Jeffrey A. Baumel
973.639.5904
Fax 973.297.3814
jbaumel@mccarter.com
October 25, 2005
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attn: Owen Pinkerton, Senior Counsel
Re: American Caresource Holdings, Inc. (the "Company" or the "Registrant")
File No. 333-122820
Dear Mr. Pinkerton:
On behalf of the Registrant, set forth below is the Registrant's response
to the Staff's comment number 3 contained in the comment letter dated October
11, 2005. The Registrant's response corresponds to this comment only.
Item 26. Recent Sales of Unregistered Securities, page II-2
1. We reissue comment 5 in part. Please break out your disclosure to discuss
the specific issuances made to each individual, including the dates of the
issuances. In addition, please disclose the exemption from registration
you relied upon in each issuance, including the facts necessary to support
your claim. In connection with this, please provide us with an analysis as
to why the warrants issued while the SB-2 was on file should not be
integrated with this public offering under Black Box Incorporated (June
26, 1990) and Squadron, Ellenoff, Plesant & Lehrer (February 28, 1992).
Refer to Item 701 of Regulation S-B.
In response to the Staff's comment above, the Registration Statement will
be further revised to list the dates of the specific issuances of warrants
made to John Pappajohn, Derace Schaffer and Matthew Kinley. Please note
that each of Mr. Pappajohn and Dr. Schaffer are members of the Board of
Directors of the Registrant. Mr. Kinley is an investment banker who, in
his capacity as an employee to Mr. Pappajohn's firm, has provided
investment banking services to the Registrant for almost two years. Mr.
Kinley is an accredited investor as such term is defined under the
Securities Act of 1933 and has intimate knowledge of the Registrant and
its affairs. Additionally, the Registration Statement will be revised to
set forth that the Registrant relied upon the exemption from registration
provided under Section 4(2) of the Securities Act in connection with each
issuance of warrants.
Securities and Exchange Commission
October 25, 2005
Page 2
Introduction. In response to the Staff's comment concerning integration,
the warrants issued to Mr. Pappajohn, Dr. Schaffer and Mr. Kinley, which
were issued while the SB-2 was on file should not be integrated with the
distribution under Black Box Incorporated (June 26, 1990) and Squadron,
Ellenoff, Plesant & Lehrer (February 28, 1992). As a threshold matter, the
two transactions to which the Staff's comments refer involve different
distributing parties. The warrants were issued by the Registrant in
consideration of guarantees of a loan from a commercial bank. The proposed
distribution of shares in the dividend is being made by Patient
Infosystems to its stockholders on a pro rata basis for no consideration.
Although each transaction involves securities of the same issuer, the
parties instigating each transaction are different, independent entities.
Because the Registrant and Patient Infosystems are separate issuers, there
should be no reason to address the integration issue in connection with
the issuance of the warrants by the Registrant and the proposed dividend
by Patient Infosystems.
Nonetheless, even if a traditional integration analysis was to be
undertaken, the issuance of the warrants should not be integrated into the
proposed dividend of the Registrant's common stock by Patient Infosystems,
because the criteria of the five-factor integration test established in
Securities Act Release No. 33-4552 (November 6, 1962) (the "Release") have
clearly not been satisfied. As set forth in the Release, the following
factors are relevant to the question as to whether an exempt offering
should be integrated with another separately structured offering:
1. Are the offerings part of a single plan of financing?
2. Do the offerings involve issuance of the same class of
security?
3. Are the offerings made at or about the same time?
4. Is the same type of consideration to be received?
5. Are the offerings made for the same general purpose?
Single plan of financing. The issuance of the warrants by the Registrant
and the distribution of common stock by Patient Infosystems are two
financially independent transactions. In the exempt offering, the
Registrant issued warrants to purchase a total of 1,544,950 shares of the
Registrant's common stock as compensation for certain guarantees of debt
by Mr. Pappajohn, Dr. Schaffer and Mr. Kinley. Alternatively, the proposed
Securities and Exchange Commission
October 25, 2005
Page 3
distribution covered by the Registration Statement involves a distribution
by dividend by Patient Infosystems to all stockholders of Patient
Infosystems of approximately 12,000,000 shares of common stock of the
Registrant. First of all, to the extent that there is no consideration
being received by Patent Infosystems for the shares of the Registrant's
common stock being distributed, the distribution by dividend does not even
involve a financing. Secondly, the purpose of each offering, i.e.,
guaranteeing debt and spinning off the Registrant as an independent public
company, are clearly distinct. Each transaction is unaffected by the
outcome of the other offering and each offering is independent of the
other. For these reasons, the offerings do not involve a single plan of
financing.
Same class of security. The Staff has taken the position that an offering
of securities convertible into common stock and an offering of common
stock involve the same class of securities. Although the issuance of the
warrants to purchase shares of the Registrant's common stock and the
distribution of the Registrant's common stock involve the same class of
securities, other factors must be considered when determining whether
offerings should be integrated. See Wellington Fund, Inc., Sept. 22, 1976,
1976 WL 12640.
Offerings made at or about the same time. The issuance of the warrants and
the distribution were made at or about the same time. The initial warrant
issuance and the subsequent issuance of the warrants were made within a
six month period of the initial filing of the Registration Statement and
the pending distribution. Although the issuance of the warrants and the
distribution are close in time to each other, this factor has seldom been
a determinative factor as to integration. See Wellington Fund, Inc., Sept.
22, 1976, 1976 WL 12640 and Guarantee Mutual Life Ins. Co., April 13,
1995, 1995 WL 256250. Other factors, such as the type of consideration and
the purpose of the offerings, have been viewed by the Staff as more
critical. See Guarantee Mutual Life Ins. Co., April 13, 1995, 1995 WL
256250.
Type of consideration. The issuance of the warrants and the distribution
do not involve the same type of consideration. The warrants to purchase
shares of the Registrant's common stock were issued as consideration for
guarantees made by Mr. Pappajohn, Dr. Schaffer and Mr. Kinley in
connection with the extension of a line of credit to the Registrant by a
commercial bank. However, the proposed distribution of shares by dividend
to Patient Infosystems' stockholders does not involve any consideration.
Rather, the proposed dividend would be declared by the Board of Directors
of Patient Infosystems and would involve the distribution of the shares to
the shareholders of Patient Infosystems for no consideration. The
Securities and Exchange Commission
October 25, 2005
Page 4
Registrant, as the issuer, would receive no consideration in connection
with the proposed dividend. The recipients of the shares in the proposed
dividend are not making an investment decision (in that the dividend is
being declared by the Board of Directors of Patient Infosystems). In fact,
the Board of Directors of the Registrant has no control over the timing,
nature or circumstances relating to the proposed distribution. Clearly,
because the type of consideration differs in each transaction, the
issuance of the warrants should not be integrated with the proposed
dividend.
Offerings made for the same general purpose. The issuance of the warrants
and the dividend of stock by Patient Infosystems seek to accomplish
significantly different general purposes. As previously discussed, the
purpose of the issuance of the warrants to Mr. Pappajohn, Dr. Schaffer and
Mr. Kinley was compensation for the guarantee of a credit line issued
through a commercial bank. By way of contrast, the purpose of the proposed
dividend is to distribute up to 12,000,000 shares of the Registrant's
common stock to the stockholders of Patient Infosystems. The effect of
this initiative would be to create two separate, publicly-traded
companies, American Caresource Holdings, Inc. and Patient Infosystems. The
distribution is in the best interests of the Registrant, Patient
Infosystems and Patient Infosystems' shareholders. Patient Infosystems
believes that the distribution will enhance value for Patient Infosystems
stockholders and give the Registrant the financial and operational
flexibility to take advantage of potential growth opportunities in the
ancillary benefits management services business. Further, the distribution
will enhance the ability of the Registrant and Patient Infosystems to
focus on strategic initiatives and new business opportunities and improve
cost structures and operating efficiencies. Additionally, Patient
Infosystems' board of directors expects that the Registrant's transition
to an independent company will have the added benefits of allowing the
Registrant's management to focus solely on the Registrant's operations,
and allow the investment community to better measure the Registrant's
performance relative to its peers. Consequently, the issuance of the
warrants and the distribution have two separate and very distinct general
purposes.
On the basis of the foregoing, the proposed distribution by dividend by
Patient Infosystems should not be integrated with the exempt issuance of
warrants by the Registrant. The distribution, may therefore be undertaken
without undermining the reliance on the Section 4(2) exemption for the
issuance of the warrants.
Securities and Exchange Commission
October 25, 2005
Page 5
We appreciate the Staff's consideration of this letter. If you have any
questions, or if we may be of any assistance, please contact the undersigned at
(973) 622-4444.
Very truly yours,
/s/ Jeffrey A. Baumel
Jeffrey A. Baumel
JAB:an