<PAGE> 1
As filed with the Securities and Exchange Commission on March 31, 1999
Registration No. 333-69363
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Amendment No. 1 to
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)
--------------------
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)
--------------------
Copy to:
Susan Henderson
Crouch & Hallett, L.L.P.
717 N. Harwood St., Suite 1400
Dallas, Texas 75201
(214) 953-0053
--------------------
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. [ ]
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 475,423
$.01 par value shares $ 9.07 $ 4,312,087 $ 1,199
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to the provisions of Rule 457(c). Of the amount
indicated, $1,012 was previously paid by the registrant.
--------------------
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 STOCKHOLDERS 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 Stockholders are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, dated March 31, 1999
PROSPECTUS
475,423 SHARES MEDICALCONTROL, INC.
COMMON STOCK 8625 King George Drive
Suite 300
Dallas, Texas 75235
(214) 630-6368
- --------------------------------------------------------------------------------
475,423 SHARES
MEDICALCONTROL, INC.
---------------
Certain of the stockholders of MedicalControl, Inc. are offering 475,423
shares of the Company's Common Stock. See "Selling Stockholders." The Company
will not receive any of the proceeds from the stockholders' sale of their
shares.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH IN THIS
PROSPECTUS. SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS.
---------------
Our Common Stock is traded on the Nasdaq National Market under the symbol
"MDCL." The last reported sale price of our Common Stock on the Nasdaq National
Market on March 30, 1999 was $ 9.00 per share.
---------------
- --------------------------------------------------------------------------------
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 April , 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK FACTORS.........................................................................................................2
AVAILABLE INFORMATION................................................................................................7
DOCUMENTS INCORPORATED BY REFERENCE..................................................................................8
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS....................................................................8
THE COMPANY..........................................................................................................9
SELLING STOCKHOLDERS................................................................................................11
PLAN OF DISTRIBUTION................................................................................................12
LEGAL MATTERS.......................................................................................................13
EXPERTS ...........................................................................................................13
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITY...............................................................................13
</TABLE>
-i-
<PAGE> 4
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
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. 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.
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 13%, 18%, and 17%, respectively,
of the Company's net revenues for 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 prior periods. 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 from operation.
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<PAGE> 5
COMPETITION
We compete with national, regional and local organizations who have
developed 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. In such PPO arrangements, the cost of care is borne by
the self-insured employer or benefit plan and not the PPO.
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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. These reforms relate to certain "patient rights," network
or healthcare quality and the measurement and reporting of certain quality
indicators. These reforms could have a negative impact on 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.
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.
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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 in 1998 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 NATIONAL 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.
If the Company's Common Stock is no longer traded on The Nasdaq
National 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.
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
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<PAGE> 8
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. 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. Accordingly,
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 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 issues 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 2,640,000 shares, or
64%, 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 was 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
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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 their ongoing relationship with Mr. Hunt. We have 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.
AVAILABLE INFORMATION
Medical Control 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 ("SEC"). 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.
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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;
(ii) 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
(iii) 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
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SELLING STOCKHOLDERS
The table below sets forth the beneficial ownership of the Company's
Common Stock by the selling stockholders (the "Selling Stockholders") at
March 31, 1999, and after giving effect to the sale of the shares of Common
Stock offered hereby.
Of the Selling Stockholders, Donald Richard Huntington, Ralph T. Smith,
Jr. and Douglas L. Elden are the former stockholders of BHC which was acquired
by the Company in September 1998. The Company paid these stockholders in
exchange for their shares of BHC common stock consideration of cash, 270,900
shares of the Company's Common Stock and convertible promissory notes in the
aggregate principal amount of $1,000,000 convertible into shares of the
Company's Common Stock at the conversion rate of $5.25 per share. These
stockholders have agreed not to sell the shares of the Company's Common Stock
acquired by them in the BHC acquisition until April 1, 1999.
In August 1994, the Company purchased all of the issued and outstanding
shares of capital stock of DGA and Diversified Group Insurance Agency of
Pennsylvania, Inc. from David C. Bramer and Robert Soleau for $500,000 in cash,
a promissory note payable to Mr. Soleau in the principal amount of $1,558,000
and a promissory note payable to Mr. Bramer in the principal amount of $342,000.
On July 8,1997, the Company paid all amount due to Mr. Soleau and $242,000 of
the amount due to Mr. Bramer. On November 6, 1995, the Company agreed to permit
David C. Bramer the option to convert up to $100,000 of principal amount of debt
owed to him by the Company, in connection with the Company's purchase of DGA, to
20,000 shares of Common Stock at $5.00 per share. On August 20, 1996, the
Company amended the conversion option to allow Mr. Bramer to convert $100,000 of
the principal amount of the debt for up to 25,000 shares of Common Stock at
$4.00 per share. Effective as of April 1998, Mr. Bramer converted $40,000 of
the principal amount of debt owed to him by the Company into 10,000 shares of
the Company's Common Stock. The remaining balance has been paid to Mr. Bramer.
Except as indicated otherwise and rights under community property laws,
each of the persons 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 (1) Offered After the Offering (2)
- ---- ----------------------- ------- ----------------------
Number Percent Number Percent
------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Douglas L. Elden (3) 66,489 1.5% 66,489 -- --
Donald Richard Huntington (3)(4) 199,467 4.6 199,467 -- --
c/o Business Health Companies,
Inc.
123 North Post Oak Lane
Suite 400
Houston, Texas
Ralph T. Smith, Jr. (3)(4) 199,467 4.6 199,467 -- --
c/o Business Health Companies,
Inc.
123 North Post Oak Lane
Suite 400
Houston, Texas
David C. Bramer (5) 10,000 * 10,000 -- --
</TABLE>
- -----------------------------
* Less than 1%.
(1) Includes an aggregate of 190,477 shares that may be issued upon the
conversion of the principal amount of certain promissory notes issued to
the former BHC stockholders in connection with the acquisition of BHC by
the Company.
(2) Assumes that all of the shares offered hereby are sold.
(3) Of the share indicated, 95,238 are held of record by Crouch & Hallett,
L.L.P. as escrow agent.
(4) Messrs. Huntington and Smith entered into employment agreements with a
subsidiary of the Company at the time the acquisition was consummated.
Pursuant to these employment agreements, Messrs. Huntington and Smith
serve as Senior Vice Presidents of MedicalControl Network Solutions. In
addition, Mr. Huntington serves as President and Mr. Smith as Chief
Executive Officer of BHC.
(5) David C. Bramer has served as President and Chief Executive Officer of
DGA since the corporation was organized in August 1989.
The Company is registering the shares of Messrs. Huntington, Smith and
Elden pursuant to certain registration rights granted to them pursuant to the
Registration Rights
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Agreement executed in connection with the acquisition of BHC. The offering of
the shares contemplated hereby will terminate on the earlier of the sale of the
shares offered hereby or when these shares may be sold without restriction under
Rule 144(k) of the Securities Act of 1933, as amended (the "Securities Act").
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 Stockholders. As used herein, "Selling
Stockholders" 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
Stockholders.
Sales of the Shares may be effected by the Selling Stockholders 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
Stockholders 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.
The Company will pay the costs, expenses and fees incurred in
connection with the registration of the Shares, which are estimated to be
$20,000 (excluding selling commissions and brokerage fees incurred by the
Selling Stockholders). The Company has also agreed to indemnify certain of the
Selling Stockholders against certain liabilities, including liabilities under
the Securities Act.
The Selling Stockholders may also resell all or a portion of the Shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet 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 Stockholders 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.
10
<PAGE> 13
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 Stockholders 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 Stockholders.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon by
Stephanie L. McVay, Esq., Dallas, Texas.
EXPERTS
The financial statements and schedules incorporated by reference in
this prospectus and elsewhere in the registration statement have been a updated
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports. 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.
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 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.
11
<PAGE> 14
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses will be paid by the Company:
<TABLE>
<CAPTION>
Item Amount (1)
- ---- ----------
<S> <C>
SEC registration fee $ 1,199
Nasdaq listing fee 9,309
Legal fees and expenses 2,500
Accounting fees 5,000
Miscellaneous 1,992
----------
Total $ 20,000
</TABLE>
- --------
(1) All items other than SEC registration fee and Nasdaq listing 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
II-1
<PAGE> 15
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
2.1 Stock Purchase Agreement, dated as of September 10, 1998, by and among
Business Health Companies, Inc., Douglas L. Elden, Donald Richard
Huntington, Ralph T. Smith, Jr., MedicalControl, Inc. and
MedicalControl Network Solutions, Inc.(1)
4.1 Form of convertible subordinated promissory note issued to the former
stockholders of Business Health Companies, Inc. (1)
5.1 Opinion of Stephanie L. McVay, as to the legality of the securities
being registered. (2)
23.1 Consent of Arthur Andersen LLP, independent public accountants. (2)
23.2 Consent of Stephanie L. McVay. (included in opinion filed as Exhibit
5.1).
- ------------------------------
(1) Incorporated by reference from registrant's Report on Form 8-K filed with
the Commission on October 9, 1998.
(2) Previously filed.
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
II-2
<PAGE> 16
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, 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> 17
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 Amendment to 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 31st day of
March, 1999.
MEDICALCONTROL, INC.
By /s/ JOHN WARD HUNT
---------------------------------------
John Ward Hunt, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to this registration statement has been signed below by the following
persons in the capacities and on March 31, 1999.
Signature Title
/s/ JOHN WARD HUNT
- ----------------------------------- President, Chief Executive Officer, Chief
John Ward Hunt Financial Officer and Chairman of the Board
of Directors
(Principal Executive Officer)
/s/ DAVID A. HANSON
- ----------------------------------- Vice President, Finance and Accounting
David A. Hanson (Principal Financial Officer and Accounting
Officer)
II-4
<PAGE> 18
*
- ----------------------------------- Director
Robert W. Philip
*
- ----------------------------------- Director
William L. Amos, Jr., M.D.
*
- ----------------------------------- Director
D. Samuel Coats
* By: /s/ JOHN WARD HUNT
------------------------------
John Ward Hunt
Power of Attorney
II-5
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of September 10, 1998, by and among Business Health Companies, Inc.,
Douglas L. Elden, Donald Richard Huntington, Ralph T. Smith, Jr., MedicalControl, Inc. and MedicalControl
Network Solutions, Inc.(1)
4.1 Form of convertible subordinated promissory note issued to the former stockholders of Business Health
Companies, Inc.(1)
5.1 Opinion of Stephanie L. McVay, as to the legality of the securities being registered.(2)
23.1 Consent of Arthur Andersen LLP, independent public accountants.(2)
23.2 Consent of Stephanie L. McVay. (included in opinion filed as Exhibit 5.1).
</TABLE>
- ------------------------------
(1) Incorporated by reference from registrant's Report on Form 8-K filed
with the Commission on October 9, 1998.
(2) Previously filed.
