<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EMCARE HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 13-3645287
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
</TABLE>
1717 MAIN STREET, SUITE 5200, DALLAS, TEXAS 75201
(214) 712-2000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
ROBERT F. ANDERSON, II
CHIEF FINANCIAL OFFICER
EMCARE HOLDINGS INC.
1717 MAIN STREET, SUITE 5200
DALLAS, TEXAS 75201
(214) 712-2000
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Stephen C. Johnson Kerry C. L. North
Gibson, Dunn & Crutcher LLP Baker & Botts, L.L.P.
1717 Main Street, Suite 5400 2001 Ross Avenue, Suite 700
Dallas, Texas 75201 Dallas, Texas 75201
(214) 698-3100 (214) 953-6500
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or 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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 to be made pursuant to Rule 434, please
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share...... 2,070,000 (1) $31.00 (2) $64,170,000 $22,128
</TABLE>
(1) Includes 270,000 shares that the Underwriters have the option to purchase
from the Company and the Selling Stockholders to cover over-allotments, if
any.
(2) Pursuant to Rule 457(c) under the Securities Act of 1933, the proposed
maximim aggregate price of each share of the Company's common stock is
estimated to be the average of the high and low sale prices of a share as of
a date five business days before the filing of this Registration Statement.
Accordingly, the Company has used $31.00 as such per share price, which is
the average of the high sale price of $31.25 and the low sale price of
$30.75 reported on the National Market of the National Association of
Securities Dealers Automated Quoation System for a share on May 30, 1996.
--------------------------
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities
and Exchange Commission. These securities may not be sold nor may offers to buy
be accepted prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 4, 1996
PROSPECTUS
, 1996
1,800,000 SHARES
[LOGO]
COMMON STOCK
----------------
Of the 1,800,000 shares of Common Stock being offered hereby, 1,500,000
shares are being issued and sold by EmCare Holdings Inc. and 300,000 shares are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"EMCR." On May 31, 1996, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $31.25 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT PROSPECTIVE INVESTORS SHOULD CONSIDER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO THE
TO THE DISCOUNTS AND PROCEEDS TO THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total (3)....................... $ $ $ $
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF $285,000, PAYABLE BY THE COMPANY.
(3) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS
30-DAY OPTIONS TO PURCHASE UP TO AN ADDITIONAL 229,500 AND 40,500 SHARES OF
COMMON STOCK, RESPECTIVELY, AT THE PRICE TO THE PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH
OPTIONS ARE EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING
DISCOUNTS AND COMMISSIONS, PROCEEDS TO THE COMPANY, AND PROCEEDS TO THE
SELLING STOCKHOLDERS WILL BE $ , $ , $ , AND $ , RESPECTIVELY. SEE
"UNDERWRITING."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to various prior conditions, including their right to
reject orders in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
PIPER JAFFRAY INC.
<PAGE>
Map of the continental United States with Arizona, New Mexico, Texas,
Louisiana, Alabama, Mississippi, Georgia, Florida, Arkansas, Missouri, Illinois,
Ohio, West Virginia, Pennsylvania, New York, Maryland, Massachusetts, and
Virginia the states in which EmCare has an affiliated hospital, corporate
office, or billing center marked.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED AND OTHER FINANCIAL STATEMENTS AND RELATED NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS AND INCORPORATED INTO THIS PROSPECTUS BY
REFERENCE. THE COMPANY'S SERVICES ARE PROVIDED THROUGH ITS CORPORATE AND OTHER
SUBSIDIARIES AND UNDER AGREEMENTS WITH CERTAIN PROFESSIONAL ASSOCIATIONS.
REFERENCES IN THIS PROSPECTUS TO "EMCARE" OR THE "COMPANY" ARE TO EMCARE
HOLDINGS INC., OR TO EMCARE HOLDINGS INC. ALONG WITH ITS SUBSIDIARIES AND
PREDECESSORS AND THE PROFESSIONAL ASSOCIATIONS, AS THE CONTEXT INDICATES. UNLESS
OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS WILL NOT BE EXERCISED.
THE COMPANY
EmCare Holdings Inc. ("EmCare" or the "Company") is a leading provider of
physician practice management services in hospital emergency departments ("EDs")
and other practice settings. The Company has managed emergency physician
practices for more than 20 years primarily in hospitals with higher volume EDs.
The Company recruits physicians, evaluates their credentials, and arranges
contracts and schedules for their services. EmCare assists in such operational
areas as staff coordination, quality assurance and departmental accreditation
and provides billing, recordkeeping, third-party payment programs and other
administrative services. The Company markets its services primarily to larger
hospitals with EDs that have more than 12,000 patient visits per year and
multi-site systems (collectively referred to as "hospitals"). At April 30, 1996,
the Company had management contracts relating to 85 EDs in 18 states with
approximately 2.1 million patient visits per year. EmCare also provides billing
and other physician practice management services, as well as temporary staffing
across a broad range of medical specialties.
Hospitals have been greatly affected by changes in the U.S. health care
industry during the last several years, including the increasing use of
capitated and other fixed payment systems that shift financial risk from payors
to providers. The evolving managed care environment requires hospitals to be
more cost-effective in all aspects of their operations, including the
recruiting, scheduling, retaining, and managing of physicians, and the billing
and collecting for their services. As a result many hospitals have turned to
outside management organizations like the Company for physician practice
management services.
There are approximately 5,200 hospitals in the United States that operate
emergency departments. Approximately 80% of these hospitals use outsourced
physicians to staff their EDs. The groups to which ED services are outsourced
are either national groups, regional groups, or small local groups. The national
groups serve approximately 20% of the market. Approximately 40% of EDs use local
physician groups that manage only one or two EDs. The Company believes that
these groups are encountering increasing difficulty in controlling costs and
satisfying recordkeeping and other administrative requirements as demanded in
today's evolving health care industry. As a result, the Company believes that
there are significant consolidation opportunities within the emergency physician
practice management industry.
STRATEGY
The Company's objective is to continue to grow as a high quality,
cost-effective provider of emergency physician practice management services in
an increasingly competitive managed care environment. The Company's strategies
to achieve this objective are to:
- Pursue the growth of its physician practice management business by
acquiring local and regional groups. These groups are faced with
increasing pressure to provide systems and services requiring the
resources and management expertise of a larger organization specializing
in ED practice management.
- Obtain new ED contracts through marketing efforts, both by replacing
existing management companies and by contracting with hospitals that have
not previously outsourced ED practice management.
- Expand the use of facilities and systems of its higher volume EDs to
provide cost-effective care to patients who require less urgent services
and who do not otherwise have access to a physician. The
3
<PAGE>
Company also has continuing discussions with health maintenance
organizations ("HMOs") and other managed care organizations concerning the
use of EDs to provide medical services to their participants. These
efforts are designed to expand ED capabilities and to increase patient
volumes.
- Provide to physicians resources necessary to compete in today's managed
care environment, including access to patients, capital resources,
information systems, and expertise in third-party payment programs and
practice management.
- Utilize experience in physician practice management to help its hospital
clients control costs while providing consistent high quality care. These
efforts include assisting clients in developing standardized procedures
and protocols that reduce unnecessary diagnostic testing and aligning
economic interests of physicians with the productivity of the ED.
RECENT ACQUISITIONS
Consistent with its strategic objectives, the Company has completed the
following six significant acquisitions since January 1, 1995, for an aggregate
consideration of approximately $32.0 million and 489,688 shares of Common Stock:
- On April 30, 1996, the Company acquired Medical Emergency Service
Associates (MESA), S. C. ("MESA"), a physician practice management company
providing ED services to eight hospitals and two occupational medicine
clinics in Illinois, with approximately 212,000 patient visits per year.
The Company's acquisition of MESA established a new and significant
presence for the Company in the Chicago market.
- On April 1, 1996, the Company acquired a physician practice providing ED
services for a hospital in Houston, Texas, with approximately 23,000
patient visits per year. This acquisition expanded the Company's presence
in the Houston market.
- On September 7, 1995, the Company acquired Reimbursement Technologies,
Inc. ("RTI"), a company which provided billing services to 18 emergency
physician groups in eight states, only one of which was an existing EmCare
group. The Company's acquisition of RTI enables the Company to perform
internally the billing functions on those contracts on which the Company
previously used third-party billing companies. As of April 30, 1996, the
Company had transferred 15 of the Company's 49 independent billing
contracts to RTI. In addition, following this transition the Company will
seek to expand RTI's business of providing billing services for
third-party clients.
- On August 1, 1995, the Company acquired a physician practice providing
in-patient physician services to five hospitals in Maryland, with
approximately $1.9 million in net revenue per year. This acquisition
complements the Company's acquisition of CEA in the Mid-Atlantic region of
the United States discussed below.
- On May 1, 1995, the Company acquired a physician practice providing ED
services for a hospital in Arkansas, with approximately 29,000 patient
visits per year, which established a new presence for the Company in that
state.
- On February 28, 1995, the Company acquired Capital Emergency Associates,
P.A. ("CEA"), a physician practice management company providing ED
services to seven hospital EDs in Maryland, Virginia, and Pennsylvania,
with approximately 208,000 patient visits per year. The acquisition of CEA
established a significant new presence for the Company in the Mid-Atlantic
region of the United States.
EXECUTIVE OFFICES
The Company's executive offices are located at 1717 Main Street, Suite 5200,
Dallas, Texas 75201, and its telephone number is (214) 712-2000.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... 1,500,000 shares
Common Stock offered by the Selling Stockholders............ 300,000 shares
Common Stock to be Outstanding after the Offering........... 9,639,840 shares(1)
Use of Proceeds............................................. To repay the outstanding
balance under the Company's
bank credit facility,
complete development and
implementation of a
customized ED information
system, and make
acquisitions. See "Use of
Proceeds."
NASDAQ National Market symbol............................... EMCR
</TABLE>
- ------------------------
(1) Excludes: (i) 1,009,207 shares of Common Stock issuable upon the exercise of
outstanding options granted under the Company's stock option plan, which
options are currently exercisable for an aggregate of 286,950 shares of
Common Stock, and (ii) 2,963,266 additional shares of Common Stock reserved
for issuance upon the exercise of options that may be granted in the future
under such stock option plan. See "Capitalization" and Note 8 of Notes to
Consolidated Financial Statements of the Company.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AND NON-FINANCIAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.............................. $ 55,673 $ 71,166 $ 95,793 $ 118,250 $ 156,826 $ 34,540 $ 44,235
Professional expenses.................... 44,739 57,506 75,788 94,184 123,935 27,154 35,315
--------- --------- ------------ ---------- --------- -------- ---------
Gross profit........................... 10,934 13,660 20,005 24,066 32,891 7,386 8,920
General and administrative expenses...... 10,001(1) 9,297 12,218(1) 13,583 16,760 3,927 4,245
Depreciation and amortization............ 81 3,566 5,846(2) 1,433 2,503 405 809
--------- --------- ------------ ---------- --------- -------- ---------
Income from operations................. 852 797 1,941 9,050 13,628 3,054 3,866
Interest income (expense), net........... 225 (1,551) (2,012) (1,913) 281 198 (100)
--------- --------- ------------ ---------- --------- -------- ---------
Income (loss) before income taxes and
extraordinary charge.................. 1,077 (754) (71) 7,137 13,909 3,252 3,766
Income tax expense (benefit)............. 35(3) (53) 28 2,568 5,216 1,236 1,431
--------- --------- ------------ ---------- --------- -------- ---------
Income (loss) before extraordinary
charge................................ 1,042 (701) (99) 4,569 8,693 2,016 2,335
Extraordinary charge, net of taxes....... -- -- -- 837 -- -- --
--------- --------- ------------ ---------- --------- -------- ---------
Net income (loss)...................... $ 1,042 $ (701) $ (99) $ 3,732 $ 8,693 $ 2,016 $ 2,335
--------- --------- ------------ ---------- --------- -------- ---------
--------- --------- ------------ ---------- --------- -------- ---------
Income (loss) per share before
extraordinary charge(4)................. $ (0.05) $ 0.89 $ 1.05 $ 0.25 $ 0.28
------------ ---------- --------- -------- ---------
------------ ---------- --------- -------- ---------
Net income (loss) per share(4)........... $ (0.05) $ 0.73 $ 1.05 $ 0.25 $ 0.28
------------ ---------- --------- -------- ---------
------------ ---------- --------- -------- ---------
Weighted average shares outstanding...... 1,856 5,138 8,251 7,911 8,433
OTHER DATA:
EBITDA(5)................................ $ 933 $ 4,363 $ 7,787 $ 10,483 $ 16,131 $ 3,459 $ 4,675
Number of patient visits................. N/A 930,000 1,170,000 1,410,000 1,797,000 405,000 481,000
Number of facilities under contract at
end of period........................... 37 43 57 62 75 71 75
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(6) ADJUSTED(7)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 22,711 $ 19,630 $ 55,905
Intangible assets, net................................................... 36,221 49,330 49,330
Total assets............................................................. 85,196 102,140 135,415
Short-term debt and current portion of long term debt.................... 5,820 7,063 4,063
Long-term debt........................................................... 2,334 11,595 3,779
Total stockholders' equity............................................... 56,618 58,118 102,209
</TABLE>
- ------------------------------
(1) Amount includes a non-recurring charge of $600,000 for the year ended
December 31, 1993 for contingent payments to selling stockholders considered
compensation expense in respect of a business acquisition completed in 1992
and an $823,000 charge for the year ended December 31, 1991 relating to
compensation expense from a stock grant.
(2) Amount includes the write-off of the remaining assets related to officers'
non-competition agreements of $2.0 million and scheduled amortization of
such assets of $2.1 million.
(3) During 1991, the Company was a Subchapter S corporation for federal income
tax purposes and, accordingly, was not subject to federal income taxes.
(4) Per share amounts for periods prior to 1993 are not comparable to subsequent
period amounts due to the completion of a recapitalization in February 1992
and consequently are not included in this table.
(5) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, and extraordinary charges and is not intended to represent an
alternative to net income or any other measure of performance under
generally accepted accounting principles. The Company believes that
investors may find this measure useful as an indicator of financial
performance.
(6) Gives effect to the acquisition of MESA as if such acquisition had occurred
on March 31, 1996.
(7) Gives effect to the acquisition of MESA as if such acquisition had occurred
on March 31, 1996, as further adjusted to give effect to the sale by the
Company of 1,500,000 shares of Common Stock offered by the Company hereby
and the application of the net proceeds therefrom as described under "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS AND INCORPORATED
INTO THIS PROSPECTUS BY REFERENCE, THE FOLLOWING FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SHARES OF COMMON STOCK OFFERED HEREBY.
ADVERSE TAX OR OTHER CONSEQUENCES IF INDEPENDENT CONTRACTOR PHYSICIANS ARE
RECLASSIFIED AS EMPLOYEES
EmCare contracts with physicians generally as independent contractors to
fulfill its contractual obligations to its hospital clients. Since the Company
considers most of the physicians with whom it contracts to be independent
contractors, as opposed to employees, EmCare neither withholds federal or state
income or other employment related taxes nor makes federal or state unemployment
tax or Federal Insurance Contributions Act ("FICA") payments (except as
described below), nor provides workers' compensation insurance with respect to
the physicians engaged as independent contractors. The Company regards the
payment of applicable taxes as the responsibility of such physicians. No federal
or state governmental agency has challenged or accepted the Company's
classification of such physicians as independent contractors except New York's
State Department of Labor. As a result of a challenge by this agency, EmCare
pays unemployment tax with respect to New York-based physicians. The
classification of physicians as independent contractors depends upon the facts
and circumstances of the relationship, and there can be no assurance that
federal or state taxing authorities or other parties will not challenge EmCare's
past or present classification of physicians and determine that such physicians
should be classified as employees. In the event of a determination that the
physicians engaged as independent contractors are employees, EmCare and its
operations would be materially and adversely affected and the Company may be
subject to retroactive taxes and penalties. Under current federal tax law, a
"safe harbor" from reclassification, and consequently retroactive taxes and
penalties, is available if the Company's current treatment is consistent with a
long-standing practice of a significant segment of the Company's industry and if
the Company meets certain other requirements. If challenged, there can be no
assurance that the Company would prevail in demonstrating the applicability of
the safe harbor to its operations. Further, proposals have been made in the
recent past, and could be made in the future, to eliminate the safe harbor. See
"Business -- Contractual Arrangements -- Physician Relationships."
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE
Business corporations such as the Company are generally not permitted under
state law to practice medicine, exercise control over the medical judgments or
decisions of physicians, or engage in certain practices, such as fee splitting,
with physicians. The Company performs only non-medical administrative services,
does not represent to the public or its clients that it offers medical services,
and does not exercise influence or control over the practice of medicine by the
physicians with whom it contracts. Accordingly, the Company believes that it is
not in violation of applicable state laws relating to the practice of medicine.
There can be no assurance that regulatory authorities or other parties will not
assert that EmCare is engaged in the corporate practice of medicine. If such a
claim were successfully asserted in any state the Company could be subject to
civil and criminal penalties under such state's law and could be required to
restructure its arrangements in that state. Such results or the inability to
successfully restructure contractual arrangements could have a material adverse
effect upon the Company. See "Business -- Contractual Arrangements."
LITIGATION CONCERNING BILLING FOR PHYSICIAN SERVICES
The Civil Division of the U.S. Department of Justice ("DOJ") has named the
Company as a defendant in a civil lawsuit styled United States ex rel. Theresa
Semtner v. Emergency Physician Billing Services, Inc., et al. (Cause No.
94-CB-617), which was filed under seal on April 29, 1994, in the United States
District Court for the Western District of Oklahoma (the "DOJ Lawsuit"). In June
1995, the DOJ informed the Company that the DOJ intended to pursue this lawsuit
against a third-party billing company that provides billing services on a
contract basis for the Company and a number of other customers. Initially, the
DOJ agreed not to name the Company as a defendant in the lawsuit, but later
informed the Company that the DOJ intended to pursue the lawsuit against the
Company, as well as other defendants, unless settlement discussions were
successful by February 1, 1996. The lawsuit was not settled by this deadline,
and on February 1, 1996, the
7
<PAGE>
DOJ named the Company in the lawsuit. During the period of time covered by the
lawsuit, the billing company submitted on behalf of the Company more than
750,000 claims for payment under Medicare, Medicaid and CHAMPUS programs. The
lawsuit seeks treble damages, civil penalties of $10,000 for each claim in
question, reimbursement of costs, and such other relief as the court deems just
and equitable.
In the lawsuit, the DOJ alleges improper coding by the third-party billing
company of charges under the Medicare, Medicaid and CHAMPUS programs in
violation of the False Claims Act, 31 U.S.C. Section3729 ET. SEQ. The billing
company has advised the Company that it is confident that the DOJ allegations
are incorrect. The Company does not currently possess sufficient information to
determine the likelihood or amount of potential liabilities relating to alleged
improper coding, if any. Under the Company's contracts with the third-party
billing company, the billing company has agreed to be responsible for all coding
errors. However, there is no assurance that the Company will be able to obtain
indemnification from the third-party billing company for any improper coding or
that it will have the resources to honor these obligations.
In addition to its allegations of improper coding, the DOJ has notified the
Company of its position that the Company's contracts with the third party
billing company fail to comply with applicable law because the billing company's
fee is based on a percentage of the amount collected. The DOJ has further
notified the Company that the DOJ believes that, as a result of such alleged
illegality, each claim submitted for payment under this arrangement constitutes
a false claim under the False Claims Act. The Company believes that such
reassignment is consistent with industry practice. Although the Company is aware
that such reassignments are not in compliance with applicable law relating to
reassignment of Medicare claims, the Company does not believe that the failure
to comply with applicable law imposing restrictions on reassignment of Medicare
claims renders such claims or Medicaid or CHAMPUS claims false claims within the
meaning of the False Claims Act. If the Company does not prevail on this issue,
it is possible that the DOJ could make similar allegations with respect to: (i)
reassignments to the third-party billing company after the period covered by the
DOJ Lawsuit, and (ii) reassignments to the Company's wholly-owned billing
subsidiary. The Company is evaluating alternative billing arrangements to avoid
this issue in the future.
The Company believes that it has various defenses to the positions taken by
the DOJ in connection with the DOJ Lawsuit. However, there can be no assurance
that the outcome of the DOJ Lawsuit will not have a material adverse effect on
the Company's financial condition and results of operations.
RELIANCE UPON GOVERNMENT AND OTHER PAYMENT PROGRAMS
A substantial portion of patients treated by physicians under contract with
EmCare is covered by, and a substantial portion of the Company's net revenue is
derived from payments made by, government-sponsored health care programs
(principally Medicare and Medicaid). Funds received under these programs are
subject to audit with respect to the proper billing for physician services and,
accordingly, retroactive adjustments of revenue from these programs may occur.
In late 1994, the Health Care Financing Administration ("HCFA"), an agency of
the United States government, issued guidelines establishing new documentation
standards for Medicare and Medicaid claims submitted for payment. Medicare and
Medicaid carriers began to implement the new standards on August 1, 1995, after
a grace period which allowed providers to educate themselves about the new
guidelines. In addition, a payment program known as "Resource Based Relative
Value Scale" ("RBRVS"), which is intended to reallocate medical payments among
medical specialties, took effect January 1, 1992 and is expected to be fully
implemented by December 31, 1996. The RBRVS system is intended to create a
payment structure independent of direct reliance by governmental and private
third-party payors on hospital costs and physician charges. Under the HCFA
guidelines and RBRVS regulations, the aggregate fee payments from Medicare for
certain ED procedures could adversely affect the Company's operating results and
financial condition, especially if followed by reductions in payments by
commercial third-party payors. The Company expects that there will continue to
be proposals to limit payment levels by third-party payors. Additionally, the
health care industry is experiencing a trend toward cost containment, as
third-party payors seek to impose lower payment rates and negotiate and reduce
contract rates or capitated and other financial risk-shifting payment systems
with service providers. The Company cannot predict at this time whether or when
any of these proposals will be adopted or, if adopted
8
<PAGE>
and implemented, what affect, if any, such proposals would have on the Company.
There can no assurance that payments under governmental or private payment
programs will remain at levels comparable to present levels.
COLLECTION AND RELATED RISK
Services performed by physicians employed by or under contract with the
Company are generally charged on a fee for service basis, and EmCare's revenue
is derived from such fees. These fees are either: (i) billed and collected by
the related hospital, which remits monthly to EmCare a negotiated amount
("hospital-based billing contracts"), or (ii) billed and collected separately by
the Company ("independent billing contracts"). Under independent billing
contracts the Company assumes the financial risks related to collection,
including the potential uncollectibility of accounts and delays attendant to
third-party payment programs. The percentage of EDs under management by EmCare
covered by independent billing contracts has increased from approximately 31% at
December 31, 1990 to approximately 58% at April 30, 1996. Failure to manage
adequately the collection risks and working capital demands associated with
independent billing contracts could have an adverse effect upon the Company. In
addition, the Company's business could be adversely affected by changes in
patient mix or volume, payment program levels and covered services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Contractual Arrangements -- Hospital Relationships
and Billing Arrangements."
RISKS ASSOCIATED WITH TRANSITION TO INTERNAL BILLING
Consistent with the Company's strategy to internally perform its billing
function, the Company acquired RTI in September 1995. Effective January 1, 1996
the Company began transitioning to RTI the billing for physician services under
its independent billing contracts on which it previously used third-party
billing companies. This transition will eliminate the fee that the Company pays
to these third-party billing companies for their services. At this time, the
Company is uncertain how the transition will ultimately affect the revenue per
patient visit and collection expenses that the Company realizes versus those
historically realized when using third-party billing companies. As of April 30,
1996, the Company had transferred to RTI the billing responsibilities on 15 of
the Company's 49 independent billing contracts on which it previously used
third-party billing companies.
RISKS RELATING TO GROWTH STRATEGY
EmCare's strategy involves growth, both internally and through acquisitions.
As a result, EmCare is subject to certain growth-related risks, including the
risk that it will be unable to retain personnel or acquire other resources
necessary to service such growth adequately. There can be no assurance that in
the future suitable acquisition candidates will be identified or that any
acquisition will be completed, will be integrated successfully into EmCare's
operations or will be successful in achieving desired objectives for increased
profitability. The Company competes against other companies for acquisitions.
Although EmCare is engaged in discussions from time to time with respect to
potential acquisitions, as of the date hereof there is no agreement in principle
with respect to any material acquisition. Finally, many of the expenses arising
from EmCare's efforts to increase market penetration may have a negative impact
on operating results until such time as these expenses are offset by increased
revenues. The Company's marketing activities includes bidding on a competitive
basis for emergency physician practice management contracts. There can be no
assurance that any contract obtained in this manner will be profitable. In
addition to growth through marketing efforts, EmCare intends to continue to
pursue acquisitions of providers of ED services in connection with hospitals and
other health care institutions in complementary or related fields. There can be
no assurance that the Company will be able to continue to implement its growth
strategy, or that this strategy will ultimately be successful. See "-- Intense
Competition," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Strategy," and
"Business -- Marketing."
CUSTOMER AND GEOGRAPHIC CONCENTRATION
EmCare's two largest ED management contracts, which relate to separate
hospital systems, accounted for approximately 16% of its operating revenue in
1995. The loss of either of these clients could have a material adverse effect
upon the Company. The current terms of the Company's contracts with these
9
<PAGE>
hospital systems are scheduled to expire at various times within the next 20
months. There can be no assurance that any contract will be renewed or, if
renewed, that it will contain terms as favorable to EmCare as the current
contract. In addition, for the twelve months ended March 31, 1996, EmCare
derived approximately 43% of its revenue from hospitals in Texas, and hospitals
in Florida, Maryland, Illinois and Pennsylvania accounted for an additional 28%
of EmCare's revenue, determined on a pro forma basis as if the acquisitions of
CEA and MESA had occurred on January 1, 1995. Health care reform or other
developments that adversely affect EmCare's operations in these states could
have a disproportionately large effect upon the Company. See "-- Dependence on
Key Personnel, PAs and Qualified Physicians" and "Business -- Contractual
Arrangements."
DEPENDENCE ON KEY PERSONNEL, PAS AND QUALIFIED PHYSICIANS
The Company is dependent in large part upon the leadership and active
participation of Leonard M. Riggs, Jr., M.D., the Company's Chairman of the
Board and Chief Executive Officer, and William F. Miller, III, the Company's
President and Chief Operating Officer. Dr. Riggs has more than a 20-year
relationship with EmCare's largest hospital client, serving as its Chief of
Emergency Medicine and on its Medical Board for over ten years. The Company does
not have non-compete agreements with Dr. Riggs and Mr. Miller. The loss to the
Company of the services of Dr. Riggs or Mr. Miller, regardless of whether either
may choose to compete with the Company, could have an adverse effect upon the
Company's future operations. In February 1992, the Company entered into a
five-year employment contract with each of Dr. Riggs and Mr. Miller which
provides inducements for their continued active participation in the business.
The Company has purchased key-man life insurance on Dr. Riggs and Mr. Miller
providing $2.0 million and $1.0 million, respectively, in coverage. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management."
In certain states the Company contracts with certain professional
associations (the "PAs"). Where the PA structure is utilized, a PA contracts
with the hospital client and physicians necessary to serve such hospital's ED.
Any event which has the effect of terminating or materially interfering with the
Company's relationships with the PAs or the PAs' relationships with hospital
clients could have a material adverse effect on EmCare. See "Business --
Contractual Arrangements -- PA Management Agreements."
EmCare's business depends to a significant degree on its ability to recruit
sufficient numbers of qualified physicians. There currently is a substantial
shortage of board certified emergency medicine physicians, and EmCare competes
with many types of health care providers, as well as teaching, research and
governmental institutions, for the services of such physicians. There can be no
assurance the Company will be able to recruit sufficient numbers of qualified
physicians. Inability to successfully recruit physicians could adversely affect
the Company's ability to add new clients or lines of business. See "Business --
Contractual Arrangements."
INTENSE COMPETITION
The provision of emergency physician practice management is characterized by
intense competition. Such competition can adversely affect the Company's profit
margins. The Company competes with national and regional enterprises, certain of
which have substantially greater financial and other resources available to
them. In addition, certain of these firms may have greater access than the
Company to physicians and potential clients. The Company also, in effect,
competes against local ED physician groups and hospital-operated EDs for
satisfying staffing and scheduling needs. In addition, as EmCare pursues its
strategies it may enter other areas of growing national and regional
competition. See "Business -- Strategy."
RISK OF ADVERSE EFFECT ARISING FROM HEALTH CARE REFORM
Numerous legislative proposals have been introduced or proposed in Congress
and in some state legislatures that would effect major changes in the U.S.
health care system nationally or at the state level. Among the proposals under
consideration are cost controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small businesses,
requirements that all business offer health insurance coverage to their
employees and the creation of a single government health insurance plan that
would cover all citizens. It is not clear at this time what proposals will be
adopted, if any, or, if adopted, what effect, if any, such proposals would have
on EmCare's business. Certain proposals, such as cutbacks in
10
<PAGE>
the Medicare and Medicaid programs, containment of health care costs on an
interim basis by means that could include a short-term freeze on prices charged
by physicians, hospitals and other health care providers, and permitting greater
state flexibility in the administration of Medicaid, could adversely affect
EmCare. There can be no assurance that currently proposed or future health care
legislation or other changes in the administration or interpretation of
governmental health care programs will not have an adverse affect on EmCare. See
"-- Reliance Upon Government and Other Payment Programs."
PROFESSIONAL AND GENERAL LIABILITIES
The Company periodically becomes involved in professional and general
liability claims with the attendant risk of substantial damage awards. The most
significant source of potential liability in this regard is the negligence of
physicians under contract with the Company. The Company performs only
non-medical administrative services, does not represent to the public or its
clients that it offers medical services and does not exercise influence or
control over the practice of medicine by physicians with whom it contracts.
However, it could be asserted that the Company should be held liable for any
malpractice of its independent contractor physicians under various theories,
including theories that an independent contractor physician is an employee or
agent of the Company or that the Company was negligent in contracting with such
physician. Additionally, the Company's contracts with certain of its hospital
clients require the Company to indemnify the hospital for losses suffered
thereby, including losses resulting from a physician's malpractice. There can be
no assurance that a future claim or claims will not be successful or if
successful will not exceed the limits of available insurance coverage or that
such coverage will continue to be available at acceptable costs. See "Business
- -- Emergency Physician Practice Management -- Recruiting and Credentialing."
ANTI-TAKEOVER PROVISIONS
The Company's certificate of incorporation and by-laws contain provisions
that may make it more difficult for a third-party to acquire, or discourage
acquisition bids for, the Company. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. See "Description of Capital Stock."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company of the sale of 1,500,000 shares of Common
Stock offered hereby by the Company, assuming a public offering price of $31.25
per share, are estimated to be approximately $44.1 million ($50.9 million if the
Underwriters exercise their over-allotment option from the Company in full). The
Company expects to use approximately $12.0 million to repay the outstanding
balance under its bank credit facility (the "Credit Facility"), $2.5 million to
complete the development and implementation of a customized ED information
system, and the balance of the net proceeds, together with borrowings under the
Credit Facility, to make acquisitions. The amount outstanding under the Credit
Facility as of May 31, 1996 was $12.0 million, which the Company incurred in
connection with acquisitions. Such amount bears interest at variable rates
(approximately 6% at May 31, 1996) and is payable on February 20, 1999. Until
used, the Company's net proceeds from this offering will be invested in
short-term, investment grade, interest-bearing obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Strategy," and "Business -- Information Systems."
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering of Common Stock in
December 1994 at an initial public offering price of $11.00 per share. The
Common Stock began trading on the Nasdaq National Market under the symbol EMCR
on December 8, 1994. The table below sets forth the high and low sale prices for
the Common Stock on the Nasdaq National Market during the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
4th Quarter (from December 8 to December 31)................................................... $143/4 $11
YEAR ENDED DECEMBER 31, 1995:
1st Quarter.................................................................................... 205/8 131/8
2nd Quarter.................................................................................... 201/2 181/8
3rd Quarter.................................................................................... 233/4 177/8
4th Quarter.................................................................................... 267/8 193/8
YEAR ENDING DECEMBER 31, 1996:
1st Quarter.................................................................................... 301/2 211/4
2nd Quarter (from April 1 to May 31)........................................................... 321/2 251/2
</TABLE>
The reported last sale price for the Common Stock on the Nasdaq National
Market on May 31, 1996 was $31.25 per share. As of that date, the Common Stock
was held by approximately 83 holders of record.
DIVIDEND POLICY
Since its initial public offering, the Company has not declared or paid, nor
does it currently intend to declare or pay, cash dividends on the Common Stock,
but intends instead to retain any future earnings for reinvestment in its
business. In addition, the Credit Facility prohibits the Company from paying
dividends and restricts the ability of the Company's subsidiaries and the PAs to
pay dividends or make distributions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 5 of Notes to
Consolidated Financial Statements of the Company.
12
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the short-term debt (including the
current portion of long-term debt) and total capitalization of the Company as of
March 31, 1996, (ii) the pro forma short-term debt and capitalization of the
Company assuming the acquisition of MESA occurred on March 31, 1996, and (iii)
such pro forma information as further adjusted to give effect to the sale by the
Company of 1,500,000 shares of Common Stock pursuant to this offering, assuming
an offering price of $31.25 per share, and the application of the net proceeds
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements of the Company and
related notes thereto appearing elsewhere in this Prospectus. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(2) ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (including the current portion of long-term debt)........ $ 5,820 $ 7,063 $ 4,063
--------- ------------- -------------
--------- ------------- -------------
Long-term obligations.................................................... $ 2,334 $ 11,595 $ 3,779
Stockholders' equity:
Preferred stock, par value $.01 per share; no shares issued or
outstanding........................................................... -- -- --
Common stock, par value $.01 per share; 8,117,000 shares issued and
outstanding, actual and pro forma; and 9,617,000 shares issued and
outstanding, pro forma as adjusted(1)................................. 81 81 96
Additional paid-in capital............................................. 42,577 44,077 88,153
Retained earnings...................................................... 13,960 13,960 13,960
--------- ------------- -------------
Total stockholders' equity........................................... 56,618 58,118 102,209
--------- ------------- -------------
Total capitalization................................................. $ 58,952 $ 69,713 $ 105,988
--------- ------------- -------------
--------- ------------- -------------
</TABLE>
- ------------------------
(1) Excludes: (i) 1,009,207 shares of Common Stock issuable upon the exercise of
outstanding options granted under the Company's stock option plan, which
options were exercisable for an aggregate of 286,950 shares of Common Stock,
and (ii) 2,963,266 additional shares of Common Stock reserved for issuance
upon the exercise of options that may be granted in the future under such
stock option plan.
(2) Assumes the acquisition of MESA as of March 31, 1996 for a total purchase
price of $11.1 million, including $7.8 million borrowed under the Credit
Facility, $1.8 million in long-term obligations, 56,355 shares of Common
Stock to be issued in the future valued at $1.5 million, and assumed short
and long-term obligations of $866,000.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
1991, 1992, 1993, 1994, and 1995, and for the years then ended, have been
derived from the Consolidated Financial Statements of the Company, which
statements have been audited by Ernst & Young LLP, independent auditors. The
selected consolidated financial data presented as of March 31, 1996, and for the
three month periods ended March 31, 1995 and 1996, have been derived from the
unaudited consolidated financial statements of the Company, which have been
prepared on the same basis as the audited Consolidated Financial Statements of
the Company appearing elsewhere in this Prospectus and include, in the opinion
of the Company, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly such selected financial data for these periods. The
results of operations for any such period are not necessarily indicative of the
results of operations for a full year. The financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND NON-FINANCIAL DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue........................... $55,673 $ 71,166 $ 95,793 $ 118,250 $ 156,826 $ 34,540 $ 44,235
Professional expenses................. 44,739 57,506 75,788 94,184 123,935 27,154 35,315
---------- --------- ------------- ----------- ---------- -------- ---------
Gross profit........................ 10,934 13,660 20,005 24,066 32,891 7,386 8,920
General and administrative expenses... 10,001(1) 9,297 12,218(1) 13,583 16,760 3,927 4,245
Depreciation and amortization......... 81 3,566 5,846(2) 1,433 2,503 405 809
---------- --------- ------------- ----------- ---------- -------- ---------
Income from operations.............. 852 797 1,941 9,050 13,628 3,054 3,866
Interest income (expense), net........ 225 (1,551) (2,012) (1,913) 281 198 (100)
---------- --------- ------------- ----------- ---------- -------- ---------
Income (loss) before income taxes
and extraordinary charge........... 1,077 (754) (71) 7,137 13,909 3,252 3,766
Income tax expense (benefit).......... 35(3) (53) 28 2,568 5,216 1,236 1,431
---------- --------- ------------- ----------- ---------- -------- ---------
Income (loss) before extraordinary
charge............................. 1,042 (701) (99) 4,569 8,693 2,016 2,335
Extraordinary charge, net of taxes.... -- -- -- 837 -- -- --
---------- --------- ------------- ----------- ---------- -------- ---------
Net income (loss)................... $ 1,042 $ (701) $ (99) $ 3,732 $ 8,693 $ 2,016 $ 2,335
---------- --------- ------------- ----------- ---------- -------- ---------
---------- --------- ------------- ----------- ---------- -------- ---------
Income (loss) per share before
extraordinary charge (4)............. $ (0.05) $ 0.89 $ 1.05 $ .25 $ .28
------------- ----------- ---------- -------- ---------
------------- ----------- ---------- -------- ---------
Net income (loss) per share (4)....... $ (0.05) $ 0.73 $ 1.05 $ .25 $ .28
------------- ----------- ---------- -------- ---------
------------- ----------- ---------- -------- ---------
Weighted average shares outstanding... 1,856 5,138 8,251 7,911 8,433
OTHER DATA:
EBITDA (5)............................ $ 933 $ 4,363 $ 7,787 $ 10,483 $ 16,131 $ 3,459 $ 4,675
Number of patient visits.............. N/A 930,000 1,170,000 1,410,000 1,797,000 405,000 481,000
Number of facilities under contract at
end of period........................ 37 43 57 62 75 71 75
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH
----------------------------------------------------- 31,
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital....................... $ 7,645 $ 12,726 $ 14,915 $ 28,041 $ 18,948 $ 22,711
Intangible assets, net................ -- 10,189 6,285 11,296 36,543 36,221
Total assets.......................... 16,193 38,548 41,233 55,214 80,743 85,196
Short term debt....................... 982 3,546 3,402 2,033 2,956 5,820
Long-term debt........................ 651 16,840 15,097 2,390 2,500 2,334
Mandatory redeemable convertible
preferred stock...................... -- 14,500 14,500 -- -- --
Total stockholders' equity
(deficit)............................ 3,717 (9,622) (9,020) 34,499 52,730 56,618
</TABLE>
- ----------------------------------
(1) Amount includes a non-recurring charge of $600,000 for the year ended
December 31, 1993, for contingent payments to selling stockholders
considered compensation expense in respect of a business acquisition
completed in 1992 and an $823,000 charge for the year ended December 31,
1991 relating to compensation expense from a stock grant.
(2) Amount includes the write-off of the remaining assets related to certain
officers' non-competition agreements of $2.0 million and scheduled
amortization of such assets of $2.1 million.
(3) During the year ended December 31, 1991 the Company was a Subchapter S
corporation for federal income tax purposes and, accordingly, was not
subject to federal income taxes.
(4) Per share amounts for periods prior to 1993 are not comparable to subsequent
period amounts due to the completion of the recapitalization of the Company
in February 1992 and consequently are not included in this table.
(5) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, and extraordinary charges and is not intended to represent an
alternative to net income or any other measure of performance under
generally accepted accounting principles. The Company believes that
investors may find this measure useful as an indicator of financial
performance.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is a leading provider of physician practice management services
in hospital EDs and other practice settings. The Company recruits and evaluates
the credentials of physicians and arranges contracts and schedules for their
services. The Company has managed emergency physician services for more than 20
years primarily in larger hospitals with high volume EDs. At April 30, 1996, the
Company had management contracts relating to 85 EDs in 18 states with
approximately 2.1 million patient visits per year. In addition to the Company's
emergency physician practice management, the Company provides physician practice
management for hospital-based radiology, intensive care and lower volume
emergency medicine practices, and for primary care physician group practices.
The Company also provides billing services for emergency physician practice
management contracts and provides physician placement services, primarily on a
LOCUM TENENS (temporary) basis, across a broad range of practice specialties.
Revenue is recorded in the period the services are rendered as determined by
the respective contracts with the health care providers. Professional expenses
are based on the terms of the respective contracts with the physicians. Services
performed by physicians under contract with the Company are generally charged on
a fee for service basis, and the Company's revenue is derived from such fees.
These fees are either: (i) collected by the related hospital, which remits a
negotiated amount monthly to the Company, or (ii) billed and collected
separately by the Company ("independent billing contracts"). In independent
billing contract arrangements, the Company arranges for third-party billing
firms or a subsidiary to bill and collect directly for services performed by the
physicians. Cost of collections is included in professional expense.
The table below sets forth for the periods indicated the percentage of net
revenue contributed by emergency physician practice management and other
services.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Emergency Physician Practice Management Services......... 91.7% 92.8% 92.4% 92.6% 90.4%
Other Services........................................... 8.3 7.2 7.6 7.4 9.6
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
Management believes its emergency physician practice management business
should continue to realize steady internal growth. Also, the emergency physician
practice management business is highly fragmented and the market is
consolidating. Accordingly, acquisitions have been a significant part of the
Company's growth in the past and the Company intends to continue to expand its
business through acquiring local and regional groups with high volume contracts
and favorable demographics.
The Company's future results of operations will depend in a large part on
the Company's ability to: (i) continue to acquire physician practice management
companies on attractive terms and to successfully integrate and manage the
acquired operations, (ii) to obtain new emergency physician practice management
contracts on attractive terms and to successfully operate under such contracts,
and (iii) to increase revenues on existing emergency physician practice
management contracts. There can be no assurance that in the future suitable
acquisition candidates will be identified or that any acquisition will be
completed, will be integrated successfully into the Company's operations or will
be successful in achieving desired objectives for increased profitability.
Furthermore, there can be no assurance that the Company will be successful in
bidding for and obtaining new contracts, that it will operate profitably under
any new contracts, or that it will be able to increase revenue on existing
contracts. See "Risk Factors -- Risks Relating to Growth Strategy."
This Prospectus contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 (as amended, the "Securities Act").
All statements other than statements of historical fact contained in this
Prospectus, including statements in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations," concerning the Company's
financial position and liquidity,
15
<PAGE>
ability to expand its operations through acquisitions and marketing, and other
matters are forward looking statements. Although the Company believes that the
expectations reflected in such forward looking statements are reasonable, no
assurance exists that such expectations will prove correct. Factors that could
cause the Company's results to differ significantly from the results discussed
in the forward looking statements include the risks described in the "Risk
Factors" section, such as the constantly changing health care environment, the
pace of new business and acquisition activity, the payment programs for health
care services, the developments in the DOJ Lawsuit, the implementation of the
new guidelines by the HCFA for documentation of Medicare and Medicaid claims,
and the transition of certain of the Company's billing activities to its newly
acquired billing subsidiary. All forward looking statements in this Prospectus
are expressly qualified in their entirety by the cautionary statements in this
paragraph.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenue, certain
statement of income data for the periods indicated as well as percentage changes
from period to period in the data presented:
<TABLE>
<CAPTION>
FIRST
THREE
THREE MONTHS FISCAL FISCAL MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, 1994 1995 1996
------------------------ --------------- COMPARED COMPARED COMPARED
1993 1994 1995 1995 1996 TO 1993 TO 1994 TO 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue..................... 100.0% 100.0% 100.0% 100.0% 100.0% 23.4% 32.6% 28.1%
Professional expenses........... 79.1 79.6 79.0 78.6 79.8 24.3 31.6 30.1
Gross profit.................... 20.9 20.4 21.0 21.4 20.2 20.3 36.7 20.8
General and administrative
expenses....................... 12.8 11.5 10.7 11.4 9.6 11.2 23.4 8.1
Depreciation and amortization... 6.1 1.2 1.6 1.2 1.8 (75.5) 74.7 99.8
Income from operations.......... 2.0 7.7 8.7 8.8 8.7 * 50.6 26.6
Income (loss) before income
taxes and extraordinary
charge......................... (0.1) 6.0 8.9 9.4 8.5 * 94.9 15.8
Income (loss) before
extraordinary charge........... (0.1) 3.9 5.5 5.8 5.3 * 90.3 15.8
</TABLE>
- ------------------------
* Not meaningful
THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
NET REVENUE. Net revenue increased $9.7 million, or 28.1%, to $44.2 million
for the three months ended March 31, 1996 from $34.5 million for the three
months ended March 31, 1995. Of this increase, $7.7 million was attributable to
increased revenue from the Company's ED contracts. Net revenue from other
services increased $2.0 million, contributing 5.8% to the 28.1% total
period-to-period increase. This consists of $1.4 million attributable to the
Company's billing company which was acquired in September 1995, an increase of
$653,000 attributable to the Company's management of primary care physician
group practices, and a decrease of $65,000 attributable to other non-ED
services.
Same store ED contract revenue increased $1.9 million, or 6.7%, to $30.2
million for the three months ended March 31, 1996 from $28.3 million for the
three months ended March 31, 1995, contributing 5.5% to the 28.1% total
period-to-period increase. "Same store" revenue consists of revenue derived from
EDs under management from the beginning of the prior period through the end of
the subsequent period. New ED contracts generated by the Company's marketing
activities contributed $3.8 million of the increase in net revenue, or 11.0% to
the 28.1% total period-to-period increase. Acquisitions contributed $3.6 million
of the increase in net revenue, or 10.4% to the 28.1% total period-to-period
increase. Included in the period-to-period increase in net revenue is a negative
impact of $1.6 million, or 4.6% to the 28.1% total period-to-period increase
caused by the loss of contracts.
PROFESSIONAL EXPENSES. Professional expenses primarily consist of fees paid
to physicians under contract with the Company, collection fees relating to
independent billing contracts billed by vendors, operating expenses for the
billing company, and professional liability insurance premiums for physicians
under contract. Professional expenses increased by $8.1 million, or 30.1%, to
$35.3 million for the three months ended March 31, 1996 from $27.2 million for
the three months ended March 31, 1995. This increase was primarily
16
<PAGE>
attributable to the addition of new ED contracts. Expenses related to other
services increased $1.9 million from period to period, including $1.3 million
related to the acquired billing company. As a percentage of net revenue,
professional expenses increased to 79.8% in the three months ended March 31,
1996 from 78.6% in the same period in 1995. The increase in professional
expenses as a percentage of net revenue is primarily due to the operating costs
associated with the billing company acquired in September 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $318,000, or 8.1%, to $4.2 million for the three months ended March
31, 1996 from $3.9 million for the three months ended March 31, 1995. This
increase is primarily attributable to the incremental administrative costs
related to the new EDs under management. As a percentage of net revenue, general
and administrative expenses decreased to 9.6% in the three months ended March
31, 1996 from 11.4% in the same period in 1995 as the Company continues to
leverage its infrastructure with greater revenue growth.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consist
principally of amortization of goodwill, contracts and non-competition
agreements entered into in connection with business acquisitions. Depreciation
and amortization increased by $404,000, or 99.8%, to $809,000 for the three
months ended March 31, 1996 from $405,000 for the three months ended March 31,
1995, principally due to business acquisitions.
INTEREST INCOME/EXPENSE. Interest expense increased by $26,000, or 17.8%,
to $172,000 for the three months ended March 31, 1996 from $146,000 for the
three months ended March 31, 1995. Interest income decreased by $272,000, or
79.1%, to $72,000 for the three months ended March 31, 1996 from $344,000 for
the three months ended March 31, 1995, primarily due to lower cash balances
available for investment in the first quarter of 1996. Cash balances were higher
in the first quarter of 1995 as a result of the Company's initial public
offering in December 1994.
INCOME TAXES. The Company's effective tax rate remained unchanged at 38.0%
from period to period.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET REVENUE. Net revenue increased $38.5 million, or 32.6%, to $156.8
million for the year ended December 31, 1995 from $118.3 million for the year
ended December 31, 1994. Of this increase, $35.2 million was attributable to
increased revenue from the Company's ED contracts. Net revenue from other
services increased $3.3 million, contributing 2.8% to the 32.6% total
period-to-period increase. This consists of $2.0 million attributable to the
Company's acquired billing company, an increase of $1.1 million attributable to
the Company's management of primary care physician group practices, and a
decrease of $200,000 attributable to other non-ED services.
Same store ED contract revenue increased $8.4 million, or 9.1%, to $100.9
million for the year ended December 31, 1995 from $92.5 million for the year
ended December 31, 1994, contributing 7.1% to the 32.6% total period-to-period
increase. New ED contracts generated by the Company's marketing activities
contributed $15.3 million of the increase in net revenue, or 12.9% to the 32.6%
total period-to-period increase. Acquisitions contributed $17.5 million of the
increase in net revenue, or 14.8% to the 32.6% total period-to-period increase.
Included in the period-to-period increase in net revenue is a negative impact of
$6.0 million, or 5.1% to the 32.6% total period-to-period increase, caused by
the loss of contracts.
PROFESSIONAL EXPENSES. Professional expenses primarily consist of fees paid
to physicians under contract with the Company, collection fees relating to
independent billing contracts billed by vendors, operating expenses for the
newly acquired billing company, and professional liability insurance premiums
for physicians under contract. Professional expenses increased by $29.7 million,
or 31.6%, to $123.9 million for the year ended December 31, 1995 from $94.2
million for the year ended December 31, 1994. This increase was primarily
attributable to the addition of new ED contracts. Expenses relating to other
services increased by $3.6 million from period to period, including $2.1 million
related to the acquired billing company. As a percentage of net revenue,
professional expenses decreased to 79.0% in the year ended December 31, 1995
from 79.6% in the same period in 1994.
17
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $3.2 million, or 23.4%, to $16.8 million for the year ended
December 31, 1995 from $13.6 million for the year ended December 31, 1994. This
increase is primarily attributable to the incremental administrative costs
related to the new EDs under management. As a percentage of net revenue, general
and administrative expenses decreased from 11.5% in the 1994 period to 10.7% in
the 1995 period as the Company continues to leverage its infrastructure with
greater revenue growth.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consist
principally of amortization of goodwill, contracts, and non-competition
agreements entered into in connection with business acquisitions. Depreciation
and amortization increased by $1.1 million, or 74.7%, to $2.5 million for the
year ended December 31, 1995 from $1.4 million for the year ended December 31,
1994, principally due to the acquisitions.
INTEREST INCOME/EXPENSE. Interest expense decreased by $1.6 million, or
72.7%, to $652,000 for the year ended December 31, 1995 from $2.2 million for
the year ended December 31, 1994, principally due to the repayment of $14.5
million of subordinated debt in December 1994. Interest income increased by
$602,000, or 182%, to $933,000 for the year ended December 31, 1995 from
$331,000 for the year ended December 31, 1994, primarily due to higher cash
balances available for investment as a result of the Company's initial public
offering in December 1994 and higher interest rates applicable to invested cash.
INCOME TAXES. The Company's effective tax rate increased to 37.5% for the
year ended December 31, 1995 from 36% for the year ended December 31, 1994, due
principally to non-deductible amortization expense arising from acquisitions.
YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET REVENUE. Net revenue increased $22.5 million, or 23.4%, to $118.3
million for the year ended December 31, 1994 from $95.8 million for the year
ended December 31, 1993. Of this increase, $21.9 million was attributable to
increased revenue from the Company's ED contracts. Net revenue from other
services increased $576,000 from period to period which was principally due to
an increase of $1.3 million attributable to the Company's management of a
primary care physician group practice which commenced in June 1993 and a
decrease of $705,000 attributable to other non-ED services.
Same store ED contract revenue increased $4.9 million, or 6.3%, to $82.9
million for the year ended December 31, 1994 from $78.0 million for the year
ended December 31, 1993, contributing 5.1% to the 23.4% total period-to-period
increase. New ED contracts generated by the Company's marketing activities
contributed $12.1 million of the increase in net revenue, or 12.6% to the 23.4%
total period-to-period increase. Acquisitions contributed $7.3 million of the
increase in net revenue, or 7.6% to the 23.4% total period-to-period increase.
Included in the period-to-period increase in net revenue is a negative impact of
$2.4 million, or 2.5% to the 23.4% total period-to-period increase, caused by
the loss of contracts.
PROFESSIONAL EXPENSES. Professional expenses primarily consist of fees paid
to physicians under contract with the Company, collection fees relating to
independent billing contracts and professional liability insurance premiums for
physicians under contract. Professional expenses increased by $18.4 million, or
24.3%, to $94.2 million for the year ended December 31, 1994 from $75.8 million
for the year ended December 31, 1993. This increase was primarily attributable
to the addition of new ED contracts and professional expenses relating to the
Company's management of a primary care physician group practice. Professional
expenses relating to other services were relatively unchanged from period to
period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $1.4 million, or 11.2%, to $13.6 million for the year ended
December 31, 1994 from $12.2 million for the year ended December 31, 1993.
Beginning in 1992, the Company invested significant resources in the development
of its management and marketing infrastructure designed to facilitate and
accommodate future growth. These activities continued through 1993, and 1994
bears the full impact of the costs associated with these enhancements. General
and administrative expenses for the year ended December 31, 1993 include a
non-recurring
18
<PAGE>
$600,000 charge for compensation expense relating to contingent payments made to
selling stockholders in a business acquisition completed in 1992. The
incremental administrative costs related to the new EDs under management also
contributed to the period-to-period increase in general and administrative
expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consists
principally of amortization of goodwill, contracts and non-competition
agreements entered into in connection with business acquisitions and in
connection with the recapitalization of the Company in 1992. Depreciation and
amortization decreased by $4.4 million, or 75.5%, to $1.4 million for the year
ended December 31, 1994 from $5.8 million for the year ended December 31, 1993.
This decrease resulted primarily from the elimination in the 1994 period of
amortization expense relating to the non-competition agreements written off in
the fourth quarter of 1993.
INTEREST INCOME/EXPENSE. Interest expense, net of interest income, was
relatively unchanged from period to period.
INCOME TAXES. The Company's effective tax rate decreased to 36.0% for the
year ended December 31, 1994 from 39.4% for the year ended December 31, 1993 due
to a reorganization of its subsidiaries to achieve state tax savings.
QUARTERLY RESULTS
The following table presents certain quarterly financial information for the
nine quarters ended March 31, 1996. This information has been prepared on the
same basis as the audited Consolidated Financial Statements of the Company
appearing elsewhere in this Prospectus and include, in the opinion of the
Company, all adjustments (consisting of normal recurring adjustments) necessary
to present fairly the quarterly results when read in conjunction with the
audited Consolidated Financial Statements of the Company and notes thereto.
<TABLE>
<CAPTION>
1996 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenue........................................................... $ 44,235
Gross profit.......................................................... 8,920
Net income............................................................ 2,335
Net income per share.................................................. $ 0.28
Weighted average shares outstanding................................... 8,433
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenue........................................................... $ 34,540 $ 38,062 $ 40,480 $ 43,744
Gross profit.......................................................... 7,386 7,904 8,141 9,460
Net income............................................................ 2,016 2,147 2,145 2,385
Net income per share.................................................. $ 0.25 $ 0.26 $ 0.26 $ 0.28
Weighted average shares outstanding................................... 7,911 8,308 8,330 8,456
</TABLE>
<TABLE>
<CAPTION>
1994 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenue........................................................... $ 27,485 $ 29,864 $ 30,325 $ 30,576
Gross profit.......................................................... 5,639 6,072 5,945 6,410
Income before extraordinary charge.................................... 1,108 1,074 1,141 1,246
Net income............................................................ 1,108 1,074 1,141 409
Income per share before extraordinary charge.......................... $ 0.22 $ 0.22 $ 0.23 $ 0.22
Net income per share.................................................. 0.22 0.22 0.23 0.07
Weighted average shares outstanding................................... 4,973 4,972 4,972 5,637
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $22.7 million in working capital, an
increase of $3.8 million from December 31, 1995. At March 31, 1996, the
Company's principal sources of liquidity consisted of: (i) cash and
19
<PAGE>
cash equivalents aggregating $7.1 million, (ii) accounts receivable totaling
$31.0 million, and (iii) $47.0 million in borrowing capacity under its Credit
Facility. Subsequent to March 31, 1996, the Company acquired MESA for a total
purchase price of $11.1 million, including $7.8 million borrowed under the
Credit Facility and 56,355 shares of Common Stock valued at $1,500,000, assumed
short and long-term obligations of $866,000, and additional consideration of up
to $2,000,000 payable within the next three years if certain financial targets
are attained. See "Business -- Recent Acquisitions."
In the three months ended March 31, 1996, $4.9 million in cash was used to
support operating activities. This amount reflects the increase in accounts
receivable due to growth in the number of EDs, an increase in prepaid insurance,
and a decrease in accounts payable and accrued expenses. Cash of $724,000 was
provided by investing activities for the three months ended March 31, 1996 as
the proceeds from the sale of marketable securities exceeded the purchase of
furniture and office equipment. Cash of $3.5 million was provided by financing
activities for the three months ended March 31, 1996 as proceeds from borrowings
and the exercise of stock options exceeded payments on obligations.
Accounts receivable are a key component of the Company's working capital.
Accounts receivable totaled $31.0 million at March 31, 1996, an increase of $1.2
million over December 31, 1995. The timing of payments on the Company's accounts
receivable can vary significantly depending on whether the related contract is a
hospital-based or independent billing contract. Independent billing receivables
have a significantly longer collection cycle than hospital-based billing
receivables because of the process of billing and collecting from third-party
payor programs and private payors. The number of days revenue in average
receivables was 63 days for the three months ended March 31, 1996, compared to
61 days for the three months ended March 31, 1995. In connection with
independent billing contracts, the Company incurs, and can expect to incur in
the future, negative cash flow during the start-up phase (typically six months
or more after the contract is initiated).
On February 20, 1996, the Company replaced its credit agreement with the
Credit Facility, a revolving line of credit with a bank acting as administrative
agent for a syndicate of lenders under which the Company can borrow up to $50.0
million for working capital and acquisition purposes. The Credit Facility
matures on February 20, 1999. Borrowings under the Credit Facility bear interest
at variable rates based, at the Company's option, on the bank's base rate or the
Eurodollar rate. As of April 30, 1996, $38.0 million was available under the
Credit Facility.
The Company currently procures and partially finances, and expects to
continue to procure and partially finance, professional liability insurance on
behalf of most physicians under contract with the Company. The current policy
expires December 31, 1997.
The Company's annual capital expenditures have typically been for data
processing equipment and leasehold improvements at the Company's corporate
offices. Capital expenditures of $919,000 in 1995 are a result of the Company's
commitment to significantly enhance its information systems. In the foreseeable
future, annual capital expenditures are not expected to exceed $2.5 million per
year.
The Company anticipates that funds generated from operations, together with
funds available under the Credit Facility, will be sufficient to meet its
working capital requirements and debt obligations and to finance any necessary
capital expenditures for the foreseeable future. Expansion of the Company's
business through acquisitions may require additional funds, which, to the extent
not provided by internally generated sources, the Credit Facility, and the net
proceeds of this offering, would require the Company to seek additional debt or
equity financing.
INFLATION
The Company's business is labor intensive with extensive reliance on
independent contractor physicians. Fees paid to such physicians tend to increase
during periods of inflation and when shortages in the labor market occur.
Because of restrictions on payment by government and private medical insurance
programs and the pressures to contain the growth in the costs of such programs,
the Company bears the risk that payment rates set by such programs will not keep
pace with inflation. Although the moderate inflation rates of the past several
years have not posed significant problems for the Company, a substantial
increase in the rate of inflation without a corresponding increase in payment
rates would adversely affect the Company's business.
20
<PAGE>
BUSINESS
The Company is a leading provider of physician practice management in
hospital EDs and other practice settings. The Company has managed emergency
physician practices for more than 20 years primarily in hospitals with higher
volume EDs. The Company recruits physicians, evaluates their credentials, and
arranges contracts and schedules for their services. EmCare assists in such
operational areas as staff coordination, quality assurance and departmental
accreditation and provides billing, recordkeeping, third-party payment programs
and other administrative services. The Company markets its services primarily to
hospitals with EDs that have more than 12,000 patient visits per year and
multi-site systems. At April 30, 1996, the Company had management contracts
relating to 85 EDs in 18 states with approximately 2.1 million patient visits
per year. EmCare also provides billing and other physician practice management
services, as well as temporary staffing across a broad range of medical
specialties.
MARKET OVERVIEW
Hospitals have been greatly affected by changes in the U.S. health care
industry during the last several years, including the increasing use of
capitated and other fixed payment systems that shift financial risk from payors
to providers. The evolving managed care environment requires hospitals to be
more cost-effective in all aspects of their operations, including the
recruiting, scheduling, retaining and managing of physicians, and billing and
collecting for their services. As a result many hospitals have turned to outside
management organizations like the Company for physician practice management
services.
There are approximately 5,200 hospitals in the United States that operate
emergency departments. Approximately 80% of these hospitals use outsourced
physicians to staff their EDs. The outsourcing groups used to provide ED
services are either national groups, regional groups, or small local groups. The
national groups serve approximately 20% of the market. Approximately 40% of EDs
use local physician groups that manage only one or two EDs. The Company believes
that these groups are encountering increasing difficulty controlling costs and
satisfying recordkeeping and other administrative requirements as demanded in
today's evolving health care industry. As a result, the Company believes that
there are significant consolidation opportunities within the emergency physician
practice management industry.
EDs are typically the hospital's most visible operation to the public and
generate, on average, approximately 40% of inpatient admissions. The Company
believes that EDs will continue to be essential to serve the health care needs
of the public in cases of unpredictable, acute and serious trauma and illness.
Emergency physicians act as primary care physicians both to patients
requiring emergency services and to patients who are less seriously ill or
injured and who do not otherwise have access to a physician. Utilizing the ED
for treatment of less seriously ill or injured patients is perceived to be
inefficient, however, and health care organizations such as the Company are
increasingly developing primary care facilities within or contiguous to the ED
so that these patients can be seen in a more cost-effective setting while
maximizing the utilization of the ED's resources. The Company believes that with
proper procedures, staffing, and configuration, EDs can provide cost effective
primary care while maintaining their essential emergency care function.
In addition to hospitals, the market for physician practice management
includes integrated health care delivery and financing systems. These systems,
which include HMOs and other third-party payors, large employers, and hospitals
in various combinations, must address the same issues of recruiting, scheduling,
and managing physicians that hospitals face in managing their EDs. The Company
believes that these systems will increasingly turn to outside organizations,
either on an outsource or joint venture basis, to arrange for and manage the
professional component of their services.
Changes in the U.S. health care industry are also eroding the traditional
relationship between private practitioners, physicians and their patients.
Increasing practice complexity and costs, together with declining per patient
revenues resulting from new payment systems and declining patient volume
resulting from steerage of patients to HMOs and other groups, have led many
physicians to affiliate themselves with organizations such as the Company which
can provide the capital resources, information and payment systems and practice
management expertise that physicians need in today's environment.
21
<PAGE>
STRATEGY
The Company's objective is to continue to grow as a high quality,
cost-effective provider of emergency physician practice management services in
an increasingly competitive managed care environment. The Company's strategies
to achieve this objective are:
GROWTH THROUGH ACQUISITION. The Company intends to continue to pursue the
growth of its physician practice management business by acquiring local and
regional groups. These groups are faced with increasing pressure to provide
systems and services requiring the resources and management expertise of a
larger organization specializing in outsourced ED practice management. From
January 1992 through April 1996 the Company added 28 EDs and seven other
practice settings through acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GROWTH THROUGH MARKETING. Through marketing efforts, EmCare seeks to obtain
new contracts both by replacing existing management companies and by contracting
with hospitals that have not previously outsourced ED practice management. The
Company markets its services primarily to hospitals with higher volume EDs and
multi-site systems. From January 1992 through April 1996 the Company added 32
EDs through its marketing efforts.
EXPAND SERVICES OF ED FACILITIES. EmCare will expand the use of facilities
and systems of its higher volume EDs to provide cost-effective care to patients
who require less urgent services and who do not otherwise have access to a
physician. The Company intends to continue to assist its hospital clients to
establish "express care units" within or in conjunction with their EDs to permit
more cost-effective treatment of lower acuity ED patients. In addition, the
Company is continuing discussions with HMOs and other managed care organizations
concerning the use of EDs to provide medical services to their participants.
These efforts are designed to expand ED capabilities and to increase patient
volume.
ASSIST PHYSICIANS IN A MANAGED CARE ENVIRONMENT. EmCare provides physicians
with the resources necessary to compete in today's managed care environment,
including access to patients, as well as capital resources, information systems,
and expertise in third-party payment programs and practice management. These
advantages enhance EmCare's ability to retain high quality physicians.
ASSIST CLIENTS TO CONTROL COSTS. The Company utilizes its experience in
physician practice management to help its hospital clients control costs while
providing consistent high quality care. In addition to the economies obtained
from expanding the uses of ED facilities, these efforts include assisting
clients in developing standardized procedures and protocols that reduce
unnecessary diagnostic testing and compensating physicians in part based on the
performance of the ED, thereby aligning the economic interests of the physician
with the productivity of the ED.
RECENT ACQUISITIONS
Consistent with its strategic objectives, the Company has completed the
following six significant acquisitions since January 1, 1995 for an aggregate
consideration of approximately $32.0 million and 489,688 shares of Common Stock.
- On April 30, 1996, the Company acquired MESA, a physician practice
management company providing ED services to eight hospitals and two
occupational medicine clinics in Illinois, with approximately 212,000
patient visits per year. The Company's acquisition of MESA established a
new and significant presence for the Company in the Chicago area.
- On April 1, 1996, the Company acquired a physician practice providing ED
services for a hospital in Houston, Texas, with approximately 23,000
patient visits per year. This acquisition expanded the Company's presence
in the Houston market.
- On September 7, 1995, the Company acquired RTI, a company which provided
billing services to 18 emergency physician groups in eight states, only
one of which was an existing EmCare group. The Company's acquisition of
RTI enables it to perform internally the billing functions on those
contracts on which the Company previously used third-party billing
companies. As of April 30, 1996, the
22
<PAGE>
Company had transitioned 15 of the Company's 49 independent billing
contracts to RTI. In addition, following this transition the Company will
seek to expand RTI's business of providing billing services for
third-party clients.
- On August 1, 1995, the Company acquired a physician practice providing
inpatient physician services to five hospitals in Maryland, with
approximately $1.9 million in net revenue per year. This acquisition
complements the Company's acquisition of CEA in the Mid-Atlantic region of
the United States discussed below.
- On May 1, 1995, the Company acquired a physician practice providing ED
services for a hospital in Arkansas, with approximately 29,000 patient
visits per year, which established a new presence for the Company in that
state.
- On February 28, 1995, the Company acquired CEA, a physician practice
management company providing ED services to seven hospital EDs in
Maryland, Virginia, and Pennsylvania, with approximately 208,000 patient
visits per year. The acquisition of CEA established a significant new
presence for the Company in the Mid-Atlantic region of the United States.
EMERGENCY PHYSICIAN PRACTICE MANAGEMENT
EmCare's principal activity is providing physician practice management to
EDs. The Company generally is responsible for recruiting, evaluating the
credentials of and scheduling qualified emergency physicians and providing
administrative support for the hospital and the physicians. The ED coverage
provided by the Company generally includes scheduling a group of physicians to
be on duty on a 24-hour, 365-day basis. As of April 30, 1996, EmCare had
contracts to provide physician practice management in 85 EDs. These services
accounted for approximately 92% of the Company's total net revenue during the
twelve months ended March 31, 1996.
RECRUITING AND CREDENTIALING. Recruiting and evaluating the credentials of
physicians are essential services provided by the Company to its hospital
clients. EmCare commences its recruiting process by contacting physicians who
reside in or near the location involved or who have expressed an interest in
relocating there and by mailing opportunity bulletins to a larger group of
physicians residing in adjacent areas. It then prescreens responses to determine
whether the candidates meet the qualifications established by the hospital. The
Company verifies the licensing, training and professional references of each
remaining candidate. After this qualification process, the Company arranges
interviews for the physician with hospital personnel and visits to the community
by the physician to ensure professional and personal compatibility. The Company
is responsible for supervising all arrangements relating to the commencement of
the physician's services, including relocation, if necessary.
The Company's hospital clients generally stipulate in their contracts the
minimum number of board certified or board eligible physicians required to serve
in the client's ED. Approximately 92% of the full-time ED physicians under
contract with EmCare are board certified or board eligible in emergency medicine
or other relevant medical specialties such as internal medicine or family
practice.
SUPPORT SERVICES. The Company provides a broad range of support services
and resources to hospitals and physicians. These services include billing,
accounting, recordkeeping and other administrative services. In addition, the
Company assists its hospital clients in dealing with more general concerns,
including fiscal constraints, marketing of the ED and use of EDs as sources of
primary medical care. The Company also assists its hospital clients in
negotiations with HMOs and other managed care organizations when capitated or
other risk-shifting payment models are involved.
EmCare contracts with a physician at each ED to be its on-site medical
director. This physician plays a key role in coordinating the delivery of
EmCare's services and integrating the Company's services with the hospital's
operations. The medical director also works with the hospital's medical staff
and administration in such areas as quality assurance, risk management and
departmental accreditation.
Through the medical director, the Company also assists the hospital client
develop clinical protocols designed to provide consistent diagnostic and
treatment methodologies for ED patients, thereby facilitating
23
<PAGE>
the delivery of high quality medical care on a cost-effective basis. These
protocols, such as the types of laboratory tests routinely given for patients
with specific symptoms, must be developed with the medical staff at the
particular hospital, and consequently vary among EmCare's hospital clients.
However, the Company believes that its experience, including its many years of
case histories, enables it to provide assistance in a broad array of clinical
settings.
The Company provides a computerized quality assurance and improvement system
that a number of its hospital clients use to assist physicians in maintaining
the consistency and quality of services to patients. This system, which allows
the ED staff to review and evaluate the type and quality of care provided,
promotes consistency, objectivity and confidentiality, while reducing clerical
time spent generating forms or reports. This quality assurance software is
revised and upgraded on a regular basis. This system also facilitates compliance
with the requirements of accreditation agencies and management of professional
liability exposure.
ED FACILITY EXPANSION. In conjunction with its emergency physician practice
management activities, the Company seeks to generate additional sources of
revenue for its hospital clients by utilizing the ED's existing facilities and
systems. The Company has worked with several of its hospital clients to develop
"express care units" in which less serious cases can be treated on a separate
schedule rather than competing for priority with emergency cases, allowing
efficient treatment of additional patients.
INFORMATION SYSTEMS
The Company has recently entered into a contractual agreement with a
software firm to purchase software, training, and maintenance of a customized
Emergency Department Information System ("EDIS"). This system will enhance the
Company's existing internal proprietary Clinical Information System Repository,
and as a result, EmCare will be able to better analyze physician practice
patterns, develop physician profiles, identify costs and resource utilization by
diagnosis by physician, and utilize such information to assist physicians in
identifying the most cost efficient patterns of quality practice and provide the
Company with specific clinical payment and other data to be utilized in managed
care negotiations. The Company expects to spend approximately $2.5 million in
the rollout of this initiative to 60 identified client sites over the next 24
months. See "Use of Proceeds."
The Company maintains several computer databases to assist it in its
activities. For physician recruiting it has an extensive, proprietary database
of emergency and other physicians which is maintained and updated through
licensed databases, personal contacts, professional journal advertising, mail
solicitation and telemarketing. The Company's other online databases contain
hospital, risk management, payment program, financial and marketing information
that it acquires on a daily basis. EmCare believes that the availability of
timely information is essential to its business, particularly in the rapidly
changing medical market in the United States, and it intends to continue to
invest in technology to develop and enhance information systems.
OTHER SERVICES
In addition to its emergency physician practice management, the Company
provides billing services, LOCUM TENENS (temporary) and permanent physician
staffing services across a broad range of medical specialties, and physician
practice management in areas other than emergency medicine.
BILLING SUBSIDIARY. In September 1995, the Company acquired RTI, a billing
company. As of January 1, 1996, the Company began to perform internally the
billing on some of its independent billing contracts. Previously third-party
billing companies were engaged to perform this function. As of April 30, 1996,
the Company had transferred to RTI the billing responsibilities on 15 of the
Company's 49 independent billing contracts previously performed by third-party
billing companies. The Company expects to complete this transition during the
next twelve months. RTI also performs billing services for 17 outside clients.
After completing the transition of the Company's billing contracts to RTI, the
Company will seek to expand the billing services that RTI renders to third
parties.
PHYSICIAN PLACEMENT SERVICES. The Company provides LOCUM TENENS (temporary)
and permanent physician staffing services across a broad range of specialties,
including emergency medicine, family practice,
24
<PAGE>
internal medicine, radiology, anesthesia, obstetrics/gynecology, surgery and
pathology. Temporary staffing is required by hospitals, clinics, individual
physicians, managed care plans and other health care organizations to meet
short-term staffing needs resulting from vacations, continuing medical
education, seasonal shifts in patient volume and other factors. Temporary
physician staffing complements the Company's physician practice management by
providing it with the means, particularly during the start-up stage of
contracts, to meet its own staffing needs. The Company also provides permanent
placement for a fixed fee. Physician placement is largely conducted by the
Company in Texas, its contiguous states and Florida and represented
approximately 4% of the Company's net revenue during the twelve months ended
March 31, 1996.
NONEMERGENCY PHYSICIAN PRACTICE MANAGEMENT. The Company utilizes the skills
it has developed in its ED activities to support other hospital-based clinical
specialties, such as inpatient intensive care. Similar to emergency medicine,
such specialties involve overall responsibility for hospital patients, are
essential to the operation of the hospital and require high quality care and
coordination with the hospital's medical staff and attending physicians.
Nonemergency physician practice management activities represented approximately
3% of the Company's total revenues during the twelve months ended March 31,
1996.
MARKETING
The Company's marketing efforts are centrally directed and involve the
active participation of the Company's executive officers as well as a marketing
staff of six persons at its Dallas headquarters. In marketing its emergency
physician practice management services, the Company targets approximately 2,600
high volume EDs which provide 24-hour service, have at least 12,000 ED visits
per year and meet certain other standards. The Company advertises its services
in hospital and health care trade journals, is represented at various hospital
and physician trade conferences and organizes meetings for hospital
administrators and medical staff in order to increase awareness of its services.
These activities also serve as a means of gathering information about potential
clients and obtaining feedback about hospital needs. Marketing leads concerning
new hospital clients generally result from referrals by hospital administrators,
information provided by physicians and requests for proposals received directly
from hospitals.
The Company's proposal to a prospective hospital client is based on its
analysis of information received from the hospital, including numbers and acuity
levels of patients visiting the ED, payor mix and desired staffing levels, and
on evaluation visits to the prospective client. The Company evaluates the ED's
anticipated patient volumes, payor mix and payment program rates and the
likelihood of changes in payment rates applicable to the hospital. A proposal
generally includes an overview of the hospital's current staffing program, an
evaluation of the strengths and weaknesses of the ED, an analysis of current
versus projected revenue and costs following commencement of EmCare's management
services, as well as the economic terms of the proposed program.
CONTRACTUAL ARRANGEMENTS
The Company structures its contractual arrangements for physician practice
management in one of two ways. In certain states in order to avoid uncertainty
as to the scope of laws regulating the corporate practice of medicine, for
regulatory convenience or because the Company acquired contracts structured in
that manner, EmCare's services are provided in conjunction with the PAs. All of
the PAs are currently owned by Dr. Riggs or other physicians affiliated with the
Company. Under this arrangement (the "PA Structure"), a PA enters into a
management agreement with the hospital client and contracts with physicians,
generally on an independent contractor basis, to provide the necessary medical
practice coverage. The nonmedical portion of the service under the PA Structure
is provided by EmCare pursuant to a long-term management agreement with the PA.
In other jurisdictions, a wholly-owned subsidiary of the Company contracts
directly with both the hospital and the physicians (the "EmCare Structure").
Under all structures, all decisions regarding patient care are made exclusively
by the physicians. See "Risk Factors -- Dependence on Key Personnel, PAs and
Qualified Physicians."
HOSPITAL RELATIONSHIPS AND BILLING ARRANGEMENTS. Under either the PA
Structure or the EmCare Structure, the management agreement with the hospital
client grants EmCare the exclusive right and responsibility to contract with
physicians to provide services at the hospitals. These management agreements
typically have terms of one to three years and are renewed automatically for
additional one-year terms at the end of
25
<PAGE>
each term, subject to termination by either party by notice not later than 90
days prior to the end of the then-current term. The Company's contracts with
certain of its hospital clients require the Company to indemnify the hospital
for losses suffered thereby, including losses resulting from a contracted
physician's malpractice.
Services performed by physicians under contract with the Company are
generally charged on a fee for service basis, and EmCare's revenue is derived
from such fees. These fees are either: (i) billed and collected by the related
hospital, which remits monthly to EmCare a negotiated amount ("hospital-based
billing contracts"), or (ii) billed and collected separately by EmCare
("independent billing contracts"). Under independent billing contracts the
Company assumes the financial risks related to collection, including the
potential uncollectibility of accounts and delays attendant to payment by
third-parties. At April 30, 1996, approximately 58% of the Company's hospital
contracts provided for independent billing, compared with approximately 31% at
December 31, 1990. In independent billing contract arrangements, the Company
previously arranged for third-party billing firms to bill and collect directly
for ED services performed by its physicians. On January 1, 1996, the Company
began to transfer that responsibility to its billing subsidiary. As of April 30,
1996, the Company had completed the transfer to RTI of 15 of the Company's 49
independent billing contracts on which it previously used third-party billing
companies. See "-- Other Services" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In addition, certain of the Company's contracts with hospitals provide for
the payment to EmCare by the hospital of specified amounts to supplement revenue
derived from physician fees.
PHYSICIAN RELATIONSHIPS. EmCare contracts with or employs its ED physicians
to provide the medical services necessary to fulfill its obligations to hospital
clients under physician practice management contracts. Physicians under contract
with EmCare are compensated based upon departmental performance and their
individual contribution to such performance, subject to a guaranteed minimum
fixed income. Each physician assigns to the Company all rights to fees and
payments for medical services. The independent contractor physicians are
responsible for their own self-employment tax and any other statutory
deductions. Physicians are required to hold a currently valid license to
practice in the appropriate state and to apply for and be granted medical staff
privileges at the hospital client. Such staff privileges automatically terminate
upon termination of the physician's contract with the Company.
The Company's agreements with physicians generally have one-year terms and
are renewable from year to year, subject to termination by either party as of
the end of any term upon notice given not later than 90 days prior to the end of
the then current term.
Hospital clients with higher volume EDs of the type commonly serviced by
EmCare generally demand board certified emergency physicians. While there is
currently a shortage of board certified emergency physicians, to date EmCare has
not been adversely affected by such shortage. Such shortage could adversely
affect the Company in the future. See "Risk Factors -- Risks Relating to Growth
Strategy."
Physicians placed by the Company on a LOCUM TENENS basis generally enter
into contracts with the Company which are terminable on 30 days' notice by
either party. The Company's contracts with these physicians typically provide
for the physician to provide temporary services for a minimum number of weeks in
a one-year period. These physicians are compensated on a per day/per hour basis,
with all relocation expenses paid. Under its agreement with the client, EmCare
also receives payment on a per day/per hour basis.
PA MANAGEMENT AGREEMENTS. EmCare has entered into management agreements
("PA Management Agreements") with each of the PAs. Under such PA Management
Agreements, the PAs delegate to EmCare the administrative, management and
support functions (but not any functions constituting the practice of medicine)
that the PAs have agreed to provide to the hospital client. In consideration of
such services, each PA pays to EmCare a monthly fee which may be adjusted from
time to time to reflect industry practice, business conditions and actual
expenses for administrative costs and uncollectible accounts. See "Risk Factors
- -- State Laws Regarding Prohibition of Corporate Practice of Medicine" and "Risk
Factors -- Dependence on Key Personnel, PAs and Qualified Physicians."
26
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as to the executive
officers, chief medical officer and directors of the Company and executive
officers of subsidiaries:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Leonard M. Riggs, Jr., M.D. 53 Chairman of the Board, Chief Executive
Officer and Director
William F. Miller, III 46 President, Chief Operating Officer and
Director
Robert F. Anderson, II 53 Chief Financial Officer, Senior Vice
President, Treasurer and Secretary
Steven W. Cooley, M.D., 43 Executive Vice President of EmCare, Inc.
F.A.C.E.P.
Dighton C. Packard, M.D., 43 Chief Medical Officer
F.A.C.E.P.
James T. Kelly 49 Director
Andrew M. Paul 40 Director
Richard H. Stowe 53 Director
Terry Hartshorn 51 Director
</TABLE>
Leonard M. Riggs, Jr., M.D. has served as President of the Company from 1974
to 1992 and has served as Chairman of the Board and Chief Executive Officer of
the Company since 1992. Dr. Riggs has been a director of the Company since 1974.
Dr. Riggs began practicing emergency medicine in 1969, and served twelve years
on the Medical Board of the Company's largest hospital client as Chief of
Emergency Medicine. Prior to such time Dr. Riggs served as such hospital's
Director of Emergency Medicine. Dr. Riggs is a past president of the American
College of Emergency Physicians.
William F. Miller, III has served as the Chief Executive Officer of the
Company from 1983 to 1992 and has served as the President and Chief Operating
Officer of the Company since 1992. Mr. Miller has been a director of the Company
since 1983. Prior to 1983, he served for nine years in financial and management
positions in the health care industry, including positions as chief executive
officer and chief financial officer of hospitals and administrator/director of
operations of a multi-specialty group practice.
Robert F. Anderson, II, has served as Chief Financial Officer, Senior Vice
President, Treasurer, and Secretary of the Company since April 1, 1996. From
1977 to 1996, Mr. Anderson was a partner with Ernst & Young LLP and its
predecessor firms. From 1994 to 1995, Mr. Anderson was Director of the
Healthcare Industry Group for the North Texas office of Ernst & Young LLP. From
1990 to 1993, Mr. Anderson was
Director of the Audit practice for the Fort Worth office of Ernst & Young. From
1984 to 1989, Mr. Anderson was managing partner of the Fort Worth office of
Ernst & Whinney. From 1981 to 1983, Mr. Anderson was Director of Entrepreneurial
Services for the Dallas office of Ernst & Whinney.
Steven W. Cooley, M.D., F.A.C.E.P. has served as Executive Vice President of
EmCare, Inc., the Company's emergency physician practice management subsidiary,
since 1992. From 1991 to 1992, Dr. Cooley served as Executive Vice President and
Chief Medical Officer of Spectrum Emergency Care, Inc., a physician practice
management company. From 1989 to 1991, he served as Executive Vice President and
Chief Operating Officer of Synergon and Government Health Services, Inc.
("Synergon"), an emergency medicine practice management company, and from 1985
to 1989 he served as Executive Vice President of Synergon. Dr. Cooley began
practicing emergency medicine in 1978, and in addition to his activities
described above, from 1978 to 1992 he served as a director, staff physician or
attending physician in hospital EDs.
27
<PAGE>
Dighton C. Packard, M.D., F.A.C.E.P. has served as Chief Medical Officer of
the Company since 1990. Dr. Packard has also been affiliated with the Company
for 19 years as an independent contractor of the PA Affiliate that contracts
with Baylor University Medical Center, where he currently serves as Director of
Emergency Medicine.
James T. Kelly has served as a director of the Company since May 1993. Mr.
Kelly has been the Chief Executive Officer and President of Lincare Holdings
Inc., a provider of oxygen and other respiratory therapy services in the home
("Lincare"), and its predecessors since 1986. Prior to such time, Mr. Kelly
served in a number of capacities within the Mining and Metals Division of Union
Carbide Corp. over a 19 year period, departing as Director of Marketing.
Andrew M. Paul has served as a director of the Company since the
recapitalization of the Company in February 1992. Mr. Paul joined Welsh, Carson,
Anderson & Stowe ("Welsh Carson") in 1984 and is a general partner of the
respective sole general partners of the partnerships that participated in the
recapitalization. Mr. Paul is a director of Lincare, Quorum Health Group, Inc.,
a company that owns hospitals and provides management and consulting services to
third-party owners, OccuSystems, Inc., a provider of primary care physician and
case management services to occupational health centers, MedCath Incorporated, a
provider of cardiology and cardiovascular services, American Oncology Resources
Inc., a cancer treatment company, and several private companies.
Richard H. Stowe has served as a director of the Company since the
recapitalization of the Company in February 1992. Mr. Stowe has been a general
partner of Welsh Carson since 1979 and is a general partner of the respective
sole general partners of the partnerships that participated in the
recapitalization. Mr. Stowe is a director of ADVO, Inc., a provider of
direct-mail advertising services, Health Management Systems, Inc., a provider of
revenue enhancement services for health care providers and payors, and several
private companies.
Terry Hartshorn has served as a director of the Company since the Company's
initial public offering in December 1994. Mr. Hartshorn has been Chief Executive
Officer and President of UniHealth America, Inc., a non-profit integrated health
system, since 1993. He also has been the Chairman of the Board of PacifiCare
Health Systems ("PacifiCare"), a managed care organization, since 1993, and was
President and Chief Executive Officer of PacifiCare from 1977 to 1993. Mr.
Hartshorn is a director of Apria Healthcare, a provider of home health care
products and services.
Other than Mr. Hartshorn, the current directors were previously elected to
the board pursuant to the terms of a shareholders' agreement (the "Shareholders'
Agreement") entered into in connection with the recapitalization of the Company
in 1992. Effective upon the completion of the Company's initial public offering
in December 1994, the Shareholders' Agreement terminated. At the Company's
annual meeting in May 1995, Messrs. Hartshorn and Kelly were re-elected as
directors for additional three year terms expiring in 1998, and at the Company's
annual meeting in May 1996, Messrs. Miller and Paul were re-elected as directors
for additional three year terms expiring in 1999.
The Company's Board of Directors is divided into three classes, with each
class elected to serve a staggered three-year term. Mr. Kelly's and Mr.
Hartshorn's terms will expire at the 1998 annual meeting of stockholders, Mr.
Paul's and Mr. Miller's terms will expire at the 1999 annual meeting of
stockholders and Mr. Stowe's and Dr. Riggs' terms will expire at the 1997 annual
meeting of stockholders.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has created an audit committee with responsibility for reviewing
and supervising the financial controls of the Company, including, among other
things, recommending to the Board of Directors the engagement of the Company's
independent auditors, reviewing the overall audit plan submitted by the
independent auditors and reviewing internal control objectives and procedures.
The members of the audit committee are Messrs. Kelly, Paul and Stowe.
The Company also has created a compensation committee (the "Compensation
Committee") with responsibility for reviewing and supervising the amount and
type of compensation to be paid to senior
28
<PAGE>
management. The members of the Compensation Committee are Messrs. Hartshorn,
Paul and Stowe. In addition, the Company has created a stock option subcommittee
to administer the Company's stock option plan (the "Stock Option Subcommittee").
The Stock Option Subcommittee consists of members of the Compensation Committee
selected by the Board of Directors who satisfy the "disinterested person"
requirement under Rule 16b-3 of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act") and the "outside director" requirement under
Section 162(m) of the Internal Revenue Code of 1986, as amended. The members of
the Stock Option Subcommittee are Messrs. Paul and Stowe.
29
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996, and as adjusted to
reflect the sale of the Common Stock offered hereby, by: (i) each person known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each of the Company's
executive officers, and all current directors and executive officers of the
Company as a group. Dr. Riggs and Mr. Miller (the "Selling Stockholders") have
included their offered shares of Common Stock in this offering pursuant to the
registration rights granted to them in connection with the recapitalization of
the Company. Unless otherwise indicated, each person or entity named below has
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such person or entity, subject to community
property laws where applicable and the information set forth in the footnotes to
the table below.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------------ --------------------------
PERCENTAGE OF NUMBER OF PERCENTAGE OF
NUMBER OF OUTSTANDING SHARES BEING NUMBER OF OUTSTANDING
NAME SHARES SHARES OFFERED SHARES SHARES
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Counselors, Inc. ........... 1,328,001 16.32% -- 1,328,001 13.78%
466 Lovington Avenue
New York, New York 10017
Putnam Investments, Inc. ................... 1,033,800 12.70% -- 1,033,800 10.72%
One Post Office Square
Boston, Massachusetts 02109
Leonard M. Riggs, Jr., M.D.................. 976,373(1) 11.99% 200,000 776,373 8.05%
William F. Miller, III...................... 407,000(2) 5.00% 100,000 307,000 3.18%
Robert F. Anderson, II...................... 10,000(3) * -- 10,000 *
Steven W. Cooley, M.D., F.A.C.E.P........... 9,000(3) * -- 9,000 *
Andrew M. Paul.............................. 27,211 * -- 27,211 *
Richard H. Stowe............................ 49,201 * -- 49,201 *
James T. Kelly.............................. 8,500(3) * -- 8,500 *
Terry Hartshorn............................. 2,500(3) * -- 2,500 *
All executive officers and directors as a
group (8 persons).......................... 1,489,785(3) 18.30% -- 1,189,785 12.34%
</TABLE>
- ------------------------
* Less than 1%.
(1) These shares of Common Stock include: (i) 58,333 shares issuable to Dr.
Riggs upon the exercise of stock options that are vested or will vest within
60 days after May 31, 1996, (ii) 94,350 shares owned by the Riggs Family
Limited Partnership, a partnership in which Dr. Riggs and trusts established
for Dr. Riggs' children are the partners, and (iii) 286,863 shares owned by
a voting trust established for Mrs. Riggs, for which Dr. Riggs serves as the
trustee.
(2) These shares of Common Stock include: (i) 40,000 shares issuable to Mr.
Miller upon the exercise of stock options that are vested or will vest
within 60 days after May 31, 1996, (ii) 10,000 shares owned by The Abby
Margaret Miller 1994 Descendants Trust, for which Mr. Miller serves as the
trustee, (iii) 10,000 shares owned by The Joshua William Miller 1994
Descendants Trust, for which Mr. Miller serves as the trustee, (iv) 500
shares owned by Abby M. Miller, Mr. Miller's minor daughter, and (v) 500
shares owned by Joshua W. Miller, Mr. Miller's minor son.
(3) The shares of Common Stock owned beneficially by the following individuals
include stock options that are vested or will vest within 60 days after May
31, 1996 for the number of shares following their name: Mr. Anderson --
10,000 shares; Dr. Cooley -- 9,000 shares, Mr. Hartshorn -- 1,500 shares,
Mr. Kelly -- 8,500 shares, Mr. Miller -- 40,000 shares, Dr. Riggs -- 58,333
shares, and all directors and executive officers as a group -- 127,333
shares.
30
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share.
COMMON STOCK
As of May 31, 1996, there were 8,139,840 shares of Common Stock outstanding
and held of record by approximately 83 stockholders. Based upon such number of
shares outstanding as of that date and giving effect to the issuance of the
1,500,000 shares of Common Stock offered by the Company hereby, there will be
9,639,840 shares of Common Stock outstanding upon the closing of this offering.
Holders of Common Stock are entitled to one vote for each share held and do
not have cumulative voting rights. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Common Stock are entitled
to receive pro rata such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding Preferred Stock. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive pro rata the net assets of the Company available after the
payment of all creditors and liquidation preferences, if any, of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are, and
the shares offered hereby when issued and sold will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of Preferred Stock in one or more
series. Each series of Preferred Stock shall have such rights and preferences,
including dividend rights, conversion rights, voting rights, redemption rights,
(including sinking fund provisions) and liquidation preferences as shall be
determined by the Board of Directors. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change of control of the
Company without further action by the stockholders. Further, the existence of
unissued and unreserved Preferred Stock could have a depressive effect upon the
market price of the Common Stock. The Company has no present plans to issue any
shares of Preferred Stock. There are no shares of Preferred Stock outstanding.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person or entity became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person or entity who, together with affiliates and associates,
owns, or within the three years immediately preceding the "business combination"
did own, 15% or more of the corporation's outstanding voting stock.
The amended certificate of incorporation of the Company (the "Charter") and
the amended by-laws of the Company (the "By-laws") provide for the division of
the Board of Directors into three classes as nearly equal in size as possible
with staggered three-year terms. See "Management -- Executive Officers and
Directors." Any director may be removed only with cause, by the vote of at least
a majority of the shares entitled to vote for the election of directors. In
addition, subject to certain limitations, the Board of Directors may from time
to time change the number of directors, and vacancies in a class may be filled
only by a vote of directors of such class. These provisions could make it more
difficult for stockholders to change the composition of the Board of Directors.
31
<PAGE>
The Company's By-laws provide that for nominations for the Board of
Directors or for other business to be properly brought by a stockholder before a
meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice with respect to an annual meeting generally must be
delivered not less than 120 days nor more than 150 days prior to the anniversary
of the proxy statement for the prior year's annual meeting. With respect to
special meetings, notice must generally be delivered not more than 90 days prior
to such meeting and not later than the later of 60 days prior to such meeting or
10 days following the day on which public announcement of such meeting is first
made by the Company. The notice must contain, among other things, certain
information about the stockholder delivering the notice and, as applicable,
background information about each nominee or a description of the proposed
business to be brought before the meeting.
The foregoing provisions could have the effect of making it more difficult
for a third-party to acquire, or of discouraging a third-party from acquiring,
control of the Company.
The Charter provides that any action required or permitted to be taken by
the stockholders of the Company may be taken only at a duly called annual or
special meeting of the stockholders and not by written consent, and that special
meetings may be called only by the Chairman of the Board of Directors or the
President of the Company. These provisions may also discourage another person or
entity from making a tender offer for the Company's Common Stock, because such
person or entity, even if it acquired a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.
The Charter contains certain provisions permitted under the DGCL relating to
the liability of directors. These provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Charter and By-laws also contain
provisions indemnifying the directors and officers of the Company to the fullest
extent permitted by the DGCL. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors and officers.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Charter requires the affirmative vote of the holders of at least 75% of the
outstanding voting stock of the Company to amend or repeal any of the foregoing
Charter provisions or to reduce the number of authorized shares of Common Stock
or Preferred Stock. Such 75% vote is also required to amend or repeal the
By-laws. The By-laws may also be amended or repealed by a majority vote of the
Board of Directors. Such 75% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any Preferred Stock that might be outstanding at the time any such amendments
are submitted to stockholders.
Section 203 of the DGCL and the provisions of the Company's Charter and
By-laws described above may make it more difficult for a third-party to acquire,
or discourage acquisition bids for, the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock and could have a depressive effect upon the market price
of the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical
Shareholder Services Group, Inc.
32
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a
syndicate of underwriters named below (the "Underwriters"), for whom Donaldson,
Lufkin & Jenrette Securities Corporation, Dean Witter Reynolds Inc., and Piper
Jaffray Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase 1,500,000 shares of Common Stock from the Company
and 300,000 shares of Common Stock from the Selling Stockholders. The number of
shares of Common Stock that each Underwriter has agreed to purchase is set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............
Dean Witter Reynolds Inc.........................................
Piper Jaffray Inc................................................
-----------
Total........................................................ 1,800,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions. If any of the shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all such
shares of Common Stock (other than the shares of Common Stock covered by the
over-allotment options described below) must be so purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock directly to the public initially at the price to the public set forth on
the cover page of this Prospectus and to certain dealers (who may include the
Underwriters) at such price less a concession not to exceed $ per share. The
Underwriters may allow, and such dealers may reallow, a discount not to exceed
$ per share to any other Underwriter and certain other dealers.
The Company and the Selling Stockholders have granted to the Underwriters
options to purchase additional shares of Common Stock of up to 229,500 shares
and 40,500 shares, respectively, at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions, solely to cover
over-allotments. Such options may be exercised at any time until 30 days after
the date of this Prospectus. To the extent that the Underwriters exercise such
options, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company, the Selling Stockholders and the Company's other directors and
executive officers, subject to certain exceptions, have agreed not to offer,
sell or otherwise dispose of any shares of Common Stock, or any shares
exercisable for or convertible into shares of Common Stock, prior to the
expiration of 90 days from the date of this Prospectus, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation, acting
on behalf of the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute payments that the Underwriters may be required
to make in respect thereof.
33
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gibson, Dunn & Crutcher LLP, Dallas, Texas. Powers,
Pyles, Sutter & Verville, P.C. has acted as special counsel to the Company for
health care and related regulatory matters. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Baker & Botts,
L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company and CEA appearing or
incorporated by reference in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, to the extent indicated
in their reports thereon also appearing elsewhere herein and in the Registration
Statement or incorporated by reference. Such consolidated financial statements
have been included herein or incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of RTI at December 31, 1994 and for the year then
ended incorporated by reference into this Prospectus and Registration Statement
have been audited by Halbert, Katz & Co., P.C., independent auditors, as set
forth in their report thereon also incorporated herein by reference into this
Prospectus and Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance with the Exchange Act files reports, proxy statements, and
other information with the Securities and Exchange Commission (the
"Commission"). The Company has also filed with the Commission a registration
statement (together with all amendments thereto hereinafter referred to as the
"Registration Statement" on Form S-3) under the Securities Act with respect to
the offered shares of Common Stock. This Prospectus does not contain all of the
information contained in the Registration Statement. For further information
about the Company and the Common Stock reference is made to the Registration
Statement (and the exhibits filed as a part thereof) and the other reports,
proxy statements, and information that the Company has filed with the
Commission, which may be inspected at the public reference office of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the Commission's Regional Offices located at Room 3190, Northwest Atrium Center,
500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048, without charge, or copies thereof may be
obtained by mail from the Commission upon payment of the fee prescribed by the
Commission. The Company's Commission file number is 0-24986. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
are not necessarily complete and, in each instance, reference is made to the
copy of such contract, agreement or document if filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference.
INCORPORATION BY REFERENCE
The Company incorporates into this Prospectus by reference: (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, (iii) the Company's reports filed with the Commission under Section 13(a),
13(c), 14, or 15(d) of the Exchange Act during the period beginning on the date
of this Prospectus and ending on the date of the termination of this offering,
(iv) the description of the shares of Common Stock contained in the Company's
Registration Statement on Form 8-A, filed with the Commission on October 21,
1994, (v) the financial statements of CEA and related pro forma financial
information contained in the Company's Form 8-K, filed with the Commission on
March 14, 1995, and amended on May 15, 1995, (vi) the financial statements of
RTI and related pro forma financial information contained in the Company's Form
8-K, filed with the Commission on September 22, 1995, and amended on November 8,
1995, and (vii) the financial statements of MESA and related pro forma financial
information contained in the Company's
34
<PAGE>
Form 8-K, filed with the Commission on May 15, 1996, and amended on ,
1996. Any statement contained in this Prospectus or in a document incorporated
by reference into this Prospectus, however, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in a subsequently dated document that is considered part of this
Prospectus is inconsistent with such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Upon request and without charge, the Company will send to any person who has
received a copy of this Prospectus a copy of any document incorporated into this
Prospectus by reference, excluding any exhibits to such document not
specifically incorporated into such document by reference. Any such request
should be made to Mr. Robert F. Anderson, II at the Company's principal
executive office.
35
<PAGE>
EMCARE HOLDINGS INC.
FINANCIAL TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Income.......................................................................... F-4
Consolidated Statements of Stockholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
EmCare Holdings Inc.
We have audited the accompanying consolidated balance sheets of EmCare Holdings
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EmCare Holdings
Inc. at December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 9, 1996,
except for Note 5, as to which the date is
February 20, 1996
F-2
<PAGE>
EMCARE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995 MARCH 31, 1996
------- ------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $13,558 $ 7,781 $ 7,103
Marketable securities................................ 7,768 1,507 --
Accounts receivable, net (NOTES 3 AND 5)............. 20,602 29,813 31,049
Prepaid insurance.................................... 142 166 5,008
Other current assets................................. 296 600 1,151
------- ------- -------
Total current assets............................. 42,366 39,867 44,311
Furniture and office equipment, net (NOTE 4)........... 1,482 3,384 3,681
Deferred tax assets (NOTE 7)........................... 70 949 983
Other assets (NOTES 2, 5 AND 13):
Goodwill............................................. 7,590 29,602 29,606
Contracts............................................ 3,321 7,064 7,064
Non-competition agreements........................... 2,830 4,141 4,141
Deferred financing costs and other................... 479 493 703
------- ------- -------
14,220 41,300 41,514
Less accumulated amortization........................ 2,924 4,757 5,293
------- ------- -------
11,296 36,543 36,221
------- ------- -------
Total assets..................................... $55,214 $80,743 $85,196
------- ------- -------
------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 87 $ 254 $ 248
Accrued expenses:
Physician fees..................................... 6,815 8,520 8,584
Accrued salaries and other compensation............ 1,875 3,280 2,193
Collection fees.................................... 1,636 1,637 1,222
Accrued federal and state income taxes............. 151 1,781 1,404
Other accrued liabilities.......................... 1,277 2,242 2,129
Deferred tax liabilities (NOTE 7).................... 451 249 --
Short-term debt and current portion of long-term
obligations (NOTE 5)................................ 2,033 2,956 5,820
------- ------- -------
Total current liabilities........................ 14,325 20,919 21,600
Long-term obligations, less current portion (NOTE 5)... 2,390 2,500 2,334
Professional liability insurance (NOTE 11)............. 4,000 4,594 4,644
Commitments and contingencies (NOTES 10 AND 14)
Stockholders' equity (NOTES 8, 9, AND 13):
Preferred stock, $0.01 par value:
Authorized shares -- 5,000,000
No shares issued or outstanding.................... -- -- --
Common stock, $0.01 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 7,389,000 and
8,011,000 in 1994 and 1995 and 8,117,000 at March
31, 1996.......................................... 74 80 81
Additional paid-in capital........................... 31,493 41,025 42,577
Retained earnings.................................... 2,932 11,625 13,960
------- ------- -------
Total stockholders' equity....................... 34,499 52,730 56,618
------- ------- -------
Total liabilities and stockholders' equity....... $55,214 $80,743 $85,196
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes.
F-3
<PAGE>
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------------
1993 1994 1995 1995 1996
-------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue (NOTE 3)................................... $ 95,793 $ 118,250 $ 156,826 $ 34,540 $ 44,235
Professional expenses.................................. 75,788 94,184 123,935 27,154 35,315
-------- --------- --------- ----------- -----------
Gross profit........................................... 20,005 24,066 32,891 7,386 8,920
Expenses:
General and administrative........................... 12,218 13,583 16,760 3,927 4,245
Depreciation and amortization........................ 5,846 1,433 2,503 405 809
-------- --------- --------- ----------- -----------
18,064 15,016 19,263 4,332 5,054
-------- --------- --------- ----------- -----------
Income from operations................................. 1,941 9,050 13,628 3,054 3,866
Interest expense....................................... (2,375) (2,244) (652) (146) (172)
Interest income........................................ 363 331 933 344 72
-------- --------- --------- ----------- -----------
Income (loss) before income taxes and extraordinary
charge................................................ (71) 7,137 13,909 3,252 3,766
Income tax expense (NOTE 7)............................ 28 2,568 5,216 1,236 1,431
-------- --------- --------- ----------- -----------
Income (loss) before extraordinary charge.............. (99) 4,569 8,693 2,016 2,335
Extraordinary charge from early extinguishment of debt,
net of income tax benefit of $471 (NOTE 5)............ -- 837 -- -- --
-------- --------- --------- ----------- -----------
Net income (loss)...................................... $ (99) $ 3,732 $ 8,693 $ 2,016 $ 2,335
-------- --------- --------- ----------- -----------
-------- --------- --------- ----------- -----------
Income (loss) per share before extraordinary charge.... $ (.05) $ 0.89 $ 1.05 $ 0.25 $ 0.28
Extraordinary charge, net of taxes..................... -- 0.16 -- -- --
-------- --------- --------- ----------- -----------
Net income (loss) per share............................ $ (.05) $ 0.73 $ 1.05 $ 0.25 $ 0.28
-------- --------- --------- ----------- -----------
-------- --------- --------- ----------- -----------
Weighted average shares outstanding.................... 1,856 5,138 8,251 7,911 8,433
-------- --------- --------- ----------- -----------
-------- --------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
COMMON STOCK CAPITAL (DEFICIT) TOTAL
------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1993........................................... $ 18 $ (8,939) $ (701) $ (9,622)
Exercise of stock options (NOTE 8)................................. 1 700 -- 701
Net loss........................................................... -- 0 (99) (99)
--- ----------- --------- ---------
Balance at December 31, 1993......................................... 19 (8,239) (800) (9,020)
Exercise of stock options (NOTE 8)................................. -- 9 -- 9
Conversion of mandatorily redeemable convertible preferred stock
(NOTE 9).......................................................... 29 14,471 -- 14,500
Issuance of 2,587,500 common shares in public offering (NOTE 9).... 26 25,252 -- 25,278
Net income........................................................... -- -- 3,732 3,732
--- ----------- --------- ---------
Balance at December 31, 1994......................................... 74 31,493 2,932 34,499
Exercise of stock options (NOTE 8)................................. 2 2,224 -- 2,226
Issuance of stock related to acquisition (NOTE 13)................. 4 7,308 -- 7,312
Net income......................................................... -- -- 8,693 8,693
--- ----------- --------- ---------
Balance at December 31, 1995......................................... 80 41,025 11,625 52,730
Exercise of stock options (unaudited).............................. 1 1,552 -- 1,553
Net income (unaudited)............................................. -- -- 2,335 2,335
--- ----------- --------- ---------
Balance at March 31, 1996 (unaudited)................................ $ 81 $ 42,577 $ 13,960 $ 56,618
--- ----------- --------- ---------
--- ----------- --------- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------------
1993 1994 1995 1995 1996
-------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ (99) $ 3,732 $ 8,693 $ 2,016 $ 2,335
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income taxes................................ (503) 1,865 (3,209) (1,182) (283)
Noncash interest expense............................. 728 666 431 81 92
Extraordinary charge from early extinguishment of
debt................................................ -- 1,308 -- -- --
Depreciation and amortization........................ 5,846 1,433 2,503 405 809
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................ (4,849) (2,222) (3,557) (1,675) (1,236)
Prepaid insurance and other current assets......... 956 2,085 369 (4,018) (5,393)
Accounts payable and accrued expenses.............. 3,717 390 2,341 2,411 (1,317)
Professional liability insurance................... (505) (242) 500 125 50
-------- --------- --------- ----------- -----------
Net cash provided by (used in) operating activities.... 5,291 9,015 8,071 (1,837) (4,943)
INVESTING ACTIVITIES
Sales (purchases) of marketable securities............. 3,483 (7,768) 6,261 1,130 1,507
Purchases of furniture and office equipment............ (423) (1,170) (919) (270) (556)
Payments for acquisitions and related intangibles, net
of cash acquired...................................... -- (4,300) (17,515) (5,068) --
Payments to stockholders for non-competition
agreements............................................ (2,084) (1,226) -- -- --
Other.................................................. (249) 132 (387) (17) (227)
-------- --------- --------- ----------- -----------
Net cash (used in) provided by financing activities.... 727 (14,332) (12,560) (4,225) 724
FINANCING ACTIVITIES
Proceeds from borrowings............................... 3,050 6,646 6,321 4,321 4,000
Payments on short-term borrowings and long-term
obligations........................................... (4,341) (8,984) (9,102) (2,565) (1,394)
Payment of subordinated debt........................... -- (14,500) -- -- --
Proceeds from exercise of stock options................ 701 9 1,493 11 935
Proceeds from issuance of common stock................. -- 25,278 -- -- --
-------- --------- --------- ----------- -----------
Net cash (used in) provided by financing activities.... (590) 8,449 (1,288) 1,767 3,541
-------- --------- --------- ----------- -----------
Net (decrease) increase in cash and cash equivalents... 5,428 3,132 (5,777) (4,295) (678)
Cash and cash equivalents at beginning of period....... 4,998 10,426 13,588 13,558 7,781
-------- --------- --------- ----------- -----------
Cash and cash equivalents at end of period............. $ 10,426 $ 13,558 $ 7,781 $ 9,263 $ 7,103
-------- --------- --------- ----------- -----------
-------- --------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
EmCare Holdings Inc. ("Holdings," together with its subsidiaries and
affiliates, the "Company") was incorporated on January 9, 1992, for purposes of
effecting a recapitalization of EmCare, Inc. The Company is a leading provider
of physician services management in hospital emergency departments and related
urgent care centers (collectively "EDs") in the United States. The Company
recruits and evaluates the credentials of physicians, arranges contracts for
their services, assists in monitoring their performance and arranges scheduling.
In addition, the Company assists its clients in such operational areas as staff
coordination, quality assurance, departmental accreditation, billing, record
keeping, third party reimbursement, and other administrative services. The
Company markets these services primarily to larger hospitals with higher volume
EDs (more than 12,000 patient visits per year) and multi-site systems, where it
believes it is able to attract and retain higher quality physicians and
establish more stable relationships with hospital clients. The Company, through
its predecessors and affiliates, has been engaged in emergency physician
services management for more than 20 years. As of December 31, 1995, the Company
had management contracts relating to 75 EDs in 17 states.
Emergency physician services management is the Company's principal line of
business. In addition to the Company's emergency physician services management,
the Company provides physician services management for hospital-based radiology,
intensive care and lower volume emergency medicine practices, and for a primary
care physician group practice. The Company also provides billing services for
emergency physician services management contracts and provides physician
placement services, primarily on a LOCUM TENENS (temporary) basis, across a
broad range of practice specialties.
In certain states, because of the "corporate practice of medicine" doctrine
concerns, the Company enters into management agreements with affiliated
professional associations owned by the Company's Chairman and Chief Executive
Officer (the "PA Affiliates") which in turn contract with hospital clients and
physicians in these states. In other states the Company contracts directly with
its hospital clients and physicians.
The consolidated financial statements include the accounts of Holdings and
its subsidiaries and the PA Affiliates. The financial statements of the PA
Affiliates are consolidated with Holdings and its subsidiaries because Holdings
has unilateral control over the assets and operations of the PA Affiliates and,
notwithstanding the lack of technical majority ownership, consolidation of the
PA Affiliates is necessary to present fairly the financial position and results
of operations of Holdings because of the existence of a parent-subsidiary
relationship by means other than record ownership of the PA Affiliates' voting
stock. Control of the PA Affiliates by Holdings is perpetual and other than
temporary because the PA Affiliates have agreed with Holdings that they will not
terminate any management agreement or other arrangements established with
Holdings, without the prior written consent of Holdings. All significant
intercompany and interaffiliate accounts and transactions have been eliminated.
2. SIGNIFICANT ACCOUNTING POLICIES
NET REVENUE AND PROFESSIONAL EXPENSES
Revenue is recorded in the period the services are rendered as determined by
the respective contracts with the health care providers. Professional expenses
are based on the terms of the respective contracts with the independent
contractor physicians.
Services performed by physicians under contract with the Company are
generally charged on a fee for service basis, and the Company's revenue is
derived from such fees. These fees are either (i) collected by the related
hospital, which remits a negotiated amount monthly to the Company, or (ii)
billed and collected
F-7
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separately by the Company ("independent billing contracts"). In independent
billing contract arrangements, the Company arranges for third-party billing
firms or a subsidiary to bill and collect directly for services performed by
these physicians. Cost of collections is included in professional expense.
CASH AND CASH EQUIVALENTS
Money market investments, U.S. government agency securities, and
certificates of deposit with banks with maturities of three months or less from
date of purchase are considered to be cash equivalents. Money market investments
are in overnight investment funds whose underlying collateral is U.S. government
securities.
MARKETABLE SECURITIES
Investments in marketable securities are stated at cost, which approximates
market. These investments are in U.S. government securities and other
federally-insured securities. All marketable securities purchased by the Company
are held to maturity. The marketable securities held at December 31, 1995 will
mature within one year.
ACCOUNTS RECEIVABLE
Accounts receivable are primarily amounts due from hospitals, amounts due
from third-party payors, such as insurance companies, self-insured employers,
and government-sponsored health care programs (Medicare and Medicaid), and
amounts due from patients.
Accounts receivable due under independent billing contracts include an
allowance for contractual adjustments and charity and other adjustments, which
is charged to operations based on an evaluation of potential losses. Contractual
adjustments result from the difference between the rates for physician services
performed and amounts allowed by third-party payors for such services. Other
adjustments represent services provided to patients that are not expected to be
collected at the time service is provided.
FURNITURE AND OFFICE EQUIPMENT
Furniture and office equipment are stated at cost. Depreciation is computed
using the straight-line method over estimated useful lives generally ranging
from five to seven years. Property under capital lease is amortized using the
straight-line method over the life of the respective lease. Such amortization is
included with depreciation expense in the accompanying financial statements.
PROFESSIONAL LIABILITY INSURANCE
Professional liability insurance expense has been accrued based on
management's expectation that it will provide extended reporting period coverage
to its independent contractor physicians. The accruals are based on amounts
provided by the Company's professional liability insurance carriers (Note 11).
Professional liability insurance expense is included in professional expenses.
OTHER ASSETS
The non-competition agreements, contracts and goodwill are recorded at cost
on the date of the agreement or acquisition. The non-competition agreements are
being amortized over the terms of the agreements, which range from two to five
years. The amortization is based on straight-line or an accelerated method,
which management believes systematically recognizes the decline over time in the
value of the non-competition agreement. The non-competition agreements for
certain officers of the Company were terminated effective January 15, 1994 in
consideration of certain restrictions (which lapsed upon Holdings' initial
public offering in 1994) upon the transfer of stock of Holdings held by such
officers. Amortization expense in 1993 includes the write-off of the remaining
assets related to the officers' non-competition agreements at December 31, 1993,
of $2,031,000. Contracts acquired in business acquisitions are valued at the
date of
F-8
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
acquisition and are being amortized on a straight line basis over eight to
twelve years. Goodwill, which represents the excess purchase price of acquired
businesses over the fair value of net assets acquired, is being amortized on a
straight-line basis over 40 years.
Deferred financing costs, which consist of costs incurred in obtaining
financing, are amortized using the effective interest method over the term of
the related debt, and such amortization is included in interest expense.
LONG-LIVED ASSETS
The Company reviews the carrying value of a long-lived asset if facts and
circumstances suggest that it may be impaired or that the amortization period
may need to be changed. The Company considers external factors relating to the
long-lived asset, including hospital and physician contract changes, local
market developments, changes in third party payments, national health care
trends, and other publicly available information. If these external factors
indicate the long-lived asset will not be recoverable, based upon undiscounted
cash flows of the long-lived asset over the remaining life, the carrying value
of the long-lived asset will be reduced by the estimated shortfall of discounted
cash flows. The Company does not believe there are any indicators that would
require an adjustment to the carrying value of its long-lived assets or their
remaining useful lives as of December 31, 1995.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
since the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
INCOME TAXES
The Company accounts for income taxes using the liability method as required
by FASB Statement No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
INTERIM FINANCIAL DATA (UNAUDITED)
The unaudited consolidated balance sheet as of March 31, 1996, the unaudited
consolidated statements of income and cash flows for the three months ended
March 31, 1995 and 1996, and the unaudited consolidated statement of
stockholders' equity for the three months ended March 31, 1996 include, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position, results of operations and cash flows. The data disclosed in these
notes to the consolidated financial statements for these periods is unaudited.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares consist of the dilutive effect of
outstanding options calculated using the treasury stock method and mandatorily
redeemable convertible preferred stock.
F-9
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the 1995
presentation.
3. ACCOUNTS RECEIVABLE AND NET REVENUE
Accounts receivable are recorded at net realizable value. The allowance for
contractual adjustments and charity and other adjustments is based on historical
experience and future expectations. Accounts receivable consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
Independent billing.................................................. $ 39,689 $ 61,252 $ 64,579
Hospital contracts................................................... 5,915 8,001 8,791
Billing receivables.................................................. -- 2,042 1,941
Locum tenens......................................................... 1,617 1,316 1,387
--------- --------- -----------
47,221 72,611 76,698
Less allowance for contractual adjustments and charity and other
adjustments......................................................... 26,619 42,798 45,649
--------- --------- -----------
$ 20,602 $ 29,813 $ 31,049
--------- --------- -----------
--------- --------- -----------
</TABLE>
Concentration of credit risk relating to accounts receivable is limited by
the diversity and number of contracting hospitals, physician practices,
patients, payors, and the geographic dispersion of the Company's operations. The
following is a geographic breakdown, based on hospital location, of accounts
receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995 MARCH 31, 1996
<S> <C> <C> <C>
(UNAUDITED)
Texas.................................................................... 45% 39% 39%
Florida.................................................................. 18 16 14
Maryland................................................................. -- 16 17
Pennsylvania............................................................. 8 4 4
Arizona.................................................................. 6 4 5
Mississippi.............................................................. -- 3 5
Other.................................................................... 23 18 16
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
F-10
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
3. ACCOUNTS RECEIVABLE AND NET REVENUE (CONTINUED)
Net revenue consists of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------- ------------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Gross revenue..................................... $ 151,096 $ 194,863 $ 259,811 $ 57,670 $ 71,943
Less provision for contractual adjustments and
charity and other adjustments.................... 55,303 76,613 102,985 23,130 27,708
---------- ---------- ---------- ----------- -----------
Net revenue....................................... $ 95,793 $ 118,250 $ 156,826 $ 34,540 $ 44,235
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
A significant portion of the Company's net revenue has been derived from one
customer. This customer accounted for 11% of the Company's net revenue in 1993,
1994, and 1995.
4. FURNITURE AND OFFICE EQUIPMENT
Furniture and office equipment, at cost, totaled $2,464,000 and $5,018,000
at December 31, 1994 and 1995, respectively and $5,573,563 at March 31, 1996.
Accumulated depreciation and amortization totaled $982,000 and $1,634,000 at
December 31, 1994 and 1995, respectively and $1,892,505 at March 31, 1996.
5. SHORT-TERM DEBT AND LONG-TERM OBLIGATIONS
Short-term debt and long-term obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 MARCH 31,
1996
(UNAUDITED)
<S> <C> <C> <C>
Long-term obligations related to acquisitions, payable in varying amounts through
2002, with effective interest rates ranging from 7% to 14%, net of imputed
interest discounts of $437,000 and $336,000 at December 31, 1994 and 1995,
respectively, and $245,000 at March 31, 1996; collateralized by accounts
receivable and contract rights.................................................. $ 3,969 $ 5,100 $ 4,858
Revolving line of credit......................................................... -- -- 3,000
Other, including capitalized lease obligations................................... 454 356 296
--------- --------- ------
4,423 5,456 8,154
Less current portion............................................................. 2,033 2,956 5,820
--------- --------- ------
$ 2,390 $ 2,500 $ 2,334
--------- --------- ------
--------- --------- ------
</TABLE>
During 1995, the Company had a revolving line of credit with a bank for up
to $20 million for working capital and acquisition purposes. On February 20,
1996, the Company entered into a revolving line of credit (the "Revolver") with
a bank acting as administrative agent for a syndicate of lenders under which the
Company can borrow up to $50 million for working capital and acquisition
purposes. The Revolver matures on February 20, 1999. Borrowings under the
Revolver bear interest at variable rates based, at the Company's option, on the
bank's base rate or the Eurodollar rate. A per annum commitment fee varying from
.1875% to .375% depending upon the Company's ratio of funded debt to operating
cash flow is required on the unused portion of the commitment.
F-11
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
5. SHORT-TERM DEBT AND LONG-TERM OBLIGATIONS (CONTINUED)
The Revolver contains covenants which, among other things, require the
Company to maintain certain financial ratios and impose certain limitations or
prohibitions on the Company with respect to the incurrence, guaranty or
assumption of indebtedness, the payment of dividends, the redemption or
repurchase of, or other payment with respect to, the Company's capital stock,
certain cash transactions with subsidiaries and affiliates, acquisitions,
contract management maintenance, and ownership of the PA Affiliates.
During December 1994, the Company utilized $14.5 million of the proceeds
from the sale of Common Stock to retire the subordinated debt. As a result of
the early retirement of the subordinated debt, the Company incurred an
extraordinary charge of approximately $837,000, net of taxes. The extraordinary
charge, before taxes, is comprised of approximately $1,022,000 of unamortized
original issue discount and $286,000 of unamortized loan origination fees.
As of December 31, 1995, the maturities of short-term and long-term debt
were as follows (in thousands):
<TABLE>
<S> <C>
1996........................................................ $ 2,840
1997........................................................ 2,592
1998........................................................ --
1999........................................................ --
2000........................................................ --
Thereafter.................................................. 178
---------
5,610
Less unamortized discount................................... 336
---------
$ 5,274
---------
---------
</TABLE>
Interest payments were $871,000, $2,317,000 and $289,000 in 1993, 1994, and
1995, respectively, and $177,000 and $69,000 for the three months ended March
31, 1995 and 1996, respectively. No interest expense was incurred on debt to
stockholders and officers in 1995. Interest expense incurred on debt to
stockholders and officers in 1993 and 1994 totaled $1,933,000 and $1,672,000,
respectively. The weighted average interest rate is 6.84% and 8.07% on
short-term borrowings outstanding at December 31, 1994 and 1995, respectively.
6. BENEFIT PLANS
In 1994, the Company instituted a qualified contributory savings plan and,
in connection with a 1995 acquisition, adopted the plan previously sponsored by
the acquired company. These plans are qualified under Section 401(k) of the
Internal Revenue Code (collectively, the "401(k) Plans"). The 401(k) Plans are
open to substantially all full-time employees of the Company or any affiliate
who have completed one year of eligible service with the Company or such
affiliate. The 401(k) Plans permit participant contributions and require a
contribution from the Company based on the participant's contribution and the
subsidiary or affiliate that employs the participant. The 401(k) Plans also
allow the Company to make other discretionary contributions, including profit
sharing contributions. The Company contributed $222,000 and $325,000 to the
401(k) Plans in 1994 and 1995, respectively.
The Company's matching contributions on behalf of an eligible employee
generally become fully vested if such employee reaches normal retirement age,
dies or becomes disabled while an employee, or completes five years of service.
Prior to an eligible employee completing five years of service, such employee
will partially vest at 40%, 60% and 80%, at the end of such employee's second,
third, and fourth years of service, respectively.
F-12
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
6. BENEFIT PLANS (CONTINUED)
The Company merged its subsidiary's Money Purchase Pension Plan (the
"Pension Plan") with the 401(k) Plan instituted in 1994. The Pension Plan (a
defined contribution plan) was open to all full-time employees of the Company or
any affiliate who were 21 or more years of age and who had completed one or more
years of service with the Company. The Company contributed an amount equal to 6%
of each eligible employee's annual compensation up to the Social Security
taxable wage base, plus 11.7% on compensation in excess of this wage base, up to
a maximum compensation level allowed by the Internal Revenue Service. The
Company contributed $357,000 and $99,000 in 1993 and 1994, respectively, to the
Pension Plan.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets were as follows at December
31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Deferred tax liabilities:
Change in tax accounting method............................................... $ 2,493 $ 1,731
Acquired tax basis differences................................................ -- 1,020
--------- ---------
2,493 2,751
Deferred tax assets:
Professional liability reserves............................................... 1,360 1,575
Book over tax amortization and depreciation................................... 437 395
Revenue recognition for tax purposes in excess of book income................. -- 1,787
Net operating loss carryforwards.............................................. 612 --
Other......................................................................... 103 94
--------- ---------
2,512 3,851
Valuation allowance for deferred tax assets..................................... (400) (400)
--------- ---------
Total deferred tax assets....................................................... 2,112 3,451
--------- ---------
Net deferred tax assets (liabilities)........................................... $ (381) $ 700
--------- ---------
--------- ---------
</TABLE>
Significant components of the federal income tax expense (benefit) were as
follows for the year ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Current:
Federal.................................................................. $ 453 $ 647 $ 8,285
State.................................................................... 78 56 141
--------- --------- ---------
Total current.............................................................. 531 703 8,426
Deferred:
Federal.................................................................. (503) 1,865 (3,210)
--------- --------- ---------
Total deferred............................................................. (503) 1,865 (3,210)
--------- --------- ---------
$ 28 $ 2,568 $ 5,216
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
7. INCOME TAXES (CONTINUED)
The reconciliation of income tax expense (benefit) computed at the federal
statutory tax rate to income tax expense is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Tax at statutory rate........................ $ (24) (34)% $2,427 34% $4,868 35%
State income tax (net of federal tax
benefit).................................... 52 73 141 2 92 1
Nondeductible amortization................... -- -- -- -- 219 2
Other........................................ -- -- -- -- 37 --
------ ------- ------ ------- ------ -------
$ 28 39% $2,568 36% $5,216 38%
------ ------- ------ ------- ------ -------
------ ------- ------ ------- ------ -------
</TABLE>
Income taxes paid during 1993, 1994, and 1995, were $272,000, $330,000 and
$6,124,000, respectively.
8. STOCK OPTIONS
The Company's Stock Option and Restricted Stock Purchase Plan (the "Stock
Option Plan") provides for the granting of stock options and restricted stock to
employees and independent contractors. These options are issued at exercise
prices approximating the market value of the common stock on the dates of grant
and vest over periods of up to five years. The options issued to date are
nonqualified for federal income tax purposes. Pertinent information regarding
the Stock Option Plan follows for the year ended December 31:
<TABLE>
<CAPTION>
OPTIONS
-----------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
PRICE PER SHARE 1993 1994 1995 THREE MONTHS
ENDED MARCH
31, 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Outstanding, beginning of period............... $4.93 - $11.00 314,516 501,641 729,391 830,007
Granted...................................... $4.93 - $25.63 187,125 235,500 260,000 344,500
Canceled..................................... $4.93 - $11.00 -- (6,700) (2,600) (72,500)
Exercised.................................... $4.93 - $13.75 -- (1,050) (156,784) (106,200)
--------- --------- ---------- -------------
Outstanding, end of period..................... $4.93 - $25.63 501,641 729,391 830,007 995,807
--------- --------- ---------- -------------
--------- --------- ---------- -------------
Exercisable:
For $4.93 per share.......................... -- 66,286 126,802 73,041 65,275
For $11.00 per share......................... -- 20,875 90,050 140,925 112,375
For $13.75 per share......................... -- -- -- 41,650 54,800
For $16.88 per share......................... -- -- -- 1,000 2,000
For $25.63 per share......................... -- -- -- -- 68,900
</TABLE>
Effective February 1, 1995, the number of shares of Common Stock available
for issuance under the Stock Option Plan was increased from 750,000 to 1,250,000
(subject to subsequent stockholder approval, which was obtained) and effective
March 11, 1996, 3,250,000 shares of common stock were available for issuance
under the Stock Option Plan (subject to subsequent stockholder approval, which
was obtained). The Company has reserved 1,092,166 and 2,985,966 shares of common
stock for issuance upon exercise of stock options at December 31, 1995 and March
31, 1996, respectively. At December 31, 1995 and March 31, 1996, 262,159 and
1,990,159 shares were available for future grants under the Stock Option Plan,
respectively.
F-14
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
The Company issued options for 50,000 shares at $14.00 per share on December
31, 1992, which were exercised in February 1993. Stock options for 32,000 shares
of common stock at $14.00 per share were also granted in connection with an
acquisition in 1993 and were subsequently exercised in 1995.
The exercise of stock options in 1995 resulted in a tax benefit of $733,000
which was accounted for as paid-in capital.
9. STOCKHOLDERS' EQUITY
In December 1994, the Company issued 2,587,500 shares of its common stock at
$11.00 per share in an initial public common stock offering. Proceeds from the
offering, net of commissions and other related expenses totaling $3,185,000,
were $25,278,000, of which $14,500,000 was used to repay subordinated debt. In
connection with the offering, the mandatorily redeemable convertible preferred
stock was converted into 2,939,976 shares of common stock.
10. LEASES
The Company leases office space for primary terms of one to ten years, with
options to renew for additional periods. Future minimum payments due on these
operating leases are as follows at December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996........................................................ $ 1,040
1997........................................................ 1,053
1998........................................................ 957
1999........................................................ 454
2000........................................................ 7
---------
$ 3,511
---------
---------
</TABLE>
Rent expense under operating leases for 1993, 1994, and 1995 was $597,000,
$662,000 and $762,000, respectively.
The Company entered into an operating lease, which will commence during the
second quarter of 1996, for office space for its billing operations pursuant to
a seven and one-half year lease agreement expiring in 2002. The commitment under
the lease will range from approximately $500,000 to $1.2 million per year.
11. PROFESSIONAL LIABILITY INSURANCE
The Company requires the independent contractor physicians with whom it
contracts to obtain professional liability insurance coverage and makes
available to the physicians such insurance. Prior to June 1, 1989, the Company
procured professional liability insurance for the independent contractor
physicians on a claims-made basis and, effective May 31, 1989, exercised its
option for seven-year extended reporting period coverage. Beginning June 1,
1989, the Company again procured insurance coverage for professional liability
claims on a claims-made basis. The current policy expires on December 31, 1997.
Although the majority of the professional liability insurance available for
independent contractor physicians is procured in this manner, in certain cases,
these physicians may obtain their own professional liability insurance directly
or through the contracting hospital.
F-15
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments at December 31,
1995 approximate fair value. The following methods and assumptions were used by
the Company in estimating its fair value disclosures for financial instruments:
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates
its fair value.
MARKETABLE SECURITIES: The fair values for marketable securities are
based on quoted market prices.
LONG AND SHORT-TERM DEBT: The fair values of the Company's long-term debt
are estimated using discounted cash flow
analyses, based on the Company's current incre-
mental borrowing rates for similar types of
borrowing arrangements.
</TABLE>
13. ACQUISITIONS
On February 18, 1994, the Company acquired a business providing emergency
department services for hospitals in Texas for aggregate consideration of
$6,376,000, including an obligation of $2,326,000 payable over three years.
Additionally, certain sellers entered into covenants not to compete valued at
$250,000 in the aggregate.
On February 28, 1995, the Company acquired Capital Emergency Associates,
P.A. ("CEA"), a physician practice management company providing services to
seven hospital emergency departments in Maryland, Virginia, and Pennsylvania.
CEA was acquired for aggregate consideration of $15.5 million which consists of
$5,200,000 in cash, 433,333 shares of the Company's common stock valued at
$16.88 per share, or an aggregate of $7,312,494, and obligations of $2,941,000
payable over the next two years. The former stockholders of CEA have agreed to
continue to work as employees of a subsidiary of the Company. In the merger
agreement, these individuals also have agreed not to compete against the Company
for the three years immediately after the merger, subject to a decrease to two
years under certain circumstances. The Company allocated $680,000 of the merger
consideration paid upon consummation of the merger to these covenants not to
compete.
On May 1, 1995, the Company acquired a business providing emergency
department services for a hospital in Arkansas for aggregate consideration of
$1,500,000, including an obligation of $300,000 payable over two to seven years
based on certain future contract performance criteria. Additionally, the sellers
entered into covenants not to compete valued at $150,000 in the aggregate.
On August 1, 1995, the Company acquired a physician management company
providing in-patient physician services to five hospitals in Maryland for
$800,000 in cash.
On September 7, 1995, the Company acquired all of the outstanding stock of
Reimbursement Technologies, Inc. ("RTI"), an emergency medicine billing company
in Pennsylvania. RTI provides billing services to emergency physician groups who
supply professional services to 18 high volume emergency departments in eight
states. RTI was purchased for aggregate consideration of $9,722,000, including
an obligation of $400,000 payable within the next year. Additionally, the former
stockholder of RTI and certain key employees entered into covenants not to
compete valued at $485,000 in the aggregate.
All the acquisitions have been accounted for as purchases, and the net
assets and operations are included in the Company's consolidated financial
statements as of the date of acquisition.
F-16
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
13. ACQUISITIONS (CONTINUED)
The following unaudited pro forma information combines the results of
operations of the Company with the acquired businesses after giving effect to
amortization of non-competition agreements, contracts and goodwill and interest
expense on the related long-term obligations as if the acquisitions had occurred
on January 1, 1994:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
<S> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
Net revenue.................................................................. $ 140,895 $ 164,572
Income before extraordinary charge........................................... 5,251 9,077
Net income................................................................... 4,414 9,077
Income per share before extraordinary charge................................. $0.94 $1.09
Net income per share......................................................... $0.79 $1.09
</TABLE>
14. CONTINGENCIES
In June 1995, the Company was informed that the Civil Division of the U.S.
Department of Justice ("DOJ") intended to pursue a civil lawsuit against a
vendor which provides billing services on a contract basis for the Company and a
number of other customers. The DOJ alleges improper coding by the billing
company of charges for programs (Medicare, Medicaid, and CHAMPUS) in violation
of the False Claims Act. Initially, DOJ agreed not to name the Company as a
defendant in the lawsuit, but later informed the Company that DOJ intended to
pursue the lawsuit against the Company, as well as other defendants, unless by
February 1, 1996, settlement discussions were successful. The lawsuit was not
settled by the February 1, 1996 deadline and the Company has now been served in
the lawsuit. Under the Company's contracts with the billing company, the billing
company has agreed to be responsible for all coding errors. The billing company
has advised the Company it is confident the DOJ allegations are incorrect. The
Company does not currently possess sufficient information to determine the
likelihood or amount of potential liabilities, if any.
In addition to its allegations of improper coding, the DOJ has notified the
Company of its position that the Company's contracts with the third party
billing company fail to comply with applicable law because the billing company's
fee is based on a percentage of the amount collected. The DOJ has further
notified the Company that the DOJ believes that, as a result of such alleged
illegality, each claim submitted for payment under this arrangement constitutes
a false claim under the False Claims Act. The Company believes that such
reassignment is consistent with industry practice. Although the Company is aware
that such reassignments are not in compliance with applicable law relating to
reassignment of Medicare claims, the Company does not believe that the failure
to comply with applicable law imposing restrictions on reassignment of Medicare
claims renders such claims or Medicaid or CHAMPUS claims false claims within the
meaning of the False Claims Act. If the Company does not prevail on this issue,
it is possible that the DOJ could make similar allegations with respect to: (i)
reassignments to the third-party billing company after the period covered by the
DOJ Lawsuit, and (ii) reassignments to the Company's wholly-owned billing
subsidiary.
The Company is also a defendant in various other legal proceedings arising
in the ordinary course of business. Although the results of litigation cannot be
predicted with certainty, management believes that the outcome of the pending
other litigation will not have a material adverse effect on the Company's
consolidated financial statements.
15. RELATED PARTY TRANSACTIONS
In connection with servicing its independent billing contracts, the Company
enters into arrangements with companies that provide accounts receivable
management services. A director of the Company is a
F-17
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
15. RELATED PARTY TRANSACTIONS (CONTINUED)
director of a company that provides such services to the Company. Management
service fees paid by the Company to this company in 1993, 1994 and 1995 were
$923,000, $1,102,000 and $1,140,000, respectively. The Company believes that
this arrangement has been on terms no less favorable to the Company than could
have been obtained from an unaffiliated third party.
F-18
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 12
Price Range of Common Stock.................... 12
Dividend Policy................................ 12
Capitalization................................. 13
Selected Consolidated Financial Data........... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 15
Business....................................... 21
Management..................................... 27
Principal and Selling Stockholders............. 30
Description of Capital Stock................... 31
Underwriting................................... 33
Legal Matters.................................. 34
Experts........................................ 34
Additional Information......................... 34
Incorporation by Reference..................... 34
Index to Financial Statements.................. F-1
</TABLE>
1,800,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
PIPER JAFFRAY INC.
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows, all of which will be payable by the Company:
<TABLE>
<S> <C>
Registration fee.......................................................... $ 22,128
NASD filing fee........................................................... 6,917
NASDAQ NMS Supplemental Listing Fee....................................... 2,000
Printing and engraving expenses........................................... 50,000
Legal fees and expenses................................................... 125,000
Accounting fees and expenses.............................................. 50,000
Blue Sky fees and expenses (including legal fees)......................... 15,000
Transfer agent and registrar fees and expenses............................ 5,000
Miscellaneous............................................................. 8,955
---------
Total................................................................. $ 285,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that, to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
II-1
<PAGE>
Section 145(d) of the DGCL provides that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b) of Section 145. Such determination shall be
made: (i) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
CERTIFICATE OF INCORPORATION
The Amended and Restated Certificate of Incorporation of the Company,
provides that no person shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock purchases or redemptions
or (iv) for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability provided in the
Amended and Restated Certificate of Incorporation, will be limited to the
fullest extent permitted by the DGCL, as amended. Further, any repeal or
modification of such provision of the Amended and Restated Certificate of
Incorporation by the stockholders of the Company will be prospective only, and
will not adversely affect any limitation on the personal liability of a director
of the Company arising from an act or omission occurring prior to the time of
such repeal or modification.
AMENDED AND RESTATED BYLAWS
The Amended and Restated Bylaws of the Company, provide that each person who
at any time is or was a director or officer of the Company, and is threatened to
be or is made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative (a "Proceeding"), by reason of the fact that such person is or was
a director or officer of the Company, or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, employee benefit plan or other enterprise, whether the basis of a
Proceeding is alleged action in such person's official capacity or in another
capacity while holding such office, shall be indemnified by the Company to the
fullest extent authorized by the DGCL or any other applicable law as may from
time to time be in effect (but, in the case of any such amendment or enactment,
only to the extent that such amendment or statute permits the Company to provide
broader indemnification rights than such law prior to such amendment or
enactment permitted the Company to provide), against all expense, judgments,
fines and amount paid in settlement (including attorneys' fees) actually and
reasonably incurred or suffered by such person in connection with a Proceeding,
so long as a majority of a quorum of disinterested directors, the stockholders
or legal counsel through a written opinion determines that such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company. Such indemnification shall continue as to a
person who has ceased to serve in the capacity which initially entitled such
person to indemnity thereunder and shall inure to the benefit of his or her
heirs, executors and administrators. The Amended and Restated Bylaws also
contain certain provisions designed to facilitate receipt of such benefits by
any such persons, including the prepayment of any such benefits.
II-2
<PAGE>
EMPLOYMENT AGREEMENTS
The employment agreements of the Company with Dr. Riggs and Mr. Miller
provide that the Company will indemnify them to the full extent permitted by
applicable law for all liabilities and expenses that they incur in any
proceeding involving them by reason of their having been a director, officer, or
other representative of the Company. The Company must also advance funds to Dr.
Riggs and Mr. Miller to cover their reasonable counsel fees and other costs
associated with their defense of any such proceeding, provided that they agree
to repay any amounts advanced if they are not ultimately entitled to
indemnification by the Company.
INSURANCE
The Company maintains a directors' and officers' liability insurance policy
to insure its directors and officers against losses resulting from wrongful acts
committed by them in their capacities as directors and officers of the Company,
including liabilities arising under the Securities Act.
UNDERWRITING AGREEMENT
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act. Reference is made to the form of Underwriting Agreement
filed as Exhibit 1.1 hereto.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Securities Purchase Agreement, dated as of February 4, 1992, among EmCare, Inc. the Company, Leonard
M. Riggs, Jr., M.D., William F. Miller, III, WCAS Capital Partners II, L.P., and certain other
persons.
2.2 Amendment No. 1 to Securities Purchase Agreement, dated as of May 10, 1993, among EmCare, Inc., the
Company, Leonard M. Riggs, Jr., M.D., William F. Miller, III, and certain other persons.
2.3 Waiver and Release and Agreement Restricting Transfer of Shares, dated as of January 15, 1994, among
EmCare, Inc., the Company, Leonard M. Riggs, Jr., M.D., William F. Miller, III, and certain other
persons.
2.4 Purchase Agreement, dated as of February 17, 1994, among the Company, EmCare, Inc., Emergency Health
Services Associates, Houston Emergicare, Inc., Emergicare, L.P., Emergicare, P.A., Em-Med, P.A.,
Ronald H. Kremer, M.D., Raymond C. Stacey, M.D., and Robert J. Voigt, M.D.
2.5 Waiver, dated as of February 17, 1994, from the Company, EmCare, Inc. and Emergency Health Services
Associates with respect to the Purchase Agreement, dated as of February 17, 1994, among the Company,
EmCare, Inc., Emergency Health Services Associates, Houston Emergicare, Inc., Emergicare, L.P.,
Emergicare, P.A., Em-Med, P.A., Ronald H. Kremer, M.D., Raymond C. Stacey, M.D., and Robert J. Voigt,
M.D.
2.6 Agreement and Plan of Merger, dated as of February 24, 1995, among the Company, Capital Equity
Associates, LLC, CEA, and its Class A Stockholders.
2.7 Stock Purchase Agreement, dated September 7, 1995, among EmCare, Inc., RTI, and Stuart L. Wolf, the
sole stockholder of RTI.
2.8 Stock Purchase Agreement, dated as of April 1, 1996, among the Company, EmCare, Inc., MESA, and the
MESA shareholders.
4.1 Specimen Common Stock certificate.
4.2 Registration Rights Agreement, dated as of February 5, 1992, among Leonard M. Riggs, Jr., M.D.,
William F. Miller, III, WCAS Capital Partners II, L.P., and certain other persons.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
5.1 Opinion of Gibson, Dunn & Crutcher LLP.
<S> <C>
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Gibson, Dunn & Crutcher LLP.
23.3 Consent of Powers, Pyles, Sutter & Verville, P.C.
23.4 Consent of Halbert, Katz & Co., P.C.
24.1 Power of Attorney.
</TABLE>
ITEM 17. UNDERTAKINGS.
FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
INCORPORATED ANNUAL AND QUARTERLY REPORTS
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
REQUEST FOR ACCELERATION OF EFFECTIVE DATE
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 provisions described in Item 15 above, 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, 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.
REGISTRATION STATEMENT PERMITTED BY RULE 430A
The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective, and (ii) for the purpose of determining any liability under
the Securities Act of 1993, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
[SIGNATURES ON THE NEXT PAGE]
II-4
<PAGE>
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, State of Texas, on June 3, 1996.
EMCARE HOLDINGS INC.
By: /s/ ROBERT F. ANDERSON, II________
Name: Robert F. Anderson, II
Title: Chief Financial Officer,
Senior Vice President,
Treasurer, and Secretary
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of EmCare Holdings Inc., hereby
severally constitute and appoint Leonard M. Riggs, Jr., M.D., William F.
Milller, III, and Robert F. Anderson, II, and each of them singly, our true and
lawful attorneys, with full power to them and each of them singly, to sign for
us in our names in the capacities indicated below, all pre-effective and
post-effective amendments to this registration statement, and generally to do
all things in our names and on our behalf in such capacities to enable EmCare
Holdings Inc. to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------------------------------- ---------------
<C> <S> <C>
/s/ ROBERT F. ANDERSON, II
------------------------------------- Chief Financial Officer, Senior Vice President, June 3, 1996
ROBERT F. ANDERSON, II Treasurer, and Secretary
/s/ ANDREW G. BUCK
------------------------------------- Chief Accounting Officer and Vice President June 3, 1996
ANDREW G. BUCK
/s/ TERRY HARTSHORN
------------------------------------- Director June 3, 1996
TERRY HARTSHORN
/s/ JAMES T. KELLY
------------------------------------- Director June 3, 1996
JAMES T. KELLY
/s/ WILLIAM F. MILLER, III
------------------------------------- President, Chief Operating Officer, and June 3, 1996
WILLIAM F. MILLER, III Director
/s/ ANDREW M. PAUL
------------------------------------- Director June 3, 1996
ANDREW M. PAUL
/s/ LEONARD M. RIGGS, JR., M.D.
------------------------------------- Chairman of the Board, Chief Executive Officer, June 3, 1996
LEONARD M. RIGGS, JR., M.D. and Director
/s/ RICHARD H. STOWE
------------------------------------- Director June 3, 1996
RICHARD H. STOWE
</TABLE>
II-5
<PAGE>
EMCARE HOLDINGS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement................................................................ *
2.1 Securities Purchase Agreement, dated as of February 4, 1992, among EmCare, Inc. the Company,
Leonard M. Riggs, Jr., M.D., William F. Miller, III, WCAS Capital Partners II, L.P., and
certain other persons (incorporated by reference to Exhibit No. 10.17 to the Company's
Registration Statement No. 33-81830 on Form S-1, declared effective on December 7, 1994 (the
"IPO Registration Statement"))................................................................ N/A
2.2 Amendment No. 1 to Securities Purchase Agreement, dated as of May 10, 1993, among EmCare,
Inc., the Company, Leonard M. Riggs, Jr., M.D., William F. Miller, III, and certain other
persons (incorporated by reference to Exhibit No. 10.18 to the IPO Registration Statement).... N/A
2.3 Waiver and Release and Agreement Restricting Transfer of Shares, dated as of January 15, 1994,
among EmCare, Inc., the Company, Leonard M. Riggs, Jr., M.D., William F. Miller, III, and
certain other persons (incorporated by reference to Exhibit No. 10.19 to the IPO Registration
Statement).................................................................................... N/A
2.4 Purchase Agreement, dated as of February 17, 1994, among the Company, EmCare, Inc., Emergency
Health Services Associates, Houston Emergicare, Inc., Emergicare, L.P., Emergicare, P.A.,
Em-Med, P.A., Ronald H. Kremer, M.D., Raymond C. Stacey, M.D., and Robert J. Voigt, M.D.
(incorporated by reference to Exhibit No. 10.28 to the IPO Registration Statement)............ N/A
2.5 Waiver, dated as of February 17, 1994, from the Company, EmCare, Inc. and Emergency Health
Services Associates with respect to the Purchase Agreement, dated as of February 17, 1994,
among the Company, EmCare, Inc., Emergency Health Services Associates, Houston Emergicare,
Inc., Emergicare, L.P., Emergicare, P.A., Em-Med, P.A., Ronald H. Kremer, M.D., Raymond C.
Stacey, M.D., and Robert J. Voigt, M.D. (incorporated by reference to Exhibit No. 10.45 to the
IPO Registration Statement)................................................................... N/A
2.6 Agreement and Plan of Merger, dated as of February 24, 1995, among the Company, Capital Equity
Associates, LLC, CEA, and its Class A Stockholders (incorporated by reference to Exhibit No.
2.1 to the Form 8-K that the Company filed on March 14, 1995)................................. N/A
2.7 Stock Purchase Agreement, dated September 7, 1995, among EmCare, Inc., RTI, and Stuart L.
Wolf, the sole stockholder of RTI (incorporated by reference to Exhibit No. 2.1 to the the
Form 8-K that the Company filed on September 22, 1995)........................................ N/A
2.8 Stock Purchase Agreement, dated as of April 1, 1996, among the Company, EmCare, Inc., MESA,
and the MESA shareholders (incorporated by reference to Exhibit No. 2.1 to the the Form 8-K
that the Company filed on May 15, 1996)....................................................... N/A
4.1 Specimen Common Stock certificate (incorporated by reference to Exhibit No. 4.1 to the IPO
Registration Statement)....................................................................... N/A
4.2 Registration Rights Agreement, dated as of February 5, 1992, among Leonard M. Riggs, Jr.,
M.D., William F. Miller, III, WCAS Capital Partners II, L.P., and certain other persons
(incorporated by reference to Exhibit No. 4.2 to the IPO Registration Statement).............. N/A
5.1 Opinion of Gibson, Dunn & Crutcher LLP........................................................ *
23.1 Consent of Ernst & Young LLP..................................................................
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).............................. N/A
23.3 Consent of Powers, Pyles, Sutter & Verville, P.C.............................................. *
23.4 Consent of Halbert, Katz & Co., P.C........................................................... *
24.1 Power of Attorney (see signature page)........................................................ N/A
</TABLE>
- ------------------------
* To be filed by amendment.