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As filed with the Securities and Exchange Commission on August 3, 1999
Registration 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
MEDICALCONTROL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2297429
(State of incorporation) (I.R.S. employer identification no.)
8625 King George Drive, 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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Stephanie L. McVay
General Counsel
MedicalControl, Inc.
8625 King George Drive, Suite 300
Dallas, Texas 75235
(214) 630-6368
(Name, address including zip code, and telephone number, including area
code, of agents for service)
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Copy to:
Susan Henderson
Crouch & Hallett, L.L.P.
717 N. Harwood St., Suite 1400
Dallas, Texas 75201
(214) 953-0053
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities Being Price Offering Registration
Being Registered Registered Per Share(1) Price Fee
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<S> <C> <C> <C> <C>
Common Stock,
$.01 par value 1,000,000 shares $ 8.50 $ 8,500,000 $ 2,363.00
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</TABLE>
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to the provisions of Rule 457(c).
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
The information in this prospectus is not complete and may be changed. THE
SELLING STOCKHOLDER may not sell these securities until the registration
statement is effective. This prospectus is not an offer to sell these securities
and we and the Selling Stockholder are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, dated August 3, 1999
PROSPECTUS
1,000,000 SHARES MEDICALCONTROL, INC.
COMMON STOCK 8625 King George Drive
Suite 300
Dallas, Texas 75235
(214) 630-6368
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1,000,000 SHARES
MEDICALCONTROL, INC.
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A stockholder of MedicalControl, Inc. is offering 1,000,000 shares of
the Company's Common Stock. See "Selling Stockholder." The Company will not
receive any of the proceeds from the stockholder's sale of its shares.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH IN THIS
PROSPECTUS. SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
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Our Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"MDCLC." The last reported sale price of our Common Stock on the Nasdaq SmallCap
Market on July 29, 1999 was $8.50 per share.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is _______, 1999.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK FACTORS.........................................................................................................3
AVAILABLE INFORMATION................................................................................................9
DOCUMENTS INCORPORATED BY REFERENCE..................................................................................9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................................................10
SELLING STOCKHOLDER.................................................................................................11
PLAN OF DISTRIBUTION................................................................................................12
LEGAL MATTERS.......................................................................................................13
EXPERTS ...........................................................................................................13
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY...................................14
</TABLE>
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RISK FACTORS
We wish to caution you that the following important factors, among
others, could cause the actual results of MedicalControl to differ materially
from those indicated by forward-looking statements made in this Prospectus. 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. These
forward-looking statements involve risks and uncertainties, including but not
limited to general business conditions and the impact of competition and other
risks detailed below.
RECENT REVENUE DECLINE, OPERATING LOSSES AND LIQUIDITY
Exclusive of revenues associated with Business Health Companies, Inc.
("BHC"), a Houston, Texas-based preferred provider organization ("PPO") acquired
by the Company effective September 1, 1998, the Company experienced a 16%
decline in its PPO revenues for the year ended December 31, 1998, as compared to
the prior year and 9% in its PPO revenues for the three months ended March 31,
1999, as compared to the prior first quarter. We cannot assure you that revenue
will not further decline or that profitable operations can be sustained on a
quarterly or annual basis in the future.
We have incurred operating losses in the first quarter 1999 and fiscal
year 1998 of $204,000, and $1.2 million (including $648,000 of certain post
acquisition charges recorded in connection with the BHC acquisition). Negative
cash flows from operations in the same periods were, respectively, $192,000 and
$197,000. We funded the negative cash flows with proceeds from borrowings under
credit facilities and proceeds from the exercise of stock options. Although the
Company expects to be profitable in the second half of 1999 and have adequate
cash resources, we cannot assure you that the Company will report operating
income or positive cash flow from operations. If cash needs exceed available
resources, there also can be no assurance that additional capital will be
available through public or private equity or debt financings. On July 6, 1999,
the remaining principal balance of $850,000 of subordinated convertible notes
issued in the BHC acquisition was converted into 161,900 shares of the Company's
common stock which, among other things, reduces debt service requirements by
over $250,000 annually.
The Company intends to sell certain assets related to its TPA
subsidiary during the quarter ending September 30, 1999 for approximately
$600,000, payable over 38 months, subject of downward adjustment based on
future revenues related to the assets. In connection with the sale, the Company
intends to write-off goodwill of approximately $1,560,000 reduced by the amount
recorded for the purchase price. This write-off will result in a significant
impairment for the second quarter.
INTEGRATION OF ACQUIRED OPERATIONS
The Company, through MedicalControl Network Solutions, Inc.
("MedicalControl Network Solutions"), a wholly owned subsidiary, completed the
acquisition of BHC in September 1998. As a result of this acquisition, BHC
became an indirect, wholly owned subsidiary of the Company, and the Company
began the integration of the operations and management of BHC into the Company's
existing business. We expect to continue the integration of marketing, client
services and related support activities of BHC into our operations throughout
fiscal 1999. We may not be able to complete this integration successfully. The
operating history of BHC on a stand-alone basis cannot necessarily be regarded
as indicative of our prospects on a consolidated basis. Accordingly, we cannot
assure you that the Company and BHC will achieve the growth in revenues or
sustain revenues at a level consistent with the historical results achieved by
the Company and BHC on a stand-alone basis.
DEPENDENCE ON KEY CLIENTS
The Company has contracts with several key clients, which account for a
substantial portion of its total revenues. The Company's two largest clients, in
the aggregate, accounted for approximately 12%, 13%, 18% and 17%, respectively,
of the Company's net revenues for the three months ended March 31, 1999 and the
fiscal years ended December 31, 1998, 1997 and 1996. 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, we expect that the combined
volume of these clients as a percentage of revenues through 1999 will be
comparable with
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1998. Although we cannot assure you for certain, we do not expect the net
results of the change in volumes of these clients to have a material effect on
our results of operations.
COMPETITION
We compete with national, regional and local organizations who have
developed preferred provider organizations ("PPOs") and third party
administration businesses ("TPAs") 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 our ability to price our products at levels we believe are
appropriate. The Company's managed care subsidiaries also face 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, health maintenance organizations ("HMOs"),
point-of-service plans and PPOs, offered either through self-funding or third
parties. We compete with providers of all of these products, many of which have
substantially greater financial resources than we do. We believe that a limited
number of companies provide all of the services offered by us within the
geographic areas in which we presently operate. The Company's managed care
subsidiaries 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 subsidiary may encounter competition from larger TPAs with greater
resources and regional TPAs with greater market penetration. All subsidiaries of
the Company will be subject to significant competition in any new geographic
areas they may enter.
"Indemnity insurance" is the "traditional" insurance plan that pays
specific benefits 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. 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 method used by HMOs to reward providers
with cost-effective management of care is through "capitation." "Capitation" is
a provider payment method that reimburses each provider a fixed monthly fee per
member per month for the total cost of all care for enrolled patients regardless
of use. "Point of service" plans offer an individual the choice of seeking
services from a participating provider or any other provider of their choice
each time services are rendered. Patients who choose a participating provider to
provide healthcare services will receive a higher level of reimbursement than
patients choosing a non-participating provider. "Preferred provider
organizations", including our PPO subsidiary, 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.
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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 product or
services or the market served by the Company on behalf of its particular
clients. In general, the Company typically encounters competition from large
insurance companies, national and local TPAs, national, regional and local PPOs
and Blue Cross plans when the Company solicits new clients for business.
GOVERNMENT REGULATION AND HEALTHCARE REFORM
PPOs are currently not highly regulated. Since 1993, many competing
proposals have been introduced in Congress and various state legislatures have
called for general healthcare market reforms to insure access to quality
healthcare services. Many reforms are currently being debated by the U. S.
Congress. These reforms relate, among other things, to certain "patient rights,"
network or healthcare quality and the measurement and reporting of certain
quality indicators. Many reforms being discussed may cause employers to suspend
healthcare coverage for its employees or move the purchasing decision to the
employees. These reforms could have a negative impact on our client base,
limiting certain practices, introducing new liability exposures and increasing
cost as a result of required quality measures or reporting. We cannot predict
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. We cannot 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 proposals may be enacted. At
both the federal and state levels, interest is growing in legislation to
regulate how managed care companies interact with providers and health plan
members. We cannot predict what effect federal or state healthcare legislation
or private sector initiatives will have on our PPO or TPA operations, although
we believe we may benefit from some proposals which favor the growth of managed
care. We cannot assure you that future healthcare reforms or PPO regulations
will not be adopted which would have a material adverse effect on us.
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. The application
of ERISA is being narrowed by the courts, which limits its protections for our
TPA subsidiary. Employers viewed the ability to underwrite their own health
claims as a result of ERISA as an opportunity to better control healthcare
costs. The United States Department of Labor regulates TPAs and has adopted
strict, enforceable guidelines for 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.
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We anticipate that federal and state legislatures will continue to
review and consider alternative healthcare solutions and payment methods. We are
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.
Also, we are unable to determine the favorable or unfavorable impact, if any,
such initiatives would have on our 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 contract and preferred pricing terms which
permit the Company to compete with other managed care companies and insurance
companies on favorable terms. We believe there is increasing competition from
HMOs, PPOs and other healthcare plans for physicians, hospitals and other
healthcare providers. We cannot assure you that we 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 these cancellation
rights or a significant reduction in the volume of services 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." Clients representing approximately $3,000,000 of 1996 and 1997
revenues and $700,000 of 1998 revenues have terminated their contracts with the
Company during 1997 and 1998. In addition, certain clients in 1998 have
converted to a different fee arrangement resulting in a loss of approximately
$658,000 of 1998 revenues. We believe that we will be able to replace this
revenue through increased penetration of current clients, new PPO and TPA
business development and marketing of our repricing and administrative services
business and external growth. We cannot assure you that we will maintain our
current client relationships or that our clients will not decrease their volume
or change their fee structure.
POSSIBLE DELISTING OF COMMON STOCK ON THE NASDAQ STOCK MARKET
In November 1998, the Company received notification from The Nasdaq
National Market that the Company did not have the minimum net tangible assets
required for listed companies. As of December 31, 1998, the Company's net
tangible assets were $114,000 and The Nasdaq National Market's minimum
requirement for listed companies is at least $4 million in net tangible assets.
The Company filed a proposal with The Nasdaq National Market which, if
successful, would cause the Company to comply with The Nasdaq National Market's
listing criteria. The Company's plan was initially rejected by The Nasdaq
National Market. The Company met with a panel from The Nasdaq National Market on
March 25, 1999, to appeal this decision. On July 20, 1999, the Company sent The
Nasdaq Stock Market a letter requesting that its common stock be listed on The
Nasdaq SmallCap Market and to update the Company's plan to be in compliance with
listing requirements of The Nasdaq SmallCap Market, which has a net tangible
asset requirement of $2 million. MedicalControl has been granted a temporary
exception from this standard subject to MedicalControl meeting certain
conditions. That exception will expire on August 16, 1999. Although we intend to
meet the conditions required by The Nasdaq SmallCap Market, we cannot assure
that the Company will achieve the financial targets outlined in its plan or be
successful in continuing to have its Common Stock traded on The Nasdaq Stock
Market. For the duration of the exception, MedicalControl's Nasdaq symbol will
be MDCLC.
If the Company's Common Stock is no longer traded on The Nasdaq Stock
Market, the Company intends to apply for listing its Common Stock on The
American Stock Exchange or on a regional exchange, such as the Boston Stock
Exchange. If the Company's Common Stock is not approved for listing on the
American Stock Exchange or a regional exchange, trading, if any, on the
Company's Common Stock would be conducted in the over-the-counter market in the
"pink sheets" or the electronic bulletin board administered by the National
Association of Securities Dealers, Inc. In such an event, the market price of
the Company's Common Stock may be adversely impacted. As a result, an investor
may find it difficult to dispose of or obtain accurate quotations as to the
market value of the Company's Common Stock.
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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 we cannot assure you that
either of them will remain our employees in the future. The loss of Mr. Hunt's
or Mr. Brooks' services could have a material adverse effect on us. We do not
carry key man life insurance on the life of Mr. Hunt or Mr. Brooks. We believe
that our future success will also depend on our ability to continue to attract
and retain key employees. Competition for qualified personnel in our industry is
intense.
MANAGEMENT INFORMATION SYSTEMS; PROPRIETARY TECHNOLOGY
Our management information systems are critical to our operations
because the information from our information systems allow us to negotiate price
discounts for provider services, monitor network utilization and perform other
client services. In addition, these systems are critical to the timely,
efficient processing and/or review of provider claims. We rely on a combination
of trade secrets and copyright protections to establish and protect our
proprietary rights to these information systems. We cannot assure you, however,
that the legal protections and the precautions taken by us will be adequate to
prevent misappropriation of our 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
our information systems.
RELIANCE ON DATA PROCESSING AND YEAR 2000 COMPLIANCE
Certain aspects of our business are dependent upon our ability to
store, retrieve, process and manage data and to maintain and upgrade our data
processing capabilities.
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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 our business.
We recognize the need to ensure that our operations will not be
adversely impacted by Year 2000 software failures. Accordingly, we have been
evaluating the impact of the Year 2000 on our services offerings as well as our
internal systems and hardware. Relative to our services offerings, all current
versions of our products are designed to be "Year 2000" compliant other than the
operating system used by the TPA. Beginning in 1996, the TPA started converting
its clients from an operating system that was not Year 2000 compliant to a
current Year 2000 compliant claims processing system operated in the software
vendor's data center. Such conversion has taken longer than expected and has
cost the Company approximately $850,000 to date in non-recurring expenses and is
estimated to cost an additional $150,000 in non-recurring expenses during the
remainder of 1999 before such conversion is completed.
We do not currently believe that the effects of any Year 2000
non-compliance in our installed services offerings will result in any material
adverse impact on our future business or financial condition. As to our own
internal software systems and hardware, we have identified and are currently
reviewing all key applications and systems. We believe there is no significant
exposure to us related to the Year 2000 issue.
We cannot assure you that the Company will not be exposed to potential
claims resulting from system problems associated with the century change. In
addition, we cannot know for certain that unknown issue will not arise or that
any costs will not exceed current expectations. 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. Further,
we cannot know for certain that our providers, customers and vendors are Year
2000 compliant and the effect of such non-compliance on the Company.
CONTROL OF THE COMPANY
Currently, The Answer Partnership, Ltd. owns 2,798,157 shares, or 62%,
of the Company's Common Stock. As a result, The Answer Partnership, Ltd. in
essence elects the entire Board of Directors of the Company and controls the
direction and operations of the Company. J. Ward Hunt, President of the Company,
controls The Answer Partnership, Ltd. 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. From time to time, 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.
We have established no other guidelines or procedures for resolving potential
conflicts. Failure by
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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.
AVAILABLE INFORMATION
MedicalControl is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission. You may inspect and copy reports, proxy statements and
other information concerning the Company at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain copies of
such material from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
You may also obtain certain reports, proxy statements and other information
filed by the Company at the SEC's World Wide Web site, located at
http://www.sec.gov. In addition, you can inspect such material at the offices of
The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed by the Company with the
SEC, are hereby incorporated by reference in this Prospectus:
(i) The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998;
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(ii) The Company's Report on Form 10-QSB for the fiscal quarter ended
March 31, 1999;
(iii) 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), including any amendments or reports filed for the purpose of
updating such descriptions; and
(iv) All other reports and subsequent reports filed pursuant to Section
13(a) or 15(d) of the Exchange Act.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering of the shares hereunder shall be deemed to be incorporated herein by
reference and shall be a part hereof from the date of the filing of such
documents. Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or replaced for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or replaces such statement. Any such
statement so modified or replaced shall not be deemed, except as so modified or
replaced, to constitute a part of this Prospectus.
We will provide you without charge upon your written or oral request, a
copy of the documents incorporated by reference herein, other than exhibits to
such documents not specifically incorporated by reference. Please direct such
requests to MedicalControl, Inc., 8625 King George Drive, Suite 300, Dallas,
Texas 75235, Attention: Stephanie McVay (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. These
forward-looking statements may be made by MedicalControl from time to time in
news releases, reports, proxy statements, registration statements and other
written communications as well as oral forward-looking statements made from time
to time by representatives of MedicalControl. 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.
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SELLING STOCKHOLDER
The table below sets forth the beneficial ownership of the Company's
Common Stock by the selling stockholder (the "Selling Stockholder") at July 1,
1999, and after giving effect to the sale of the shares of Common Stock offered
hereby.
Except as indicated otherwise and rights under community property laws,
the person named below has sole voting and investment power with respect to the
shares of Common Stock beneficially owned by him.
<TABLE>
<CAPTION>
Shares Owned Shares Being Shares Owned
Name Before the Offering Offered After the Offering (2)
- ---- ------------------- ------------ ------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
J. Ward Hunt and The Answer 3,303,157 73% 1,000,000 2,303,157 51%
Partnership, Ltd. (1)
</TABLE>
- ----------------------------
(1) The business address of Mr. Hunt and The Answer Partnership, Ltd. is
8625 King George Dr., Suite 300, Dallas, Texas 75235. Such shares are
held of record and beneficially by The Answer Partnership, Ltd. but may
also be deemed to be beneficially owned by Mr. Hunt (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
since, as managing partner of such partnership, Mr. Hunt has the power
to direct the voting and disposition of such shares.
(2) Assumes that all of the shares offered hereby are sold.
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. Mr. Hunt, a director and the 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 that was formed effective as of July 2, 1992, for purposes of
acquiring an interest in the Partnership for the primary benefit of three
children of Mr. Hunt. 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.
On October 2, 1994, the Company approved a five-year loan to Mr. Hunt
of up to $300,000. On March 24, 1998, the Company extended the loan for two
additional years. The loan is secured by the pledge of 70,000 shares of the
Company's Common Stock by the
11
<PAGE> 13
Partnership and is guaranteed by the Partnership. The loan accrues interest at
the variable rate of prime plus one percent per annum. The principal and any
unpaid accrued interest are due in its entirety by November 2000. The
outstanding principal and accrued interest on the loan as of July 1, 1999 was
approximately $434,229.
On March 18, 1998, the Partnership entered into a $1,400,000 revolving line
of credit transaction with Inwood National Bank (the "Bank"). In May 1999, the
revolving line of credit was converted to a term note in the principal amount
of $1,350,000 (the "Note"). The Note bears interest at a variable rate equal to
one percent over prime. The Partnership is required to pay accrued interest on
the principal of the Note on a monthly basis with a final payment of unpaid
principal and accrued interest due and payable on August 15, 2000. All interest
payments are current, and the outstanding principal balance of the Note as of
July 1, 1999 was $1,350,000. The Note is secured by a Pledge Agreement dated
March 18, 1998, wherein the Partnership pledged 700,000 registered shares of
Common Stock as security for the Bank. The Note is also secured by a Commercial
Continuing Guaranty entered into between Mr. Hunt, as guarantor, and the Bank.
The Partnership retains the right to vote the Common Stock for so long as no
default has occurred under the Note or the Pledge Agreement. The Partnership is
currently in compliance with the terms of the Note and the Pledge Agreement.
Although the Partnership intends to comply with the terms of the Note, any
inability or failure by the Partnership to comply with the terms of the Note and
Pledge Agreement may result in the Bank's owning the Common Stock, which it
would probably be required by banking laws to sell.
PLAN OF DISTRIBUTION
The Company will receive none of the proceeds from this offering. The
Company is registering the shares of the Company's Common Stock offered hereby
(the "Shares") on behalf of the Selling Stockholder. As used herein, "Selling
Stockholder" include donees and pledgees selling shares received from a named
Selling Stockholder after the date of this Prospectus. All costs, expenses and
fees in connection with the registration of the Shares will be borne by the
Company. Brokerage commissions and similar selling expenses, if any,
attributable to the sales of the Shares will be borne by the Selling
Stockholder.
Sales of the Shares may be effected by the Selling Stockholder from
time to time in one or more types of transactions (which may include block
transactions) on The Nasdaq Stock Market, in the over-the-counter market, in
negotiated transactions, through put or call options transactions relating to
the Shares, through short sales of the Shares or a combination of such methods
of sale, at market prices prevailing at the time of sale or negotiated prices.
Such transactions may or may not involve brokers or dealers. 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.
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<PAGE> 14
The Company will pay the costs, expenses and fees incurred in
connection with the registration of the Shares, which are estimated to be
$13,000 (excluding selling commissions and brokerage fees incurred by the
Selling Stockholder).
The Selling Stockholder may also resell all or a portion of the Shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided it meets the criteria and conform to the requires of such Rule.
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.
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 Regulations M, which provisions may limit the
timing of purchases and sales of any of the Common Stock of the Company by the
Selling Stockholder.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon by
Crouch & Hallett, L.L.P., Dallas, Texas.
EXPERTS
The selected consolidated financial data of the Company and its
subsidiaries for the years ended December 31, 1998, 1997 and 1996 have been
incorporated by reference herein and in the registration statement in reliance
upon the report of Arthur Andersen LLP, independent accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. To the extent that Arthur Andersen LLP audits and reports upon
consolidated financial statements of the Company issued at future dates, and
consents to the use of their report thereon, such financial statements also will
be incorporated by reference herein in reliance upon their reports and said
authority.
13
<PAGE> 15
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITY
The Company has agreed to indemnify its directors and officers in their
capacity as directors and officers of the Company against any and all liability
and reasonable expense that any and all reasonable expense that may be incurred
by the directors or officers 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 may be permitted to directors, officers and
controlling persons of the Company, the Company has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
14
<PAGE> 16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses will be paid by the Company:
Item Amount (1)
- ---- ----------
SEC registration fee $ 2,433
Legal fees and expenses 2,500
Accounting fees 5,000
Miscellaneous 3,067
------
Total $ 13,000
- --------
(1) All items other than SEC registration fee are 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
II-1
<PAGE> 17
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.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
<S> <C>
5.1 Opinion of Crouch & Hallett, L.L.P., as to the legality of the
securities being registered. (1)
23.1 Consent of Arthur Andersen LLP, independent public accountants. (1)
23.2 Consent of Crouch & Hallett, L.L.P.. (included in opinion filed as
Exhibit 5.1).
</TABLE>
- ------------------------------
(1) Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) Rule 415 Offering
The registrant hereby undertakes (1) to file, during any
period in which offers or sales are being made of the shares registered
hereby, a post-effective amendment to this Registration Statement to
include any prospectus required by Section 10(a)(3) of the Securities
Act, to reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement and include any additional or
changed material information on the plan of distribution; (2) that, for
the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and (3) a post-effective amendment
to remove from registration any of the securities that remain unsold at
the end of the offering.
(b) Indemnification for Liability under the Securities Act of 1934
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent,
II-2
<PAGE> 18
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dallas and State of Texas on the 29th day of July,
1999.
MEDICALCONTROL, INC.
By /s/ JOHN WARD HUNT
--------------------------------------
John Ward Hunt, President and
Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints John Ward Hunt and Bob
Buddendorf and each of them (with full power to act alone), as attorneys and
agents for the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with the Securities
and Exchange Commission under the Securities Act of 1933 any and all amendments
and exhibits to this Registration Statement and any and all applications,
instruments and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby, with
full power and authority to do and perform any and all acts and things
whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on July 29, 1999.
Signature Title
- --------- -----
/s/ JOHN WARD HUNT President, Chief Executive Officer,
- ---------------------------------- Chief Financial Officer and
John Ward Hunt Chairman of the Board of Directors
(Principal Executive Officer)
/s/ BOB BUDDENDORF Senior Vice President and Chief
- ---------------------------------- Financial Officer
Bob Buddendorf (Principal Financial Officer and
Accounting Officer)
II-4
<PAGE> 20
/s/ WILLIAM L. AMOS, JR. Director
- ----------------------------------
William L. Amos, Jr., M.D.
/s/ FRANK M. BURKE, JR. Director
- ----------------------------------
Frank M. Burke, Jr.
/s/ D. SAMUEL COATS Director
- ----------------------------------
D. Samuel Coats
/s/ DONALD RICHARD HUNTINGTON Director
- ----------------------------------
Donald Richard Huntington
II-5
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
5.1 Opinion of Crouch & Hallett, L.L.P., as to the legality of the
securities being registered. (1)
23.1 Consent of Arthur Andersen LLP, independent public accountants. (1)
23.2 Consent of Crouch & Hallett, L.L.P.. (included in opinion filed as
Exhibit 5.1).
</TABLE>
- ------------------------------
(1) Filed herewith.
<PAGE> 1
EXHIBIT 5.1
July 29, 1999
MedicalControl, Inc.
8625 King George Dr., Suite 300
Dallas, Texas 75235
Re: MedicalControl, Inc.
Registration Statement on Form S-3
File No. 333-_____________
Gentlemen:
We 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 July ___, 1999. The Registration Statement
relates to the registration under the Securities Act of 1933, as amended (the
"Act"), of 1,000,000 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, we have examined and are familiar with
originals or copies, certified or otherwise identified to our 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 we have deemed necessary or
appropriate as bases for the opinion set forth below. In such examination, we
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photocopies and the authenticity of the originals of such latter documents.
As to any facts material to this opinion which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been validly issued and fully paid and are nonassessable under
Delaware law.
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 our prior written
consent. Notwithstanding the foregoing, we hereby consent to the filing of this
opinion with the Commission as Exhibit 5.1 to the Registration Statement. We
also consent to the reference to our name under the caption "Legal
<PAGE> 2
July 29, 1999
Page 2
Matters" in the Registration Statement. In giving this consent, we do not
thereby admit that we are 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,
CROUCH & HALLETT, L.L.P.
<PAGE> 1
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 31, 1999, included in MedicalControl, Inc.'s Form 10-KSB for the year
ended December 31, 1998, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Dallas, Texas
July 29, 1999
