<PAGE>
As filed with the Securities and Exchange Commission on March 11, 1998
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDICALCONTROL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
75-2297429
(I.R.S. Employer Identification No.)
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8625 KING GEORGE DR., SUITE 300
DALLAS, TEXAS 75235
(214) 630-6368
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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JOHN WARD HUNT, PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDICALCONTROL, INC.
8625 King George Dr., Suite 300
DALLAS, TEXAS 75235
(214) 630-6368
(Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------
Copies of all communications to:
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STEPHANIE L. MCVAY, ESQ.
MEDICALCONTROL, INC.
8625 KING GEORGE DR. SUITE 300
DALLAS, TEXAS 75235
TELEPHONE: (214) 630-6368
FACSIMILE: (214) 905-5155
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<PAGE>
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interested reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [X]
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
==============================================================================================
Title of Securities Amount to be Proposed Proposed Amount of
to be registered registered(1) maximum offering maximum registration fee
price per share(2) aggregate offering
price(2)
==============================================================================================
<S> <C> <C> <C> <C>
Common Stock, 200,000 shares $5.125 $1,025,000 $303.00
$.01 par value
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</TABLE>
(1) Pursuant to Rule 416, this Registration Statement covers any
additional shares of Common Stock ("shares") which become issuable by reason of
any stock dividend stock split, recapitalization or any other similar
transaction without receipt of consideration which results in an increase in the
number of shares outstanding.
(2) Estimated solely for the purpose of computing the amount of the
registration fee under Rule 457 of the Securities Act of 1933, as amended, based
on the last sales price of the Common Stock of MedicalControl, Inc. as reported
on the Nasdaq National Market within five business days prior to the date of
filing of the Registration Statement.
THE REGISTRATION 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 SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, MARCH 11, 1998
PROSPECTUS
200,000 Shares
OF COMMON STOCK
MEDICALCONTROL, INC.
This Prospectus relates to the public offering by the Seller Stockholder
(as hereinafter defined) of up to 200,000 shares of common stock, $.01 par value
per share (the "Common Stock"), of MedicalControl, Inc., a Delaware corporation
(the "Company"). The 200,000 shares of Common Stock (collectively, the
"Shares"), when sold, will be sold by and for the account of the Selling
Stockholder named herein (the "Seller Stockholder"). See "Selling Stockholder."
The Company will not receive any of the proceeds from the sale of the Shares by
the Selling Stockholder.
The Selling Stockholder directly or through agents, dealers or underwriters
may sell the Shares from time to time on terms to be determined at the time of
sale. To the extent required, the Shares to be sold, purchase price, offering
price, the name of any agent, dealer or underwriter and any applicable
commission or discount with respect to a particular offer or sale will be set
forth in an accompanying prospectus supplement. The aggregate proceeds to the
Selling Stockholder from the sale of the Shares sold by it pursuant to this
Prospectus will be the purchase price of such Shares less any commissions. See
"Plan of Distribution." The Selling Stockholder reserves the sole right to
accept or to reject, in whole or in part, any proposed purchase of its Shares.
All expenses relating to the distribution of the Shares are to be borne by the
Company, other than commissions, concessions and discounts of underwriters,
dealers or agents of the Selling Stockholder.
The Selling Stockholder, and any dealers, agents or underwriters that
participates with the Selling Stockholder in the distribution of the Shares, may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Common Stock is listed on the Nasdaq National Market. On March 6,
1998, the closing sales price of the Common Stock as reported on the Nasdaq
National Market was $5.125 per share.
PURCHASE OF THE SHARES IS SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS."
_____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_____________
THE DATE OF THIS PROSPECTUS IS _____________
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act with respect to the Shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and exhibits thereto, certain items of which are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to such Registration Statement and the exhibits
thereto. Each statement made in this Prospectus concerning a document filed as
an exhibit to the Registration Statement is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; 219 South Dearborn Street, Chicago,
Illinois 60604; 7 World Trade Center, New York, New York 10048; and 5757
Wilshire Boulevard, Los Angeles, California 90036. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company furnishes annual reports to its stockholders which include
audited financial statements. The Company may also furnish quarterly financial
statements to its stockholders and such other reports as may be authorized by
its Board of Directors.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 (including its consolidated balance sheets as of December 31,
1996 and 1995, consolidated statements of operations, stockholders' equity and
cash flows for the years then ended, together with the report of independent
public accountants, contained on pages F-1 through F-15) filed pursuant to
Section 13 (a) of the Exchange Act;
(2) The Company's Report on Form 10-QSB for the fiscal quarter ended
September 30, 1997;
(3) The Company's definitive Proxy Statement for the Annual Meeting of
Stockholders of the Company held May 14, 1997;
(4) The description of the Common Stock that is contained in the Company's
Registration Statement on Form 8-A, as amended, under the Exchange Act (File No.
1-11922) and its Registration Statement on Form SB-2 under the Securities Act
(File No. 33-58334-FW), including any amendments or reports filed for the
purpose of updating such descriptions; and
(5) All other reports and subsequent reports filed pursuant to Section
13(a) or 15(d) of the Exchange Act.
2
<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the respective
dates of filing of such documents, excluding those portions of such documents
not deemed filed. Any statement contained in this Prospectus, in a supplement
to this Prospectus 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 Prospectus to the extent that a statement contained herein, in any
subsequently filed supplement to this Prospectus or in any subsequently filed
document that also is or is 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 Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Written or oral requests for such
copies should be directed to J. Ward Hunt, President, MedicalControl, Inc., 8625
King George Drive, Suite 300, Dallas, Texas 75235, telephone (214) 630-6368.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company desires to take advantage of the "safe harbor" provisions
contained in Section 27A of the Private Securities Litigation Reform Act of 1995
and is including this statement in this Prospectus in order to do so. From
time to time the Company's management may wish to make forward-looking
statements based upon management expectations, to inform more fully existing and
potential shareholders regarding various matters, including without limitation,
projections regarding future income, completion of networks, future growth, as
well as predictions as to the timing and success of specific projects. Such
forward looking statements are generally accompanied by words such as
"believes," "anticipates," "estimate," "predict" or "expect" and similar
expressions that convey the uncertainty of future events or outcomes.
The factors identified in this statement are believed to be important factors
(but not necessarily all of the important factors) that could cause actual
results to differ materially from those expressed in any forward-looking
statement made by or on behalf of the Company. The Company cautions that the
forward-looking statements are subject to all the risks and uncertainties
discussed under the captions "Risk Factors." Such statements are subject to
certain risks and uncertainties, over which the Company has no control, which
could cause actual results to differ materially from those projected. Such
forward looking information could be affected by changes in laws and
regulations, interest rates, the rate of sales growth, price and product
competition, new product introduction and social and economic conditions, such
as increased competition in the managed care or healthcare industry and the
amount, type and cost of financing available to the Company. Unpredictable or
unknown factors not discussed herein could also have material adverse effects on
forward-looking projections. Readers are cautioned not to place undue reliance
on these forward-looking statements that speak only as of the date hereof. The
Company undertakes no obligation to republish revised forward-looking statements
to reflect events or circumstances after the date thereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company, in this Prospectus, as
well as the Company's periodic reports on Forms 10-KSB, 10-QSB and 8-KSB filed
with the Securities and Exchange Commission.
3
<PAGE>
RISK FACTORS
The Shares being offered by this Prospectus involve a high degree of risk.
Prior to investing in the Shares, prospective investors should consider
carefully the following risks and speculative factors, together with other
information in this Prospectus.
RECENT REVENUE DECLINE
For the year ended December 31, 1996, the Company had a 14% decline in
revenues compared to the year ended December 31, 1995. Net revenues for the nine
months ended September 30, 1997, decreased 8%, compared to the same period in
1996. These revenue declines were primarily due to client turnover, management's
focus on eliminating marginal or unprofitable business and fluctuations in the
relative mix of hospital versus physician claims. The Company completed three
acquisitions in 1994 (one of which was subsequently sold) which expanded the
nature and scope of the Company's operations. In view of the Company's
significant growth by acquisitions during 1994 and subsequent sale of a
subsidiary in 1995, the Company believes that period-to-period comparisons of
its financial results may not necessarily be meaningful and should not be relied
upon as an indication of future performance. There can be no assurance that
revenue will not further decline or profitable operations can be sustained on a
quarterly or annual basis in the future.
DEPENDENCE ON KEY CLIENTS
The Company has contracts with several clients, which account for a
substantial portion of its total revenues. The Company's two largest clients,
in the aggregate, accounted for approximately 17%, 12%, and 16%, respectively,
of the Company's net revenues for the fiscal years ended December 31, 1996, 1995
and 1994. The loss of any one or more of these principal customers could have a
material adverse effect on the operating results of the Company. Subject to
anticipated fluctuations in the relative contribution of each of these clients,
the Company expects that the combined volume of these clients as a percentage of
revenues through 1998 will be comparable with prior periods. Although there can
be no assurance, the Company does not expect the net results of the change in
volumes of these clients to have a material effect on the Company's results
from operation.
COMPETITION
The Company competes with national and local organizations who have
developed PPOs (as defined herein) and TPAs (as defined herein) as well as with
major insurance carriers. The industry is highly competitive and significant
consolidation has occurred within the industry, creating stronger competitors.
The current competitive environment may limit the Company's ability to price its
products at levels the Company believes are appropriate. The Company's managed
care division also faces competition from hospitals, healthcare facilities and
other healthcare providers who have combined and formed their own networks to
contract directly with employer groups and other prospective customers for the
delivery of healthcare services. Large employer groups have demanded a variety
of healthcare options, such as traditional indemnity insurance, HMOs, point-of-
service plans and PPOs, offered either through self-funding or third parties.
The Company competes with providers of all of these products, many of which have
substantially greater financial resources than the Company. The Company believes
that a limited number of companies provide all of the services offered by the
Company within the geographic areas in which the Company presently operates. The
Company's managed care division may encounter competition from companies with
broader networks, narrower networks (which allow for greater cost control and
lower prices), greater market share or more established marketplace name or
reputation. These competitive factors could adversely effect the Company's
financial results. The Company's TPA division may encounter competition from
larger TPAs with greater resources and regional TPAs with greater market
penetration. Both divisions of the Company will be subject to significant
competition in any new geographic areas they may enter.
4
<PAGE>
"Indemnity insurance" is the "traditional" insurance plan that pays
specific benefit to an insured individual to reimburse them for a portion of the
cost of medical care. Reimbursement for medial care in this situation is based
on the providers' regular charges to the public and the insureds are not limited
with regard to choice of providers. "Health maintenance organizations" ("HMOs")
are managed healthcare plans that require its members, with the exception of
certain medical emergency situations, to use the services of specific designated
physicians, hospitals or other providers for their healthcare needs.
Restriction of access to a limited number of providers allows the HMO to control
the utilization of services and resources in the delivery of care. One of the
methodologies employed by HMOs to reward providers with cost-effective
management of care is through "capitation." "Capitation" is a provider payment
methodology that reimburses each provider a fixed monthly fee per member per
month for the total cost of all care for enrolled patients regardless of
utilization. "Point of service" plans offer an individual the choice to seek
services from a participating provider or any other provider of their choice
each time services are rendered. Utilization of a participating provider will
provide the member with a higher level of reimbursement than the use of a non-
participating provider. "Preferred provider organizations", including the
Company, offer employers and healthcare purchasers access to a broad network of
facilities and physicians who have agreed, by contract, to provide services at a
fixed rate or at discounted rates from their standard fees. In such PPO
arrangements, the cost of care is borne by the self-insured employer or benefit
plan and not the PPO.
The major competitors of the Company vary depending on the market served by
the Company on behalf of its particular clients. In general, the Company
typically encounters competition from large insurance companies and Blue Cross
plans when the Company solicits new clients for business.
GOVERNMENT REGULATION AND HEALTHCARE REFORM
The managed healthcare industry is not highly regulated at present. Since
1993, many competing proposals have been introduced in Congress and various
state legislatures have called for general healthcare market reforms to increase
the access and availability of group health insurance and to require that all
businesses offer health insurance coverage to their employees. It is uncertain
what additional healthcare reform legislation, if any, will ultimately be
implemented or whether other changes in the administration or interpretation of
governmental healthcare programs will occur. It is impossible to predict if
proposals calling for broad insurance market reform will be reintroduced in
Congress or in any state legislature in the future, or if any such proposal may
be enacted. Additionally, the adoption of a publicly-financed, single payor,
national or state health plan may have a material adverse effect on the
Company's business. At both the federal and state levels, there is also growing
interest in legislation to regulate how managed care companies interact with
providers and health plan members. The Company cannot predict what effect
federal or state healthcare legislation or private sector initiatives will have
on its PPO or TPA operations, although management of the Company believes the
Company may benefit from some proposals which favor the growth of managed care.
There can be no assurance that future healthcare reforms or PPO regulations will
not be adopted which would have a material adverse effect on the Company.
The Employee Retirement Income Security Act of 1974 ("ERISA"), governing
employee benefit plans, permitted employers, among other mandates, to self-
insure their health insurance by acting as a quasi-insurer. Employers viewed
the ability to underwrite their own health claims as a result of ERISA as an
opportunity to better control health costs. Regulation of TPAs falls under the
auspices of the United States Department of Labor, which has strict, enforceable
guidelines relative to the operation of TPAs. In addition, TPAs are subject to
licensing and regulation on the state level. Typically, the only state
requirements are a completed application and proof of a fidelity bond in the
amount of $500,000. The Company's wholly owned subsidiary, Diversified Group
Administrators, Inc. ("DGA") is licensed as a TPA in the states of Texas,
Pennsylvania, Tennessee, California, Illinois, Kentucky, West Virginia and New
Mexico and has filed for ERISA exemptions where required.
5
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The Company anticipates that federal and state legislatures will continue
to review and consider alternative healthcare solutions and payment
methodologies. The Company is unable to determine to what extent PPOs and TPAs
will be subject to any managed care initiatives of the federal and state
governments or private sector initiatives, as there is increasing emphasis on
market-driven modifications. Further, the Company is unable to determine the
favorable or unfavorable impact, if any, such initiatives would have on the
Company's operations.
DEPENDENCE ON HEALTHCARE PROVIDERS
The Company's PPO profitability and long-range business plans are dependent
upon attracting and retaining qualified physicians, hospitals and other
healthcare providers under discount and other pricing terms which permit the
Company to compete with other managed care companies and insurance companies on
favorable terms. The Company believes there is increasing competition from
HMOs, PPOs and other healthcare plans for physicians, hospitals and other
healthcare providers. There can be no assurance that the Company will be
successful in maintaining existing relationships or attracting necessary
healthcare providers.
CANCELLATION RIGHTS ON CONTRACTS
Although the Company generally enters into written contracts with its
clients, the majority of such contracts, including the contracts with the
Company's major clients, permit cancellation upon 30 to 90 days' notice.
Additionally, the Company's contracts with its clients do not require minimum
payments or minimum levels of services. The exercise of such cancellation rights
by, or a significant reduction in the volume of services requested by, the
Company's largest clients or by a number of the Company's other clients could
have a material adverse effect on the Company. See "Risk Factors Dependence on
Key Clients." Two clients comprising 3% of revenue in 1995 terminated in 1996.
Clients representing approximately $3,000,000 of 1996 revenues have terminated
their contracts with the Company during 1997 and the first two months of 1998.
Management believes that the Company will be able to replace this revenue
through increased penetration of current clients, new PPO and TPA business
development in 1998, marketing of its repricing and administrative services
business and external growth. There can be no assurance that the Company will
maintain its current client relationships or that the clients will not decrease
its volume or change its fee structure.
DEPENDENCE ON COMPANY'S SENIOR MANAGEMENT
The Company's success depends to a significant extent upon J. Ward Hunt,
President and Chief Executive Officer and Robert O. Brooks, Executive Vice
President and Chief Operating Officer. Neither Mr. Hunt nor Mr. Brooks is
currently subject to an employment agreement and there can be no assurance that
either of them will remain in the employ of the Company in the future. The loss
of Mr. Hunt's or Mr. Brooks' services could have a material adverse effect on
the Company. The Company does not carry key man life insurance on the life of
Mr. Hunt or Mr. Brooks. The Company believes that its future success will also
depend on its ability to continue to attract and retain key employees.
Competition for qualified personnel in the Company's industry is intense.
MANAGEMENT INFORMATION SYSTEMS; PROPRIETARY TECHNOLOGY
The Company's management information systems (the "MIS") is a critical
component in its operations because the information processed and derived
through the MIS enables the Company to negotiate price discounts for provider
services and monitor utilization and other cost factors. In addition, the MIS
is critical to the timely, efficient processing and/or review of provider
claims. The Company relies on a combination of trade secrets and copyright
protections to establish and protect its proprietary rights to the MIS. There
can be no assurance, however, that the legal protections and the precautions
taken by the Company will be adequate to prevent misappropriation of the
Company's technology. In addition, these protections and precautions will not
prevent development by independent third parties of competitive technology or
products, and some companies have already developed products which, to some
extent, perform functions similar to those performed by the MIS.
6
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RELIANCE ON DATA PROCESSING
Certain aspects of the business of the Company are dependent upon its
ability to store, retrieve, process and manage data and to maintain and upgrade
its data processing capabilities. Interruption of data processing capabilities
for any extended length of time, loss of stored data, programming errors or
other computer problems could have a material adverse effect on the business of
the Company. The Company has reviewed all of its essential systems and
believes that they are year 2000 complaint and any cost to bring non-essential
systems into compliance will be immaterial. There can be no assurance, however,
that an unknown issue will not arise or that any costs will exceed current
expectations. There can be no assurance that the Company will not experience
problems, delays or unanticipated costs in the use of its current system. Any
difficulties in reviewing claims in a timely manner may adversely affect the
Company's ability to attract and retain clients and/or healthcare providers and
may also adversely affect the Company's ability to monitor its financial and
operational performance.
CONTROL OF THE COMPANY
Currently, The Answer Partnership, Ltd. (the "Parent") owns 2,640,000
shares, or 67.6%, of the Common Stock. As a result, the Parent in essence
elects the entire Board of Directors of the Company and controls the direction
and operations of the Company. Following completion of this offering, the
Parent's ownership interest will continue to permit the Parent to continue to
control the governance of the Company and to elect all of its directors. J.
Ward Hunt, President of the Company, controls the Parent due to his position as
its managing partner.
CONFLICTS OF INTEREST
The Company is a party to a loan arrangement with Mr. Hunt, the Company's
Chairman of the Board, principal shareholder, President and Chief Executive
Officer, as more particularly described in "Certain Transactions". From time to
time during the term and course of such arrangement, the officers and directors
of the Company may be faced with potential conflicts of interest between the
Company and Mr. Hunt. The officers and directors of the Company are limited
only by their fiduciary duty under Delaware law to conduct themselves in a
manner that is fair to the shareholders of the Company, the requirements under
Delaware law of disclosure to the Board of Directors of transactions that
involve interested director(s) and approval by a majority of the disinterested
directors, and disclosure of interested transactions to shareholders (for
transactions that require shareholder approval) and approval by a majority of
the disinterested shareholders (for transactions that require shareholder
approval). Management undertakes to abide by Delaware law and its fiduciary
duty of fairness to shareholders if faced with conflicts in this ongoing
relationship with Mr. Hunt. The Company has established no other guidelines or
procedures for resolving potential conflicts. Failure by management to resolve
conflicts of interest in favor of the Company may have a materially adverse
affect on the Company.
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW
PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain provisions
that may discourage acquisition bids for the Company. The Company has
substantial authorized but unissued capital stock available for issuance. The
Company's Certificate of Incorporation contains provisions which authorize the
Board of Directors, without the consent of stockholders, to issue additional
shares of Common Stock and issue shares of Preferred Stock in series, including
establishment of the rights, powers and preferences, including voting rights, of
holders of the Preferred Stock, and grant authority to the Board to amend the
Company's Bylaws. Additionally, the Company's Bylaws empower the Board to
increase or decrease the number of directors, subject to certain limitations,
and specify that directors will generally hold office until the next annual
meeting of stockholders. These provisions may have the effect, either alone or
in combination with each other, of (i) limiting the price that certain investors
might be willing to pay in the future for the Common Stock, (ii) delaying,
deferring or otherwise discouraging an acquisition or change in control of the
Company deemed undesirable by the Board of Directors or (iii) adversely
affecting the voting power of stockholders who own Common Stock.
7
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SHARES ELIGIBLE FOR FUTURE SALE
All of the 2,640,000 shares of Common Stock owned by the Parent are
eligible for sale under the Securities Act and Rule 144 promulgated thereunder.
In addition, the Company has registered the sale of an aggregate of 1,071,225
unregistered shares of Common Stock on behalf of selling stockholders. Any
future sales of substantial amounts of Common Stock in the open market or the
availability of such shares could adversely affect the market for the Common
Stock.
AUTHORIZATION OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
4,000,000 shares of Preferred Stock. The Board of Directors is empowered,
without stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Common Stock. The Preferred
Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
8
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THE COMPANY
MedicalControl, Inc. (the "Company") is a holding company of healthcare
cost management and administrative services companies. The Company is comprised
of three major subsidiaries, one providing managed care services, primarily
through its preferred provider networks ("MedicalControl"), one providing third
party administration ("TPA") services ("DGA") and one providing repricing and
administrative services for preferred provider organizations ("PPOs") and
certain healthcare providers ("PMSI"). MedicalControl contracts with hospitals,
physicians and ancillary providers to provide access to comprehensive healthcare
services on behalf of its clients and their employees or members at negotiated,
discounted rates. Using PMSI's proprietary system, MedicalControl reprices
resulting network provider claims to reflect negotiated terms as well as
providing healthcare data analyses, reporting and related healthcare cost
containment programs. DGA provides employers that self-fund their employee
benefit plans a complete range of administrative and consulting services
supporting such benefit plans. PMSI has developed a proprietary software system
that reprices network provider claims to reflect negotiated terms and provides
data analyses, reporting and cost containment information.
Prior to the Company's expansion into claims administration services, the
Company had derived its revenues primarily from PPO network access fees. In
1994, the Company expanded its products and service offerings to clients through
the acquisition of two third party administrators. By offering TPA services and
other managed care services, the Company positioned itself to more effectively
compete with larger insurance companies and other managed care companies by
integrating its products so that clients may choose to purchase most of their
healthcare services from one company. DGA also offers MedicalControl access to
a cluster of self-insured clients who are candidates for MedicalControl's
preferred provider networks.
Over the past three years, MedicalControl has experienced significant
change. MedicalControl has hired a new management team focused on expanding its
products and service offerings as well as improving efficiencies and operations.
MedicalControl believes one of the keys to meeting its goals for growth is
delivering the highest levels of quality customer service. MedicalControl is
attempting to meet and to exceed the needs of its customers, while also
achieving the Company's internal goals and objectives.
MedicalControl intends to expand through internal growth of the PPO,
through acquisitions and by entering new markets. MedicalControl intends to
increase the penetration of its target markets by offering clients a more
complete range of managed healthcare services designed to minimize the cost of
providing employee healthcare and other health benefit programs. MedicalControl
is also seeking to expand through acquisitions of other PPOs or related managed
care services companies. There can be no assurance that the Company will be
able to increase revenues or earnings through acquisitions, operating
efficiencies or otherwise.
DGA provides services to self-funded benefit plans, insurance companies,
provider-based organizations and other benefit management organizations. DGA
provides complete benefit review, design and administration services to assist
and direct comprehensive employee benefit programs and risk management
activities. DGA currently administers over 300 self-funded plans, one fully-
insured plan and over 50 risk management plans, with clients ranging from 50 to
3,000 employees. Current total covered lives exceed 80,000 located in 49
states. DGA intends to continue to market its products to self-insured
employees. In 1998, DGA introduced a new fully-insured product available
through an insurance company.
The Company is a Delaware corporation, incorporated in October 1989. Unless the
context otherwise requires, the term the "Company" refers to MedicalControl,
Inc. and its wholly-owned subsidiaries. Effective January 1, 1998, the Company
transferred its managed care operations to MedicalControl and
9
<PAGE>
its repricing and administrative services operations to PMSI. All references to
operations of MedicalControl or PMSI prior to January 1, 1998, were operations
of the Company. The Company's executive offices are located at 8625 King George
Drive, Suite 300, Dallas, Texas 75235 and its telephone number is (214) 630-
6368.
USE OF PROCEEDS
The Company will not receive any part of the proceeds from the sale of the
Shares by the Selling Stockholder.
SELLING STOCKHOLDER
The Shares offered hereby may be offered for sale from time to time by the
Selling Stockholder. The following table provides certain information with
respect to the shares of Common Stock of the Company (including the Shares) held
by the Selling Stockholder.
<TABLE>
<CAPTION>
Number of Shares Number of Shares Shares Beneficially Owned
Name of Beneficially Owned Registered for Sale After the Offering (2)
Selling Shareholder As of March 2, 1998 Hereby --------------------------------------
-------------------- ---------------------------- ------------------- Number Percent (3)
--------------------------------------
<S> <C> <C> <C> <C>
J. Ward Hunt 3,240,000(1) 200,000 3,040,000 67.4
And
The Answer
Partnership, Ltd. (4)
</TABLE>
_____________
(1) Includes 300,000 shares of Common Stock which Mr. Hunt has the right to
acquire within 60 days of March 2, 1998 by the exercise of vested stock
options and 240,000 shares of Common Stock which The Answer Partnership,
Ltd. has the right to acquire within 60 days of March 2, 1998 by the
exercise of vested stock options.
(2) Assumes the sale of all the Shares offered hereby.
(3) The percentage shown includes shares of Common Stock actually owned and
shares of Common Stock that the person had the right to acquire within 60
days of March 2, 1998. In calculating the percentage of ownership, all
shares of Common Stock which the person had the right to acquire within 60
days of March 2, 1998 are deemed to be outstanding for the purpose of
computing the percentage of shares of Common Stock owned by such person.
(4) J. Ward Hunt has served as President of the Company since January 1989 and
as Chief Executive Officer and Chairman of the Board of Directors since
December 1989
The Answer Partnership, Ltd. (the "Partnership") is a Texas limited
partnership that is owned 62.5% by J. Ward Hunt and 37.5% by The Essential
Endowment Trust (the "Trust"). Each of them owns a 1% general partnership
interest in the Partnership, with the balance of their respective interests
being held as limited partnership interests. The Partnership was organized
effective as of July 3, 1992, for purposes of acquiring all of the then-
issued and outstanding Common Stock of the Company. Mr. Hunt, President
and Chief Executive Officer of the Company, is the Managing Partner of the
Partnership and controls the day-to-day management of the Partnership. The
Trust is a Texas irrevocable trust which was formed effective as of July 2,
1992, for the primary benefit of the three children of Mr. Hunt and for
purposes of acquiring an interest in the Partnership. The Trust serves as
a non-managing general partner of the
10
<PAGE>
Partnership. In the event that Mr. Hunt should withdraw, or cease to serve,
as Managing Partner, the successor Managing Partner under the terms of the
partnership agreement for the Partnership would be Hilre Lucille Hunt and
Thomas R. Corbett, as Co-Trustees of the Trust. The Partnership is
authorized to invest generally in any type of property and to hold or
develop and to sell, exchange or otherwise dispose of all or any part of
the Partnership property and carry on any other business or businesses and
exercise any and all powers as may be permitted by law.
PLAN OF DISTRIBUTION
The Company will receive none of the proceeds from this offering. The
Shares may be sold from time to time to purchasers directly by the Selling
Stockholder. Alternatively, the Selling Stockholder may from time to time offer
the Shares through underwriters, dealers or agents, who may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Selling Stockholder or the purchasers of Shares for whom they may act as agent.
The Selling Stockholder and any underwriters, dealers or agents that participate
in the distribution of Shares may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of Shares by them and
any discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act.
At the time a particular offering of Shares is made, a Prospectus
Supplement, if required, will be distributed which will set forth the number of
Shares being offered and the terms of the offering, including the name or names
of any underwriters, dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Stockholder and any discounts,
commissions or concessions allowed or reallowed or paid to dealers. The Selling
Stockholder may use brokers or dealers in connection with the sale of Shares
contemplated by this Prospectus and such brokers or dealers may receive fees or
commissions in connection therewith. The Shares may be sold from time to time
in one or more transactions at a fixed offering price, which may be changed, at
varying prices (including market prices or prices related thereto) determined at
the time of sale or at negotiated prices.
To comply with the securities laws of certain jurisdictions, if applicable,
the Shares will be offered or sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain jurisdictions the
Shares may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Common Stock of the Company may not
simultaneously engage in market-making activities with respect to such Common
Stock of the Company during such distribution or for a period of two business
days prior to the commencement of such distribution. In addition to and without
limiting the foregoing, the Selling Stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Rules 10b-6 and 10b-7, which provisions may limit
the timing of purchases and sales of any of the Common Stock of the Company by
the Selling Stockholder.
The Company will pay the expenses incident to the offering and sale of the
Shares to the public, other than commissions, concessions and discounts of
underwriters, dealers or agents.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITY
The Company has agreed to indemnify its directors in their capacity as
directors of the Company against any and all liability and reasonable expense
that any and all reasonable expense that may be incurred by the director or
directors in connection with or resulting from (a) any threatened, pending or
completed action, claim, suit or proceeding, whether civil, criminal,
administrative or investigative (each, as "Proceeding"), (b) an appeal in such a
Proceeding or (c) any inquiry or investigation that could lead to such a
Proceeding, all to the fullest extent permitted by Section 145 of the Delaware
General Corporation law. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon by
Stephanie L. McVay, Esq., Dallas, Texas.
11
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------- ----------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER 200,000 SHARES OF
PERSON IS AUTHORIZED TO GIVE ANY COMMON STOCK
INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, THE SECURITIES OFFERED MEDICALCONTROL, INC.
HEREBY TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER
OF SOLICITATION IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
---------------
PROSPECTUS
Page ---------------
----
Available Information............. 2
Incorporate of Certain
Documents by Reference.......... 2
Special Note Regarding Forward- _____________, 199_
Looking Statements.............. 3
Risk Factors...................... 4
The Company....................... 9
Use of Proceeds................... 10
Selling Stockholder............... 10
Plan of Distribution.............. 11
Disclosure of Commission
Position on Indemnification for
Securities Act Liability........ 11
Legal Matters..................... 11
- ---------------------------------------- ----------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee......... $ 303
*Printing Expenses............. 1,000
*Legal Fees and Expenses....... 2,000
*Accounting Fees and Expenses.. 5,000
*Miscellaneous Expenses........ 1,697
-------
TOTAL......... $10,000
- --------------
</TABLE>
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware GCL")
empowers a corporation, subject to certain limitations, to indemnify its
directors and officers against expenses (including attorney's fees, judgments,
fines and certain settlements) actually and reasonably incurred by them in
connection with any suit or proceeding to which they are a party so long as they
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to a criminal action
or proceeding, so long as they had no reasonable cause to believe their conduct
to have been unlawful. The Registrant's By-laws provide that the Registrant
shall indemnify its employees and agents as the Board of Directors may determine
from time to time, to the fullest extent permitted by Section 145 of the
Delaware GCL.
Section 102 of the Delaware GCL permits a Delaware corporation to include
in its certificate of incorporation a provision eliminating or limiting a
director's liability to a corporation or its stockholders for monetary damages
for breaches of fiduciary duty. The enabling statute provides, however, that
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct, or knowing violations of the law, and
the unlawful purchase or redemption of stock or payment of unlawful dividends or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. The Registrant's Certificate of Incorporation includes a provision
that eliminates, to the fullest extent permitted, director liability for
monetary damages for breaches of fiduciary duty.
The Company has also agreed to indemnify its directors in their capacity as
directors of the Company against any and all liability and reasonable expense
that may be incurred by the director or directors in connection with or
resulting from (a) any threatened, pending or completed action, claim, suit or
proceeding, whether civil, criminal, administrative or investigative (each, a
"Proceeding"), (b) an appeal in such a Proceeding or (c) any inquiry or
investigation that could lead to such a Proceeding, all to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law.
ITEM 16. EXHIBITS
5.1 Opinion of Stephanie L. McVay as to the legality of the securities
being registered.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
23.2 Consent of Stephanie L. McVay (included in her opinion filed as
Exhibit 5.1).
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
(a) RULE 415 OFFERINGS.
The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to include any
additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John
Ward Hunt his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and to take such actions in, and file with the appropriate
authorities in, whatever states said attorney-in-fact and agent shall determine,
such applications, statements, consents and other documents as may be necessary
or expedient to register securities of the Company for sale, granting unto said
attorney-in-fact and agent full power and authority to do so and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof and the registrant hereby confers like authority on its behalf.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has dully caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on March 11, 1998.
REGISTRANT:
MEDICALCONTROL, INC.
BY: /s/ JOHN WARD HUNT
-------------------------
JOHN WARD HUNT, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ------
<S> <C> <C>
/s/ JOHN WARD HUNT PRESIDENT, CHIEF EXECUTIVE OFFICER, 3/11/98
- ------------------------------------- CHIEF FINANCIAL OFFICER, CHIEF
JOHN WARD HUNT ACCOUNTING OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
/s/ DAVID A. HANSON VICE PRESIDENT, FINANCE AND ACCOUNTING 3/11/98
- ------------------------------------- (CHIEF ACCOUNTING OFFICER)
DAVID A. HANSON
/s/ ROBERT O. BROOKS
- ------------------------------------- EXECUTIVE VICE PRESIDENT AND CHIEF 3/11/98
ROBERT O. BROOKS OPERATING OFFICER
DIRECTOR
- -------------------------------------
ROBERT W. PHILIP
/s/ WILLIAM L. AMOS, JR.
- ------------------------------------- DIRECTOR 3/11/98
WILLIAM L. AMOS, JR., M.D.
/s/ D. SAMUEL COATS DIRECTOR 3/11/98
- -------------------------------------
D. SAMUEL COATS
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Exhibit Description of Page
Number Exhibit Number
5.1 Opinion of Stephanie L. McVay, as to the legality of
the securities being registered.....................
23.1 Consent of Arthur Andersen LLP, independent
public accountants..................................
23.2 Consent of Stephanie L. McVay (included in her
opinion filed as Exhibit 5.1).......................
<PAGE>
EXHIBIT 5.1
STEPHANIE L. McVAY, ESQ.
ATTORNEY AT LAW
8625 KING GEORGE DR. SUITE 300
TELEPHONE (214) 630-6368
FACSIMILE (214) 689-6949
March 11, 1998
MedicalControl, Inc.
8625 King George Dr., Suite 300
Dallas, Texas 75235
Re: MedicalControl, Inc.
Registration Statement on Form S-3
File No. 333-______________
Gentlemen:
I have acted as securities counsel to MedicalControl, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the above-
referenced Registration Statement on Form S-3 (the "Registration Statement"),
filed by the Company with the Securities and Exchange Commission (the
"Commission") on or about March 11, 1998. The Registration Statement relates to
the registration under the Securities Act of 1933, as amended (the "Act"), of
200,000 shares of Common Stock, $.01 par value (the "Shares"), to be sold on
behalf of the Selling Stockholder. Capitalized terms used herein and not
otherwise defined have the meanings given to them in the Registration Statement.
In connection with this opinion, I have examined and am familiar with originals
or copies, certified or otherwise identified to my satisfaction, of (i) the
Restated Certificate of Incorporation and the Amended and Restated Bylaws of the
Company, (ii) certain resolutions of the Board of Directors of the Company
relating to the registration of the Shares, (iii) the Registration Statement,
and (iv) such other documents as I have deemed necessary or appropriate as bases
for the opinion set forth below. In such examination, I have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to me as originals, the conformity to
original documents of all documents submitted to me as certified or photocopies
and the authenticity of the originals of such latter documents. As to any facts
material to this opinion which I do not independently establish or verify, I
have relied upon statements and representations of officers and other
representatives of the Company and others.
I am admitted to the practice of law in the State of Texas, and I express no
opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, I am of the opinion that the Shares
have been validly issued and fully paid and are nonassessable under Delaware
law.
<PAGE>
March 10, 1998
Page 2
This opinion is furnished to you solely for your benefit in connection with the
filing of the Registration Statement and is not to be used, circulated, quoted
or otherwise referred to for any other purpose without my prior written consent.
Notwithstanding the foregoing, I hereby consent to the filing of this opinion
with the Commission as Exhibit 5.1 to the Registration Statement. I also consent
to the reference to my name under the caption "Legal Matters" in the
Registration Statement. In giving this consent, I do not thereby admit that I am
included in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Stephanie L. McVay
Stephanie L. McVay, Esq.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 18, 1997,
included in the MedicalControl, Inc. Form 10-KSB for the year ended December 31,
1996, and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Dallas, Texas
March 11, 1998
