ruling purposes, Rev. Proc. 77-37, (S)3.01,
provides that the "substantially all" requirement of (S)368(a)(2)(E) will be
satisfied if:
there is a transfer of assets representing at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the corporation immediately prior to the
transfer. All payments to dissenters and all redemptions and distributions
(except for regular, normal distributions) made by the corporation
immediately preceding the transfer and which are part of the plan of
reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
This rule does not establish a minimum percentage below which the "substantially
all" test will not be met, but merely provides guidelines for advance
rulings./5/ For example, one court has held that 51 percent of a corporation's
assets (consisting of all of its operating assets) was sufficient to meet the
"substantially all" test. See James Armour, Inc., 43 T.C. 295 (1965).
------------------
In the instant case, we assume that the "substantially all" requirement will be
satisfied because STAT will retain all of its assets and the assets of the
merged corporation after the proposed transaction, other than amounts necessary
to pay reorganization expenses./6/ Transitory Sub, will hold only minimum
capital and voting stock of AMR necessary to effectuate the proposed
transaction. Further, it has been represented that STAT will retain sufficient
properties to satisfy the "substantially all" test of Rev. Proc. 77-37, (S)3.01.
The next requirement is that the target's former shareholders must receive in
the transaction voting stock of the merged corporation's parent in exchange for
an amount of the stock of the surviving corporation that constitutes control as
defined in Section 368(c). The amount of stock constituting control is measured
immediately before the transaction. See Regs. (S)1.368-2(j)(3)(i).
________________________________
/5/ Section 2.03 of Rev. Proc. 77-37 states that this operating rule does not
define the lower limits of "substantially all of the properties" as a matter
of law.
/6/ Each party to the reorganization will pay its own expenses in connection
with the transaction.
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STAT Healthcare, Inc.
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In Rev. Rul. 68-637, 1968-1 C.B. 158, an acquiring corporation acquired all of
the assets of a target corporation in exchange for its voting stock in a Section
368(a)(1)(C) reorganization. The target corporation had outstanding options and
warrants to purchase shares of its stock. Pursuant to the plan of
reorganization, the acquiring corporation agreed to substitute its stock for
stock of the target under the terms of the warrants and options issued by the
target. The ruling held that the substitution of the target's obligation to
issue stock was an assumption of a liability of the target and did not violate
the "solely for voting stock" requirement of Section 368(a)(1)(C). In Rev. Rul.
69-142, 1969-1 C.B. 107, an acquiring corporation in a Section 368(a)(1)(B)
reorganization exchanged its own debentures for all of the outstanding
debentures of the target corporation. The ruling held that the exchange of
debentures did not violate the solely for voting stock requirement because the
exchange of stock for stock and the exchange of debentures for debentures were
two separate transactions.
In Rev. Rul. 78-408, 1978-2 C.B. 203, the IRS addressed the tax consequences to
warrant holders of a target corporations being acquired in a tax-free exchange.
Specifically, the holders of warrants in the target corporation exchanged such
warrants for warrants to acquire stock of the acquiring corporation. The IRS
held that the exchange of the acquiring corporation's warrants of the target
corporation did not violate the solely for voting stock requirement of Section
368(a)(1)(B). Accordingly, the assumption by AMR of the Options and the
conversion of the Warrants into a right to purchase AMR stock will not violate
the "solely for voting stock" requirement of Section 368(a)(2)(E) and AMR will
acquire control of STAT solely for voting stock of AMR.
General Requirements
- --------------------
In addition to the above, a corporation participating in a reorganization must,
pursuant to (S)368(b), be a "party to the reorganization." Section 1.368-2(f)
of the Regulations provides an example which states that all three corporations
in a triangular merger are parties to the reorganization. In this case, STAT,
AMR and Transitory Sub will be considered "parties to a reorganization."
Also for a transaction to qualify under (S)368, there must be a plan of
reorganization pursuant to which the steps in the corporation readjustment are
effectuated. A plan of reorganization is expressly required by (S)354, which
grants tax-free treatment to reorganization exchanges only if they are made in
pursuance of a plan. In this regard, Reg. (S)1.368-3(a) provides that:
<PAGE>
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STAT Healthcare, Inc.
December__,1996
The plan of reorganization must be adopted by each of the corporations
parties thereto; and the adoption must be shown by the acts of its duly
constituted responsible officers, and appear upon the official records of
the corporation.
In the instant case, since the Agreements have been executed, the requirement
for a plan of reorganization will be satisfied.
Judicially Created Requirements
- -------------------------------
As noted above, there are three additional tests that a transaction must satisfy
in order to qualify as a reorganization within the meaning of (S)368(a).
These tests have their origin in court decisions and are now set forth in Reg.
(S)1.368-1(b), (c) and (d).
The first requirement is that the reorganization have a valid business purpose
and not a tax avoidance purpose. Section 1.368-1(b) of the Regulations states
that the reorganization provisions permit "certain ... exchanges incident to
such readjustments of corporate structures ..., as are required by business
exigencies ..." to be excepted from the general rule of taxation. Thus, a
transaction will not be accorded reorganization treatment for tax purposes
unless it serves a corporate business purpose. In this instance, unrelated
parties dealing at arm's-length will enter into an agreement to merge that is
intended to benefit all parties. Accordingly, the business purpose requirement
of the Regulations should be met.
The second requirement is that a reorganization must result in a "continuity of
the business enterprise under the modified corporate form." See Reg. (S)1.368-
1(b). On this regard, Reg. (S)1.368-1(d) states that the transferee corporation
must either (i) continue the transferor corporation's "historic business" or
(ii) "use a significant portion of [the transferor's] historic business assets
in a business." It has been represented that STAT will continue to use the
assets of STAT in an ongoing business. Furthermore, it has been represented
that STAT's current business is its historic business. Based upon these
representations, the continuity of business enterprise requirement of the
Regulations should be met.
The third prerequisite set forth in the Regulations is the continuity of
shareholder interest requirement. Specifically, Reg. (S)1.368-1(b) provides
that there must be a continuing
<PAGE>
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STAT Healthcare, Inc.
December__,1996
equity interest on the part of those persons who, directly or indirectly, were
owners of the acquired enterprise prior to the acquisition for the transaction
to qualify as a tax-free reorganization. For purposes of advance rulings, the
Service, in Rev. Proc. 77-37, (S)3.02, has stated that the continuity of
interest requirement will be satisfied if:
there is continuing interest through stock ownership in the acquiring
[corporation] or transferee corporation [or its parent] ..... on the part
of the former shareholders of the acquired or transferor corporation which
is equal in value, as of the effective date of the reorganization, to at
least 50 percent of the value of all of the formerly outstanding stock of
the acquired or transferor corporation as of the same date./6/
It is not necessary that 50 percent of the consideration received by each
shareholder of the acquired corporation consist of stock of the acquiring
corporation or that 50 percent in number of the shareholders of the acquired
corporation receive stock of the acquiring corporation. All that is required is
that at least 50 percent of the value of the entire consideration transferred by
the acquiring corporation to the shareholders of the acquired corporation in the
aggregate consists of stock of the acquiring corporation or its parent. See
Rev. Rul. 66-224, 1966-2 C.B. 114.
Although the Service will not issue an advance ruling that a transaction
qualifies as a reorganization unless the 50 percent test of Rev. Proc. 77-37 is
satisfied, 50 percent is not the lower limit for determining whether the
continuity of interest requirement is met. For instance, the Service has taken
the position in a published ruling, Rev. Rul. 61-156, 1961-2 C.B. 62, that 45
percent qualifying consideration satisfied the continuity requirement. However,
in a published Technical Advice Memorandum (TAM 7905011), the Service held that
a continuing interest in an acquiring corporation by shareholders holding 34
percent of the stock of the acquired corporation did not represent sufficient
continuity of interest to characterize the transaction as a reorganization under
(S)368.
In John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935), the Supreme Court held
-------------------------------
that sufficient continuity of interest existed when assets were transferred for
consideration composed of 38 percent preferred stock and 62 percent cash.
Moreover, in Ralph M. Heintz, 25 T.C. 132 (1955), the Service contended that a
---------------
reorganization existed when the
_____________________________
/7/ This rule is solely to provide guidance for advance ruling purposes. It
does not, as a matter of law, define the lower limits of continuity of
interest. See (S)2.03 of Rev. Proc. 77-37.
<PAGE>
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STAT Healthcare, Inc.
December__,1996
consideration transferred to the acquired corporation's shareholders consisted
of 37-1/2 percent stock and 62-1/2 percent cash.
The continuity of interest requirement as developed by the courts involves two
distinct elements: (a) the qualitative nature of the consideration given by the
transferee (or its parent); and (b) the proportion or amounts thereof that
consist of "continuity-preserving" interests. See Bittker and Eustice, Federal
-------
Income Taxation of Corporations and Shareholders (P)12.21[2][b], p. 12-27 (6th
- ------------------------------------------------
Ed. 1993). With respect to the former, only an equity interest evidenced by
common or preferred stock, whether voting or nonvoting, qualifies. With respect
to the latter, the proportion in question represents the proportion of equity
consideration to aggregate consideration received for the transferred assets.
See Bittker and Eustice, supra, at p. 12-28. In the instant case, the
-----
shareholders of STAT (other than dissenters) will receive solely voting stock of
AMR in exchange for their STAT stock. Accordingly, the first element set forth
above should be met.
With regard to the second element, certain large shareholders of STAT and the
management of STAT have represented that they are aware of no plan or intent to
sell or otherwise dispose of the stock of STAT after the proposed transaction in
an amount that would violate the 50 percent standard of Rev. Proc. 77-37, as set
forth above. Accordingly, the continuity of interest requirement should be met
in the instant case.
Operative Code Sections
- -----------------------
Section 354(a)(1) provides that no gain or loss shall be recognized if stock in
a corporation which is a party to a reorganization is, in pursuance of the plan
of reorganization, exchanged solely for stock in another corporation which is a
party to the reorganization. Therefore, the STAT shareholders should not
recognize gain or loss upon the receipt of the AMR stock in exchange for their
STAT common stock.
Exchanging shareholders in a (S)354 exchange determine their basis for property
acquired in the exchange under (S)358(a) which provides that the basis of stock
received shall be the same as the basis of the stock transferred, decreased by
the fair market value of any boot received, and increased by the amount of any
gain recognized on the exchange. Accordingly, the basis of the AMR Common Stock
received by the STAT shareholders will be equal to the basis of the STAT common
stock surrendered in exchange therefor.
<PAGE>
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STAT Healthcare, Inc.
December__,1996
Section 1223(l) provides that the holding period of property acquired in a
nontaxable exchange can be computed by adding or tacking on the time that the
old asset was held to the time the acquired asset was held if the property
exchanged was a capital asset or a "(S)1231 asset" and the basis of the property
received has the same basis as the property exchanged. Therefore, the holding
period of the AMR Common Stock received by the STAT shareholders will include
the holding period of the STAT common stock.
Section 361 provides that no gain or loss shall be recognized if a corporation,
a party to a reorganization, exchanges property, in pursuance of a plan of
reorganization, solely for stock in another corporation a party to the
reorganization. For the purposes of (S)361, (S)357(a) provides that the
assumption of a transferor corporation's liabilities or the taking of property
subject to liabilities will not constitute money or other property. In the
instant case, Transitory Sub will recognize no gain or loss upon the merger with
STAT.
Section 1032 provides that no gain or loss will be recognized to a corporation
on the receipt of property in exchange for stock of such corporation. Thus,
STAT will recognize no gain or loss on the receipt of the Transitory Sub assets
in exchange for its stock.
Fractional Shares
- -----------------
If fractional shares are not issued in the proposed transaction, and an
adjustment is necessary to eliminate the need therefor, cash received by a STAT
shareholder in lieu of a fractional share interest in AMR common stock will be
treated as having been received in full payment for such fractional share
interest subject to the provisions and limitations of (S)302. Rev. Proc. 77-41,
1977-2 C.B. 574, amplifies Rev. Proc. 77-37, by including a statement that:
A ruling will usually be issued under (S) 302(a) ... that cash to be
distributed to shareholders in lieu of fractional share interests arising
in corporate reorganizations .... will be treated as having been received
in part or full payment in exchange for the stock redeemed if the cash
distribution is undertaken solely for the purpose of saving the corporation
the expense and inconvenience of issuing and transferring fractional
shares, and is not separately bargained-for consideration.
In the instant case, since the conditions of Rev. Proc. 77-41 appear to be met,
the receipt of cash in lieu of fractional shares will be treated under (S)302(a)
resulting in long term
<PAGE>
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STAT Healthcare, Inc.
December__,1996
capital gains, provided the STAT stock exchanged therefor was a capital asset
held for more than 12 months.
CAVEAT
------
No opinions are provided with respect to issues not specifically set forth in
the "OPINION" section of this letter. Our opinion has not been requested and
none is expressed with respect to any foreign, state or local tax consequences
to STAT or the STAT shareholders including, but not limited to, income,
franchise, sales, use, excise or transfer taxes which effect may be significant.
Further, no opinion is rendered, expressed or implied with respect to the tax
consequences to any other party as a result of the proposed transaction
including the holders of the warrants and stock options to acquire STAT stock.
In particular, KPMG expresses no opinion regarding the tax to the holders of the
Options and Warrants, respectively, as a result of the Merger.
This opinion letter sets forth our views based on the completeness and accuracy
of the above stated facts and any assumptions that were included. If any of the
foregoing is not entirely complete or accurate, it is imperative that we be
informed immediately, as the inaccuracy or incompleteness could have a material
effect on our conclusions. In rendering our opinion, we are relying upon the
relevant provisions of the Internal Revenue Code of 1986, as amended, the
regulations thereunder, and judicial and administrative interpretations thereof,
which are subject to change or modification by subsequent legislative,
regulatory, administrative, or judicial decisions. Any such changes could also
have an effect on the validity of our opinion.
<PAGE>
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STAT Healthcare, Inc.
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Our opinion is effective as of the date hereof.
* * * * * * *
Very truly yours,
KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
STAT Healthcare, Inc.:
We consent to the use of the form of our opinion as to certain federal income
tax consequences to the parties participating in the proposed transaction
included as Exhibit 8.2 in the Registration Statement.
KPMG PEAT MARWICK LLP
Houston, Texas
November 1, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Medical Response, Inc.:
We consent to incorporation by reference in the registration statement on
Form S-4 of American Medical Response, Inc. of our reports dated February 9,
1996, relating to the consolidated financial statements of American Medical
Response, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995,
and the related schedule, which reports appear in the December 31, 1995 annual
report on Form 10-K of American Medical Response, Inc., and the references to
our firm under the headings "Conditions to the Merger; Termination; Fees,"
"Anticipated Accounting Treatment," "Certain Income Tax Consequences,"
"Certain Federal Income Tax Consequences," "Additional Agreements," "Validity
of the Shares and Tax Matters," and "Experts" in the prospectus.
KPMG Peat Marwick LLP
Denver, Colorado
November 1, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
STAT Healthcare, Inc.:
We consent to the use of our report included herein on the consolidated
financial statements of STAT Healthcare, Inc. and subsidiaries as of December
31, 1995 and 1994 and for the years then ended. We also consent to the
references to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Houston, Texas
November 1, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
South Texas Acute Trauma Physicians, P.A.:
We consent to the use of our report included herein on the financial
statements of South Texas Acute Trauma Physicians, P.A. as of August 31, 1994
and December 31, 1993, and for the eight months ended August 31, 1994 and the
year ended December 31, 1993. We also consent to the references to our firm
under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Houston, Texas
November 1, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors/Partners
AmHealth Corporation and its
Related Health Care Entities:
We consent to the use of our report included herein on the combined
financial statements of AmHealth Corporation and its related health care
entities as of December 31, 1994 and for the year then ended. We also consent
to the references to our firm under the heading "Experts" in the Prospectus.
Long, Chilton, Payte & Hardin, LLP
Certified Public Accountants
McAllen, Texas
November 1, 1996
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
STAT Healthcare, Inc.:
We consent to the use of our report included herein on the consolidated
financial statements of STAT Healthcare, Inc. and subsidiaries as of December
31, 1993 and for the year then ended. We also consent to the references to our
firm under the heading "Experts" in the Prospectus.
Long, Chilton, Payte & Hardin, LLP
Certified Public Accountants
McAllen, Texas
November 1, 1996
<PAGE>
EXHIBIT 23.8
CONSENT OF PACIFIC GROWTH EQUITIES, INC
We hereby consent to the use of our name and to the description of our
opinion letter dated October 7, 1996, under the captions "SUMMARY--Opinion of
Financial Adviser" and "THE MERGER--Opinion of STAT's Financial Advisor" in,
and to the inclusion of such opinion letter as Annex B to, the Joint Proxy
Statement/Prospectus of STAT Healthcare, Inc. and American Medical Response,
Inc. included as part of the Registration Statement on Form S-4 of American
Medical Response, Inc. By giving such consent we do not thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in, or that we come within the category
of persons whose consent is required under, the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
PACIFIC GROWTH EQUITIES, INC
San Francisco, California
November 5, 1996
<PAGE>
EXHIBIT 99.1
CONSENT OF RUSSELL D. SCHNEIDER
I hereby consent to being named as becoming a director of American Medical
Response, Inc. in its Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission in connection with the merger of SHI
Acquisition Corp. and STAT Healthcare, Inc.
/s/ Russell D. Schneider
---------------------------------
Russell D. Schneider
Dated: November 5, 1996
