UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------- ---------
Commission file number 0-27374
UNISON HEALTHCARE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 86-0684011
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8800 North Gainey Center Drive, Suite 245
Scottsdale, AZ 85258
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(Address of principal executive offices)
(602) 423-1954
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
As of November 1, 1997 there were 6,422,096 shares of $0.001 par value common
stock outstanding.
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UNISON HEALTHCARE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 ....................................... 3
Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1997 and 1996 .... 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 .................... 5
Notes to Consolidated Financial Statements .................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 25
Item 3 Defaults on Senior Securities ............................... 27
Item 6. Exhibits and Reports on Form 8-K ............................ 28
Signatures ........................................................... 29
NOTE: Items 2, 4 and 5 of Part II are omitted because they are not applicable.
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UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
1997 1996
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 3,800 $ 17,409
Accounts receivable, net ......................... 36,601 28,608
Prepaid expenses and other current assets ........ 5,779 5,885
--------- ---------
Total current assets ........................... 46,180 51,902
Lease operating rights and
other intangible assets, net ..................... 111,827 113,781
Property and equipment, net ........................ 31,174 30,830
Goodwill, net ...................................... 28,610 28,431
Security deposits and other assets ................. 6,935 5,977
--------- ---------
$ 224,726 $ 230,921
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 13,287 $ 10,505
Accrued expenses ................................. 19,797 21,437
Current portion of notes payable and
long-term debt due to related parties .......... 20,139 12,312
Current portion of other notes
payable and long-term debt ..................... 22,537 21,603
--------- ---------
Total current liabilities ...................... 75,760 65,857
Notes payable and long-term debt due to
related parties, less current portion ............ 819 15,882
Other notes payable and long-term debt ............. 118,187 107,341
Deferred taxes ..................................... 20,529 24,791
Leasehold liability, net ........................... 4,293 4,434
Other liabilities .................................. 932 927
--------- ---------
Total liabilities ................................ 220,520 219,232
Stockholders' equity:
Common stock, $.001 par value; 25,000,000
shares authorized; 6,422,096 and 6,078,498
shares issued and outstanding at September 30,
1997 and December 31, 1996 ..................... 5 5
Additional paid-in capital ....................... 36,211 34,723
Accumulated deficit .............................. (32,010) (23,039)
--------- ---------
Net stockholders' equity ....................... 4,206 11,689
--------- ---------
$ 224,726 $ 230,921
========= =========
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
3
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UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
Total revenues ............... $59,525 $ 35,587 $172,628 $104,146
Expenses:
Wages and related ............ 28,789 20,294 88,333 54,255
Other operating .............. 22,013 21,460 63,214 44,125
Rent ......................... 3,966 3,902 12,352 10,606
Interest ..................... 5,104 1,457 14,698 2,965
Depreciation and
amortization ............... 2,538 1,621 7,264 2,773
Impairment losses ............ -- 3,865 -- 3,865
------- -------- -------- --------
Total expenses ............ 62,410 52,599 185,861 118,589
------- -------- -------- --------
Loss before income taxes ..... (2,885) (17,012) (13,233) (14,443)
Income tax benefit ........... (929) (4,803) (4,262) (3,753)
------- -------- -------- --------
Net loss ..................... $(1,956) $(12,209) $ (8,971) $(10,690)
======= ======== ======== ========
Net loss per share ........... $ (0.30) $ (2.73) $ (1.41) $ (2.43)
Common shares used in
per share calculation ....... 6,422 4,468 6,354 4,393
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
4
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UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
---------------------
1997 1996
---- ----
Net cash used in operating activities
(including changes in all operating
assets and liabilities) ..................... $ (7,176) $ (7,317)
-------- --------
Investing activities:
Purchase of equipment and leasehold
improvements ................................ (2,311) (3,291)
Increase in intangible assets ................. (60) (1,593)
Increase in lease deposits and other assets ... (958) (341)
Acquisitions, net of cash acquired ............ (659) (1,159)
-------- --------
Net cash used in investing activities ....... (3,988) (6,384)
-------- --------
Financing activities:
Net increase in borrowings under revolving
lines of credit ............................. 9,395 8,870
Proceeds from borrowings ...................... 3,950 10,710
Debt payments ................................. (13,227) (10,721)
Checks drawn in excess of bank balances ....... (2,068) 480
Debt issue costs .............................. (503) --
Other items ................................... 8 (130)
-------- --------
Net cash provided by (used in)
financing activities ...................... (2,445) 9,209
-------- --------
Net decrease in cash .......................... (13,609) (4,492)
Cash and cash equivalents at
beginning of period ......................... 17,409 6,169
-------- --------
Cash and cash equivalents at end of period .... $ 3,800 $ 1,677
======== ========
Supplemental disclosures:
Cash paid for:
Interest .................................... $ 11,272 $ 1,538
Income taxes ................................ 1,299 --
Acquisition of leased facilities:
Increase in assets .......................... 1,100 5,279
Liabilities assumed and incurred ............ 441 4,120
Conversion of debentures into shares
of common stock ............................. 800 1,714
Equipment purchased under capital leases ...... 568 4,743
Accounts payable converted to debt ............ 2,177 --
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
5
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UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments which are necessary to state fairly the
financial position, cash flows and results of operations of Unison HealthCare
Corporation and its subsidiaries ("Unison" or the "Company") as of and for the
periods indicated. Unison presumes that users of the interim financial
information herein have read or have access to the Company's audited financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the preceding fiscal year and that the adequacy of
additional disclosures needed for a fair presentation, except in regard to
material contingencies, may be determined in that context. Accordingly, footnote
and other disclosures which would substantially duplicate the disclosures
contained in Unison's most recent annual report to stockholders have been
omitted.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Operating results for the
three months and nine months ended September 30, 1997 are not necessarily
indicative of the results which may be expected for the year ended December 31,
1997.
In October 1996, Unison completed a merger with two clinical laboratory
companies, American Professional Holding, Inc. and Memphis Clinical Laboratory,
Inc. (together, "Ampro")(the "Ampro Acquisition"). The Ampro Acquisition has
been accounted for as a pooling of interests. Accordingly, the consolidated
financial statements of Unison for the three and nine months ended September 30,
1996 have been restated to include the accounts of Ampro.
Certain reclassifications have been made to the 1996 financial statements to
conform to the current year presentation.
Other operating revenues include management fees from third parties amounting to
$43,000 and $187,000 for the three months ended September 30, 1997 and 1996 and
$268,000 and $744,000 for the nine months ended September 30, 1997 and 1996,
respectively. The provision for doubtful accounts receivable is included in
other operating expenses. Provisions totaled $285,000 and $155,000 for the three
months ended September 30, 1997 and 1996 and $795,000 and $476,000 for the nine
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months ended September 30, 1997 and 1996, respectively. The allowance for
doubtful accounts totaled $3.8 million at September 30, 1997 and December 31,
1996.
In May 1997, Unison announced that the results of operations for the nine months
ended September 30, 1996 (excluding the pooling effects of the Ampro
Acquisition) were restated from pretax income of $328,000 to a pretax loss of
approximately $15.0 million. No attempt was made to determine the particular
fiscal quarter or quarters to which the adjustments causing the restatement
pertain, and all of the adjustments were confined to the third quarter of 1996.
Because of the considerable costs and difficulty involved and inasmuch as it
would take months of effort to do a precise allocation, if indeed such an
allocation is possible, Unison does not believe it is in the best interests of
its shareholders to expend the Company's limited resources on that effort and
has instead focused on improving its information systems.
2. LONG-TERM DEBT
In January 1997, with proceeds from the sale in October 1996 of $100.0 million
of its 12.25% Senior Notes Due 2006 (the "Senior Notes"), Unison repaid (i)the
$8.0 million subordinated note (the "Subordinated Note") payable to the former
shareholders of BritWill HealthCare Company ("BritWill"), (ii) $1.75 million of
the contingent obligation due to the former BritWill shareholders (the
"Additional Payment Obligation"), (iii) $2.0 million of the convertible notes
and debentures payable to the former owners of Sunbelt Therapy (the "Sunbelt
Notes") and (iv) other debt obligations in the aggregate amount of approximately
$2.9 million. The remaining balance of the Sunbelt Notes in the aggregate amount
of $800,000 was converted into 105,196 shares of Unison Common Stock. In
accordance with the terms of the Sunbelt Notes, the conversion price ($7.61) was
equal to 85% of the average closing price of Unison's Common Stock ($8.95) for
the 20-day trading period preceding notice of conversion on November 27, 1996.
In October 1996, Unison acquired Signature Health Care Corporation and
affiliated companies ("Signature") (the "Signature Acquisition"). In accordance
with an adjustment provision of the Signature merger agreements relating to
stockholders' equity, in March 1997 the former shareholders of Signature
received additional consideration of $2,511,000, paid in the form of convertible
promissory notes ($1,827,000) (the "Convertible Notes") and 238,052 shares of
Unison Common Stock. The adjustment was recorded as an addition to the purchase
price of Signature. The Convertible Notes are convertible into shares of Unison
Common Stock at a conversion price of $2.875 per share, subject to adjustment
under certain circumstances. The Convertible Notes bear interest at the rate of
12.0% per annum and the unpaid principal balance, plus accrued interest, is due
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on December 31, 1997. The former majority shareholder of Signature, David A.
Kremser, is currently serving as a director of Unison.
On April 21, 1997, Unison obtained a $2.95 million loan for general working
capital purposes from affiliates of two of its directors, David A. Kremser and
Bruce H. Whitehead. This loan matured on November 1, 1997. On September 25,
1997, Unison borrowed an additional $1.0 million from Messrs. Kremser and
Whitehead which was due on October 7, 1997. The loans bear interest at prime
plus 2.0% and are secured by a pledge of certain accounts receivable and the
stock of certain Unison subsidiaries. Unison is currently in default of its
obligation to repay these loans. In addition to the foregoing, the loan
documents state that the collateral pledged for the working capital loans also
collateralizes all other obligations which may be due to these individuals
and/or entities which they control; and further that all such obligations are in
default due to cross default provisions in those loan and security documents.
All of these obligations total, in the aggregate, approximately $18.9 million as
of September 30, 1997.
A portion of the purchase consideration for Signature was comprised of
promissory notes in the amount of $1.1 million which were placed in an escrow
account. Of this amount, $500,000 was due to be paid to Mr. Kremser and the
other former shareholder of Signature on October 31, 1997. This note has not yet
been paid.
The November payment of the Additional Payment Obligation, in the amount of
approximately $117,000, is currently in arrears.
As of November 14, 1997, Unison had not made the scheduled payment of interest
on the Senior Notes in the amount of $6.6 million which was due on November 1,
1997. The grace period with respect to such payment expires on November 30,
1997, at which time the Senior Notes may be accelerated and payable in full.
This would cause the total amount of the Senior Notes to be classified as a
current liability.
The stated interest rate on the Senior Notes is subject to temporary increase if
the Senior Notes (or Exchange Notes with the same terms) are not registered with
the Securities and Exchange Commission (the "SEC") within specified time
periods. As of September 30, 1997, the interest rate was 13.50%. The interest
rate is subject to further increases of 0.25% on December 15, 1997 and every 90
days thereafter (up to a maximum rate of 14.25%) until such registration becomes
effective.
3. COVENANT COMPLIANCE
The terms of certain of Unison's indebtedness and lease obligations require the
Company to meet certain financial covenants, including cash flow to rent ratios,
cash flow to debt service ratios, current ratios, specified minimum levels of
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cash and net worth. The Company is also subject to periodic financial reporting
requirements. At September 30, 1997, Unison was not in compliance with certain
of these covenants. At September 30, 1997, Unison was obligated to Omega
Healthcare Investors, Inc. ("Omega") as a tenant under three master lease
agreements covering 14 facilities having an aggregate minimum rent of
approximately $32.0 million (subject to increase) during the remainder of their
initial terms ending in 2005. Unison was, as of November 14, 1997, in arrears of
its rent obligations under these leases (and the BritWill Texas Leases
hereinafter referred to) in the approximate amount of $874,000 plus late
charges. The master leases require the Company to maintain specified cash flow
to rent ratios, cash flow to debt service ratios, minimum cash, current ratios
and tangible net worth ratios (each as defined). Unison also leases six
facilities located in Texas from BritWill Texas (the "BritWill Texas Leases")
for an initial term that expires in December 2005. The BritWill Texas Leases
contain cross default provisions with the Omega leases by which if Unison is in
default under any Omega indebtedness or lease obligation, the Company is also in
default under the BritWill Texas Leases. The Company was not in compliance with
the master lease financial covenants at September 30, 1997 and did not obtain a
waiver of the covenant violations from Omega or BritWill Texas. The Company
continues to be out of compliance with these covenants after this date and,
accordingly, is negotiating with Omega to restructure the aforementioned
covenants. There can be no assurance that such restructuring will be
accomplished, or if accomplished, that the restructuring will result in more
favorable terms to Unison. In any event, if Unison fails soon to cure the
aforementioned rent defaults, Omega may exercise its remedies under the leases,
including termination of the leases, which would have a material adverse effect
on Unison's financial condition and results of operations.
The terms of a mortgage note incurred in connection with the Signature
Acquisition ("the Mortgage Note") require Unison to maintain, among other
things, a consolidated net worth of at least $39.0 million. Unison's net worth
at September 30, 1997 was $4.2 million and, therefore, the Company was not in
compliance with this covenant. Unison has not received a waiver of this covenant
violation and, accordingly, classified the entire obligation of $18.5 million as
current. The Company is current on its payments on the Mortgage Note and the
lender has not indicated any intention to declare the Company in default. In the
event of a declaration of default, Unison may be required to repay the Mortgage
Note or the lender may foreclose on the properties, which would materially and
adversely impact Unison's results of operations. The Company is attempting to
refinance the Mortgage Note, as discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and Cash
9
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Flows". With the exception of the classification of the Mortgage Note as a
current liability, there was no financial statement impact as of and for the
nine months ended September 30, 1997 as a result of the Company's noncompliance
with these covenants.
4. CONTINGENCIES
Unison and certain of its current and former directors and officers are named as
defendants in several purported class action complaints seeking unspecified
damages following Unison's announcement in March 1997 that the Company expected
to restate its financial statements for the nine-month period ended September
30, 1996. See Part II, Item 1, "Legal Proceedings". The Company denies the
material allegations in these complaints and intends to defend the actions
vigorously. While there can be no assurances in such matters, Unison believes,
based on its analysis of the complaints and of its insurance coverage and
communications with its insurance carriers, that the ultimate disposition of
these matters will not adversely affect its liquidity. However, an adverse
determination in these proceedings, if not covered by insurance, would have a
material adverse impact on the Company's liquidity and results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements contained in this Quarterly Report, including without
limitation statements containing the words "believes", "anticipates", "intends",
"expects" and words of similar import, may be forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). While the Company believes that the assumptions
underlying these statements are reasonable, such assumptions (and thus the
statements based upon them) could prove to be inaccurate. Important factors
which could cause results to vary include limitations on the Company's access to
debt or equity financing in light of recent losses and cash flow shortfalls,
adverse uninsured determinations in existing or future litigation or regulatory
proceedings, health care statutory or regulatory changes which disfavor the
types of care delivered by the Company, a reversal of the current limitations in
the supply of long-term care facilities and potential actions which may be taken
by creditors and lessors of the Company to enforce their remedies under material
indebtedness and operating leases as to which the Company is currently in
default. Important factors which could cause results to vary also include the
factors discussed in Unison's Annual Report on Form 10-K for the year ended
December 31, 1996 in "Item 1 - Business" and "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Risks and
Uncertainties", as well as factors discussed elsewhere in this report or in any
document incorporated herein by reference.
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The following material should be read in conjunction with the Consolidated
Financial Statements of the Company and the related notes thereto. All
references in this discussion and analysis to years are to fiscal years of the
Company ended December 31 of such year.
RESULTS OF OPERATIONS
As described in Unison's Annual Report on Form 10-K, the Company recorded a loss
of $23.4 million for the year ended December 31, 1996. The Company pursued in
late 1995 and early 1996 an aggressive expansion program that, in time,
overwhelmed the Company's financial reporting and management information systems
and personnel. The Company has taken steps which it believes will remedy these
problems and should prevent them from recurring. Unison has curtailed its
acquisition program and in April 1997 accepted the resignations of several of
its principal officers, including its Chief Executive Officer and Chief
Financial Officer. Several managers in accounting and finance have been
replaced, and the Company hired a new CEO in September 1997. In the second
quarter of 1997, the Company completed the conversion to new accounts payable,
accounting and financial reporting computer systems. The Company is focusing its
nursing home marketing efforts on increasing occupancy levels and improving
quality mix in order to increase revenues. Unison is attempting to increase its
ancillary services revenues, both in terms of acquiring contracts with
nonaffiliated facilities and increasing the level of services to its existing
patients. The Company is at the same time working to reduce costs without
adversely impacting the quality of care it provides. The number of corporate and
regional office personnel was reduced by approximately 33%, from 142 on December
31, 1996 to 95 on October 31, 1997. With the recent implementation of new
management reporting systems, the Company is better equipped to monitor and
control its labor costs and other operating expenses. These initiatives are
designed to improve both the Company's results of operations and its cash flows.
In May 1997, Unison announced that the results of operations for the nine months
ended September 30, 1996 (excluding the pooling effects of the Ampro
Acquisition) were restated from pretax income of $328,000 to a pretax loss of
$15.0 million. No attempt was made to determine the particular fiscal quarter or
quarters to which the adjustments causing the restatement pertain, and all of
the adjustments were confined to the third quarter of 1996. Because of the
considerable costs and difficulty involved and inasmuch as it would take months
of effort to do a precise allocation, if indeed such an allocation is possible,
Unison does not believe it is in the best interests of its shareholders to
expend the Company's limited resources on that effort and has instead focused on
improving it's information systems.
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The following table summarizes selected operating statistics.
At September 30,
------------------
1997 1996
---- ----
Leased and Owned Facilities:
Number of facilities ................... 56 46
Number of licensed beds:
Long-term care ....................... 4,770 4,134
Assisted and independent living ...... 315 196
Managed Facilities:
Number of facilities ................... 1 3
Number of licensed beds ................ 71 310
Institutional Pharmacies:
Number of outlets ...................... 2 2
Nonaffiliated facilities served ........ 52 32
Laboratory Services:
Number of laboratories ................. 3 3
Nonaffiliated entities served .......... 275 295
Therapy Services:
Nonaffiliated entities served .......... 107 44
The following table identifies the Company's sources of net operating revenues.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Percentage of total revenues:
Long term care ...................... 75.9% 80.1% 76.4% 83.2%
Therapy services .................... 14.9 8.8 14.8 6.2
Pharmacy services ................... 5.6 5.1 5.1 4.4
Laboratory services ................. 2.8 4.8 2.9 5.1
Medicare Part B billing and supply .. 0.8 1.2 0.8 1.1
----- ----- ----- -----
Total ............................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
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Unison's revenues fluctuate from facility to facility based on various factors,
including total capacity, occupancy rates, reimbursement methodologies and rates
among the payor categories, payor mix and the scope and utilization of the
Company's ancillary services. Medicare patients generate the highest revenue per
patient day, although profitability is not always increased due to the
additional costs associated with the higher level of care required by such
patients. In general, the Company believes that private pay sources are more
profitable to the Company than governmental reimbursement sources. Unison
generally derives a higher profit margin from ancillary services than from basic
nursing services.
Data for nursing center operations with respect to sources of net patient
revenues and patient mix by payor type are set forth below (long-term care
only).
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Medicare ............................ 34.5% 27.1% 33.4% 30.6%
Private and other ................... 15.5 17.7 15.7 16.5
----- ----- ----- -----
Quality mix ....................... 50.0 44.8 49.1 47.1
Medicaid ............................ 50.0 55.2 50.9 52.9
----- ----- ----- -----
Total ............................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
In the third quarter of 1997, Unison recorded a net loss of $2.0 million, or
$0.30 per share, compared to a net loss of $12.2 million, or $2.73 per share, in
the prior year quarter. Loss before income taxes amounted to $2.9 million in the
1997 third quarter compared to $17.0 million in the same period in 1996. As
indicated above, adjustments to restate the Company's pretax results of
operations for the nine months ended September 30, 1996 in the aggregate amount
of approximately $15.3 million were recorded exclusively in the 1996 third
quarter statement of operations. For this reason, results of operations for the
1997 third quarter are not comparable to the 1996 third quarter.
Total operating revenues increased $23.9 million, or 67.3%, to $59.5 million in
the 1997 third quarter from $35.6 million in the comparable 1996 quarter. The
increase is due to revenues from patient services which increased from $35.1
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million in the 1996 third quarter to $57.8 million in the current period.
Patient days increased from 307,648, or 80.6% average occupancy in the 1996
period, to 381,508, or 83.6% average occupancy in 1997. The increase in net
patient service revenues is primarily attributable to (i) the increase in the
number of long term care facilities operated, (ii) the increase in services
provided by the pharmacy and therapy companies and progress in providing
ancillary products and services to patients of Unison facilities and unrelated
facilities which increased revenues by approximately $7.2 million; and (iii) an
increase in Unison's quality mix to 50.0% in the 1997 third quarter compared to
44.8% in the prior year quarter. Other operating revenues increased to $1.7
million in the 1997 third quarter from $467,000 in the prior year quarter due
primarily to ancillary company management fees of $1.5 million, offset by a
decrease in managed facilities from three at September 30, 1996 to one at
September 30, 1997.
Wages and related expenses increased $8.5 million, or 41.9%, from $20.3 million
in the 1996 third quarter to $28.8 million in the current quarter. The increase
is due primarily to the increase in the number of facilities operated and growth
in the ancillary companies. Wages and related expenses as a percentage of
revenues was 57.0% in 1996 and 48.4% in 1997.
Other operating expenses increased from $21.5 million in the 1996 third quarter
to $22.0 million in the 1997 third quarter. Other operating expenses as a
percentage of revenues amounted to 37.0% in the 1997 third quarter and 60.3% in
the 1996 period.
Rent expense increased from $3.9 million in the 1996 third quarter to $4.0
million in the 1997 period. The increase is due primarily to the increase in the
number of leased facilities operated. Rent expense as a percentage of revenues
was 11.0% in the 1996 third quarter and 6.7% in the current quarter.
Interest expense amounted to $5.1 million in the 1997 third quarter compared to
$1.5 million in the 1996 third quarter and increased as a percentage of revenues
from 4.1% in the 1996 third quarter to 8.6% in the 1997 period. These increases
are primarily the result of debt incurred and assumed in connection with
acquisitions, including the $100.0 million of Senior Notes issued on October 31,
1996, as well as increases in borrowings for working capital. See "- Liquidity
and Capital Resources."
Depreciation and amortization expense increased from $1.6 million in the third
quarter of 1996 to $2.5 million in the 1997 third quarter. The increase is due
primarily to the increase in goodwill and lease operating rights associated with
acquisitions and an increase in fixed assets resulting from capital expenditures
and ownership interests in six facilities acquired with the acquisition of
Signature on October 31, 1996.
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In the third quarter of 1996, Unison announced the planned disposition of eight
nursing facilities (the "Disposition Facilities"). Of the Disposition
Facilities, one was closed in June 1996 and three others, which had incurred
operating losses since the Company had acquired them in August 1995, were
disposed of in March 1997. These events, as well as a history of operating
losses at certain other facilities, raised the possibility of continuing losses
associated with the Company's income producing assets. Consequently, Unison
evaluated its long-lived assets including property and equipment, goodwill,
lease operating rights and other intangible assets for impairment in accordance
with SFAS No. 121. Unison determined that the fair value of certain assets was
less then the carrying value and, accordingly, recorded a provision for
impairment losses in the amount of $3.9 million. Included in this amount is the
estimated costs to sublease and exit from the Disposition Facilities. No
provision for impairment losses was recorded in the third quarter of 1997.
Unison recorded income tax benefits of $929,000 and $4.8 million for the third
quarter of 1997 and 1996, respectively. The effective rates of 32.2% in 1997 and
28.2% in 1996 are lower than the statutory federal income tax rate due primarily
to (i) amortization of intangible assets and other expenses which are not
deductible for tax; (ii) taxable income of certain subsidiaries which are not
consolidated for tax purposes; and (iii) the valuation allowance established
against deferred tax assets.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
For the nine months ended September 30, 1997, Unison recorded a net loss of $9.0
million, or $1.41 per share, compared to a net loss of $10.7 million, or $2.43
per share, for the 1996 period. Loss before income taxes amounted to $13.2
million in 1997 compared to $14.4 million in the 1996 period
Total operating revenues increased $68.5 million, or 65.8%, to $172.6 million
for the nine months ended September 30, 1997 from $104.1 million in the
comparable 1996 period. The increase is due to revenues from patient services
which increased from $102.1 million in the 1996 period to $167.4 million in the
current period. Patient days increased from 865,613, or 77.9% average occupancy
in the 1996 period, to 1,145,796, or 83.2% average occupancy, in 1997. The
increase in net patient service revenues is primarily attributable to (i) the
increase in the number of long term care facilities operated which increased
revenues by approximately $41.7 million and patient days by approximately
323,584, (ii) the growth of the pharmacy and therapy companies, and progress in
providing ancillary products and services to patients of Unison facilities and
unrelated facilities which increased revenues by approximately $23.2 million;
and (iii) an increase in Unison's quality mix to 49.1% in the 1997 period
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quarter compared to 47.1% in the prior year period which contributed to an
increase in revenues per patient day from $99.06 in the 1996 period to $114.23
in the current period. These increases were offset by a reduction in patient
revenues amounting to approximately $4.8 million due to the disposition of four
nursing facilities on March 1, 1997. Other operating revenues increased to $5.2
million in the 1997 period from $2.0 million in the prior year period due
primarily to ancillary company management fees of $4.6 million, offset by a
decrease in managed facilities from three at September 30, 1996 to one at
September 30, 1997.
Wages and related expense increased $34.0 million, or 62.8%, from $54.3 million
in the 1996 period to $88.3 million in the current period but decreased as a
percentage of revenues from 52.1% in 1996 to 51.2% in 1997. The dollar increase
is due primarily to the increase in the number of facilities operated and an
increase in corporate overhead due to Unison's acquisition program during 1996
and its accounting and information system conversions. The percentage decrease
is due primarily to cost controls in the nursing facilities and staff reductions
in the corporate and regional offices.
Other operating expenses increased $19.1 million, or 43.3%, from $44.1 million
in the 1996 period to $63.2 million in the 1997 period due primarily to an
increase in the number of facilities operated as well as increases in corporate
overhead. Other operating expenses as a percentage of revenues decreased to
36.6% in the 1997 period from 42.4% in the 1996 period due in part to the
Company's cost containment efforts.
Rent expense increased $1.8 million, or 16.5%, from $10.6 million in the 1996
period to $12.4 million in the 1997 period. Rent expense decreased as a
percentage of revenues from 10.2% in the 1996 period to 7.2% in the current
period. The dollar increase is due primarily to the increase in the number of
leased facilities operated. The percentage decrease is due to (i) a higher
percentage of owned facilities to total facilities in 1997 than in 1996 and (ii)
the revenue growth of the Company's therapy, laboratory and pharmacy companies
which, in the aggregate, recorded rent expense amounting to less than 1% of
revenues in the 1997 period.
Interest expense amounted to $14.7 million in the 1997 period compared to $3.0
million in the 1996 period and increased as a percentage of revenues from 2.8%
in the 1996 period to 8.5% in the current period. The increase is primarily the
result of debt incurred and assumed in connection with acquisitions, including
the $100.0 million of Senior Notes issued on October 31, 1996, as well as
increases in borrowings for working capital. See "- Liquidity and Capital
Resources."
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Depreciation and amortization expense increased $4.5 million, from $2.8 million
in the first nine months of 1996 to $7.3 million in the 1997 period, and as a
percentage of revenues from 2.7% in the 1996 period to 4.2% in the 1997 period.
These increases are due primarily to the increase in goodwill and lease
operating rights associated with acquisitions and an increase in fixed assets
resulting from capital expenditures and ownership interests in six facilities
acquired from Signature on October 31, 1996.
In the third quarter of 1996, Unison announced the planned disposition of eight
nursing facilities (the "Disposition Facilities"). Of the Disposition
Facilities, one was closed in June 1996 and three others, which had incurred
operating losses since the Company had acquired them in August 1995, were
disposed of in March 1997. These events, as well as a history of operating
losses at certain other facilities, raised the possibility of continuing losses
associated with the Company's income producing assets. Consequently, Unison
evaluated its long-lived assets including property and equipment, goodwill,
lease operating rights and other intangible assets for impairment in accordance
with SFAS No. 121. Unison determined that the fair value of certain assets was
less then the carrying value and, accordingly, recorded a provision for
impairment losses in the amount of $3.9 million. Included in this amount is the
estimated costs to sublease and exit from the Disposition Facilities. No
provision for impairment losses was recorded for the nine months ended September
30, 1997.
Unison recorded income tax benefits of $4.3 million and $3.8 million for the
nine months ended September 30, 1997 and 1996, respectively. The effective tax
rates of 32.2% in 1997 and 26.0% in 1996 are lower than the statutory federal
income tax rate due primarily to (i) amortization of intangible assets and other
expenses which are not deductible for tax; (ii) taxable income of certain
subsidiaries which are not consolidated for tax purposes; and (iii) the
valuation allowance established against deferred tax assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 changes the manner in which earnings per common share ("EPS") are calculated
and presented. Under SFAS 128, two EPS amounts are required: (i) basic EPS; and
(ii) diluted EPS. Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares actually
outstanding during the period. Diluted EPS represents the per share allocation
of income attributable to common stockholders based on the weighted average
number of common shares actually outstanding plus dilutive potential common
shares outstanding such as options, warrants and convertible securities. Unison
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will be required to implement SFAS 128 as of December 31, 1997. Had the Company
implemented SFAS 128 on January 1, 1996, the reported per share losses for the
1996 and 1997 periods would remain unchanged, as the Company's options, warrants
and convertible notes are antidilutive.
LIQUIDITY AND CASH FLOWS
LIQUIDITY
Unison finances its working capital needs out of its operating cash flows and
draws under a revolving credit facility. Borrowings under this credit facility
amounted to $9.4 million at September 30, 1997 and $8.4 million at November 11,
1997 (the maximum amounts available based on current levels of collateral) with
interest at the prime rate plus 4.0% (12.5% at September 30, 1997). There were
no outstanding borrowings under this credit facility at December 31, 1996. In
March 1997, Unison paid a management fee (in lieu of a termination fee) of
$500,000. The lender agreed that the existing facility would remain in place at
Unison's option until December 31, 1997.
The Company is working to develop lending relationships that will use the
Company's available accounts receivable and other available assets to supply
additional working capital. Absent additional financing, Unison's cash flows
from operations and draws under its existing $10.0 million line of credit will
not be sufficient to meet its debt service requirements in 1997 and beyond.
Unison has not yet made the scheduled payment of interest on the Senior Notes in
the amount of $6.6 million which was due on November 1, 1997. The grace period
with respect to such payment expires on November 30, 1997, at which time the
Senior Notes may be accelerated and payable in full. This would cause the total
amount of the Senior Notes to be classified as a current liability.
The Company has been working since July 1997 on a plan to (a) reduce the
Company's costs of capital and operating expenses to improve operating results;
(b) provide short-term and long-term liquidity; and (c) restructure its balance
sheet and increase stockholders' equity. The key elements of this plan include:
(i) the revenue enhancement and cost control initiatives described in "- Results
of Operations"; (ii) obtaining a new revolving line of credit secured by its
eligible accounts receivable; (iii) completing a refinancing of the mortgage
note incurred in connection with the Signature Acquisition (the "Mortgage
Note"); and then (iv) depending on market conditions, an equity infusion. The
Company is currently seeking to replace the Mortgage Note (and to refinance one
of its leased facilities which is subject to a purchase option) with new
financing in the amount of up to $40.0 million. The Mortgage Note, which had a
balance at September 30, 1997 of $18.5 million, is secured by the land and
buildings of six facilities obtained in the Signature Acquisition. Proceeds from
these financing transactions would be used for debt service and working capital.
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The Company has been unable to complete the refinancing of the Mortgage Note
that would have provided the funds for the interest payment on the Senior Notes.
Unison and the prospective lender have been unable to come to terms on the
structure of a transaction. The Company is currently reviewing a new proposal
from the prospective lender and will consider such proposal in conjunction with
its other alternatives, including a possible financial restructuring. There is
no assurance that the Company will be successful in effecting any refinancing of
the Mortgage Note.
Even if the Company is successful in completing financing transactions of the
type it is currently seeking, it will still not have sufficient liquidity to
meet all of its short- and long-term debt service and capital requirements,
absent significant asset sales or a substantial restructuring of its debt and
lease obligations. Some of these obligations are already in default, as
described below. Market conditions permitting, Unison may seek to raise
additional equity through the private placement of stock, but there can be no
assurance that any such equity financing will be available.
The Company may incur an extraordinary charge to earnings of up to $2.6 million
from prepayment penalties and the write-off of deferred financing costs for
those obligations which are proposed to be paid off with proceeds from the
refinancing of the Mortgage Note.
The Senior Notes and certain of Unison's other debt and lease obligations
contain covenants that prohibit or limit asset sales, acquisitions, incurrence
of additional debt and liens, restricted payments, affiliate transactions,
engaging in certain mergers and consolidations and entering new lines of
business. For example, the Senior Notes generally limit Unison's debt incurrence
to an amount equal to (1) the greater of $30.0 million of secured indebtedness
or the sum of 60% of inventory plus 90% of accounts receivable and (2) the
greater of $10.0 million of other indebtedness or 10% of Unison's consolidated
net worth (in addition to indebtedness outstanding at October 31, 1996 after
giving effect to the application of the proceeds from the Senior Notes and
refinancings of such indebtedness) except when its fixed charge coverage ratio
after incurring the indebtedness would be greater than 2 to 1 (2.25 after
December 31, 1997). As of September 30, 1997, Unison had incurred approximately
$22.1 million of such secured and other indebtedness. There can be no assurance
that the Company will obtain the necessary consents from its lessors and debtors
in the future if it attempts to engage in one of the aforementioned types of
transactions.
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CASH FLOWS
At September 30, 1997, Unison had $3.8 million in cash and cash equivalents
compared to $17.4 million at December 31, 1996. The Company had a working
capital deficit of $29.6 million at September 30, 1997 compared to a working
capital deficit at December 31, 1996 amounting to $14.0 million. Current
maturities of notes and debt at September 30, 1997 amounted to $42.7 million, of
which $30.6 million is classified as a current liability because Unison (i) was
not in compliance with certain financial covenants of the $18.5 million Mortgage
Note and (ii) was in default on loans from affiliates, of which $12.1 million
was reclassified as current.
Cash used in operations for the nine months ended September 30, 1997 amounted to
$7.2 million, due primarily to the net loss of $9.0 million net of noncash
items.
Net accounts receivable increased $8.0 million, or 27.9%, from $28.6 million at
December 31, 1996 to $36.6 million at September 30, 1997. The increase is due
primarily to collection issues resulting from changes in Medicare intermediaries
and high turnover in the business office and field accounting staffs who are
primarily responsible for collection of accounts receivable. Days outstanding in
accounts receivable for the long-term care facilities increased from 38 days at
December 31, 1996 to 44 days at September 30, 1997. The Company anticipates that
its allowance for doubtful accounts will fluctuate in the future and will
depend, in large part, on the mix of revenues, as well as the timing of payments
by private, third-party and governmental payors. While the Company believes that
the allowance for doubtful accounts is adequate at September 30, 1997, if the
current trend in days outstanding continues the provision for bad debts will
increase in future periods.
Net cash used in investing activities amounted to $4.0 million in the nine
months ended September 30, 1997. Capital expenditures amounted to $2.3 million
and expenditures for acquisitions, net of cash acquired, amounted to $659,000.
Cash used for lease deposits and other assets amounted to $1.0 million.
Net cash used in financing activities amounted to $2.4 million in the nine
months ended September 30, 1997 due primarily to a $2.1 million decrease in
checks drawn in excess of bank balances and $503,000 expended for debt issue
costs. Principal repayments of notes and long-term debt amounted to $13.2
million, which was offset by borrowings of $13.3 million. At September 30, 1997,
Unison had $161.7 million in total debt (97.5% of total capitalization) compared
to $157.1 million at December 31, 1996 (93.1% of total capitalization). The
Company also had aggregate minimum rent obligations of approximately $153.1
million (subject to certain increases) during the remainder of the initial terms
and first renewal periods under its operating leases.
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In January 1997, Unison repaid with proceeds from the Senior Notes the $8.0
million Subordinated Note payable to the former BritWill shareholders and $1.75
million of the Additional Payment Obligation due to the former BritWill
shareholders. Unison's remaining obligation associated with the acquisition of
BritWill is the Additional Payment Obligation amounting to $9.6 million as of
September 30, 1997. The Additional Payment Obligation is payable in monthly
installments of $117,000 to $166,000, which include interest at 12.0% to 14.0%,
with a balloon payment of $8.1 million due August 9, 2000. The November payment
of this obligation, in the amount of $117,000, is currently in arrears. Because
these payments are contingent upon revenue targets that, in light of recent
acquisitions, are likely to be achieved, the previously off-balance sheet
Additional Payment Obligation is recorded as long-term debt and an increase in
lease operating rights in the consolidated balance sheets at December 31, 1996
and September 30, 1997. Although this accounting treatment did not change the
amount of cash due to the former BritWill shareholders, Unison will record an
increase in amortization and interest expense in 1997 compared to 1996 in the
aggregate amount of approximately $1.6 million ($1.2 million for the first nine
months of 1997). In the event of a sale by Unison prior to August 9, 2000 of
debt or equity securities exceeding $10.0 million, the remaining balance of the
Additional Payment Obligation will be due in full.
Also in January 1997, Unison repaid $2.0 million of the Sunbelt Notes with
proceeds from the Senior Notes, and the remaining $800,000 principal amount was
converted into 105,196 shares of Unison Common Stock. The conversion price
($7.61) was equal to 85% of the average closing price of Unison's Common Stock
($8.95) for the 20-day trading period preceding notice of conversion on November
27, 1996.
In accordance with an adjustment provision of the Signature merger agreements
relating to stockholders' equity, in March 1997 the former shareholders of
Signature received additional consideration of $2,511,000, paid in Convertible
Notes ($1,827,000) and 238,052 shares of Unison Common Stock. The Convertible
Notes are convertible into shares of Unison Common Stock at a conversion price
of $2.875 per share, subject to adjustment under certain circumstances. The
Convertible Notes bear interest at the rate of 12.0% per annum and the unpaid
principal balance, plus accrued interest, is due on December 31, 1997.
On April 21, 1997, Unison obtained a $2.95 million loan for general working
capital purposes from affiliates of two of its directors, David A. Kremser and
Bruce H. Whitehead. This loan matured on November 1, 1997. On September 25,
1997, Unison borrowed an additional $1.0 million from Messrs. Kremser and
Whitehead which was due on October 7, 1997. The loans bear interest at prime
plus 2.0% and are secured by a pledge of certain accounts receivable and the
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stock of certain Unison subsidiaries. Unison is currently in default on its
obligations to repay these loans. In addition to the foregoing, the loan
documents state that the collateral pledged for the working capital loans also
collateralizes all other obligations which may be due to these individuals
and/or entities which they control; and further that all such obligations are in
default due to cross default provisions in those loan and security documents.
All of these obligations total, in the aggregate, approximately $18.9 million as
of September 30, 1997.
A portion of the purchase consideration for Signature was comprised of
promissory notes in the amount of $1.1 million which were placed in an escrow
account. Of this amount, $500,000 was due to be paid to the former shareholders
of Signature on October 31, 1997. This note has not yet been paid.
OTHER FACTORS AFFECTING LIQUIDITY
The stated interest on the Senior Notes has temporarily increased to 13.50% at
September 30, 1997 and it is subject to further increases of 0.25% on December
15, 1997 and at 90-day intervals thereafter (to a maximum of 14.25%) until a
registration statement for the Senior Notes (or for Exchange Notes on the same
terms) is filed with and declared effective by the SEC. Unison delayed filing
the required registration statement while it completed work on its financial
statements for 1996 and made the filing on July 3, 1997 but it has not yet been
declared effective. Further delays in completing the required registration, with
corresponding additional interest expense on the Senior Notes, are likely.
The terms of certain of Unison's indebtedness and lease obligations require the
Company to meet certain financial and reporting covenants including current
ratio and cash flow and maintenance of specified levels of net worth. At
September 30, 1997, Unison was not in compliance with many of these covenants.
At September 30, 1997, Unison was obligated to Omega as a tenant under three
master lease agreements covering 14 facilities having an aggregate minimum rent
of approximately $32.0 million (subject to increase) during the remainder of
their initial terms. Unison was, as of November 12, 1997, in arrears of its rent
obligations under these leases (and the BritWill Texas Leases hereinafter
referred to) in the approximate amount of $874,000 plus late charges. The master
leases require the Company to maintain specified cash flow to rent ratios, cash
flow to debt service ratios, minimum cash, current ratios and tangible net worth
ratios (each as defined). Unison also leases six facilities located in Texas
from BritWill Texas for an initial term that expires in December 2005. The
BritWill Texas Leases contain cross default provisions with the Omega leases by
which if Unison is in default under any Omega indebtedness or lease obligation,
the Company is also in default under
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the BritWill Texas Leases. Unison was not in compliance with these covenants at
September 30, 1997 and did not obtain a waiver of the covenant violations from
Omega or BritWill Texas. The Company continues to be out of compliance with
these covenants after this date and, accordingly, is negotiating with Omega to
restructure the aforementioned covenants. There can be no assurance that such
restructuring will be accomplished, or if accomplished, that the restructuring
will result in more favorable terms to Unison. The lease covenant violations
have had no impact on Unison's historical financial statements. In any event, if
Unison fails soon to cure the aforementioned rent defaults (see " - Liquidity"),
Omega may exercise its remedies under the leases, which would have a material
adverse impact on Unison's financial condition and results of operations.
The terms of the Mortgage Note require Unison to maintain, among other things, a
consolidated net worth of at least $39.0 million. Unison's net worth at
September 30, 1997 was $4.2 million and, therefore, the Company was not in
compliance with this covenant. Unison has not received a waiver of this covenant
violation and, accordingly, classified the entire obligation of $18.5 million as
current. The Company is current on its payments on the Mortgage Note and the
lender has not indicated any intention to declare the Company in default. In the
event of a declaration of default, Unison may be required to repay the Mortgage
Note or the lender may foreclose on the properties, which would materially and
adversely impact Unison's results of operations. Based on discussions with the
lender, the Company does not believe that a declaration of default will occur,
and it is attempting to refinance the Mortgage Note, as discussed above. With
the exception of the classification of the Mortgage Note as a current liability,
there was no financial statement impact as of and for the nine months ended
September 30, 1997 as a result of the Company's noncompliance with these
covenants.
Unison's accounts payable balance has increased from $10.5 million at December
31, 1997 to $13.3 million at September 30, 1997. In addition, as of November 14,
1997, the Company is obligated to certain vendors under promissory notes in the
aggregate amount of $1.5 million, most of which is due in 1997. A number of the
Company's significant vendors have put the Company on cash terms. The inability
to pay vendors could result in a disruption of the supply of critical items
which would materially adversely affect operations.
Unison and certain of its current and former directors and officers are named as
defendants in several class action complaints seeking unspecified damages
following Unison's announcement in March 1997 that the Company expected to
restate its financial statements for the nine-month period ended September 30,
1996. The Company denies the material allegations in these complaints and
intends to defend the actions vigorously. While there can be no assurances in
such matters, Unison believes that, based on its analysis of the complaints and
of its insurance coverage and communications with its insurance carriers, that
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the ultimate disposition of these matters will not adversely affect its
liquidity. An adverse determination in these proceedings, if not covered by
insurance, would have a material adverse impact on the Company's liquidity and
results of operations. See Part II, Item 1, "Legal Proceedings."
At September 30, 1997, the aggregate amount of Unison's net intangible assets,
including lease operating rights, goodwill, deferred financing costs and other
intangibles, was $140.4 million. This balance represents 62.5% of Unison's total
assets at September 30, 1997 and approximately 33.4 times its stockholders'
equity. Should events occur that result in impairment of the Company's
long-lived assets, such as unexpected increases in operating losses or potential
actions by creditors and lessors of the Company because of defaults under
material indebtedness and operating losses, the Company may in the future need
to record a write-down of its lease operating rights or goodwill.
CONCLUSION
Because the Company's cash flows from operations and its available capital have
been insufficient to meet its current operating expenses, lease obligations and
debt service requirements, the Company is currently in covenant and payment
default in the terms of material operating leases and indebtedness. In the
absence of obtaining additional capital through refinancing of the Mortgage
Note, asset sales, securing an increased revolving credit facility, consensual
restructuring of debt and lease terms and/or similar measures, the Company will
be unable to remedy the existing defaults and will experience additional
defaults in the future. The Company's operating leases are subject to
termination in the event of default, and the Company's indebtedness may be
accelerated in the event of continuing default. Certain lenders could foreclose
on Company assets securing their indebtedness, which would include substantially
all of the Company's operating assets. Accordingly, the Company's financial
condition could require that the Company seek the protection of applicable
reorganization laws in order to avoid or delay actions by its creditors and
lessors which could materially adversely affect or cause the cessation of the
Company's operations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Unison and certain of its current and former directors and officers are named as
defendants in several purported class action complaints following Unison's
announcement in March 1997 that the Company expected to restate its financial
statements for the nine-month period ended September 30, 1996. To date, the
following actions have been filed in federal district court in Phoenix, Arizona:
Martin Grossman FBO Martin Grossman Profit Sharing Plan and Alan S.
Fellheimer v. Unison HealthCare Corporation, Jerry M. Walker, Craig R.
Clark and Paul J. Contris, Case No. CIV 97-0583.
Leonard Goldstein and Ronne Goldstein v. Unison HealthCare Corporation,
Jerry M. Walker, Craig R. Clark and Paul J. Contris, Case No. CIV
97-0584.
Toni Kaasbell v. Unison HealthCare Corporation, Craig R. Clark and Paul
J. Contras [sic], Case No. CIV 97-0602.
Joseph Grimes v. Unison HealthCare Corporation, Jerry M. Walker, Craig R.
Clark and Paul J. Contris, Case. No. CIV 97-0603.
Amothy Corp. v. Unison HealthCare Corporation, Bruce H. Whitehead,
Phillip R. Rollins, Jerry M. Walker, Craig R. Clark and Paul J. Contris,
Case No. CIV 97-0825.
Karl E. Falkenstein v. Unison HealthCare Corporation, Bruce H. Whitehead,
Phillip R. Rollins, Jerry M. Walker, Craig R. Clark and Paul J. Contris,
Case No. CIV 97-1017.
Dr. Stanley Levine as Trustee for Lakeside Urology Limited Employee
Profit Sharing Trust and Lakeside Urology Limited Employee Pension Plan
v. Unison HealthCare Corporation Jerry M. Walker, Craig R. Clark and Paul
J. Contris, Case. No. CIV 97-1412.
On September 8, 1997, the Court consolidated the aforesaid actions for all
purposes under the title of the first filed case (Grossman). The purported class
periods asserted in these actions vary, with the broadest such period beginning
December 18, 1995(when Unison commenced the initial public offering of its stock
(the "IPO")) and ending March 11, 1997 (when Unison announced the need for a
restatement). The complaint in all these actions allege violations of Sections
10 and 20 of the Exchange Act and Rule 10b-5 thereunder in that the defendants
knew, or were reckless in not knowing, that Unison's results for the first three
quarters of 1996 were materially overstated, or misrepresented the capability of
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Unison's internal accounting system to reliably record and reflect its financial
condition. Amended complaints in four of these actions (GROSSMAN ET AL. V.
UNISON HEALTHCARE CORPORATION ET AL., GOLDSTEIN ET AL. V. UNISON HEALTHCARE
CORPORATION ET AL., AMOTHY CORP. V. UNISON HEALTHCARE CORP. ET AL. and
FALKENSTEIN V. UNISON HEALTHCARE CORP. ET AL.) also allege violations of
Sections 11 and 15 of the Securities Act in that the registration statement
covering, and the prospectus used in connection with, the stock sold in the IPO
allegedly misleadingly touted Unison's "growth strategy" and ability to control
costs while failing to disclose inadequacies in its accounting system. Two
actions (AMOTHY CORP. V. UNISON HEALTHCARE CORPORATION ET AL. and FALKENSTEIN V.
UNISON HEALTHCARE CORPORATION ET AL.) also allege that the conduct allegedly
giving rise to the alleged Exchange Act violations also violated the defendants'
state law fiduciary duties as directors and officers. The individual defendants
include Jerry M. Walker, Craig R. Clark, Phillip R. Rollins and Paul J. Contris,
who at the time of their resignations were the President and Chief Executive
Officer, Executive Vice President and Chief Operating Officer, Executive Vice
President and Chief Financial Officer and Executive Vice President -
Acquisitions and Development, respectively, of the Company, and Bruce H.
Whitehead, currently Chairman of the Board of the Company. The plaintiffs in
these purported class actions seek compensatory damages in unspecified amounts
plus interest, attorneys' fees and costs.
In addition, an action styled JEFFREY D. VANDYKE V. CRUTTENDEN ROTH, INC., WHEAT
FIRST BUTCHER SINGER, BRUCE H. WHITEHEAD, UNISON HEALTHCARE CORPORATION, JOHN T.
LYNCH, JR., TROUVER CAPITAL PARTNERS, L.P., JERRY M. WALKER, PHILLIP R. ROLLINS,
CRAIG R. CLARK AND PAUL J. CONTRIS has been filed in the Superior Court of the
State of California (County of Orange) (Case No. 779111). Defendant John T.
Lynch, Jr. is a member of the Board of Directors of Unison; Trouver Capital
Partners, L.P. is a private investment banking firm of which Mr. Lynch is a
general partner, and Cruttenden Roth, Inc. and Wheat First Butcher Singer are
investment banking firms that are named individually and as representatives of a
purported defendant underwriter class. The Orange County action is purportedly
filed on behalf of all persons who acquired Unison common stock in the Company's
IPO; it essentially alleges that in connection with the IPO, the defendants made
positive statements about the Company's prospects, for which there was no basis,
that accounts receivable were overstated, and that the Company's statement of
financial position as of September 30, 1995 was not fairly presented. The
plaintiff seeks compensatory damages in an unspecified amount as well as
interest, attorneys' fees and costs and extraordinary, equitable and injunctive
relief as permitted by law or equity.
26
<PAGE>
Unison's bylaws require the Company to indemnify current and former officers and
directors to the extent permitted by Delaware law against such liabilities and
related expenses. The Company is also obligated, subject to certain conditions,
to indemnify the underwriters against such liabilities and expenses. The Company
denies the material allegations in these complaints and intends to defend the
actions vigorously. While there can be no assurances in such matters, Unison
believes that, based on its analysis of the complaints and of its insurance
coverage and communications with its insurance carriers, that the ultimate
disposition of these matters will not adversely affect its liquidity. An adverse
determination in these proceedings, if not covered by insurance, would have a
material adverse impact on the Company's liquidity and results of operations.
A Unison subsidiary is the defendant in an action entitled CARILLON/ALPHA
LIMITED V. BRITWILL HEALTHCARE COMPANY filed, and assigned Cause No. 96-5742, in
the District Court of Dallas County, Texas. Plaintiff in this action seeks
compensatory damages in the amount of $216,000, allegedly for unpaid rent, for
the three-month period during which premises leased to the subsidiary were
vacant and the cost of releasing same, plus interest and attorneys' fees.
Unison, which has asserted various defenses and intends to vigorously defend
this lawsuit, nonetheless believes that an adverse outcome would not have a
material effect on its financial condition or results of operations.
Items 2, 4 and 5 are not applicable.
Item 3. Defaults on Senior Securities
(a) Defaults on payments of principal and interest:
Unison is in default on loans obtained for working capital purposes, in the
aggregate principal amount of $3.95 million, from Elk Meadows Investments,
L.L.C. ("Elk Meadows") and BritWill Investments Company, Ltd. ("BIC"). Elk
Meadows is controlled by David A. Kremser, a member of the Board of Directors of
Unison, and BIC is controlled by Bruce H. Whitehead, Chairman of the Board of
Directors of Unison. Of these loans, $1.0 million was due on October 7, 1997 and
$2.95 million was due on November 1, 1997. Interest payable on these loans
through November 14, 1997 amounts to approximately $190,000. The loan documents
state that all other obligations which may be due to these individuals and
entities which they control are in default due to cross default provisions in
those loan and security documents. These obligations are as follows.
A portion of the purchase consideration for Signature was comprised of
promissory notes which were placed in an escrow account. Of these notes,
$500,000 was due to be paid to Mr. Kremser and the other Signature shareholder
on October 31, 1997. This note, plus accrued interest of approximately $42,000
at November 14, 1997, has not been paid.
27
<PAGE>
The Company is in arrears as to the November 1997 payment, in the amount of
$117,000, on the Additional Payment Obligation to the former shareholders of
BritWill. The payment is comprised of principal in the amount of $96,000 and
interest in the amount of $21,000. The balance of the Additional Payment
Obligation at September 30, 1997 was $9.6 million.
The Company is obligated under subordinated notes payable to an affiliate of Mr.
Whitehead in the aggregate amount of approximately $2.4 million. The Company is
current as to principal and interest payments on these notes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index following the Signatures page, which index is
incorporated herein by reference.
(b) Reports filed on Form 8-K:
None
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNISON HEALTHCARE CORPORATION
(Registrant)
Date: November 14, 1997 /s/ Michael A. Jeffries
-------------------------------------
Michael A. Jeffries
President and Chief Executive Officer
/s/ Warren K. Jerrems
-------------------------------------
Warren K. Jerrems
Vice President and Chief Accounting
Officer (Principal Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
Exhibit
Number
------
10.1 Employment Agreement of Michael A. Jeffries
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (included only in the EDGAR filing)
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 8, 1997, between UNISON HEALTHCARE
CORPORATION, a Delaware corporation ("Unison"), and MICHAEL A. JEFFRIES
("Jeffries").
Unison wishes to employ Jeffries and Jeffries wishes to be employed by
Unison, in each case, pursuant to the terms and subject to the conditions
hereof.
Accordingly, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES. Unison hereby employs Jeffries as its
President and Chief Executive Officer, and Jeffries hereby accepts such
employment. In addition Unison shall, at the next regular or special meeting of
its Board of Directors (the "Board") held after the date hereof, cause Jeffries
to be elected a Class II director with a term expiring in 1999 to fill the
vacancy created by the resignation of Jerry M. Walker from the Board. Jeffries,
who shall devote all his business time and attention to the business of Unison,
shall have general responsibility for the management of Unison subject to the
direction and control of the Board.
2. TERM. The term of this Agreement shall commence on the date hereof
and continue until August 31, 2000.
3. COMPENSATION. (a) Base Salary. Unison shall pay Jeffries a salary,
before deducting all applicable withholdings, at the annual rate of $315,000,
payable in accordance with Unison's standard executive payroll policies as in
effect from time to time. Unison shall consider increases in the annual rate of
such salary to be effective on September 1 of each year commencing September 1,
1998.
(b) Incentive Bonus. The Board's compensation committee shall design
and present to the Board for review, adjustment and adoption an incentive
compensation program for key employees. Such program will include cash and stock
option incentives and will provide for participation by Jeffries. The program
shall, as it relates to cash compensation, provide that Jeffries shall be
entitled to receive a cash bonus in respect of any fiscal year, commencing with
the fiscal year ending December 31, 1998, for which Unison achieves net income
<PAGE>
2
before income taxes of at least 90% of budgeted net income before taxes for such
fiscal year. Such bonus shall be in an amount, expressed as a percentage of
Jeffries' then annual base salary, equal to:
50% if net income before income taxes is greater than 100% of budget
40% if net income before income taxes is greater than or equal to 95%
but less than or equal to 100% of budget
30% if net income before income taxes is greater than or equal to 90%
but less than 95% of budget
Any such bonus shall be payable as soon as practicable following the end of the
fiscal year, but in no event earlier than the date that follows by 30 days the
filing of Unison's annual report on Form 10-K for such year.
(c) Stock Options. Jeffries shall be granted as of the date hereof
options to acquire 320,000 shares of the Common Stock of Unison. Such options,
which shall be in addition to and not in lieu of any options as would otherwise
be granted to Jeffries under any compensation program referred to in Section
3(b), shall vest as follows:
128,000 shares September 7, 1998
96,000 shares September 7, 1999
96,000 shares September 7, 2000
or, if earlier, on the date of any Change of Control (as defined in Section
6(b)) occurring after the first year of the term hereof and shall otherwise be
subject to Unison's standard terms of grant; provided, however, that if such
Change of Control should occur after the first year of the term hereof but prior
to September 7, 1999, only 160,000 of such shares shall be deemed to have
vested; and provided, further, however, that nothing in this Section 3(c) shall
be deemed to extend the term of this Agreement as provided in Section 2.
4A. EXPENSES. (a) INTERIM LIVING EXPENSES. Unison acknowledges that for
a period commencing on the date hereof and continuing until Jeffries and his
family occupy their new home in the Scottsdale, Arizona, area, but not later
than November 30, 1997 (the "Interim Period"), they will be occupying temporary
quarters in the Scottsdale area while listing their two homes in New Mexico for
sale. Accordingly, Jeffries shall be entitled to be reimbursed by Unison for all
<PAGE>
3
reasonable expenses incurred by him during the Interim Period in connection with
his family's occupancy of the temporary quarters.
(b) MOVING EXPENSES. Unison shall, upon receipt of customary
documentation, reimburse Jeffries for the reasonable costs of Jeffries'
relocation of his principal residence to the Scottsdale area, provided such
relocation occurs no later than the end of the interim period. Such costs shall
include (i) brokerage and closing costs, for example, escrow charges and title
insurance premium, payable by Jeffries in connection with the sale of his New
Mexico residences, (ii) moving company charges and (iii) applicable federal and
state income taxes for which he becomes liable as a result of reimbursement of
the items referred to in clause (i) above and by operation of this clause (iii).
Jeffries shall, if he should voluntarily terminate his employment
hereunder, remit to Unison, in cash, within 30 days of termination, an amount
equal to (x) 100% of the amount reimbursed by Unison pursuant to the first
paragraph of this Section 4A(b) if such termination occurs in the first year of
the term hereof or (y) 50% of such reimbursed amount if such termination occurs
in the second year of the term hereof.
(c) OTHER REIMBURSABLE EXPENSES. Unison shall also, upon receipt of
customary documentation, reimburse Jeffries for his reasonable travel and
lodging (outside the Scottsdale area) and other ordinary and necessary business
expenses consistent with Unison's expense reimbursement policies as in effect
from time to time.
4B. BENEFITS. Unison shall provide Jeffries and his dependents with
health, medical and life insurance, and make payments for Jeffries' account to
such retirement plan or plans as it may from time to time adopt, in each case,
in a manner consistent with its treatment from time to time of other senior
executive officers.
5. VACATION, ETC.. Jeffries shall be entitled to vacation with pay in
accordance with Unison's vacation policy as in effect from time to time and to
such paid holidays as Unison may approve for its executive personnel. Jeffries
hereby waives, to the maximum extent permitted by applicable law, his right to
be paid at such time as his employment by Unison should terminate for unutilized
vacation or personal days.
6. TERMINATION. The Board may terminate Jeffries' employment hereunder
prior to the expiration of the term hereof in the manner provided in either
<PAGE>
4
Section 6(a) or Section 6(b). Jeffries may terminate his employment hereunder at
any time effective upon Unison's receipt of at least 30 days' advance notice to
such effect.
(a) FOR CAUSE. Unison may terminate this Agreement for cause upon
notice to Jeffries stating the facts constituting such cause, provided that
Jeffries shall have 30 days following such notice to cure any conduct or act, if
curable, alleged to provide grounds for termination for cause hereunder. Cause
shall include material neglect of duties, willful failure to abide by legal and
ethical instructions or policies from or set in good faith by the Board,
commission of a felony or serious misdemeanor offense or pleading guilty or NOLO
CONTENDERE to same, the commission by Jeffries of an act of dishonesty or moral
turpitude involving Unison, Jeffries' breach of this Agreement in any material
respect, the filing of bankruptcy proceedings by or against Jeffries or breach
by Jeffries of any other material obligation to Unison.
(b) WITHOUT CAUSE. Unison may terminate this Agreement at any time
immediately, without cause, effective upon Jeffries's receipt of notice to such
effect. Upon termination under this Section 6(b), Unison shall pay to Jeffries:
(i) forthwith, the base salary due him through the date of termination, (ii) in
equal semimonthly installments over the following six or 12 months, as the case
may be, an amount equal to his then base salary for six months, if termination
occurs within the first year of the term hereof, or one year, if termination
occurs after the first year of the term hereof, and (iii) within 90 days
following the end of the fiscal year in which termination occurs, a bonus in an
amount determined in the manner described in Section 3(b) (except, if
termination occurs prior to the end of a fiscal year, prorated for the period
during which Jeffries was employed hereunder), in each case, less applicable
withholdings.
The provisions of this Section 6(b) shall also apply if Jeffries'
employment with Unison is terminated, for any reason or for no reason, after a
Change in Control. The provisions of this Section 6(b) shall not apply, however,
if, absent a Change of Control, Jeffries elects to terminate his employment
hereunder as contemplated by the second sentence of Section 6 or should die or
become disabled.
A Change of Control shall be deemed to have occurred if (i) a merger or
consolidation of Unison with any other corporation results in effective control
of Unison becoming vested in a corporation which is not under the control of
<PAGE>
5
Unison's Board as constituted immediately prior to effectiveness of such merger
or consolidation, (ii) a complete or partial liquidation of Unison is completed
or (iii) all or substantially all of Unison's assets are sold or otherwise
disposed of and (iv) for purposes only of the provisions of Section 3(b) dealing
with accelerated vesting of stock options, Jeffries is not offered continued
employment in a senior executive capacity with equivalent duties,
responsibilities and authority.
(c) DISABILITY. If during the term of this Agreement, Jeffries fails to
perform his duties hereunder because of illness or other incapacity for a period
of three consecutive months, Unison shall have the right to terminate this
Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Jeffries shall be entitled to receive a bonus payment as provided
in Section 6(b).
(d) DEATH. If Jeffries dies during the term of this Agreement, this
Agreement shall terminate immediately, and Jeffries' legal representative shall
be entitled to receive the base salary due Jeffries for 60 days following death
as well as any other death benefits generally applicable to executive employees.
In addition, within 90 days after the end of the fiscal year in which Jeffries'
death should occur, Jeffries' legal representative shall also be entitled to
receive a bonus payment as provided in Section 6(b).
7. CONFIDENTIAL INFORMATION; NON-SOLICITATION. (a) CONFIDENTIAL
INFORMATION. Jeffries acknowledges that Jeffries may receive, or contribute to
the production of, Confidential Information. For purposes of this Agreement,
Jeffries agrees that "Confidential Information" shall mean information or
material proprietary to Unison or designated as confidential information by
Unison and not generally known by non-Unison personnel, which Jeffries develops
or to which Jeffries obtains knowledge or access to through or as a result of
Jeffries's relationship with Unison (including information conceived,
originated, discovered or developed in whole or in part by Jeffries).
Confidential Information includes, but is not limited to , the following types
of information and other information of a similar nature (whether or not reduced
to writing) related to Unison's business: discoveries, inventions, ideas,
concepts, research, development, processes, procedures, "know-how", formulae,
<PAGE>
6
marketing techniques and materials, marketing and development plans, business
plans, customer names and other information related to customers, price lists,
pricing policies, methods of operation, financial information, employee
compensation, and computer programs and systems. Jeffries acknowledges that the
Confidential Information derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use. Information publicly known without breach of this
Agreement that is generally employed by the trade at or after the time Jeffries
first learns of such information, or generic information or knowledge which
Jeffries would have learned in the course of his employment or work elsewhere in
the trade, shall not be deemed part of the Confidential Information. Jeffries
further agrees:
(1) To furnish Unison on demand, at any time during or after
employment, a complete list of the names and addresses of all present, former
and potential suppliers, financing or leasing sources, patients, customers and
other contacts gained while an employee of Unison in Jeffries' possession,
whether or not in the possession or within the knowledge of Unison.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Unison, and Jeffries agrees to turn over all copies of such
materials in Jeffries' control to Unison upon request or upon termination of
Jeffries' employment with Unison.
(3) That while employed by Unison and thereafter Jeffries will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Jeffries' work for Unison.
(4) That any idea in whole or in part conceived of or made by Jeffries
during the term of his employment, consulting or similar relationship with
Unison which relates directly or indirectly to Unison's current or planned lines
of business and is made through the use of any of the Confidential Information
of Unison or any of Unison's equipment, facilities, trade secrets or time, or
which results from any work performed by Jeffries for Unison, shall belong
exclusively to Unison and shall be deemed a part of the Confidential Information
<PAGE>
7
for purposes of this Agreement. Jeffries hereby assigns and agrees to assign to
Unison all rights in and to such Confidential Information whether for purposes
of obtaining patent or copyright protection or otherwise. Jeffries shall
acknowledge and deliver to Unison (but at its expense) such written instruments
and do such other acts, including giving testimony in support of Jeffries'
authorship or inventorship, as the case may be, necessary in the opinion of
Unison to obtain patents or copyrights or to otherwise protect or vest in Unison
the entire right and title in and to the Confidential Information.
(b) NON-SOLICITATION. During the term of Jeffries' employment by Unison
and for a period of one year thereafter, Jeffries agrees that he shall not (for
the purpose of or which results in competition with Unison or any of its
affiliates or subsidiaries) either solicit any past or existing customers,
patients or clients of Unison or any of its predecessors, affiliates or
subsidiaries or use any Confidential Information; nor will he solicit for any
purpose the employment of any employees of Unison or any of its affiliates or
subsidiaries.
(c) INJUNCTIONS. It is agreed that the restrictions contained in this
Section 7 are reasonable, but it is recognized that damages in the event of the
breach of any of the restrictions will be difficult or impossible to ascertain;
and, therefore, Jeffries agrees that, in addition to and without limiting any
other right or remedy Unison may have, Unison shall have the right to an
injunction against Jeffries issued by a court of competent jurisdiction
enjoining any such breach without showing or proving any actual damage to
Unison.
(d) PART OF CONSIDERATION. Jeffries also agrees, acknowledges,
convenants, represents and warrants that he is fully and completely aware, and
further understands, that the foregoing restrictive covenants are an essential
part of the consideration for Unison entering into this Agreement and that
Unison is entering into this Agreement in full reliance on these
acknowledgments, covenants, representations and warranties.
(e) TIME AND TERRITORY REDUCTION. If the period of time and/or
territory affected by the provisions of this Section 7 are held to be in any
respect an unreasonable restriction, it is agreed that the court so holding may
reduce the territory to which the restriction pertains or the period of time in
<PAGE>
8
which it operates or may reduce both such territory and such period, to the
minimum extent necessary to render such provision enforceable.
(f) SURVIVAL. The obligations described in this Section 7 shall survive
any termination of this Agreement or any termination of the employment
relationship created hereunder.
8. GOVERNING LAW AND VENUE. Arizona law shall govern the construction
and enforcement of this Agreement, and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona.
9. CONSTRUCTION. The language in all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning and not strictly
for or against any party. The section headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment hereto.
10. NONDELAGABILITY OF JEFFRIES' RIGHTS AND UNISON'S ASSIGNMENT RIGHTS.
The obligations, rights and benefits of Jeffries hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. This Agreement shall be assigned automatically to any entity merging
with or acquiring Unison or its business.
11. SEVERABILITY. In the event any term or provision of this Agreement
is declared by a court of competent jurisdiction to be invalid or unenforceable
for any reason, this Agreement shall remain in full force and effect, and either
(a) the invalid or unenforceable provision shall be modified to the minimum
extent necessary to make it valid and enforceable or (b) if such a modification
is not possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
<PAGE>
9
12. ATTORNEYS' FEES. Except as otherwise provided herein, in the event
either party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Unison: Unison HealthCare Corporation
8800 N. Gainey Center Drive
Suite 245
Scottsdale, Arizona 85258
Attention: General Counsel
If to Jeffries: Michael A. Jeffries
Unison HealthCare Corporation
8800 N. Gainey Center Drive
Suite 245
Scottsdale, Arizona 85258
or to such other address as either party may provide to the other in accordance
with this Section.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous understandings or agreements in regard thereto. No
waiver of any rights under this Agreement shall be valid unless in writing and
signed by the party to be charged with such waiver. No waiver of any term or
condition contained in this Agreement shall be deemed or construed as a further
or continuing waiver of such term or condition unless the waiver specifically
provides otherwise.
<PAGE>
10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
UNISON: JEFFRIES:
UNISON HEALTHCARE CORPORATION /s/ MICHAEL A. JEFFRIES
------------------------------
Michael A. Jeffries
By: /s/ DAVID A. KREMSER
------------------------------
David A. Kremser
Chairman of the Executive
Committee
EXHIBIT 11
UNISON HEALTHCARE CORPORATION
Statement Re: Computation of Per Share Earnings
(In thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE (1)
Shares outstanding at beginning of period (2) 6,422 4,428 6,078 4,230
Shares issued to former Signature shareholders 173
Conversion of debentures -- -- 102 94
Exercise of stock purchase warrants -- 38 68
Exercise of stock options -- 2 1 1
------- -------- ------- --------
Weighted average number of shares and share
equivalents outstanding 6,422 4,468 6,354 4,393
------- -------- ------- --------
Net loss $(1,956) $(12,209) $(8,971) $(10,690)
------- -------- ------- --------
Net loss per share, primary $ (0.30) $ (2.73) $ (1.41) $ (2.43)
======= ======== ======= ========
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used
in primary calculation 6,422 4,468 6,354 4,393
Additional dilutive effect of stock options,
warrants and convertible debentures -- -- -- --
------- -------- ------- --------
Weighted average number of shares fully diluted 6,422 4,468 6,354 4,393
------- -------- ------- --------
Net loss $(1,956) $(12,209) $(8,971) $(10,690)
------- -------- ------- --------
Net loss per share, fully diluted $ (0.30) $ (2.73) $ (1.41) $ (2.43)
======= ======== ======= ========
ADDITIONAL FULLY DILUTED COMPUTATION (3)
Net loss $(1,956) $(12,209) $(8,971) $(10,690)
Add interest on convertible debentures,
net of tax effect 33 42 66 126
------- -------- ------- --------
Net loss as adjusted $(1,923) $(12,167) $(8,905) $(10,564)
------- -------- ------- --------
Weighted average number of shares fully diluted 6,422 4,468 6,354 4,393
Shares issuable upon conversion of debentures 636 225 428 243
------- -------- ------- --------
Weighted average number of shares, as adjusted 7,058 4,693 6,782 4,636
======= ======== ======= ========
Net loss per share, fully diluted $ (0.27) $ (2.59) $ (1.31) $ (2.28)
======= ======== ======= ========
- ----------
(1) Shares used in these tables are weighted based on the number of days the
shares were outstanding or assumed to be outstanding during each period.
(2) On October 31, 1996, Unison acquired American Professional Holding, Inc.
and Memphis Clinical Laboratory, Inc. in a business combination accounted
for as a pooling of interests. Unison issued 540,000 common shares in
connection with these acquisitions. Earnings per share information for
the three and nine months ended September 30, 1996 has been restated to
reflect these acquisitions.
(3) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNISON
HEALTHCARE CORPORATION'S FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,800
<SECURITIES> 0
<RECEIVABLES> 40,420
<ALLOWANCES> 3,819
<INVENTORY> 0
<CURRENT-ASSETS> 46,180
<PP&E> 37,339
<DEPRECIATION> 6,165
<TOTAL-ASSETS> 224,726
<CURRENT-LIABILITIES> 75,760
<BONDS> 119,006
0
0
<COMMON> 5
<OTHER-SE> 4,201
<TOTAL-LIABILITY-AND-EQUITY> 224,726
<SALES> 0
<TOTAL-REVENUES> 168,310
<CGS> 0
<TOTAL-COSTS> 146,434
<OTHER-EXPENSES> 19,616
<LOSS-PROVISION> 795
<INTEREST-EXPENSE> 14,698
<INCOME-PRETAX> (13,233)
<INCOME-TAX> (4,262)
<INCOME-CONTINUING> (8,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,971)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
