Jeffrey A. Baumel
973.639.5904
Fax 973.297.3814
jbaumel@mccarter.com
November 3, 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 letter dated November 2, 2005 (the "SEC Letter"). Set
forth below is the text of the comment contained in the SEC Letter and the
Company's response thereto. The heading and numbered paragraphs below correspond
to the headings and paragraph numbers in the SEC Letter.
1. We note that, according to a press release issued by Patient InfoSystems
("PATY"), dated October 31, 2005, that PATY had just completed a private
offering of its shares. Please provide us with an analysis as to why the
private offering of the PATY shares while your SB-2 was on file should not
be integrated with this public offering. Also, in connection with the
private placement please provide us with a copy of the Private Placement
Memorandum.
Introduction. The securities of Patient Infosystems issued by Patient
Infosystems, Inc. pursuant to the private offering, which were issued
while the SB-2 relating to the distribution of shares of common stock of
American Caresource, Inc. was on file, should not be integrated with such
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
issuers and different securities. None of the proceeds of the private
offering of securities of Patient Infosystems have been or will be used to
benefit the business of the Registrant. The proposed distribution of
shares in the dividend is being made by Patient Infosystems to its
Securities and Exchange Commission
November 3, 2005
Page 2
stockholders on a pro rata basis for no consideration. Because the
Registrant and Patient Infosystems are separate issuers, there should be
no reason to address the integration issue in connection with the private
offering of securities by Patient Infosystems and the proposed dividend of
common stock of the Registrant. But more important and necessarily
dispositive of the issue, is the fact that even though the Registrant has
filed a Registration Statement relating thereto, the pro rata distribution
of the shares of the Registrant is not a "sale" of such securities by
Patient Infosystems.
Under a Traditional Integration Analysis, There Would be no Integration.
Even if a traditional integration analysis was to be undertaken, the
issuance of the securities of Patient Infosystems 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
distribution:
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 securities of Patient
Infosystems in the private offering and the pro rata distribution of
common stock of the Registrant are two independent transactions with no
financial relationship. The proposed distribution covered by the
Registration Statement involves a distribution by dividend by Patient
Infosystems to all stockholders of Patient Infosystems of shares of common
stock of the Registrant. The spin-off was conceived of and instigated
months before the private placement was even on the horizon for Patient
Infosystems. The private placement was commenced to satisfy a condition
precedent of the proposed acquisition of CCS Consolidated, Inc. ("CCS").
The Merger Agreement provides that Patient Infosystems was to complete a
Securities and Exchange Commission
November 3, 2005
Page 3
private sale of securities in order to fund continuing operations and to
reduce debt. The spin-off, alternatively, was conceived of, planned for
and instigated long before negotiations for the CCS transaction even
began. In fact, none of the proceeds of the private offering will inure to
the benefit of or affect the balance sheet or business efforts of the
Registrant. Accordingly, the purpose of each offering, i.e., raising
capital to satisfy the condition precedent in the proposed CCS Merger and
spinning off the Registrant as an independent public company, are clearly
distinct. Each transaction is unaffected by the outcome of the other and
each transaction is independent of the other. Moreover, since there is no
consideration being received by Patient Infosystems for the shares of the
Registrant's common stock being distributed, the distribution by dividend
does not even involve a financing. For these reasons, the offerings do not
involve a single plan of financing.
Same class of security. The securities involved in each of the two
distributions in question are clearly a different security. First, in the
private offering, securities of Patient Infosystems were offered and sold
by Patient Infosystems. The distribution pursuant to the Registration
Statement involves the pro rata distribution by dividend for no
consideration of shares of common stock of the Registrant. Without
question, these are not only different classes of securities but they are
securities of different issuers. At the time of the private offering, the
dividend had not been declared and the Board of Directors of Patient
Infosystems had no obligation to follow through with the proposed
dividend. The securities issuable in the private placement were not
convertible into nor did they provide the investor therein with a right of
any kind to acquire or receive securities of the Registrant at the time of
the purchase.
Offerings made at or about the same time. Although the issuance of the
securities in the private placement 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 securities by Patient
Infosystems and the distribution by dividend do not involve the same type
of consideration. The securities issued in the private offering by Patient
Infosystems were issued for cash. 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 pro rata
distribution of the shares to the shareholders of Patient Infosystems for
no consideration. The 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). Clearly, because only one of the two transactions at
issue (i.e., the private offering) even involves the receipt of
consideration by Patient Infosystems, the issuance of the securities of
Patient Infosystems in its private offering should not be integrated with
the proposed dividend based on this criterion.
Securities and Exchange Commission
November 3, 2005
Page 4
Offerings made for the same general purpose. The issuance of the
securities by Patient Infosystems in its private offering and the dividend
of stock of the Registrant seek to accomplish significantly different
purposes. As previously discussed, the purpose of the issuance of the
securities by Patient Infosystems in the private offering is to provide
for working capital and debt reduction for Patient Infosystems in
satisfaction of its obligations under the Merger Agreement with CCS. By
way of contrast, the purpose of the proposed dividend is to distribute on
a pro rata basis for no consideration 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. 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 securities by
Patient Infosystems in the private offering and the distribution have two
separate and very distinct general purposes.
Summary. On the basis of the foregoing, the proposed distribution by
dividend of the securities of the Registrant should not be integrated with
the exempt issuance of securities by Patient Infosystems. The
distribution, may therefore be undertaken without undermining the reliance
on the Section 4(2) exemption for the issuance of the securities of
Patient Infosystems.
Under Section 2(3) the Distribution Does Not Constitute a "Sale" of
Securities. The distribution of the Registrant's Common Stock to holders
of Patient Infosystems equity securities will not involve an "offer to
sell" or a "sale" of securities within the meaning of Section 2(3) of the
Securities Act because there will be no disposition by Patient Infosystems
of securities for value and no new investment decision by the holders of
Patient Infosystems Common Stock who will receive ACS Common Stock in the
spin-off. Furthermore, Patient Infosystems stockholders will not provide
any consideration to Patient Infosystems for ACS Common Stock that they
will receive in the spin-off.
Securities and Exchange Commission
November 3, 2005
Page 5
The substance of the equity interest held by stockholders will be the same
immediately after the spin-off as it was before the spin-off. The spin-off
involves neither the receipt by Patient Infosystems' stockholders of new
or different investments from those currently owned by such holders
through their existing holdings in Patient Infosystems nor an exchange by
such holders of any consideration.
The Commission has taken the position that a dividend paid in the form of
securities, like a dividend paid in cash, generally does not constitute a
"sale" within the meaning of Section 2(3), because such dividend does not
constitute a disposition "for value" within the meaning of that section.
See, e.g., Release 33-929 (July 29, 1936). The underlying policy rationale
for this position is that a stockholder who receives a spin-off dividend
does not make an independent investment decision nor give any
consideration in exchange for the securities received.
For the reasons stated above, we believe that the spin-off does not
constitute a "sale" or "other disposition for value" for the purposes of
Section 2(3) under the Securities Act.
Finally, a copy of the Private Placement Memorandum used in connection
with the private offering will be delivered to you under separate cover in
accordance with the Staff's request.
2. Please revise the SB-2 to disclose the dilutive effect of the private
offering on your shareholders. We note that the proceeds of that offering
were allocated exclusively to PATY.
In response to the Staff's comment above, the Registration Statement will
be further revised to disclose the dilutive effect of Patient Infosystem's
private offering.
Securities and Exchange Commission
November 3, 2005
Page 6
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