<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 333-15531
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
COMPLETE MANAGEMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 8742 11-3149119
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
Incorporation Classification Code Number) Number)
or Organization)
254 West 31st Street, New York, New York 10001-2813
(212) 868-1188
(Address, Including Zip Code, and Telephone Number, Including
Area Code, Of Registrant's Executive Offices)
------
STEVEN M. RABINOVICI
Chairman and Chief Executive Officer
Complete Management, Inc.
254 West 31st Street
New York, New York 10001-2813
(212) 868-1188
(212) 594-3176 (FAX)
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code
of Agent For Service)
------
with a copy to:
STEPHEN A. ZELNICK, Esq. ALAN I. ANNEX, Esq.
Morse, Zelnick, Rose & Lander, LLP Camhy Karlinsky & Stein LLP
450 Park Avenue 1740 Broadway, Sixteenth Floor
New York, New York 10022 New York, N.Y. 10019-4315
(212) 838-8040 (212) 977-6600
(212) 838-9190 (FAX) (212) 977-8389 (FAX)
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 27, 1996
PROSPECTUS
COMPLETE MANAGEMENT, INC.
(LOGO)
3,000,000 COMMON SHARES
AND
$25,000,000
[6 1/2 % TO 8%] CONVERTIBLE SUBORDINATED DEBENTURES
DUE [DECEMBER] 15, 2003
INTEREST PAYABLE [DECEMBER] 15 AND [MAY] 15
Of the securities offered hereby, $25,000,000 face amount % Convertible
Subordinated Debentures due [December] 15, 2003, (the "Debentures") and
2,500,000 Common Shares, par value $.001 per share (the "Common Shares") are
offered by Complete Management, Inc. ("CMI") and 500,000 Common Shares are
offered by a founder and principal shareholder of CMI (the "Selling
Shareholder"). CMI will not receive any proceeds from the sale of Common
Shares by the Selling Shareholder.
The Debentures are convertible into Common Shares of CMI at any time prior
to maturity, unless previously redeemed, at a conversion price of $ per share
[120% to 130% of the closing price of the Common Shares on the American Stock
Exchange ("AMEX") on the effective date of this offering], subject to
adjustment in certain events. On November 20, 1996, the closing sale price
for the Common Shares on the AMEX was $14.50 per share. See "Price Range for
Common Shares." The Common Shares are listed on the AMEX under the symbol
"CMI." Application has been made for listing of the Debentures on the AMEX
under the symbol "CMI.B."
The Debentures are redeemable, in whole or in part, on 45 days' prior
written notice, at the option of CMI, at a redemption price equal to 100% of
the principal amount, plus accrued interest, at any time on or after
[December ,] 1999 [36 months after issuance], provided that the Closing
Price (as defined) of the Common Shares, during the 20 consecutive trading
days prior to the date of notice of such redemption, has equaled or exceeded
$ [150% of the closing price of the Common Shares on the effective date of
this offering], subject to adjustment in certain events. The Debentures are
subordinated to all existing and future Senior Indebtedness (as defined) and
are effectively subordinated to all indebtedness of CMI's subsidiaries. At
November 15, 1996, CMI had indebtedness to which the Debentures would be
effectively subordinated aggregating approximately $7,903,000. See
"Description of Debentures."
See "Investment Considerations" on page 11 hereof for a discussion of
certain factors that should be considered by prospective purchasers of the
Debentures.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public(1) Discount(2) Company(2)(3) Shareholder
- -------------------------------------------------------------------------------
Per Debenture ...... 100% % % --
- -------------------------------------------------------------------------------
Per Share .......... $ $ $ $
- -------------------------------------------------------------------------------
Total Debentures ... $ $ $ --
- -------------------------------------------------------------------------------
Total Shares ....... $ $ $ $
- -------------------------------------------------------------------------------
Total (4) .......... $ $ $ $
===============================================================================
(Footnotes on following page)
The Debentures and the Common Shares are offered, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, subject to
approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this offering and to reject any order in whole or in part. It is
expected that delivery of certificates representing the Debentures and the
Common Shares will be made against payment therefor at the office of National
Securities Corporation, 1001 Fourth Avenue, Seattle, Washington 98154, on or
about , 1996.
NATIONAL SECURITIES CORPORATION COMMONWEALTH ASSOCIATES
The date of this Prospectus is , 1996
<PAGE>
(1) Plus accrued interest, if any, from , 199_.
(2) Does not include additional compensation to National Securities
Corporation and Commonwealth Associates, the representatives (the
"Representatives"), of the several underwriters (the "Underwriters") in
the form of a non-accountable expense allowance equal to 2% of the gross
proceeds of this offering. CMI has also agreed to issue to the
Representatives warrants (the "Representatives' Warrants") to purchase up
to Common Shares. For indemnification arrangements with the
Underwriters and additional compensation payable to the Representatives,
see "Underwriting."
(3) Before deduction of expenses payable by CMI estimated at $ (including
the nonaccountable expense allowance).
(4) CMI has granted to the Underwriters an option, exercisable within 45 days
of the date hereof, to purchase up to an additional $3,750,000 principal
amount of Debentures and certain shareholders (the "Over-Allotment
Selling Shareholders") have granted to the Underwriters a similar option
to purchase up to an additional 450,000 Common Shares, in both cases
solely for the purpose of covering over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discount, Proceeds to Company, Proceeds to Selling Shareholder and
Proceeds to Over-Allotment Selling Shareholders, will be $ , $ ,
$ , $ , and $ , respectively. See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON SHARES AND THE DEBENTURES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMEX, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, THE
UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON SHARES ON THE AMEX IN ACCORDANCE WITH RULE 10b-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that the Over-Allotment Option and the
Representatives' Warrants are not exercised.
Complete Management, Inc. ("CMI") acquired the assets and business of
Medical Management, Inc. ("MMI") and Advanced Alliance Management Corp.
("AAMC"), on January 3, 1996 and October 2, 1996, respectively, each through
a merger (the "MMI Merger" and the "AAMC Merger," respectively) into wholly
owned subsidiaries of CMI. Prior to being acquired by CMI, MMI provided and
administratively managed diagnostic imaging equipment in physicians' offices
and hospitals and AAMC provided physician practice management services.
Unless otherwise indicated, all references to the Company herein include CMI,
MMI, AAMC and any of their respective subsidiaries. "MMI and AAMC" refers to
those entities before the mergers.
THE COMPANY
The Company is a physician practice management company. It provides a full
range of management services to physicians and hospitals located primarily in
the most densely populated area of New York State, including New York City,
Long Island and the Hudson Valley region. The Company offers virtually all
the business, financial and marketing support required by medical practices.
The Company's sophisticated management systems and its high level of
professionalism enable its clients to handle the non-medical aspects of
their practices effectively. It provides its clients with office space,
equipment and supplies and non-medical personnel. It also bills patients and
third-party payors, collects receivables and assists in record keeping and
compliance with reporting requirements. The Company also advises clients
regarding regulatory compliance, consults on marketing and business
strategies, and provides financing for expansion. In addition, the Company
provides and manages diagnostic imaging equipment used by doctors in their
own practices and by hospitals. The Company does not, however, perform any
type of medical diagnostic or treatment services. By focusing on the complex,
time-consuming and expensive non-medical aspects of medical practices, the
Company can offer its clients operating efficiencies that they could not
attain on their own.
Since July 1, 1996, the Company has made significant progress towards
becoming a fully diversified and integrated company serving both primary care
and specialty practices. The Company's services are designed to work
effectively both in today's fee-for-service environment and the managed care
capitated fee environment of the future. Pursuant to the Company's expansion
program, it has acquired two medical billing and collection companies, one
primarily serving hospitals and one primarily serving medical practices. The
Company has also acquired three physician practice management companies
serving primary care, neurology, radiology, and community and industrial
medicine practices in New York City and Westchester, Orange, Putnam and
Dutchess counties of New York State. It has also assisted Greater
Metropolitan Medical Services ("GMMS"), its first and largest client, in
acquiring a neurology practice with three offices in New York City. With
these acquisitions and GMMS' continued growth, the number of physicians to
whom the Company provides a full range of services has increased from 16 at
December 31, 1995 to 76 at November 15, 1996. More limited services, such as
transcribing, billing, collecting and temporary staffing, are provided by the
Company to 50 medical practices with more than 820 doctors and to 32
hospitals.
The Company believes the practices that it provides with a broad range of
services will serve as the nucleus of a network offering both primary care
and multi-specialty services throughout New York State. Although managed care
has evolved more slowly in New York than in many other States, the
penetration rate of managed care is presently increasing rapidly in New York.
The Company believes that its network will enable its clients to enter into
managed care and capitated fee arrangements with insurance companies and
employers.
The Company's management is experienced in hospital administration and
trains its and clients' staffs to operate with full efficiency. The Company,
by standardizing many of its procedures and automating large
3
<PAGE>
portions of the business aspects of its clients' practices, offers
significant management efficiencies. For example, standardized and automated
systems are used to produce and administer the records used to support
clients' claims for payment. In addition, the Company has centralized its
purchasing and collection functions, and its standard office format permits
medical and non-medical personnel and equipment to be shifted among offices
as required.
Historically, almost all of CMI's revenues have come from GMMS, a single
medical practice group. However, if the various mergers and acquisitions
consummated before November 15, 1996 had been consummated at January 1, 1995,
then, on a pro form combined basis, 62% of 1995 net revenues (27% if the
proposed Amedisys Merger (defined below) had been consummated and given
effect on such date) would have been received from GMMS. Lawrence Shields,
M.D., holds 95% of the stock of GMMS and is a founder of the Company and the
Selling Shareholder in this offering. GMMS focuses on the evaluation and
treatment of injury-related conditions. Since becoming a client of CMI in
early 1993, GMMS has expanded from a neurological practice occupying a single
office to a multi-specialty practice with nine offices. Its twenty-one
doctors currently perform or supervise procedures at a rate in excess of
200,000 a year. The injury-related conditions treated by GMMS are principally
covered by automobile no-fault and workers' compensation insurance.
The Company's objective is to become the dominant provider of medical
management services in New York State and other selected markets including
New Jersey by implementing an aggressive growth strategy. The key elements of
the Company's strategy are:
o Increase Number of Primary Care Clients.
o Assist Clients in Expanding the Scope of their Services.
o Expand the Reach of all Medical Practices Under Management.
o Create a Network of Physicians to Participate in Managed Care.
o Assist Clients in Maintaining High Credibility with Third-Party Payors
and other Referral Sources.
o Maintain Industry Leadership in Medical Management Systems.
CMI was incorporated in New York on December 30, 1992 and commenced
operations on April 1, 1993. On January 3, 1996, CMI consummated its initial
public offering (the "IPO") of 2,000,000 Common Shares at a price of $9.00
per share and received proceeds net of registration costs and repayment of
certain obligations of $13,480,000. On January 3, 1996, it also consummated
the acquisition of MMI. In June 1996, it consummated a second public offering
(the "First Series Debenture Offering") of $40,250,000 aggregate principal
amount of 8% Convertible Subordinated Debentures due August 15, 2003, (the
"First Series Debentures") and received net proceeds of $36,144,000. In March
and July 1996, the Company borrowed an aggregate of $5,000,000 due March 20,
2001 evidenced by 8% convertible subordinated notes (the "Convertible
Subordinated Notes".)
On October 17, 1996, CMI entered into a letter of intent (the "Letter of
Intent") for the acquisition of Amedisys, Inc. ("Amedisys"). Amedisys
provides home health care, supplemental nurse staffing, management services
to independent home care agencies and services to physicians. These physician
services include physician practice management and the organization,
development and management of independent practice associations ("IPAs"). It
also operates outpatient ambulatory surgery centers and has recently
organized Future Care, Inc., a 51% owned subsidiary to organize and operate a
preferred provider network and engage in certain related activities. Amedisys
maintains 24 home health care and supplemental staffing offices in eight
states, operates two outpatient surgery centers in Texas, and recently opened
an ambulatory surgery center in Louisiana. Amedisys also manages home health
agencies, physician practices and rural health clinics and is the network
manager of the Home Care Alliance of Louisiana.
The acquisition of Amedisys, if consummated, will be effected through its
merger (the "Amedisys Merger") into a wholly-owned subsidiary of CMI in
exchange for approximately 1.44 to 1.84 million Common Shares. Although CMI
has no obligation to do so, the Letter of Intent also contemplates that CMI
4
<PAGE>
may invest up to $15 million in Amedisys' ambulatory surgery centers now
owned or to be acquired and $4,000,000 in other Amedisys operations following
the Amedisys Merger, provided such centers and operations meet certain
post-merger financial goals. Amedisys has granted CMI an option to purchase
500,000 shares of Amedisys common stock exercisable only upon the occurrence
of certain Prohibited Events, as defined in the Letter of Intent. The Letter
of Intent is nonbinding, except for the provisions relating to the option and
certain other ancillary matters, and is subject to the execution of a
definitive agreement, the completion of due diligence and the approval of the
Amedisys Merger by the Boards of Directors of both parties and the
shareholders of Amedisys. In addition, the Letter of Intent contemplates, and
the Company believes, that the Amedisys Merger will be treated, for
accounting and financial statement purposes, as a pooling of interests. If
the Company determines that the transaction will not be given pooling of
interests treatment, whether before or after due diligence and regulatory
review, the Company will seek to re-negotiate the terms of the Amedisys
Merger. No assurances can be given that the transaction will be given pooling
of interests treatment or, if not, whether the Company can reach agreement
with Amedisys on a restructured transaction. Accordingly, for the foregoing
or other reasons, no assurances can be given that the Amedisys Merger will be
consummated. However, since it is not improbable that the Amedisys Merger
will occur, certain business and financial information relating to Amedisys
and certain new investment considerations which will be applicable to the
Company if the Amedisys Merger is consummated are included in this
Prospectus. See "Investment Considerations" and "Proposed Amedisys Merger."
The Company believes that the Amedisys Merger, if consummated, will
provide it with added expertise in obtaining capitated fee contracts for its
clients and assisting its clients in operating in a capitated fee
environment. The Company believes that such expertise is more limited in New
York State. Further, Amedisys will also provide the Company with additional
skills in managing large independent physician associations.
The Company's principal executive offices are located at 254 West 31st
Street, New York, New York 10001 and its telephone number is (212) 868-1188.
THE OFFERING
SECURITIES OFFERED
Debentures .................... $25,000,000 aggregate principal amount of
[6 1/2 to 8%] Convertible Subordinated
Debentures Due [December] 15, 2003 (the
"Debentures")
Common Shares ................. 3,000,000 shares, of which 2,500,000 shares
are offered by the Company and 500,000
shares by the Selling Shareholder.
Debenture Terms
Interest Payment Dates ........ [December] 15 and [May] 15, commencing ,
199_
Maturity Date.................. [December] 15, 2003
Conversion..................... The Debentures are convertible into Common
Shares, par value $.001 per share, at any
time prior to maturity, unless previously
redeemed, at a conversion price of $ per
share [120% to 130% of the closing sale
price of the Common Shares on the AMEX on
the effective date of this offering],
subject to adjustment in certain events.
Redemption at Option of the
Company...................... The Debentures are not redeemable prior to
[three years from the effective date of this
offering]. Thereafter, the Debentures are
5
<PAGE>
redeemable, in whole or in part, from time
to time, at the option of the Company at a
redemption price equal to 100% of the
principal amount thereof plus accrued
interest, provided that the Debentures may
not be redeemed prior to maturity unless the
closing price for 20 consecutive trading
days prior to the date of notice of such
redemption has equaled or exceeded $ .
[150% of the closing price of the Common
Shares on the effective date of this
offering] subject to adjustment in certain
events. See "Description of Debentures --
Optional Redemption."
Redemption at Option of
Holders ..................... In the event that a Repurchase Event (as
defined) occurs, subject to certain
conditions, each holder of a Debenture shall
have the right, at the holder's option, to
require the Company to purchase all or any
part of such holder's Debentures at 100% of
the principal amount thereof plus accrued
interest.
Sinking Fund................... If a sinking fund is established for any
indebtedness that is junior or pari passu
with the Debentures and which has a maturity
or weighted average time to maturity which
is on or prior to , 2003, the
Debentures will be entitled to an annual
sinking fund beginning in the Company's next
fiscal year calculated to retire that amount
of Debentures equal to the lesser of (i) the
same percentage of outstanding Debentures
prior to maturity as the percentage of the
principal amount of such other indebtedness
to be retired prior to maturity on the same
payment schedule as such other indebtedness
or (ii) such amount of Debentures necessary
to result in the Debentures having the same
weighted average time to maturity as the
other indebtedness.
Subordination.................. The Debentures are subordinated in right of
payment to all present and future Senior
Indebtedness (as defined) of the Company.
The Indenture will not restrict the
incurrence of additional Senior Indebtedness
by the Company or any indebtedness by any
Subsidiary. See "Description of Debentures."
SECURITIES OUTSTANDING BEFORE
THIS OFFERING
Common Shares.................. 8,031,471 shares
First Series Debentures ....... $40,250,000 aggregate principal amount,
convertible into Common Shares at $14.00 per
share, subject to adjustment.
Convertible Subordinated Notes.. $5,000,000 aggregate principal amount,
convertible into Common Shares at $9.00 per
share, subject to adjustment.
SECURITIES OUTSTANDING AFTER
THIS OFFERING
Common Shares.................. 10,531,471 shares (1)
First Series Debentures........ $40,250,000 aggregate principal amount
Convertible Subordinated Notes.. $5,000,000 aggregate principal amount
Debentures..................... $25,000,000 aggregate principal amount
6
<PAGE>
Use of Proceeds................ To provide added funds for the Company's
acquisition program and for working capital
and general corporate purposes. See "Use of
Proceeds."
TRADING SYMBOLS
Common Shares.................. "CMI"
Debentures..................... Application has been made for listing of the
Debentures on the AMEX under the symbol
"CMI.B."
- ------
(1) Excludes Common Shares reserved for the following purposes: (a) 940,792
Common Shares issuable upon the exercise of options granted under CMI's
1995 Stock Option Plan (the "Option Plan"), of which options for 240,792
shares are subject to approval by shareholders of an increase in the
number of shares issuable under such plan; (b) 225,000 shares issuable
upon the exercise of options granted to professional and other
consultants to the Company; (c) 200,000 shares issuable upon the exercise
of warrants ("IPO Representatives' Warrants") issued to the
representatives ("IPO Representatives") in the Company's IPO; (d) 250,000
shares issuable upon the exercise of warrants ("First Series Debenture
Offering Representative's Warrants") issued to the representative ("First
Series Debenture Offering Representative") in the First Series Debenture
Offering; (e) 2,875,000 shares issuable upon conversion of the First
Series Debentures; (f) 555,555 shares issuable upon conversion of the
Convertible Subordinated Notes and (g) 75,334 shares issuable upon
exercise of warrants granted in the initial public offering of MMI and
assumed by the Company in the MMI Merger. Also excludes shares which may
be issued in the proposed Amedisys Merger.
7
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
COMPLETE MANAGEMENT, INC.
<TABLE>
<CAPTION>
For the period
from April 1, 1993 Nine Months Ended
to December 31, Years Ended December 31, September 30,
------------------ ------------------------ ----------------------
1993 1994 1995 1995 1996
------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue ..................... $5,283 $10,654 $12,294 $ 9,056 $20,030
Interest discount (1) ....... (865) (1,744) (2,017) (1,482) (1,748)
------------------ --------- --------- --------- ---------
Net revenue ................. 4,418 8,910 10,277 7,574 18,282
Operating expenses .......... 2,790 4,520 5,745 3,889 11,467
------------------ --------- --------- --------- ---------
Operating income ............ 1,628 4,390 4,532 3,685 6,815
Interest discount included in
income (2) ................. 207 922 1,585 1,144 1,855
Other income/(expense) ...... 62 55 (29) 13 (1,142)
------------------ --------- --------- --------- ---------
Income before provision for
taxes ...................... 1,897 5,367 6,088 4,842 7,528
Provision for income taxes .. 891 2,522 2,861 2,276 3,613
------------------ --------- --------- --------- ---------
Net income .................. $1,006 $ 2,845 $ 3,227 $ 2,566 $ 3,915
================== ========= ========= ========= =========
Primary net income per share $ 0.34 $ 0.95 $ 1.08 $ 0.87 $ 0.50
================== ========= ========= ========= =========
Fully diluted net income per
share ...................... N/A N/A N/A N/A $ 0.42
================== ========= ========= ========= =========
Weighted average number of
shares outstanding ......... 2,981 2,981 2,981 2,964 7,840
================== ========= ========= ========= =========
Ratio of earnings to fixed
charges (3) ................ N/A N/A 133.35 N/A 5.71
================== ========= ========= ========= =========
</TABLE>
UNAUDITED PRO FORMA COMBINED
<TABLE>
<CAPTION>
Without Amedisys (4) With Amedisys (4)(5)
-------------------------------- --------------------------------
Year Ended Nine Months Year Ended Nine Months
December 31, September 30, December 31, September 30,
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue ...................................... $29,335 $27,398 $66,924 $61,046
Interest discount (1) ........................ (2,719) (1,748) (2,719) (1,748)
-------------- -------------- -------------- --------------
Net revenue .................................. 26,616 25,650 64,205 59,298
Operating expenses ........................... 21,250 20,346 57,459 52,949
-------------- -------------- -------------- --------------
Operating income ............................. 5,366 5,304 6,746 6,349
Interest discount included in income (2) ..... 2,236 1,855 2,236 1,855
Other (expense) .............................. (213) (1,223) (451) (1,498)
-------------- -------------- -------------- --------------
Income before provision for taxes ............ 7,389 5,936 8,531 6,706
Provision for income taxes ................... 3,985 3,097 4,185 3,365
-------------- -------------- -------------- --------------
Net income ................................... $ 3,404 $ 2,839 $ 4,346 $ 3,341
============== ============== ============== ==============
Primary net income per share ................. $ 0.43 $ 0.35 $ 0.46 $ 0.34
============== ============== ============== ==============
Fully diluted net income per share ........... $ -- $ 0.30 $ -- $ 0.30
============== ============== ============== ==============
Weighted average number of shares outstanding 7,964 8,198 9,487 9,721
============== ============== ============== ==============
</TABLE>
8
<PAGE>
SUMMARY FINANCIAL INFORMATION (CONTINUED)
(IN THOUSANDS)
UNAUDITED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As at September 30, 1996
--------------------------------------------------------------------------------------
Pro Forma
----------------------------------------
As Adjusted
CMI, AAMC, --------------------------------
Actual CMI, AAMC, Other Post 9/30/96 CMI, AAMC,
--------- Other Post 9/30/96 Acquisition, Other Post 9/30/96
CMI Acquisition Amedisys CMI Acquisition
--------- ------------------ ------------------ ---------- ------------------
(6) (7) (8) (9)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............ $ 11,792 $ 6,502 $ 8,886 $ 68,542 $ 63,252
Marketable securities (10) ........... 25,851 25,851 25,851 25,851 25,851
Accounts receivable, net (11) ........ 39,608 40,894 48,309 39,608 40,894
Purchase price in excess of net assets
acquired (12) ....................... 12,068 21,512 21,873 12,068 21,512
Total assets ......................... 105,208 112,905 128,810 164,704 172,401
Current liabilities .................. 10,141 12,171 21,105 10,141 12,171
Long-term obligations, less current .. 1,965 2,029 4,185 1,965 2,029
Convertible subordinated obligations . 45,250 45,250 45,250 70,250 70,250
Shareholders' equity ................. 42,687 48,290 53,086 77,183 82,785
Working capital ...................... 47,215 41,189 42,877 103,965 97,939
</TABLE>
- ------
(1) Represents an interest discount taken to reflect the presumed collection
of revenues over a period in excess of one year. See "Notes to
Consolidated Financial Statements of CMI."
(2) Represents interest income included in income as a result of the
amortization over three and two year periods of the interest discount on
revenues for CMI and MMI, respectively. See "Notes to Consolidated
Financial Statements of CMI and MMI."
(3) As there was no interest expense incurred in 1993, 1994 and for the nine
months ended September 30, 1995, the ratio of earnings to fixed charges
is not applicable.
(4) The Unaudited Pro Forma Combined Statements of Income Data gives effect
to all acquisitions made by CMI through November 15, 1996 (the MMI
Merger, AAMC Merger and various non-material acquisitions ("Other
Acquisitions") and with and without the effect of the Amedisys Merger as
if they had occurred at the beginning of each period. Aggregate purchase
price of the AAMC Merger and the Other Acquisitions was $15,699,000,
which was in excess of the aggregate net assets acquired in the amount of
$13,168,000. The excess purchase price is assumed to have a life not
exceeding 20 years.
(5) On October 17, 1996, the Company entered into a non-binding Letter of
Intent with Amedisys to exchange all of the outstanding shares of
Amedisys (approximately 2,600,000 at November 15, 1996) for an estimated
1,523,000 Common Shares with a total value of $23,600,000. For purposes
of this presentation, the share price used in determining the number of
Common Shares to be exchanged is $15.50 per share. This transaction, if
consummated, will be accounted for as a pooling-of-interests.
(6) CMI, AAMC, Other Post 9/30/96 Acquisition Pro Forma Balance Sheet Data
gives effect to the AAMC Merger and the Acquisition of Tenbroeck
Management Corp., which occurred after September 30, 1996 ("Other Post
9/30/96 Acquisition") as if they had occurred on September 30, 1996.
(7) CMI, AAMC, Other Post 9/30/96 Acquisition, Amedisys Pro Forma Balance
Sheet Data gives effect to the AAMC Merger, the Other Post 9/30/96
Acquisition and the proposed Amedisys Merger as if they had occurred on
September 30, 1996.
(8) CMI As Adjusted reflects the Balance Sheet Data giving effect to this
offering as if it had occurred on September 30, 1996 without the effect
of the AAMC Merger and the Other Post 9/30/96 Acquisition.
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(9) CMI, AAMC and Other Post 9/30/96 Acquisition As Adjusted reflects the
Balance Sheet Data giving effect to this offering and the AAMC Merger
and the Post 9/30/96 Acquisition as if they had occurred on September
30, 1996.
(10) Includes all marketable securities including those available for sale
and those the Company intends to hold to maturity.
(11) Includes both the current and long-term portions of accounts receivable.
(12) Reflects the aggregate purchase prices in excess of the aggregate net
assets acquired from the acquisitions made by the Company through
November 15, 1996 consisting of the MMI Merger, the AAMC Merger and the
Other Post 9/30/96 Acquisition.
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INVESTMENT CONSIDERATIONS
Prospective investors should carefully consider, together with the other
matters and financial information discussed elsewhere herein, the following
matters relating to the business of the Company and the securities offered
hereby.
Ratios of Debt to Net Tangible Book Value and Earnings to Fixed
Charges. At September 30, 1996, CMI had a net tangible book value of $25.9
million and its ratio of total debt to net tangible book value was 1.85 to 1.
Giving pro forma effect at September 30, 1996 to all acquisitions through
November 15, 1996 (the AAMC Merger and the Other Acquisitions) and the
issuance of the Debentures, the Company's consolidated assets would have been
approximately $172 million, its long term debt would have been $70 million
and its ratio of total debt to net tangible book value would have been 1.41
to 1. If the Company experiences unanticipated costs, write-offs of
investments or other assets or operating or other losses, the Company's
leverage could increase. Such increased leverage (i) could adversely affect
the ability of the Company to obtain additional financing in the future for
working capital, capital expenditures or other purposes, should it need to do
so, (ii) will require that a substantial portion of the Company's cash flow
from operations be dedicated to debt service, (iii) could place the Company
at a competitive disadvantage, if it is more highly leveraged than its
competitors, and (iv) could make the Company more vulnerable to a downturn in
its business.
Assuming that the Debentures, the First Series Debentures and the
Convertible Subordinated Notes had been outstanding during 1995, the ratio of
pro forma consolidated 1995 income, before income taxes, to fixed charges (at
an assumed interest rate of 8.0% on the Debentures) would have been 1.23 to
1.
Dependence on Principal Client. All of the net revenues of CMI in 1994 and
1995 and approximately 62% of the pro forma combined net revenue of CMI, MMI,
AAMC and the other companies acquired in 1995 were earned under management
contracts with GMMS and a substantial part of the growth in the Company's
business is a direct result of the growth of the GMMS medical practice. The
continued vitality of the GMMS medical practice is subject to numerous risks,
including the loss of its key medical personnel, malpractice claims and
liability for failure to comply with applicable regulations. There is no
assurance that GMMS will continue to operate successfully. For the nine
months ended September 30, 1996 owner physician payroll and entity income at
GMMS showed a loss of $263,000, as compared to income of $770,000 in 1995.
The Company believes that this loss principally results from an increase of
$1,187,000 in medical personnel payroll at GMMS as GMMS increased its
professional staff in expectation of future higher levels of operation. A
continuation of these deficits at GMMS, or its failure to operate
successfully, could jeopardize GMMS' ability to pay management fees to the
Company. Moreover, although the Practice Management Services Agreement (the
"PMSA") and the Management Services Agreement for Magnetic Resonance Imaging
Practice (the "MSA") between the Company and GMMS, which cover all management
services provided to GMMS, expire June 2025 and July 2001, (with a provision
for the automatic extension of the MSA in five year intervals at the option
of MMI), respectively, there is no assurance that the Company and GMMS will
continue to maintain a productive working relationship. The founder of GMMS
and his son, Dennis Shields, are principal shareholders of the Company. See
"Business -- Principal Client."
Dependence on Third-Party Payor Reimbursements; Possible Decreases in
Reimbursement Rates. For the year ended December 31, 1995, approximately 46%
and 20% of the revenues of GMMS came from no-fault insurance carriers and
workers' compensation insurers, respectively. Payments from these sources
generally have long collection cycles. The Company's engagement by its
clients is based, in part, on such clients' belief in the Company's
receivables collection skills and its ability to collect such payments for
them as expeditiously as feasible. If the laws and regulations establishing
these third-party payors are amended, rescinded or overturned with the effect
of eliminating this system of payment reimbursement for injured parties, the
ability of the Company to market its management services could be adversely
affected. To the extent that the medical practices receiving the Company's
services are dependent on third-party payors, changes in such payors'
policies that reduce reimbursement rates could impair clients' ability to pay
management fees to the Company. See "Business -- Third-Party Reimbursement."
Risk of Lower Margins. Certain services offered by the Company are
provided in accordance with fee schedules based on the Company's estimate of
the cost of providing these services. Such fee schedules are not
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<PAGE>
readily subject to modification. Accordingly, an unanticipated increase in
costs, such as those for personnel, space, equipment or capital, would have a
substantial and adverse impact on the Company's operating margins and net
income. There is no assurance that the Company's actual costs will not exceed
its estimated costs. Both the professional fees earned by hospitals and
medical practices and the cost of providing non-medical services to them vary
substantially with the nature of the medical activities undertaken, the
effectiveness of the medical services provided, the location of the hospital
or medical practice and numerous other factors. Further, there is no
assurance that the Company's future business relationships will provide
margins comparable to those currently earned under the PMSA and MSA. See
"Business -- Medical Practice Management Services."
Inability to Collect or Delay in Collecting Management Fees. Collection by
the Company of its management fees may be adversely affected by the
uncollectibility of its clients' medical fees from third-party payors
(including workers' compensation insurers, no-fault insurance carriers,
no-fault payment pool, Medicare and commercial insurers) or by the long
collection cycles for those receivables, even though clients of the Company
are liable for the Company's fees regardless of whether they receive payment
for their medical services. The Company has historically deferred collecting
amounts owed to it when its clients have experienced delays in collecting
from third-party payors. The requirements of many third-party payors
regarding claims submission are detailed and complex and payments may be
delayed or refused if the payors' requirements are not complied with in full.
Many third-party payors, particularly insurance carriers covering automobile
no-fault and workers' compensation claims, refuse, as matter of business
practice, to pay claims unless submitted to arbitration. It is the Company's
experience that insurance carriers delay payment of claims until just prior
to the arbitration hearing. The Company's management has determined, based on
actual results, industry factors, and GMMS' historical collection experience
prior to its association with the Company, that this entire collection
process generally spans a period averaging approximately three years. As a
result, the Company requires more capital to finance its receivables than do
businesses with shorter receivable collection cycles. Further, third-party
payors may reject medical claims if, in their judgment, the procedures
performed were not medically necessary or if the charges exceed such payor's
allowable fee standards. The Company is generally prepared to take all
legally available steps, including arbitration, to collect the receivables
generated by its clients, whether owned by the Company or by the client.
Nevertheless, some of those receivables may be uncollectible if third-party
payors determine that the Company's clients performed medically unnecessary
procedures, charged excessive fees for procedures, or completed claim forms
improperly. The inability of the Company's clients to collect their
receivables could adversely affect their ability to pay the Company's fees.
See "Business -- Third-Party Reimbursement."
Inability to Collect Loans to Clients. The Company has provided financing
to GMMS and other clients, either through loans or the purchase of
receivables, to open or renovate offices, acquire medical practices, add
medical specialties and acquire diagnostic imaging and other equipment. When
the Company makes loans to its clients it generally takes a security interest
in the assets of such clients (including receivables not otherwise assigned
to the Company) to secure repayment. Inasmuch as clients' receivables may
also secure payment to the Company of any unpaid management fees from such
clients, there is a risk that its clients will be unable to repay such loans
on a timely basis, if at all, and, in any such event, that the Company's
security interest in its clients' receivables will be inadequate to repay
both the loan obligations and other amounts due to the Company. See "Business
- -- Growth Strategy."
Inability to Effect Expansion Strategy. The Company's expansion strategy
includes increasing the number and type of medical practices to which it
provides management services in its current market, other areas in New York
State and selected other markets including New Jersey, and securing contracts
on behalf of its clients with managed care organizations. The Company intends
to identify high volume medical practices to be acquired by existing clients
or to become clients of the Company, possibly in conjunction with the
Company's purchase of certain fixed assets and/or accounts receivable of such
medical practice. There is no assurance, however, that suitable medical
practices will be identified which are either willing to be acquired or to
contract for the management services offered by the Company. Moreover, there
is no assurance that the Company can expand its business into other parts of
New York State or into other states. In order to operate effectively in such
new locations, the Company must achieve acceptance in the local market and,
in order to operate in other states, the Company must adapt its procedures to
each such state's regulatory requirements and systems. See "Business --
Growth Strategies."
Management of Growth and Expansion. The Company is undergoing substantial
growth. This growth places significant demands on the Company's management,
and its technical, financial and other resources. To
12
<PAGE>
manage its growth effectively, the Company must maintain a high level of
operational quality and efficiency, continue to enhance its operational,
financial and management systems and expand, train and manage its management
and staff. Through September 30, 1996, the Company has rendered its services
primarily to a single multi-office medical practice and thus has only limited
experience in simultaneously providing physician practice management services
to several practices. To execute its growth strategy, the Company plans to
significantly increase the number of physician practices under management.
There can be no assurance that the Company will be able to manage growth
effectively, and any failure to do so could have a material adverse effect on
the Company's business, financial condition and results of operations and the
price of the Common Shares and Debentures.
Cost Containment and Reimbursement Trends. Government and private
third-party payors are seeking to contain healthcare costs by imposing lower
reimbursement and higher utilization rates and negotiating reduced payment
schedules with service providers. One method for achieving this objective has
been the use of a resource-based relative value scale ("RBRVS") payment
methodology for physician services implemented by the federal government
through the Medicare program. The RBRVS began to cover certain physician
services in 1992 and will be fully phased in on December 31, 1996. RBRVS is a
fee schedule that pays similarly situated physicians the same amount for the
same services, with certain geographical and other adjustments. The RBRVS is
adjusted each year, and is subject to increases or decreases at the
discretion of Congress. RBRVS has reduced payment rates for certain of the
procedures historically provided by the physician groups managed by the
Company. Management estimates that 22% of the 1995 revenues of physician
groups to which the Company now provides broad based management services are
derived from government sponsored healthcare programs (principally, Medicare,
Medicaid and state reimbursed programs) subject to the RBRVS. RBRVS-type of
payment systems have also been adopted by certain private third-party payors
and may become a predominant fee for service payment methodology. Widespread
implementation of such RBRVS-type programs could reduce payments by
third-party payors. Rates paid by many private third-party payors, including
those that provide Medicare supplemental insurance, are based on the
physician and hospital's usual and customary charges which are generally
higher than Medicare payment rates. A decrease in the number of privately
insured patients seen by the practices managed by the Company could cause the
revenues of such practices to decrease and in turn adversely affect the
Company's results of operations. Thus, there can be no assurance that the
Company's revenues from its relationship with such affiliated physicians will
be sufficient to achieve or maintain profitability. The Company believes that
cost containment trends will continue to result in a reduction from
historical levels in per-patient revenue for medical practices. Further
reductions in payments to physicians or other changes in reimbursement for
healthcare services could have an adverse effect on the Company's operations.
There can be no assurance that the effect of any or all of these changes in
third-party reimbursement could be offset by the Company through cost
reductions, increased volume, introduction of new services and systems or
otherwise. See "Business -- Government Regulation."
Risks Associated with Capitated Fee Arrangements. Physicians and other
healthcare providers are, increasingly, being asked to provide professional
services on a risk-sharing or capitated basis. Under these arrangements, the
healthcare provider often receives a predetermined amount per patient per
month in exchange for providing specified services to patients covered by the
arrangement. Such arrangements pass the economic risk of providing care from
the payor to the provider. Capitated fee arrangements are relatively new but
are rapidly becoming important in the New York marketplace. While the growth
of such arrangements could result in greater predictability of revenues for
those clients of the Company who enter into such arrangements, it may create
new risks and uncertainties for the profitability of these clients and their
ability to pay the Company's management fees. Additionally, the Company may
be required to negotiate capitated fee arrangements for its clients to
maintain their competitive position in the marketplace. There can be no
assurance that the Company will be able to negotiate satisfactory
arrangements for its clients or be able to provide the service of negotiating
such arrangements at commercially reasonable rates. To the extent that
medical practice clients have reduced profitability as a result of capitated
fee arrangements there can be no assurance that the Company will be able to
derive sufficient revenues from its relationships with such clients to
maintain profitability or sustain its current level of operations.
Government Regulation. The healthcare industry is highly regulated by
numerous laws and regulations at the federal, state and local levels.
Regulatory authorities have broad discretion to interpret and enforce these
laws
13
<PAGE>
and promulgate corresponding regulations. Violations of these laws and
regulations (as determined by agencies or judicial authorities) may result in
substantial criminal and/or civil penalties and disqualification from
participation in Medicare, Medicaid and other payor programs. The Company
believes that its current operations are in material compliance with these laws
and regulations and the structure of the Company's relationships with its
medical practice and hospital clients (including GMMS, the Company's principal
medical practice client, whose 95% shareholder, Dr. Lawrence Shields, is a
founder and principal shareholder of the Company) is similar in material
respects to that of many firms in the physician practice management industry.
Nevertheless, the laws and regulations in this area are extremely complex and
subject to changing interpretation, many aspects of the Company's business and
business opportunities have not been the subject of federal or state regulatory
review or interpretation, and the Company has neither obtained nor applied for
an opinion of any regulatory or judicial authority that its business operations
are in compliance with applicable laws and regulations. Thus, there is no
assurance that the Company's operations have been in compliance at all times
with all subh laws and regulations. Nor is there assurance that a court or
regulatory authority will not determine that the Company's past, current or
future operations (including the purchase and lease-back of client assets, the
provision of financing to new or existing clients, the purchase of client
accounts receivable and, if appropriate, the granting of an equity interest in
the Company to a client) violate applicable laws or regulations. If the
Company's interpretation of the relevant laws and regulations is inaccurate, the
Company's business and its prospects could be materially and adversely affected.
For example, if the Company were determined to be a diagnostic and treatment
center or engaged in the corporate practice of medicine, it could be found
guilty of criminal offenses and be subject to substantial civil penalties,
including fines, and an injunction preventing continuation of its business. The
following are among the laws and regulations that affect the Company's
operations and development activities: Corporate Practice of Medicine; Fee
Splitting; Self-Referral Laws; Anti-Kickback and Anti-Trust Laws; Certificates
of Need; Regulation of Diagnostic Imaging Facilities; No-Fault Insurance and
Workers' Compensation.
In addition, the federal government and New York State are considering
numerous new laws and regulations that, if enacted, could result in
comprehensive changes to the health industry and the payment for, and
availability of, healthcare services.
Many aspects of the laws and regulations that cover the Company's
operations and relationships have not been definitively interpreted by
regulatory authorities. Regulatory authorities have broad discretion
concerning how these laws and regulations are interpreted and how they are
enforced. The Company may, therefore, be subject to lengthy and expensive
investigations of its business operations or to prosecutions which may have
uncertain merit, by a variety of state and federal governmental authorities.
If the Company or any of its physician or hospital clients were found by an
agency or judicial authority to be in violation of these laws and
regulations, the Company could be subject to criminal and/or civil penalties,
including substantial fines, injunctive relief and disqualification from
participation in Medicare, Medicaid and other payor programs. Such
developments could limit the Company's ability to provide or could restrict
or make unprofitable some of the services the Company provides to its
clients, generally. See "Business--Government Regulations."
Dependence Upon Key Personnel. The Company is dependent upon the expertise
and abilities of its management, including its Chairman and Chief Executive
Officer, Steven Rabinovici. The loss of the services of Mr. Rabinovici or
other key members of management could have a material adverse effect on the
business of the Company. The Company is also indirectly dependent on Dr.
Lawrence W. Shields and other senior physicians at GMMS, whose loss could
adversely affect GMMS' practice and the financial condition and results of
operations of the Company. The Company is the beneficiary of key man
insurance policies on the lives of Steven M. Rabinovici and Dr. Lawrence W.
Shields in the amounts of $2,000,000 and $10,000,000, respectively. See
"Management" and "Certain Transactions."
Competition. The medical practice management field is highly competitive.
A number of large hospitals in New York State and elsewhere have acquired
medical practices and this trend is expected to continue. The Company expects
that more competition will develop, in part as a result of its having
demonstrated that management companies can operate in the highly regulated
New York environment. Potential competitors include large hospitals and a
number of public corporations operating through a regional or national
network of offices that have greater financial and other resources than the
Company. See "Business -- Competition."
Technological Obsolescence. Both the software and hardware used by the
Company in connection with the services it provides have been subject to
rapid technological change. Although the Company believes that this
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<PAGE>
technology can be upgraded as necessary, the development of new technologies
or refinements of existing technology could make the Company's existing
equipment obsolete. Although the Company is not currently aware of any
pending technological developments that would be likely to have a material
adverse effect on its business, there is no assurance that such developments
will not occur.
Liability to Clients' Patients and Others; Insurance. If misdiagnoses are
made by the Company's clients using equipment furnished by the Company or if
clients' patients or operating personnel suffer injury as a result of using
such equipment or if persons are injured on premises leased by the Company to
its clients, liability claims could be filed by such client or patient, as
the case may be, against the Company. Further, any substantial liability
incurred by a client not covered by insurance could impair that client's
ability to pay management fees to the Company. While the Company seeks to
protect itself from liability claims both by requiring that its clients carry
substantial medical malpractice and other liability insurance and by carrying
its own general liability insurance, there is no assurance that such
insurance would be adequate to fund such claims or that the insurance
companies would not find a basis to deny coverage.
Control by Certain Shareholders. Steven Rabinovici, David Jacaruso, Marie
Graziosi, Dennis Shields and Dr. Lawrence Shields, the founders of the
Company, are parties to a shareholders' agreement (the "Shareholders'
Agreement") pursuant to which they have agreed that until June 1, 2005, they
will vote all of their shares of CMI in favor of the election to the Board of
Directors of the Company of the nominees approved by the Board and will vote
on all other matters in accordance with the recommendations of the Board. Mr.
Rabinovici is Chairman of the Board and Chief Executive Officer of the
Company and Mr. Jacaruso is Vice Chairman of the Board and President of the
Company. Dr. Shields is the Company's largest shareholder and the father of
Dennis Shields, who is Executive Vice President and a Director of the
Company. Marie Graziosi is the wife of David Jacaruso. Messrs. Rabinovici,
Jacaruso, Dennis Shields, Ms. Graziosi and Dr. Lawrence Shields beneficially
own an aggregate of 3,094,581 shares or 38.5% of the Company's outstanding
Common Shares (2,594,581 shares or 24.6% of the Company's outstanding shares
after giving effect to the transactions contemplated hereby or, if the
Over-Allotment Option is exercised in full, 2,197,358 shares and 20.9% of the
outstanding shares) and, accordingly, as long as they vote as required by the
Shareholders' Agreement, may be in a position to elect all of the persons
nominated by the Board of Directors. Furthermore, such control may adversely
affect the market price of the Common Shares by deterring any unsolicited
acquisition of the Company. See "Principal Shareholders."
Broad Discretion in Application of Proceeds. Of the estimated net proceeds
from this offering (assuming an offering price of $15.50 per share),
approximately $45,000,000 (79.3%) has been allocated to the Company's
acquisition program and $11,750,000 (20.7%) to working capital and other
general corporate purposes. The funds allocated to the foregoing purposes are
not subject to binding agreements requiring such use and no material
acquisition now being negotiated, except for the acquisition of Amedisys, is
likely to occur. Accordingly, the Company will have broad discretion in the
application of such proceeds. See "Use of Proceeds."
Limitation of Director Liability. The Company's Certificate of
Incorporation provides that a director of the Company will not be personally
liable to the Company or its stockholders for monetary damages for breach of
the fiduciary duty of care as a director, including breaches which constitute
gross negligence, subject to certain limitations imposed by the New York
Business Corporation Law. Thus, under certain circumstances, neither the
Company nor the stockholders will be able to recover damages even if
directors take actions which harm the Company. See "Management -- Limitation
of Director Liability; Indemnification."
No Prior Public Market Risks. Prior to this offering, there has been no
market for the Debentures offered hereby by the Company and there is no
assurance that an active trading market will develop or be sustained
following this offering. The public offering price of the Debentures will be
determined in negotiations between the Company and the Representatives and
may be greater or less than the price established by market trading following
this offering.
Potential Adverse Impact on Market Price of Securities; Shares Eligible
for Future Sale. Sales of substantial amounts of the Company's securities in
the public market after this Offering or the perception that such sales may
occur could materially adversely affect the market price of the Common Shares
and the Debentures. The Company's officers and directors, other than Steven
Hirsh, have agreed with the Representatives that they will not sell or
otherwise dispose of any Common Shares, or any securities convertible into
Common Shares, without the prior written consent of such Representatives
until , 1997 [120 days after the effective date of this offering]. After
that date, an aggregate of 3,164,368 Common Shares will become eligible for
sale pur-
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<PAGE>
suant to Rule 144 and the limitations specified therein. The lock-up does not
apply to the sale of shares by the Selling Shareholder in this offering or
the shares subject to the Over-Allotment Option. The 3,000,000 Common Shares
offered hereby will be publicly tradeable without registration immediately
following the effective date of this offering, unless held by affiliates. In
addition, all of the Common Shares into which the Debentures or the First
Series Debentures are convertible will be saleable publicly immediately upon
conversion of the Debentures. See "Shares Eligible for Future Sale." Sales in
the public market of substantial numbers of Common Shares can be expected to
affect the price of the Common Shares and could impair the Company's ability
to raise additional capital through equity offerings. Securities of many
companies, in particular, newer and smaller companies, have experienced
substantial fluctuations and volatility that in some cases have been
unrelated or disproportionate to the performance of the companies themselves.
Any such fluctuations, or general economic or market trends, could adversely
affect the price of the Common Shares.
------
Prospective investors should also carefully consider the following matters
which will become applicable to the business of the Company and the
securities offered hereby if the Company consummates the proposed Amedisys
Merger. At present, there is no binding agreement for the consummation of the
Amedisys Merger. Consummation of the Amedisys Merger is subject to a number
of material conditions and, accordingly, no assurances can be given that the
Amedisys Merger will be consummated.
Classification of Physicians and Nurses as Independent Contractors;
Potential State and Federal Tax Liability. Amedisys contracts with physicians
and nurses as independent contractors, rather than employees, to fulfill some
of its supplemental staffing obligations. Therefore, Amedisys has not
withheld federal or state taxes based on income, made federal or state
unemployment tax payments or provided workers' compensation insurance with
respect to such independent contractors. The payment of applicable taxes is
regarded as the responsibility of such independent contractors. Management of
Amedisys believes that classification of physicians and nurses as independent
contractors is standard industry practice and proper for federal tax
purposes. A contrary determination by federal taxing authorities or a change
in existing law could materially adversely affect Amedisys and its
operations. Most state taxing authorities either have not challenged or have
accepted the classification of contract physicians and nurses as independent
contractors. Amedisys' records regarding independent contractors have been
reviewed by federal taxing authorities and no significant issues have been
identified. Amedisys is currently under review by the Louisiana Department of
Labor. Management of Amedisys believes that the ultimate resolution of this
review will not have a significant effect on Amedisys' financial position or
results of operations. However, there are some states in which the
independent contractor classification of physicians and nurses is or has been
under administrative or judicial review.
Corporate Exposure to Professional Liabilities. Due to the nature of its
business, including its direct employment of healthcare providers, Amedisys
and certain physicians who provided services on its behalf may be the subject
of medical malpractice claims, with the attendant risk of substantial damage
awards. The most significant source of potential liability in this regard is
the alleged negligence of nurses placed by Amedisys in home healthcare and
supplemental staffing settings. In addition, Amedisys could be exposed to
liability based on the negligence of physicians operating in Amedisys'
outpatient surgery centers. To the extent such nurses or physicians were
regarded as agents of Amedisys in the practice of medicine, Amedisys could be
held liable for any medical negligence of such persons. In addition, Amedisys
could be found in certain instances to have been negligent in performing its
contract management services for hospital and clinics even if no agency
relationship exists between Amedisys and such physicians. There can be no
assurance that a future claim or claims will not exceed the limits of
available insurance coverage or that such coverage will continue to be
available.
Relationships with Other Organizations. The development and growth of
Amedisys' business largely depends on having close working relationships with
health maintenance organizations, preferred provider organizations,
hospitals, clinics, nursing homes, physician groups, and other healthcare
providers. Although Amedisys has established such relationships, there is no
assurance that existing relationships will be successfully maintained and
that additional relationships will be successfully developed and maintained
in the future.
Dependence upon Management. Amedisys is dependent upon the expertise and
the abilities of its management, including its Chief Executive Officer,
William F. Borne. Amedisys maintains key employee life insurance upon Mr.
Borne's life in the amount of $4.5 million. The loss of the services of Mr.
Borne or other key members of management could have a material adverse effect
of the business of Amedisys.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures and the 2,500,000 Common Shares offered by the Company hereby
(assuming an offering price of $15.50 per share) are estimated to be
approximately $56,750,000 ($60,150,000 if the Over-Allotment Option is
exercised in full) after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company. Of these net
proceeds, approximately $45,000,000 will be allocated to the Company's
acquisition program, and the balance will be used for working capital and
general corporate purposes. The acquisition program includes possible
acquisition of minority equity positions in subsidiary or joint venture
entities with which the Company will have management service or other
business relationships. Pending any such uses, the net proceeds of this
offering will be invested in interest-bearing deposit accounts, certificates
of deposit or similar short-term investment grade financial instruments.
The foregoing is the Company's best estimate of the allocation of the net
proceeds to be received by it from this offering based upon its currently
contemplated operations, its business plan, current legislation and
regulations and current economic and industry conditions; such allocation is
subject to reapportionment among the categories described above or to new
categories in response to, among other things, changes in the Company's plans
and its future revenues and expenditures, as well as changes in existing
regulations, general industry conditions and technology.
The Company believes that the net proceeds of this offering and cash flow
from operations will be sufficient to meet its expected cash needs and
finance its plans for expansion for the indefinite future, and in any case
for not less than 12 months from the date of this Prospectus. This belief is
based upon certain assumptions regarding the Company's business and cash
flow, as well as prevailing regulatory and economic conditions. The Company's
capital requirements may vary significantly, depending on how rapidly
management seeks to expand the business and the expansion strategies elected.
Accordingly, the Company may, in the future, require additional financing to
continue to expand its business. There is no assurance that the Company will
be successful in obtaining additional financing, if required, on favorable
terms, or at all. If the Company were unable to obtain additional financing,
its ability to meet its current plans for expansion could be materially and
adversely affected. See "Capitalization," "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and "Business
Growth Strategy."
17
<PAGE>
RECENT FINANCINGS
On March 20 and July 10, 1996, the Company borrowed an aggregate of
$5,000,000 due from 13 accredited investors (the "Purchasers") evidenced by
the Convertible Subordinated Notes. The Convertible Subordinated Notes are
convertible into an aggregate of 555,555 Common Shares, subject to adjustment
to protect against dilution for capital changes, and bear interest at the
rate of 8% per annum, payable quarterly until the Convertible Subordinated
Notes are paid in full on March 20, 2001. Under certain circumstances, such
as a change in control, holders of the Convertible Subordinated Notes may
require the Company to redeem the Convertible Subordinated Notes at 125% of
their principal amount plus all accrued and unpaid interest thereon. The
Convertible Subordinated Notes are subordinate in right of payment to
existing and to certain future indebtedness which may be incurred by the
Company. The Company has agreed to file with the SEC, by January 31, 1997, a
Registration Statement on Form S-3 covering the sale of the Common Shares
issuable on conversion of the Convertible Subordinated Notes together with
16,666 other Common Shares owned by two of the purchasers of the Convertible
Subordinated Notes, and to keep such Registration Statement effective until
July 10, 1998. Subsequent to the issuance of the Convertible Subordinated
Notes, Steven Hirsh, who had investment authority or shared investment
authority with respect to four of the accredited investors, became a director
of the Company.
On June 11, 1996, the Company issued $40,250,000 face amount of First
Series Debentures due August 15, 2003. The First Series Debentures bear
interest at the rate of 8% per annum payable on August 15 and February 15 of
each year until the First Series Debentures are paid in full. Holders of the
First Series Debentures may convert all or any portion of the principal
amount thereof into Common Shares of the Company at an initial conversion
price of $14.00 per share, subject to adjustment for stock splits, dividends,
recapitalization and certain other capital changes. The First Series
Debentures are not redeemable prior to June 5, 1999. Thereafter, the First
Series Debentures are redeemable in whole or in part, from time to time, at
the option of the Company, at a redemption price equal to 100% of the
principal amount thereof plus accrued interest, provided that the First
Series Debentures may not be redeemed prior to maturity unless for the 20
consecutive trading days prior to the date of notice of such redemption, the
Closing Price (as defined) has equaled or exceeded $19.125, subject to
adjustment in certain events. In the event that a Repurchase Event (as
defined) occurs, subject to certain conditions, each holder of a First Series
Debenture shall have the right to require the Company to purchase all or any
part of such holder's First Series Debentures at 100% of the principal amount
thereof plus accrued interest.
PRICE RANGE FOR COMMON SHARES
The Common Shares traded on the Nasdaq National Market under the symbol
"CMGT" from December 27, 1995 until the close of trading on May 3, 1996. On
May 6, 1996 the Common Shares commenced trading on the AMEX under the symbol
"CMI." The following table indicates the closing sale prices of the Common
Shares on the Nasdaq National Market and the AMEX for the periods indicated
beginning with the commencement of trading on December 28, 1995 following the
Company's IPO.
<TABLE>
<CAPTION>
Closing Sale Price
--------------------------
High Low
-------- -------
<S> <C> <C>
1995
Fourth Quarter (from December 28) ...... 9 8 3/8
1996
First Quarter .......................... 9 1/4 7 3/4
Second Quarter ......................... 13 3/8 7 1/2
Third Quarter .......................... 16 3/4 12 1/8
Fourth Quarter (through November 20) ... 15 3/4 12 5/8
</TABLE>
On November 20, 1996 the closing price of the Common Shares was $14.50.
18
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1996 (i) the actual
capitalization of CMI, (ii) the capitalization of CMI on a pro forma basis,
giving effect to the consummation of all acquisitions through November 15,
1996 (consisting of the AAMC Merger and the Other Acquisitions and
specifically excluding the proposed Amedisys Merger), and (iii) on a pro
forma as adjusted basis giving effect to all acquisitions through November
15, 1996 and the receipt of the estimated net proceeds to be received by the
Company from this offering. The table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro forma,
Actual Pro forma As adjusted
--------- ----------- -------------
(1)(2)
<S> <C> <C> <C>
Current portion of long-term obligations .......................... $ 839 $ 874 $ 874
Long-term obligations ............................................. 1,965 2,029 2,029
Convertible Subordinated Notes .................................... 5,000 5,000 5,000
First Series Debentures ........................................... 40,250 40,250 40,250
Debentures ........................................................ -- -- 25,000
Shareholders' equity
Preferred Shares, $.001 par value, 2,000,000 shares authorized;
none issued .................................................. -- -- --
Common Shares, $.001 par value, 20,000,000 shares authorized;
7,673,293 issued and outstanding; 8,031,471 issued and
outstanding, pro forma; actual and pro forma, 10,531,471
issued and outstanding, as adjusted .......................... 8 8 10
Additional paid-in capital ...................................... 31,687 37,290 71,783
Retained earnings ............................................... 10,992 10,992 10,992
--------- ----------- -------------
Total shareholders' equity .................................. 42,687 48,290 82,785
--------- ----------- -------------
Total capitalization .......................................... $90,741 $96,443 $155,938
========= =========== =============
Net tangible book value ........................................... $25,927 $20,061 $ 51,812
========= =========== =============
Ratio of total debt to tangible net worth ......................... 1.85 2.40 1.41
</TABLE>
- ------
(1) Excludes Common Shares reserved for the following purposes: (a) 940,792
shares issuable upon the exercise of options granted under the Option
Plan, of which options for 240,792 shares are subject to approval by
shareholders of an increase in the number of shares issuable under such
plan; (b) 225,000 shares issuable upon the exercise of options granted to
professional and other consultants to the Company; (c) 200,000 shares
issuable upon the exercise the IPO Representatives' Warrants; (d) 250,000
shares issuable upon the exercise of warrants issued to the First Series
Debenture Offering Representative; (e) 2,875,000 shares issuable upon
conversion of the First Series Debentures; (f) 555,555 shares issuable
upon conversion of the Convertible Notes and (g) 75,335 shares issuable
upon exercise of warrants granted in the initial public offering of MMI
and assumed by the Company in the MMI Merger. Also excludes Common Shares
which may be issued as follows: (i) shares which may be issued in the
proposed Amedisys Merger; (ii) shares issuable upon the exercise of
Amedisys stock options to be assumed in the proposed Amedisys Merger and
(iii) shares issuable upon the exercise of the Representatives' Warrants.
(2) Reflects the consummation of this offering less estimated costs of
$7,000,000 as if it had occurred at September 30, 1996.
19
<PAGE>
DIVIDEND POLICY
Holders of Common Shares are entitled to such dividends as may be declared
by the Board of Directors and paid out of funds legally available therefor.
The Company has never paid any dividends on the Common Shares. The Company
intends to retain earnings to finance the development and expansion of its
business and does not anticipate paying cash dividends in the foreseeable
future. Future determinations regarding the payment of dividends is subject
to the discretion of the Board of Directors and will depend upon a number of
factors, including future earnings, capital requirements, financial
condition, and the existence or absence of any contractual limitations on the
payment of dividends.
PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Balance Sheet of CMI at September 30,
1996 and the Unaudited Pro Forma Combined Statements of Income of CMI for the
year ended December 31, 1995 and the nine months ended September 30, 1996
which are set forth below, give effect to all of the acquisitions consummated
through November 15, 1996, consisting of the MMI Merger, the AAMC Merger and
the Other Acquisitions, based upon the assumptions set forth below, and in
the notes to such statements. These acquisitions have each been accounted for
as a "purchase." However, because CMI and MMI have a common control group,
that portion of the assets of MMI attributable to such control group,
approximately 39.0% of total assets, was acquired at a carryover historical
basis. The excess of purchase price over the value of the remaining net
assets acquired as if these acquisitions occurred on December 31, 1995, is
estimated at approximately $21,843,000, and will be amortized over various
periods based upon appraisals and valuations by qualified independent
parties. A period of 20 years has been assumed for the amortization, for the
purpose of the pro forma financial statements. The unaudited pro forma
financial statements reflect amortization expense of such excess in the
amount of $1,092,000 for the year ended December 31, 1995. The unaudited pro
forma combined financial information assumes that (i) the AAMC Merger and the
Other Post 9/30/96 Acquisition were completed at September 30, 1996 for the
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1996, (ii) the
MMI Merger, the AAMC Merger and Other Acquisitions were completed at January
1, 1995 for the Unaudited Pro Forma Combined Statement of Income for the year
ended December 31, 1995, and (iii) the AAMC Merger and Other Acquisitions
were completed at January 1, 1996 for the Unaudited Pro Forma Combined
Statement of Income for the nine month period ended September 30, 1996. The
unaudited pro forma financial information has been included pursuant to the
requirements set forth in applicable rules of the SEC and is provided for
comparative purposes only. The unaudited pro forma financial information
presented is based upon the respective historical consolidated financial
statements of CMI and the acquired companies and should be read in
conjunction with such financial statements and related notes thereto to the
extent included in this document. The Company believes that the accompanying
unaudited pro forma combined financial information contains all the material
adjustments necessary to fairly present the financial position of CMI as of
December 31, 1995. The unaudited pro forma financial information presented
does not purport to be indicative of the financial position or operating
results which would have been achieved had the acquisitions taken place at
the dates indicated and should not be construed as representative of the
Company's financial position or results of operations for any future date or
period.
The unaudited pro forma adjustments are based on available information and
upon certain assumptions that the Company believes are reasonable under the
circumstances; however, the actual recording of the acquisitions will be
based on ultimate appraisals, evaluations and estimates of fair values. If
these appraisals and evaluations identify assets with lives shorter than 20
years, such assets will be amortized over their expected useful lives.
Periodically, but no less than quarterly, the Company will evaluate the
relative fair market value of the intangible assets identified (including
goodwill, if any) in its acquisitions by estimating the future earning
streams of the related business lines and comparing the present value of the
result of that estimation to the stated value of the related assets.
Impairments, if any, will be charged to operations when identified.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS AT SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro forma
Combined
-------------
Actual
---------------------- -------------
CMI AAMC Adjustments
---------- -------- -------------
<S> <C> <C>
(1)
Cash and cash equivalents .................. $ 11,792 $ -- $(5,290)(2)
Marketable securities ...................... 25,177 --
Notes receivable from related party --
current ................................... 1,953 8
Accounts receivable -- current, net ........ 16,436 1,286
Other current assets ....................... 1,998 --
---------- -------- -------------
Total current assets ..................... 57,356 1,294 (5,290)
Notes receivable from related party --
non-current .............................. 67 --
Accounts receivable -- non-current, net .... 23,172 --
Marketable securities held to maturity --
non-current .............................. 674 --
Property and equipment, net ................ 6,544 212
Purchase price in excess of net assets
acquired ................................. 12,068 -- 9,444(3)
Deferred & debt issuance costs ............. 4,692 2,025
Other long-term assets ..................... 635 12
---------- -------- -------------
Total assets .......................... $105,208 $3,543 $ 4,154
========== ======== =============
Notes payable .............................. $ -- $ -- $ --
Accounts payable and accrued expenses ...... 1,845 1,551
Income taxes payable ....................... 2,354 --
Due to clients, related parties ............ -- 444
Deferred income taxes -- current ........... 5,103 --
Current portion of long-term debt .......... 317 --
Current portion of obligations under capital
leases ................................... 522 35
---------- -------- -------------
Total current liabilities ............. 10,141 2,030 --
Deferred income taxes -- non-current ....... 5,165 --
Long-term debt, less current portion ....... 398 --
Obligations under capital leases ........... 1,567 64
Convertible subordinated debt .............. 45,250 --
Minority interest .......................... -- --
Common stock ............................... 8 2,164 (2,164)(4)
Paid-in capital ............................ 31,687 -- 5,603 (5)
Retained earnings .......................... 10,992 (715) 715 (4)
---------- -------- -------------
Total shareholders' equity ............... 42,687 1,449 4,154
---------- -------- -------------
Total liabilities and shareholders' equity . $105,208 $3,543 $ 4,154
========== ======== =============
Working Capital ............................ $ 47,215 $ (736)
========== ========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CMI, AAMC
& Other
Post 9/30/96 Actual
Acquisition Amedisys Adjustments Total
-------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents .................. $ 6,502 $ 2,384 $-- $ 8,886
Marketable securities ...................... 25,177 -- 25,177
Notes receivable from related party --
current ................................... 1,961 -- 1,961
Accounts receivable -- current, net ........ 17,722 7,415 25,137
Other current assets ....................... 1,998 823 2,821
-------------- ---------- ------------- ----------
Total current assets ..................... 53,360 10,622 -- 63,982
Notes receivable from related party --
non-current .............................. 67 272 339
Accounts receivable -- non-current, net .... 23,172 -- 23,172
Marketable securities held to maturity --
non-current .............................. 674 -- 674
Property and equipment, net ................ 6,756 3,348 10,104
Purchase price in excess of net assets
acquired ................................. 21,512 361 21,873
Deferred & debt issuance costs ............. 6,717 -- 6,717
Other long-term assets ..................... 647 1,302 1,949
-------------- ---------- ------------- ----------
Total assets .......................... $112,905 $15,905 $-- $128,810
============== ========== ============= ==========
Notes payable .............................. $ -- $ 3,934 $-- $ 3,934
Accounts payable and accrued expenses ...... 3,396 4,340 7,736
Income taxes payable ....................... 2,354 -- 2,354
Due to clients, related parties ............ 444 -- 444
Deferred income taxes -- current ........... 5,103 -- 5,103
Current portion of long-term debt .......... 317 660 977
Current portion of obligations under capital
leases ................................... 557 -- 557
-------------- ---------- ------------- ----------
Total current liabilities ............. 12,171 8,934 -- 21,105
Deferred income taxes -- non-current ....... 5,165 -- 5,165
Long-term debt, less current portion ....... 398 2,156 2,554
Obligations under capital leases ........... 1,631 -- 1,631
Convertible subordinated debt .............. 45,250 -- 45,250
Minority interest .......................... -- 19 19
Common stock ............................... 8 3 (1)(6) 10
Paid-in capital ............................ 37,290 1,912 1 (6) 39,203
Retained earnings .......................... 10,992 2,881 13,873
-------------- ---------- ------------- ----------
Total shareholders' equity ............... 48,290 4,796 -- 53,086
-------------- ---------- ------------- ----------
Total liabilities and shareholders' equity . $112,905 $15,905 $-- $128,810
============== ========== ============= ==========
Working Capital ............................ $ 41,189 $ 1,688 $ 42,877
============== ========== ==========
</TABLE>
- ------
(1) Reflects the AAMC Merger in which the Company paid $4,034,000 and 286,000
Common Shares with a market value of $4,501,000. Such acquisition has
been accounted for as a purchase.
(2) Reflects the cash portion of the consideration paid in the AAMC Merger
and the Other Post 9/30/96 Acquisition.
(3) Reflects the effect of the AAMC Merger and the Other Post 9/30/96
Acquisition, which acquisitions were made after September 30, 1996. The
aggregate purchase price of the AAMC Merger and the Other Post 9/30/96
Acquisition was $15,699,000, which was in excess of the aggregate net
assets acquired in the amount of $13,168,000. The excess purchase price
is assumed to have a life of 20 years.
(4) Reflects the elimination of the shareholder's equity from the AAMC Merger
and the Other Post 9/30/96 Acquisition.
(5) Reflects the adjustments to increase paid-in capital arising from the
issuance of Common Shares in connection with the AAMC Merger and the
Other Post 9/30/96 Acquisition.
(6) Reflects the proposed Amedisys Merger which, if consummated, will be
accounted for as a pooling-of-interests.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Nine Months Ending
September 30, 1996
----------------------------
CMI AAMC
--------- ----------
(8)
<S> <C> <C>
Revenue ................................. $20,030 $ 5,581
Interest discount (2) ................... (1,748) --
--------- ----------
Net revenue ............................. 18,282 5,581
Cost of revenue ......................... 6,598 4,721
General and administrative expenses ..... 4,869 1,830
--------- ----------
Operating income ........................ 6,815 (970)
Interest discount included in income (3) 1,855 --
Other income/(expense) .................. (1,142) (71)
--------- ----------
Income before provision for income taxes 7,528 (1,041)
Provision for taxes ..................... 3,613 --
--------- ----------
Net income .............................. $ 3,915 $(1,041)
========= ==========
Primary net income per share ............ $ 0.50
=========
Fully diluted net income per share ...... $ 0.42
=========
Weighted average number of shares
outstanding ............................ 7,840
=========
Pro forma income taxes (5) ..............
Pro forma net income ....................
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Pro forma Pro forma
Other Acquisitions Adjustments without Amedisys Amedisys with Amedisys
------------------ ------------- ---------------- ---------- ---------------
(6) (1) (7)
<S> <C> <C> <C> <C> <C>
Revenue ................................. $1,787 $ -- $27,398 $33,648 $61,046
Interest discount (2) ................... -- (1,748) -- (1,748)
------------------ ------------- ---------------- ---------- ---------------
Net revenue ............................. 1,787 -- 25,650 33,648 59,298
Cost of revenue ......................... 1,526 12,845 19,168 32,013
General and administrative expenses ..... 308 494(4) 7,501 13,435 20,936
------------------ ------------- ---------------- ---------- ---------------
Operating income ........................ (47) (494) 5,304 1,045 6,349
Interest discount included in income (3) -- 1,855 -- 1,855
Other income/(expense) .................. (10) (1,223) (275) (1,498)
------------------ ------------- ---------------- ---------- ---------------
Income before provision for income taxes (57) (494) 5,936 770 6,706
Provision for taxes ..................... 1 (517)(5) 3,097 268 3,365
------------------ ------------- ---------------- ---------- ---------------
Net income .............................. $ (58) $ 23 $ 2,839 $ 502 $ 3,341
================== ============= ================ ========== ===============
Primary net income per share ............ $ 0.35 $ 0.19 $ 0.34
================ ========== ===============
Fully diluted net income per share ...... $ 0.30 $ -- $ 0.30
================ ========== ===============
Weighted average number of shares
outstanding ............................ 8,198 2,584 9,721
================ ========== ===============
Pro forma income taxes (5) .............. 340 340 340
------------------ ---------------- ---------------
Pro forma net income .................... $ (398) $ 2,499 $ 3,001
================== ================ ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-----------------------------------------------------
CMI MMI AAMC Other Acquisitions
--------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Revenue ..................... $12,294 $7,287 $6,530 $3,224
Interest discount (2) ....... (2,017) (702) -- --
--------- -------- -------- ------------------
Net revenue ................. 10,277 6,585 6,530 3,224
Cost of revenue ............. 2,771 2,792 3,905 2,160
General and administrative
expenses ................... 2,974 2,382 2,323 851
--------- -------- -------- ------------------
Operating income ............ 4,532 1,411 302 213
Interest discount included in
income (3) ................. 1,585 651 -- --
Other income/(expense) ...... (29) (170) (11) (3)
--------- -------- -------- ------------------
Income before provision for
income taxes ............... 6,088 1,892 291 210
Provision for taxes ......... 2,861 889 -- 1
--------- -------- -------- ------------------
Net income .................. $ 3,227 $1,003 $291 $209
========= ======== ======== ==================
Primary net income per share $ 1.08 $ 0.33
========= ========
Fully diluted net income per
share ...................... $ -- $ 0.29
========= ========
Weighted average number of
shares outstanding ......... 2,981 3,035
========= ========
Pro forma income taxes (5) .. 131 305
-------- ------------------
Pro forma net income (loss) . $160 $(96)
======== ==================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Adjustments Pro forma Amedisys Total
------------- ----------- ---------- ---------
(6) (1) (7)
<S> <C> <C> <C> <C>
Revenue ..................... $ -- $29,335 $37,589 $66,924
Interest discount (2) ....... (2,719) -- (2,719)
------------- ----------- ---------- ---------
Net revenue ................. -- 26,616 37,589 64,205
Cost of revenue ............. 11,628 22,424 34,052
General and administrative
expenses ................... 1,092(4) 9,622 13,785 23,407
------------- ----------- ---------- ---------
Operating income ............ (1,092) 5,366 1,380 6,746
Interest discount included in
income (3) ................. 2,236 -- 2,236
Other income/(expense) ...... (213) (238) (451)
------------- ----------- ---------- ---------
Income before provision for
income taxes ............... (1,092) 7,389 1,142 8,531
Provision for taxes ......... 234(5) 3,985 200 4,185
------------- ----------- ---------- ---------
Net income .................. $(1,326) $ 3,404 $ 942 $ 4,346
============= =========== ========== =========
Primary net income per share $ 0.43 $ 0.37 $ 0.46
=========== ========== =========
Fully diluted net income per
share ...................... $ -- $ -- $ --
=========== ========== =========
Weighted average number of
shares outstanding ......... 7,964 2,570 9,487
=========== ========== =========
Pro forma income taxes (5) .. 436 436
----------- ---------
Pro forma net income (loss) . $ 2,968 $ 3,910
=========== ========== =========
</TABLE>
<PAGE>
- ------
(1) Reflects the AAMC Merger and the Other Acquisitions as if they had
occurred at the beginning of each year and includes the MMI Merger at
January 1, 1995.
(2) Represents an interest discount taken to reflect the presumed collection
of revenues over a period in excess of one year. See "Notes to
Consolidated Financial Statements of CMI."
(3) Represents interest income included in income as a result of the
amortization over three and two year periods of the interest discount on
revenues for CMI and MMI, respectively. See "Notes to Consolidated
Financial Statements of CMI and MMI."
(4) Reflects the amortization of purchase price in excess of net assets
acquired recorded at approximately $21,843,000 in 1995 assuming a useful
life of 20 years. In 1996, MMI is consolidated with CMI.
(5) Pro forma net income reflects a provision for income taxes since certain
acquisitions had been S Corporations before being acquired by CMI. Such
provision assumes an effective tax rate of 47%.
(6) The adjustments are based on available information and certain
assumptions that the Company believes are reasonable under the
circumstances; however, the actual recording of the MMI Merger, AAMC
Merger, the Other Acquisitions and the proposed Amedisys Merger (which
recording management does not expect to vary materially) will be based on
independent appraisals, evaluations and estimates of fair values.
(7) The Company estimates that it will incur approximately $400,000 in legal,
accounting, printing and other related costs associated with the Amedisys
Merger. These costs will be charged to operations when incurred. In
addition upon consummation of the Amedisys Merger the Company will enter
into five year employment agreements with 6 key executives of Amedisys
including its Chief Executive Officer to induce the key executives of
Amedisys to assist in implementing the overall business strategies of
CMI. The Company anticipates paying a signing bonus to the Chief
Executive Officer in the amount of $500,000 and an aggregate of $600,000
to the other five executives. Such amounts will be charged to operations
in accordance with the final terms and conditions of the respective
agreements.
(8) Included in general and administrative expenses are bonuses aggregating
approximately $474,000 paid to substantially all AAMC employees for past
services.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME (1)
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993
-------------------------------------------
Pro
CMI AMED forma
-------- --------- ---------
<S> <C> <C> <C>
Revenue .................. $5,283 $22,445 $27,728
Interest discount(2) ..... (865) -- (865)
-------- --------- ---------
Net revenue .............. 4,418 22,445 26,863
Cost of revenue .......... 1,103 14,674 15,777
General & administrative
exp.(4) ................. 1,687 7,204 8,891
-------- --------- ---------
Operating income ......... 1,628 567 2,195
Interest discount included
in income(3) ............ 207 -- 207
Other income/(expense) ... 62 (33) 29
-------- --------- ---------
Income before provision
for income taxes ........ 1,897 534 2,431
Provision for taxes ...... 891 39 930
-------- --------- ---------
Net income ............... $1,006 $ 495 $ 1,501
======== ========= =========
Primary net income per
share ................... $ 0.34 $ 0.22 $ 0.33
======== ========= =========
Weighted average
number of shares
outstanding ............. 2,981 2,285 4,504
======== ========= =========
Pro forma taxes (5) ...... -- 155 155
-------- --------- ---------
Pro forma net income ..... $1,006 $ 340 $ 1,346
======== ========= =========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1994 1995
---------------------------------- ----------------------------------
Pro Pro
CMI AMED forma CMI AMED forma
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................. $10,654 $28,902 $39,556 $12,294 $37,589 $49,883
Interest discount(2) ..... (1,744) -- (1,744) (2,017) -- (2,017)
--------- --------- --------- --------- --------- ---------
Net revenue .............. 8,910 28,902 37,812 10,277 37,589 47,866
Cost of revenue .......... 1,949 16,996 18,945 2,771 22,424 25,195
General & administrative
exp.(4) ................. 2,571 9,740 12,311 2,974 13,785 16,759
--------- --------- --------- --------- --------- ---------
Operating income ......... 4,390 2,166 6,556 4,532 1,380 5,912
Interest discount included
in income(3) ............ 922 -- 922 1,585 -- 1,585
Other income/(expense) ... 55 (248) (193) (29) (238) (267)
--------- --------- --------- --------- --------- ---------
Income before provision
for income taxes ........ 5,367 1,918 7,285 6,088 1,142 7,230
Provision for taxes ...... 2,522 13 2,535 2,861 200 3,061
--------- --------- --------- --------- --------- ---------
Net income ............... $ 2,845 $ 1,905 $ 4,750 $ 3,227 $ 942 $ 4,169
========= ========= ========= ========= ========= =========
Primary net income per
share ................... $ 0.95 $ 0.75 $ 1.05 $ 1.08 $ 0.37 $ 0.93
========= ========= ========= ========= ========= =========
Weighted average
number of shares
outstanding ............. 2,981 2,525 4,504 2,981 2,570 4,504
========= ========= ========= ========= ========= =========
Pro forma taxes (5) ...... -- 646 646 -- 191 191
--------- --------- --------- --------- --------- ---------
Pro forma net income ..... $ 2,845 1,259 $ 4,104 $ 3,227 $ 751 $ 3,978
========= ========= ========= ========= ========= =========
</TABLE>
- ------
(1) Reflects the Amedisys Merger, as if it had occurred, and accounted for as
a pooling of interest for each of the three years shown.
(2) Represents an interest discount taken to reflect the presumed collection
of revenues over a period in excess of one year. See "Notes to
Consolidated Financial Statements of CMI."
(3) Represents interest income included in income as a result of the
amortization over a three year period of the interest discount on
revenues for CMI. See "Notes to Consolidated Financial Statements of
CMI."
(4) The Company estimates that it will incur approximately $400,000 in legal,
accounting, printing and other related costs associated with the Amedisys
Merger. These costs will be charged to operations when incurred. In
addition upon consummation of the Amedisys Merger the Company will enter
into five year employment agreements with 6 key executives of Amedisys
including its Chief Executive Officer. The Company anticipates paying a
signing bonus to the Chief Executive Officer in the amount of $500,000
and an aggregate of $600,000 to the other five executives. Such amounts
will be charged to operations in accordance with the final terms and
conditions of the respective agreements.
(5) Pro forma net income reflects a provision for income taxes since certain
corporations acquired by Amedisys had been S Corporations before being so
acquired.
SELECTED FINANCIAL DATA
The selected financial data of CMI presented below as of December 31,
1993, 1994 and 1995 have been derived from the Consolidated Financial
Statements of CMI, which Consolidated Financial Statements have been audited
by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this Registration Statement. The selected financial data as of
and for the nine months ended September 30, 1995 and 1996 have been derived
from Unaudited Consolidated Financial Statements which have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments of a normal recurring nature necessary
for a fair presentation of the information shown therein. The results of
operations for the nine month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full
fiscal year.
23
<PAGE>
SELECTED INCOME DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETE MANAGEMENT, INC.
<TABLE>
<CAPTION>
Nine Months Ended
For the Years Ended December 31, September 30,
--------------------------------- ----------------------
1993 1994 1995 1995 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue ................................ $5,283 $10,654 $12,294 $ 9,056 $20,030
Interest discount (1) .................. (865) (1,744) (2,017) (1,482) (1,748)
-------- --------- --------- --------- ---------
Net revenue ............................ 4,418 8,910 10,277 7,574 18,282
Cost of revenue ........................ 1,103 1,949 2,771 1,722 6,598
General and administrative expenses .... 1,687 2,571 2,974 2,167 4,869
-------- --------- --------- --------- ---------
Operating income ....................... 1,628 4,390 4,532 3,685 6,815
Interest discount included in income (2) 207 922 1,585 1,144 1,855
Other income (expense) ................. 62 55 (29) 13 (1,142)
-------- --------- --------- --------- ---------
Income before provision for taxes ...... 1,897 5,367 6,088 4,842 7,528
Provision for income taxes ............. 891 2,522 2,861 2,276 3,613
-------- --------- --------- --------- ---------
Net income ............................. $1,006 $ 2,845 $ 3,227 $ 2,566 $ 3,915
======== ========= ========= ========= =========
Net income per share ................... $ 0.34 $ 0.95 $ 1.08 $ 0.87 $ 0.50
======== ========= ========= ========= =========
Weighted average number of shares
outstanding ........................... 2,981 2,981 2,981 2,964 7,840
======== ========= ========= ========= =========
Ratio of earnings to fixed charges (3) . N/A N/A 133.35 N/A 5.71
======== ========= ========= ========= =========
</TABLE>
- ------
(1) Represents an interest discount taken to reflect the presumed collection
of revenues over a period in excess of one year. See "Notes to
Consolidated Financial Statements of CMI."
(2) Represents interest income included in income as a result of the
amortization over three and two year periods of the interest discount on
revenues for CMI and MMI, respectively. See "Notes to Consolidated
Financial Statements of CMI and MMI."
(3) As there was no interest expense incurred in 1993, 1994 and for the nine
months ended September 30, 1995, the ratio of earnings to fixed charges
is not applicable.
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Complete Management, Inc.
----------------------------------------
As at September
As at December 31, 30,
------------------- ------------------
1994 1995 1996
------- -------- ------------------
<S> <C> <C> <C>
Cash and cash equivalents ..................... $ -- $ -- $ 11,792
Marketable securities (1) ..................... -- -- 25,177
Accounts receivable, net (2) .................. 7,679 14,884 39,608
Purchase price in excess of net assets acquired -- -- 12,068
Total assets .................................. 8,009 17,860 105,208
Current liabilities ........................... 2,461 5,744 10,141
Long-term obligations, less current ........... -- 228 1,965
Convertible subordinated debt ................. -- -- 45,250
Stockholders' equity .......................... 3,854 7,330 42,687
Working capital ............................... 1,615 (63) 47,215
</TABLE>
- ------
(1) Includes all marketable securities including those available for sale and
those the Company intends to hold to maturity.
(2) Includes both the current and long-term portions of the accounts
receivable.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPLETE MANAGEMENT, INC.
The following discussion of the results of the operations and financial
condition of CMI should be read in conjunction with CMI's Audited
Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
OVERVIEW
On April 1, 1993, CMI commenced operations and servicing GMMS, its initial
client, a multi-site neurological medical practice in the New York
metropolitan area. For the period from commencement to December 31, 1993, and
the years ended December 31, 1994 and 1995, all of CMI's fee revenue was
derived from the management of GMMS.
CMI's revenues are derived primarily from fees for management services.
CMI's charges are intended to reflect the varying costs associated with its
provision of services to clients including rental costs, compensation of
personnel supplied by CMI, costs of third-party payor documentation, costs of
billing and collections, and financing provided by CMI to its clients for the
acquisition of high cost diagnostic imaging equipment and other medical
practices.
GMMS pays the management fees it owes CMI by assigning ownership, on a
recourse basis, of its receivables with a net collectible value equal to the
then current management fee owed to CMI.
GMMS, the Company's largest client, is a multi-specialty medical practice
group which evaluates, diagnoses and treats patients in the New York
metropolitan area. Currently, GMMS' primary medical focus is the treatment of
patients with injury-related conditions under workers' compensation and
no-fault programs. GMMS currently employs twenty-three (23) physicians (nine
neurologists, one chiropractor, three physiatrists, two orthopedists, one
general surgeon, one family practitioner, two psychologists and four
radiologists) operating in nine offices in New York City, Long Island and
Orange County.
The following unaudited tabulation sets forth the operating results of
GMMS for the years ended December 31, 1993, 1994 and 1995 and the nine month
periods ended September 30, 1995 and 1996. GMMS is an entity separate from
CMI and the amounts reflected below are not included in the results of
operations of CMI or MMI except for the management fees related to general
medical services due to CMI and the management fees related to diagnostic
imaging due to MMI.
<PAGE>
<TABLE>
<CAPTION>
(in thousands) For the Years Ended December 31,
---------------------------------------------------
1993 1994
-------------------------------------- ----------
General General
Medical Diagnostic Total Medical
Services Imaging GMMS Services
---------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Unaudited:
Services rendered ...... $ 9,414 $3,856 $13,270 $15,874
Contractual allowances . (1,850) (107) (1,957) (2,244)
---------- ------------ --------- ----------
Net medical service fees 7,564 3,749 11,313 13,630
---------- ------------ --------- ----------
Less expenses:
Medical personnel
payroll ........... 1,206 430 1,636 1,419
Other ................ 319 40 359 475
---------- ------------ --------- ----------
Total expenses .... 1,525 470 1,995 1,894
---------- ------------ --------- ----------
Owner physicians
payroll and entity
income ............ 756 -- 756 1,082
Management fee ......... $ 5,283 $3,279 $ 8,562 $10,654
========== ============ ========= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
(in thousands)
1995
-----------------------------------------------------------------
General
Diagnostic Total Medical Diagnostic Total
Imaging GMMS Services Imaging GMMS
------------ --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Unaudited:
Services rendered ...... $6,362 $22,236 $17,325 $6,685 $24,010
Contractual allowances . (502) (2,746) (2,037) (302) (2,339)
------------ --------- ---------- ------------ ---------
Net medical service fees 5,860 19,490 15,288 6,383 21,671
------------ --------- ---------- ------------ ---------
Less expenses:
Medical personnel
payroll ........... 666 2,085 1,969 371 2,340
Other ................ 1 476 502 22 524
------------ --------- ---------- ------------ ---------
Total expenses .... 667 2,561 2,471 393 2,864
------------ --------- ---------- ------------ ---------
Owner physicians
payroll and entity
income ............ -- 1,082 522 -- 522
Management fee ......... $5,193 $15,847 $12,295 $5,990 $18,285
============ ========= ========== ============ =========
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
(in thousands) For the Nine Months Ended September 30,
-------------------------------------------------------------------------------
1995 1996
-------------------------------------- --------------------------------------
General General
Medical Diagnostic Total Medical Diagnostic Total
Services Imaging GMMS Services Imaging GMMS
---------- ------------ --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Unaudited:
Services rendered ...... $12,548 $5,258 $17,806 $16,356 $6,144 $22,500
Contractual allowances . (1,060) (280) (1,340) (1,145) (310) (1,455)
---------- ------------ --------- ---------- ------------ ---------
Net medical service fees . 11,488 4,978 16,466 15,211 5,834 21,045
---------- ------------ --------- ---------- ------------ ---------
Less expenses:
Medical personnel
payroll ........... 1,154 353 1,507 2,145 549 2,694
Other ................ 508 26 534 498 95 593
---------- ------------ --------- ---------- ------------ ---------
Total expenses .... 1,662 379 2,041 2,643 644 3,287
---------- ------------ --------- ---------- ------------ ---------
Owner physicians payroll
and entity income
(loss) ............ 770 -- 770 (263) -- (263)
---------- ------------ --------- ---------- ------------ ---------
Management fee ......... $ 9,056 $4,599 $13,655 $12,831 $5,190 $18,021
========== ============ ========= ========== ============ =========
</TABLE>
RELATIONSHIP BETWEEN THE COMPANY AND GMMS (UNAUDITED)
GENERAL
GMMS' operations are limited to the following activities:
(1) Rendering medical services to patients;
(2) Payment of compensation to both the owner physicians and other
medical personnel; and
(3) Payment of miscellaneous expenses incidental to the rendering of
the medical service.
As more fully discussed below, the Company's operations as they relate to
GMMS include the following activities:
(1) Patient scheduling, record transcription, non-clinical intake
examination, and insurance verification;
(2) Billing and collection for all medical services rendered;
(3) Any other activities for the proper business functioning of GMMS;
and
(4) Marketing and expansion of the medical practice.
ECONOMICS
Because the activities of GMMS are limited to rendering medical services,
its principal asset is the accounts receivable due from third-party payors
and/or its patients (minimal services are paid for by the patient at the time
service is rendered). Substantially all of GMMS' non-clinical activities, as
defined in the PMSA and the MSA, are performed by the Company. GMMS'
principal liabilities are the fee due under the PMSA and the MSA and the
amounts due owner physicians and other medical personnel for services
rendered. This financing structure is reflected in the above tabulation in
that revenues generated by GMMS in the amounts of $13,269,629, $22,235,847,
and $24,010,436 for the years ended December 31, 1993, 1994 and 1995,
respectively, have been allocated to the owner physician, medical personnel,
other medical related expenses and the management fee.
Because the management fee is paid through recourse assignment of GMMS'
accounts receivable and the doctors' compensation is paid currently, GMMS'
cash flow is used principally for the payment of remaining GMMS expenses and
doctors' compensation.
26
<PAGE>
FINANCIAL STATEMENTS OF GMMS
Audited financial statements for GMMS have not been presented because
management believes they would not provide any additional information that
would be meaningful to the evaluation of the Company's financial position,
results of operations and cash flow given that GMMS' balance sheet, prepared
on an accrual basis, would include a limited amount of accounts receivable
and non-material liabilities for miscellaneous costs not paid, due to timing
of cash flow. Further, GMMS' statement of operations would reflect three
components: (1) revenues, (2) compensation to owner physicians and medical
personnel and (3) management fees, which are presented in substantially this
form in the table above as well as elsewhere in this Prospectus. Finally,
GMMS is merely a vehicle for physicians to achieve cash compensation from the
practice of their medical profession.
To ensure that all GMMS' billings result in bona fide accounts receivable,
the Company interviews all patients and reviews their insurance documentation
before any medical services are rendered by GMMS. If, as a result of this
review, the Company determines any billing to be doubtful, such bills, for
the purposes of paying the Company's management fee or as amounts available
under the recourse rights, are not included in accounts receivable which are
assigned to the Company.
The process of determining the timing and the probability of collecting
third-party accounts receivable is an integral part of the activities of the
Company. Such information is used by the Company to determine which
receivables are to be assigned to it to pay its management fees and which
receivables are to be retained by GMMS to compensate the owner physicians and
medical personnel. The Company believes that because of this process, the
amount of accounts receivable that would revert back to GMMS as a result of
the recourse right is not material. To date, the Company has not had to
exercise this right with respect to any accounts receivable assigned to it.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
The Company's combined results of operations for the nine months ended
September 30, 1995 are discussed on a pro forma consolidated basis as if MMI
had been consolidated into CMI for the entire period. Results of operations
for the nine months ended September 30, 1996 reflect the actual consolidation
of MMI into CMI for the entire reporting period.
Revenues for the nine months ended September 30, 1996 were $20,030,000 as
compared to $14,747,000 in 1995, an increase of $5,283,000 (33.8%). The most
significant portion of the increase, $3,774,000, resulted from the increase
in management services rendered by the Company to GMMS as a result of an
increase in the number of patients treated and evaluated by GMMS. The
acquisition by GMMS of two medical practices in the third quarter of 1996
increased by three the number of its medical practice offices located in the
New York metropolitan area. Additionally, three new GMMS offices (Garden
City, Staten Island and New Windsor, New York) which opened during the fourth
quarter of 1995 are now fully integrated in 1996. Additional increases in
revenue, $462,000, resulted from a 9% increase in the volume of diagnostic
imaging scans in 1996 provided as compared to 1995. Diagnostic imaging scans
for the nine month period ended September 30, 1996 were 8,467 as compared to
7,780, for the comparative period in 1995. In addition, during the latter
part of the second quarter of 1996, the Company began providing diagnostic
imaging units to two hospitals in New York City. These units were operational
for the entire third quarter of 1996, and contributed approximately $636,000
of revenues. Additionally, during the third quarter of 1996, the Company
commenced servicing a New York metropolitan area neurologist which
contributed $43,000 to revenues. The balance of the increase in revenue,
$775,000, is pri- marily attributable to the Company's acquisition of two
medical billing companies.
Cost of Revenue was $6,598,000 for the nine months period ended September
30, 1996 as compared to $3,531,000 in 1995, an increase of $3,037,000
(86.0%). A significant portion of the increase, $1,647,000, was due to the
hiring of additional practice management and other support personnel such as
appointment schedulers and intake examiners in order to properly administer
GMMS' expanding medical practices. Transportation and professional and
consulting fees increased by $73,000 and $239,000, respectively, as a result
of the increase in the number of patient services and diagnostic imaging
scans provided by GMMS in 1996. Occupancy costs have increased due to the
expansion of locations for GMMS. Depreciation and amortization increased by
$291,000 primarily as a result of an increase in medical equipment purchases.
27
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $4,870,000 for the nine month
period ended September 30, 1996 as compared to $3,937,000 in 1995, an
increase of $933,000 (23.7%). The increases are primarily attributable to the
hiring of experienced management personnel in order to prepare for the
Company's anticipated growth through acquisitions and the amortization of
goodwill related to the MMI acquisition in January 1996.
INTEREST EXPENSE
Interest expense increased for the nine months ended September 30, 1996 as
compared to 1995 by $1,600,000. The increases in principal during the first
quarter of 1996 are attributable to the write-off of $238,000 of original
issue discount as related to the repayment of the $1,000,000 principal amount
of secured notes (the "Secured Notes"). In addition, in the third quarter the
Company recorded interest on the First Series Debentures of $900,000.
Interest related to the diagnostic testing machines utilized by the Company
as a result of the acquisition of MMI totaled $110,000.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
Revenues in 1994 were $10,654,000 as compared to $12,294,000 in 1995, an
increase of 15.4%. The increase in revenues resulted from an increase in
services provided to GMMS due to the increase in the number of patients
evaluated and treated by GMMS. The number of procedures GMMS performed
increased from 128,500 in 1994 to 157,000 in 1995.
Cost of Revenues increased $822,000, from $1,949,000 (21.9% of net
revenue) to $2,771,000 (27.0% of net revenue) in 1995. A significant portion
of this increase ($694,000) was due to the hiring of 23 additional practice
management and other support personnel such as appointment schedulers, record
transcribers and intake examiners in order to properly administer GMMS'
expanding medical practice and to prepare a base for future clients and
projected acquisitions. Transcription costs increased by $129,000 due to the
greater number of patients evaluated and treated.
General and Administrative Expenses (including fees paid to related
parties) increased by $403,000, a 15.7% increase, from $2,571,000 in 1994 to
$2,974,000 in 1995. The increase is primarily attributable to an increase in
space rental costs ($126,000) associated with the opening of three additional
GMMS offices and annual rent escalations in the remaining six offices,
related incremental depreciation and amortization ($38,000), upgrading of the
billing system ($68,000) and increased marketing efforts ($57,000).
Additionally, the Company incurred one time costs ($32,500) associated with
its fourth quarter financing and incremental insurance costs ($23,000) in
conjunction with its IPO.
Depreciation and Amortization Expense increased by $47,000 from $55,000 in
1994 to $102,000 in 1995. This increase was directly related to the purchase
of property and equipment, primarily leasehold and replacement expenditures,
totaling $193,000 in 1994 and $178,000 in 1995.
28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly operating results for the
years ended December 31, 1994 and 1995 and nine months ended September 30,
1996. In the opinion of management, all necessary adjustments (consisting
only of normal recurring adjustments) have been included below to present
fairly the quarterly results when read in conjunction with the audited
consolidated financial statements and notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
As Percentage of Revenues:
Quarters
ending
Quarters ending 1994 1995
-------------------------------------------------- ----------
31-Mar 30-Jun 30-Sep 31-Dec 31-Mar
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue ............. 100.0% 100.0% 100.0% 100.0% 100.0%
Interest discount ... -18.7% -16.4% -15.5% -15.5% -16.2%
---------- ---------- ---------- ---------- ----------
Net revenue ......... 81.3% 83.6% 84.5% 84.5% 83.8%
Cost or revenue ..... 18.2% 18.0% 17.5% 19.5% 18.9%
---------- ---------- ---------- ---------- ----------
Gross profit ........ 63.1% 65.6% 67.0% 65.0% 64.9%
Gen. and admin.
expenses ........... 25.2% 28.3% 22.4% 21.0% 23.0%
---------- ---------- ---------- ---------- ----------
Operating income .... 37.9% 37.3% 44.6% 44.0% 41.9%
Interest discount
included in income . 5.7% 5.9% 8.7% 13.9% 10.0%
Other income ........ -- 2.0% -- -- --
---------- ---------- ---------- ---------- ----------
Pre-tax income ...... 43.6% 45.2% 53.3% 57.9% 51.9%
Income taxes ........ 20.5% 21.2% 24.9% 27.3% 24.4%
---------- ---------- ---------- ---------- ----------
Net income .......... 23.1% 24.0% 28.4% 30.6% 27.5%
========== ========== ========== ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
As Percentage of Revenues:
Quarters ending 1996
---------------------------------------------------------------------------
30-Jun 30-Sep 31-Dec 31-Mar 30-Jun 30-Sep
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Interest discount ... -14.7% -18.6% -16.5% -9.9% -8.9% -7.9%
---------- ---------- ---------- ---------- ---------- ----------
Net revenue ......... 85.3% 81.4% 83.5% 90.1% 91.1% 92.1%
Cost or revenue ..... 16.3% 22.7% 32.4% 33.2% 33.0% 32.7%
---------- ---------- ---------- ---------- ---------- ----------
Gross profit ........ 69.0% 58.7% 51.1% 56.9% 58.1% 59.3%
Gen. and admin.
expenses ........... 19.9% 30.1% 24.9% 25.4% 23.2% 24.3%
---------- ---------- ---------- ---------- ---------- ----------
Operating income .... 49.1% 28.6% 26.2% 31.5% 34.9% 34.9%
Interest discount
included in income . 9.7% 19.3% 13.6% 11.3% 10.7% 7.0%
Other income ........ -- 0.5% -1.3% -0.7% -5.3% -8.9%
---------- ---------- ---------- ---------- ---------- ----------
Pre-tax income ...... 58.8% 48.4% 38.5% 42.1% 40.3% 33.0%
Income taxes ........ 27.5% 23.0% 18.1% 20.8% 18.3% 16.2%
---------- ---------- ---------- ---------- ---------- ----------
Net income .......... 31.3% 25.4% 20.4% 21.3% 22.0% 16.8%
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
The PMSA tends to generate higher management fees than prior fixed cost
arrangements with GMMS because it recoups incremental costs (on a cost-plus
or unit of activity basis) incurred by CMI as GMMS needs increased services
as its medical practice grows. Accordingly, operating income as a percentage
of revenues tends to remain constant or decrease and receivables increase
accordingly.
Cost of revenue as a percentage of revenue has been increasing during the
reported quarters. The most recent three quarters reflect incremental
personnel costs associated with the opening of six new GMMS offices.
Conversely, general and administrative expenses have decreased as a
percentage of revenue in most quarters as a result of the increase in revenue
since the commencement of operations. During the quarters ended June 30, 1994
and September 30, 1995, these expenses were somewhat higher than normal as a
result of anticipated increases in the level of operations.
Interest discount as a percentage of revenue has decreased in 1996 due to
a decrease in the incremental cost of borrowing, from 12% in 1995 to 7.25%
currently.
LIQUIDITY AND CAPITAL RESOURCES
On January 3, 1996, the Company completed its IPO of 2,000,000 Common
Shares at $9.00 per share and received net proceeds of $13,480,000. Costs
incurred with respect to the registration of the Common Shares in addition to
the underwriter's commission and expenses were $3,520,000. In addition, the
Company sold to the IPO Representatives, or their designee, at a price of
$.001 per Warrant, 200,000 IPO Representatives' Warrants entitling the
holders thereof to purchase 200,000 Common Shares of the Company at a
purchase price of $10.80 per share for a period of four years commencing one
year from the effective date of the IPO.
On January 3, 1996, the Company completed the merger of MMI into a wholly
owned subsidiary of CMI. The terms of the MMI Merger provided that MMI
shareholders receive .778 CMI Common Shares for each MMI common share which
they held based upon an IPO price of $9.00 per Common Share. The holders of
outstanding options to purchase MMI common shares received 93,281 CMI Common
Shares based upon the difference between their aggregate option exercise
prices and the value thereof at $7.00 per share divided by the IPO price.
29
<PAGE>
In January 1996, the Company issued 2,211,953 Common Shares to effect the
merger, including shares issued in satisfaction of outstanding options and
warrants to purchase MMI shares. The excess of purchase price over net assets
acquired (goodwill) of $8,675,000 as a result of the acquisition of MMI will
be amortized on a straight-line basis over a period not to exceed twenty
years.
To date, the Company has primarily used its cash to support operating
activities, including higher levels of receivables generated by increased
management fees, to fund acquisitions and for capital expenditures. Net cash
used for operating activities in 1996 was $11,890,000. In January 1996, the
Company loaned GMMS for working capital needs approximately $1,590,000 due on
demand at interest of 9% per annum. The Company's primary sources of cash
have been cash flow from operations, the proceeds from the First Series
Debentures, Convertible Subordinated Notes and from the IPO. At September 30,
1996 the Company had working capital of $47,215,000.
For the nine months ended September 30, 1996 owner physician payroll and
entity income at GMMS showed a loss of $263,000 as compared to income of
$770,000 in 1995. The Company believes that this loss principally results
from an increase of $1,187,000 in medical personnel payroll at GMMS as GMMS
increased its professional staff in expectation of future higher levels of
operation. A continuation of losses at GMMS, or its failure to operate
successfully, could jeopardize GMMS' ability to pay management fees to the
Company.
The ability of GMMS to pay the management fees to CMI is dependent upon
GMMS' ability to collect its accounts receivable from insurance carriers,
primarily no-fault and workers' compensation carriers, though GMMS is
obligated to pay such fees regardless of its collections. Receipts from these
sources generally have long collection cycles. These claims can be subjected
to dispute and are often referred to arbitration. Many third-party payors,
particularly insurance carriers covering automobile no-fault and workers'
compensation claims refuse, as matter of business practice, to pay claims
unless submitted to arbitration. It is the Company's experience that the
insurance carriers from which it seeks reimbursement delay payment of claims
until just prior to the arbitration hearing. Management has determined, based
on actual results, industry factors, and GMMS' historical collection
experience prior to its association with the Company, that this entire
collection process generally spans a period averaging approximately three
years. The Company believes that its experience to date is a good indication
of the timing of the collection process in the future. Therefore, CMI
requires more capital to finance its receivables than businesses with a
shorter receivable collection cycle. In the event that the laws and
regulations establishing these third-party payors are amended, rescinded or
overturned with the effect of eliminating this system of payment
reimbursement for injured parties, the ability of CMI to market its
management services could be affected. CMI takes ownership on a recourse
basis of GMMS' receivables with a net collectible value equal to the then
current management fee owed to CMI. The collection cycle for these
receivables are generally in excess of one year and as a result of such
delayed payment, the financial statements include an imputed interest
discount against gross revenues. This discount is recaptured as the accounts
receivable are collected and is accounted for as reversal of interest
discount in the financial statements.
In March and July 1996, the Company borrowed an aggregate of $5,000,000
from 13 accredited investors (the "Purchasers") evidenced by the Convertible
Subordinated Notes. The Convertible Subordinated Notes are convertible into
an aggregate of 555,555 Common Shares, subject to adjustment to protect
against dilution for capital changes, and bear interest at the rate of 8% per
annum, payable quarterly until the Convertible Subordinated Notes are paid in
full on March 20, 2001. Under certain circumstances, such as a change in
control, holders of the Convertible Subordinated Notes may require the
Company to redeem the Convertible Subordinated Notes at 125% of their
principal amount plus all accrued and unpaid interest thereon. The
Convertible Subordinated Notes are subordinate in right of payment to
existing and to certain future indebtedness which may be incurred by the
Company. The Company has agreed to file with the SEC, by January 31, 1997, a
Registration Statement on Form S-3 covering the sale of the shares issuable
on conversion of the Convertible Subordinated Notes together with 16,666
other shares owned by two of the purchasers of the Convertible Subordinated
Notes, and to keep such Registration Statement effective until July 10, 1998.
Subsequent to the issuance of the Convertible Subordinated Notes, Steven
Hirsh, who had investment authority or shared investment authority with
respect to four of the accredited investors, became a director of the
Company.
In June 1996, the Company issued $40,250,000 face amount of First Series
Debentures due August 15, 2003. The First Series Debentures bear interest at
the rate of 8% per annum payable on August 15 and Febru-
30
<PAGE>
ary 15 of each year until the First Series Debentures are paid in full.
Holders of the First Series Debentures may convert all or any portion of the
principal amount thereof into common shares of the Company at an initial
conversion price of $14.00 per share, subject to adjustment for stock splits,
dividends, recapitalization and certain other capital changes. The First
Series Debentures are not redeemable prior to June 5, 1999. Thereafter, the
First Series Debentures are redeemable, in whole or in part, from time to
time, at the option of the Company at a redemption price equal to 100% of the
principal amount thereof plus accrued interest, provided that the First
Series Debentures may not be redeemed prior to maturity unless during the 20
consecutive trading days prior to the date of notice of such redemption the
closing price (as defined) has equaled or exceeded $19.125, subject to
adjustment in certain events. In the event that a Repurchase Event (as
defined) occurs, subject to certain conditions, each holder of a First Series
Debenture shall have the right, at the holder's option, to require the
Company to purchase all or any part of such holder's First Series Debentures
at 100% of the principal amount thereof plus accrued interest.
In connection with the First Series Debenture Offering, the Company sold
to the First Series Debenture Offering Representative, or its designee, for
nominal consideration, 250,000 First Series Debenture Offering
Representative's Warrants entitling the holders thereof to purchase 250,000
Common Shares at a purchase price of $21.04 per share for a period of four
years commencing one year from June 5, 1996, the effective date of the First
Series Debenture Offering.
In October 1996, the Company obtained an advised unsecured revolving line
of credit from a bank in the amount of $10,000,000 providing for interest at
150 basis points over the LIBOR rate. The bank has broad discretion as to the
advancement of funds under the line of credit.
Subsequent to June 30, 1996 and through November 15, 1996, the Company
spent $6,900,000 to acquire various businesses. In addition the Company made
bridge loans aggregating $800,000 to two unrelated entities repayable in 1997
and bearing interest at 10% and 12% per annum. In connection with this bridge
financing, the Company purchased 80,000 shares of the borrower's common stock
for an aggregate purchase price of $800.00
31
<PAGE>
BUSINESS
The Company is a physician practice management company. It provides a full
range of management services to physicians and hospitals located primarily in
the most densely populated areas of New York State, including New York City,
Long Island and the Hudson Valley region. The Company offers virtually all
the business, financial and marketing support required by medical practices.
The Company's sophisticated management systems and its high level of
professionalism enable its clients to handle the non-medical aspects of their
practices effectively. It provides its clients with office space, equipment
and supplies and non-medical personnel. It also bills patients and
third-party payors, collects receivables and assists in record keeping and
compliance with reporting requirements. The Company also advises clients
regarding regulatory compliance, consults on marketing and business
strategies, and provides financing for expansion. In addition, the Company
provides and administratively manages diagnostic imaging equipment used by
doctors in their own practices and by hospitals. The Company does not,
however, perform any type of medical diagnostic or treatment services. By
focusing on the complex, time-consuming and expensive non-medical aspects of
medical practices, the Company can offer its clients operating efficiencies
that they could not attain on their own.
Since July 1, 1996, the Company has made significant progress towards
becoming a fully diversified and integrated company serving both primary care
and specialty practices. The Company's services are designed to work
effectively both in today's fee-for-service environment and the managed care
capitated fee environment of the future. Pursuant to the Company's expansion
program, it has acquired two medical billing and collection companies, one
primarily serving hospitals and one primarily serving medical practices. The
Company has also acquired three physician practice management companies
serving primary care, neurology, radiology, and community and industrial
medicine practices in New York City and Westchester, Orange, Putnam and
Dutchess counties of New York State. It has also assisted GMMS, its first and
largest client, in acquiring a neurology practice with three offices in the
Bronx and in Queens. With these acquisitions and GMMS' continued growth, the
number of physicians to whom the Company provides a full range of services
has increased from 16 at December 31, 1995 to 76 at November 15, 1996. More
limited services, such as transcribing, billing, collecting and temporary
staffing, are provided by the Company to 50 medical practices with more than
820 doctors and to 32 hospitals.
The Company believes the practices that it provides with a broad range of
services will serve as the nucleus of a network offering both primary care
and multi-specialty services throughout New York state. Although managed care
has evolved more slowly in New York than in many other states, the
penetration rate of managed care is presently increasing rapidly in New York.
The Company believes that its network will enable its clients to enter into
managed care and capitated fee arrangements with insurance companies and
employers.
The Company's management is experienced in hospital administration and
trains staff to operate with full efficiency. The Company, by standardizing
many of its procedures and automating large portions of the business aspects
of its clients' practices, offers significant management efficiencies. For
example, standardized and automated systems are used to produce and
administer the records used to support clients' claims for payment. In
addition, the Company has centralized its purchasing and collection
functions, and its standard office format permits medical and non-medical
personnel and equipment to be shifted among offices as required.
Historically, almost all of CMI's revenues have come from GMMS, a single
medical practice group. However, if the various mergers and acquisitions
consummated before November 15, 1996 had been consummated at January 1, 1995
then, on a pro forma combined basis, 62% of 1995 net revenues (27% if the
proposed Amedisys Merger is consummated and given effect on such date) would
have been received from GMMS. Lawrence Shields, M.D., holds 95% of the stock
of GMMS and is a founder of the Company and the Selling Shareholder of this
offering. GMMS focuses on the evaluation and treatment of injury-related
conditions. Since becoming a client of CMI in early 1993, GMMS has expanded
from a neurological practice occupying a single office to a multi-specialty
practice with nine offices. Its twenty-one doctors currently perform or
supervise procedures at a rate in excess of 200,000 a year. The
injury-related conditions treated by GMMS are principally covered by
automobile no-fault and workers' compensation insurance. Such insurance
policies, associated governmental regulations, and the threat of litigation
require that GMMS keep complex records and produce comprehensive reports. In
addition, GMMS faces dispute resolution processes that change rapidly and
unpredictably, and successfully handling them requires highly specialized
non-medical knowledge. The Company offers management and staff with high
levels of training and experience in these matters.
32
<PAGE>
The Company's objective is to become the dominant provider of medical
management services in the greater New York metropolitan area and elsewhere
in New York State by implementing an aggressive growth strategy. See
"Business -- Growth Strategy."
BACKGROUND
Healthcare expenditures in the United States totaled approximately $1
trillion in 1994, of which approximately 9.6% was in New York State. Fees
paid to private practice physicians in the United States totaled
approximately $220 billion in 1994, of which approximately $20 billion was
paid to the 67,000 private practice physicians in New York State. Healthcare
expenditures have been rising rapidly over the past two decades, in
significant part as a result of the aging of the population. The average age
of the population is expected to continue to increase for at least the next
decade.
Increasing concern over the rising cost of healthcare in the United States
has led to the development of managed care organizations and programs. Under
such programs, managed care payors seek to ensure delivery of quality care in
a cost-effective manner. The traditional fee-for-service method of
compensating healthcare providers is generally believed to contribute to
healthcare cost increases at rates significantly higher than inflation.
Consequently, fee-for-service reimbursement is rapidly being replaced by
alternative reimbursement models, including capitated and other fixed-fee
arrangements. The number of private insurance beneficiaries who are enrolled
in health maintenance organizations ("HMOs"), which generally use these new
reimbursement systems, increased by approximately 45% from 1991 to 1995, with
approximately 58 million beneficiaries enrolled in HMOs in 1995. The growth
in enrollment in these new reimbursement models is shifting the financial
risk of delivering healthcare from payors to providers.
As a result of this changing healthcare environment, healthcare cost
containment pressures have increased physician management responsibilities
while lowering reimbursement rates to physicians. Consequently, physician
compensation has declined; the average net income for physicians decreased by
approximately 4% from 1993 to 1994. All but large group practices have
limited ability to negotiate with payors and also tend to have limited
administrative capacity, restricted ability to coordinate care across a
variety of specialties, limited capital to invest in new clinical equipment
and technologies and limited negotiating leverage with vendors of medical
supplies. In addition, these group practices typically lack the information
systems necessary to enter into and manage risk-sharing contracts with payors
and to implement disease management programs efficiently.
In response to the foregoing factors, individual physicians and small
group practices are increasingly affiliating with large group practices and
physician practice management companies ("PPMs"), though New York State has
lagged behind national trends. From 1991 to 1995, the number of physicians
practicing in group practices increased by approximately 14% to 185,000
physicians, with approximately 5% of such physicians managed by PPMs. By
acquiring or managing physician practices, PPMs seek to provide physicians
with lower administrative costs, leverage with vendors and payors and
economies of scale necessary to attract capital resources.
The Company believes that significant opportunities exist in the
consolidating healthcare industry to assist physicians in managing the
administrative aspects of group practices and networks and in bidding for
service contracts with managed care providers. The Company believes its
integrated physician practice and network management services will enable
physicians to more effectively control both the quality and cost of
healthcare.
Injury-related medicine is an important segment of the healthcare market,
in which the Company's largest client has particular skill and expertise.
Injury-related medicine involves the process of evaluating and diagnosing the
nature and extent of a patient's injury, treating the injury and, where
appropriate, providing rehabilitation therapy.
Annual medical expenses in the United States related to accidents exceeded
$75 billion in 1992, with the largest categories as follows: work-related -
$22 billion; motor vehicle - $20.7 billion; and home - $21.6 bil-
33
<PAGE>
lion.(1) Workers' compensation medical claims, including medical benefits paid
by private insurance carriers and self insurers, grew from $1.4 billion in 1970
to $17.9 billion in 1991.(2) The medical costs for claims covered by workers'
compensation have been growing at a faster rate than the cost for all medical
claims.(3) Neurologists and orthopedic surgeons, the medical specialists most
often involved in the evaluation and treatment of injury- related healthcare
problems, have grown in number from 7,776 and 17,166 doctors, respectively, in
1986 to 11,294 doctors and 22,740 doctors, respectively in 1995.(4)
Historically, the medical evaluation, diagnosis and treatment of
injury-related cases covered by no-fault and workers' compensation has been a
highly fragmented and an inefficiently practiced area of medicine. This has
been due, in part, to the burdensome regulatory requirements, lengthy
reimbursement cycles and reimbursement rates associated with such services
which, until recently, have been lower than average. Since the majority of
reimbursement claims for these medical services must be submitted to no-fault
insurers and state workers' compensation boards, physicians have had to cope
with the bureaucratic procedures associated with the processing of such
claims. In addition, the high costs of healthcare in general has created
pressure on medical providers from third-party payors and others to lower
their rates. Traditional medical practices, including injury-related
practices, face high operating costs, little or no ability to secure volume
discounts on supplies or effectively negotiate contracts, insufficient
capital to purchase new medical technologies and inexperience regarding the
complexity of laws and regulations affecting their practice. They also
generally lack sophisticated administrative and financial systems needed to
process such claims. The Company believes these and other factors have
increased the need for professional management to assist medical practices in
lowering costs, increasing efficiencies, and marketing their services to
managed care plans. The Company also believes physicians often require
additional financial resources to invest in equipment and facilities or to
acquire other physician practices to build market share.
The Company believes the practice of injury-related medicine is
experiencing significant growth primarily as a result of governmentally
mandated and regulated payment programs that require either third-party
insurers (in the case of no-fault automobile claims) or employers (in the
case of work-related injuries) to bear the costs of medical services, lost
wages and other expenses. However, the programs have given rise to an
abundance of complex and overlapping regulations, caused the medical
treatment and payment therefore to become adversarial in nature and created a
paperwork jungle of complicated forms. The untimely or improper preparation
of these forms has substantially contributed to long collection cycles for
medical practices.
GROWTH STRATEGY
The Company's objective is to become the dominant provider of medical
management services in the greater New York metropolitan area and elsewhere
in New York State by implementing an aggressive growth strategy. The key
elements of the Company's strategy are:
o Increase Number of Primary Care Clients. The Company, pursuant to its
acquisition program, has secured management contracts with primary care
medical practices and intends to aggressively seek additional contracts
with other primary care practices, as well as specialists to whom
primary care doctors typically refer patients. As a part of this
process, the Company will typically purchase fixed assets, leasehold
interests and/or accounts receivable from the medical practice and will
enter into a service contract to provide medical management services.
The Company believes that there are numerous existing medical practices
that could benefit from improved management techniques which would
allow the physicians to spend more time treating patients (thereby
increasing their revenue) and less time being concerned with the day to
day tasks of managing the business.
o Expand the Scope of Services Provided by Client Medical Practices. The
Company's expansion program includes a strong emphasis on capturing for
medical practices as much of the revenue for services ren-
1. Accident Facts 1993 edition, utilizing data from the National Safety
Council.
2. United States Healthcare Finance Administration, "Healthcare Financing
Review," winter 1992 edition.
3. "Workers Compensation Medical Price Index: 1987-1994" by N. Mike
Helvacian, Ph.D. and Christopher K. Fred, published by National Council on
Compensation Insurance, Inc.
3. American Medical Association, unpublished data.
34
<PAGE>
dered to each patient as is feasible. This program includes having
diagnostic tests performed by the practice and bringing within the
practice, on either a full time or per diem basis, physicians in other
practice specialties. Further, if the Amedisys Merger is consummated,
Amedisys' expertise in managing ambulatory surgery centers will
contribute to the Company's ability to acquire management contracts for
such centers in New York State. The Company would provide the capital
to acquire the diagnostic equipment and conduct the searches to satisfy
physician staffing needs. The Company would also advise its clients on
methods for marketing their services to potential patients and to
managed healthcare companies.
o Expand the Reach of all Medical Practices Under Management. In
addition, the Company will present to each practice under management a
business plan for the expansion of its practice through opening more
offices or expanding existing offices so as to be able to treat more
patients more efficiently. This aspect of the program also includes
improved interior design and decoration of the clients' offices to
improve patient flow and doctor efficiency and to provide amenities
making patient waiting time more pleasant.
o Create a Network of Physicians to Participate in Managed Care. The
advent of managed care arrangements has imposed on physicians
marketing, regulatory, record-keeping, billing, collection and other
administrative burdens similar to those encountered by GMMS. The
Company believes that it can assist clients by establishing a network
of physicians to compete for managed care, injury-related and other
medical care contracts by offering a large number of healthcare
providers in different geographic locations a broad range of medical
services and a high level of administrative support. The Company
believes that the successful implementation of this aspect of its
strategy will be particularly helpful to its clients when capitated fee
agreements are negotiated with certain insurers as its clients will be
able to offer more services from more locations and thereby obtain a
higher capitation rate than they might otherwise have been able to
obtain. The Amedisys Merger, if consummated, will allow the Company to
utilize the skills of Amedisys to manage large physician networks and
to assist its clients to obtain and operate under capitation
agreements.
o Assist Clients in Maintaining High Credibility with Third-Party Payors
and other Referral Sources. The Company believes that its clients'
success is dependent to a great extent on the perceived accuracy and
integrity both of the medical diagnoses and evaluations performed by
the Company's clients and the records supporting such diagnoses and
evaluations. The Company seeks to associate itself with medical
practices comprised of highly qualified physicians (such as those with
board certifications) with reputations for an unbiased approach to
medical evaluations and diagnoses. As a result of these factors, GMMS
has, to an increasing extent, been retained to provide independent
medical evaluations ("IMEs") on behalf of third-party payors that have
come to respect the quality of GMMS' work as a definer of injuries. The
Company believes that the credibility of these processes is a critical
factor in increasing patient referrals.
o Maintain Industry Leadership in Medical Management Systems. The Company
seeks to develop and maintain state-of-the-art record keeping, billing
and collections software and to hire and retain highly trained
administrative support personnel. The Company believes that a highly
automated and standardized support system will support a higher level
of efficiency for its clients' medical personnel and also lead to
faster and more complete collections of fees.
The Company's growth strategy is intended to enable its medical practice
clients to offer patients cost- effective medical care within an integrated
practice offering a broad range of evaluation, testing, diagnostic, treatment
and therapeutic services. The Company believes that such a strategy could, in
turn, enhance its clients' revenue opportunities in a competitive environment
affected by shrinking profit margins. In the longer term, as the network of
offices to which it provides its management services grows, the Company
believes that it will be in an excellent position to attract managed care
contracts for its clients from employers and insurance carriers. The
Company's ability to grow is, however, dependent upon its ability to identify
suitable candidates for its services, as to which there is no assurance. In
addition, the Company believes that it has significant growth potential in
the high volume injury-related medical market served by GMMS. The Company
believes it has competitive advantages in this market because of its skills
in managing these practices and its experience in operating in the New York
regulatory environment.
35
<PAGE>
The Company regularly explores new opportunities and negotiates
arrangements with medical practices for the provision of general medical
management services or limited medical management services related to
diagnostic imaging. However, at present, the Company has no commitments or
agreements with respect to any new material service contracts with medical
practices nor have negotiations with any medical practice reached a level
where the Company believes that it is reasonably likely that a new commitment
or agreement will be reached.
MEDICAL PRACTICE AND HOSPITAL MANAGEMENT SERVICES
The Company provides a broad range of medical practice and hospital
management services, importantly those necessary for the efficient and
profitable operation of medical practices. These services encompass
substantially all the non-medical aspects of its clients' operations and are
designed to increase client revenue levels through a combination of
strategies, which include revenue enhancing marketing methods, integration of
multi-specialty practices to reduce patient referrals, maximized use of
diagnostic and treatment equipment and offices and improved receivable
collection efforts. The principal areas of the Company's services include:
Offices; Equipment. The Company develops, administers and leases office
space and equipment to its medical practice clients. The Company also
oversees, manages and finances construction, decorating and other
improvements to leaseholds or other real estate and assists its clients in
site selection. Where appropriate, the Company advises its clients on
improving, updating, expanding or adapting to new technology.
Personnel. The Company staffs all the non-medical positions of its clients
with its own employees, eliminating the client's need to interview and train
non-medical employees, as well as process the tax, insurance and other
regulatory documentation associated with an employment relationship.
Administrative. The Company assists in the scheduling of patient
appointments, the purchasing of medical supplies and equipment and the
handling of reporting, accounting, processing and filing systems. It reviews
the completeness of the physician portions of complex forms to ensure full
and timely regulatory compliance and appropriate cost reimbursement under
no-fault insurance and workers' compensation guidelines. Among other things,
the Company provides its clients with timely management reports which include
activity data, collection status and other management information necessary
for the operation of their respective medical practices.
Receivable Collections. The Company has experience in the collection of
revenues from third-party payors including those governed by no-fault and
workers' compensation statutes, a process which is generally burdensome and
adversarial. The Company aggressively pursues all appropriate legally
available avenues for the collection of such medical receivables by, among
other things, effectively using various legally prescribed arbitration
dispute methodologies. The Company has also worked with third-party payors to
establish cooperative approaches to the collection process designed to reduce
costs to both the Company and to such payors.
Regulatory Compliance. The Company develops a compliance program
applicable to each client's medical practice area designed to ensure that
such client is notified of regulatory changes and operates in compliance with
applicable laws and regulations.
Cost Saving Programs. Based on available volume discounts, the Company
seeks to obtain favorable pricing for medical supplies, equipment,
pharmaceuticals and other inventory for its clients.
Operational Efficiency. Through its training of employees, management of
the operations of expensive technological equipment and centralization and
standardization of various administrative procedures, the Company is able to
improve the productivity of both the professional and non-professional staff
and client equipment and facilities.
Diagnostic Imaging Services. With the merger with MMI, the Company offers
practice broadening opportunities, such as in-office diagnostic imaging
equipment, by providing a "turnkey" service to appropriate medical and
hospital clients allowing them to broaden their practices or services to
include diagnostic imaging services. The Company processes all applications
required for filing with regulatory authorities, finances the acquisition of
capital intensive equipment, oversees its installation and then manages its
operations to assure efficient use.
36
<PAGE>
Marketing Strategies. The Company, in conjunction with its clients,
develops plans to enable such clients to increase the size and revenues of
their medical practices. Strategies developed by the Company for
implementation by its clients include: (a) increasing the range of
evaluation, diagnostic and treatment services offered by its clients; (b)
integrating other specialties into its clients' medical practices; (c) for
its clients focused on injury related conditions, expanding patient referral
sources by helping them to establish relationships with both attorneys for
injury claimants and insurance companies; (d) assisting its clients in the
acquisition of other medical practices; and (e) assisting clients in
developing multi-office practices which can use a fully-integrated network
computer system that will provide necessary practice information to its
clients and coordinate the activities of multi-site, multi-specialty medical
practices. While the Company advises its clients with respect to these
marketing issues, it does not engage in sales or marketing activities on
behalf of its clients.
Financing Opportunities. The Company, either directly through loans to its
clients or through assistance in presenting to sources of financing, intends
to provide its medical clients with greater access to the capital necessary
to develop, equip and expand their medical practices and to acquire other
medical practices.
Capital Support. In connection with the implementation of its growth
strategy below, the Company believes that it may increase its loans to GMMS
and other clients to enable them to further expand by acquiring medical
practices, opening additional offices and adding medical specialties and
sophisticated diagnostic equipment to their existing practices. At September
30, 1996, such loans aggregated $2,020,000. The Company may also make loans
to, or purchase receivables from, new medical practice clients or other
healthcare providers to enable them to carry long-term receivables. Although
the Company intends, generally, to limit its loans in connection with its
clients' medical practice acquisitions to not more than 50% of the purchase
price and to take a security interest in the receivables and other assets
being transferred, it may not always be in a position to do so. Inasmuch as
such receivables are also securing payment to the Company of its management
fees from such clients, there is a risk that its clients will be unable to
repay such loans on a timely basis, if at all, and that the Company's
security in their receivables may be inadequate to repay such indebtedness.
The Company provides its services pursuant to negotiated contracts with
its clients. While the Company believes it can provide the greatest value to
its clients by furnishing the full range of services appropriate to that
client, the Company is also willing to enter into contracts providing for a
more limited spectrum of selected services.
PRINCIPAL CLIENT
The Company's initial and principal client, GMMS, is a multi-specialty
medical practice that focuses on the diagnosis and treatment of injured
patients. Originally a one-office neurological practice, GMMS has now grown
to twenty-one physicians (consisting of seven neurologists, one chiropractor,
three physiatrist, two orthopedists, one general surgeon, one family
practitioner, two psychologists, and four radiologists) operating a total of
nine offices in New York City, Long Island and New Windsor, New York. In
1996, GMMS saw patients at an annual rate of more than 22,000 new patients
for treatment, 6,000 new patient IME's (on behalf of insurance carriers and
employers), 45,000 follow-up visits, 60,000 physical therapy visits, and
performed more than 40,000 medical tests and 9,000 diagnostic imaging scans.
37
<PAGE>
The following table sets forth certain statistical data with respect to
GMMS:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------- Nine Months Ending
September 30,
1993 1994 1995 1996
-------- --------- --------- ------------------
<S> <C> <C> <C> <C>
Procedures ................. 88,450 128,500 157,000 150,200
New patients for treatment . 5,950 10,850 11,160 18,800
New patients for evaluation * * 9,800 17,800
Patient by payor category --
-------------
No-fault ................. 59% 49% 46% 40%
Workers Compensation ..... 14% 17% 20% 18%
All other ................ 27% 34% 34% 42%
At period end --
-------------
Physicians ............... 7 10 16 23
Technicians and other
staff ................. 7 15 20 35
Offices .................. 5 6 9 12
</TABLE>
- ------
* Not treated as a separate category for record keeping purposes.
All of CMI's revenues in 1994 and 1995 and approximately 62% of the CMI,
MMI and AAMC pro forma combined net revenue in 1995 were generated under a
management contract with GMMS and a substantial part of the growth in the
Company's business is a direct result of comparable growth of GMMS' medical
practice. The Company expects that its relationship with GMMS will be a
dominant factor in its business for the foreseeable future. The continued
vitality of GMMS' medical practice is subject to numerous risks, including
its continued ability to retain its key medical personnel, malpractice claims
and regulatory compliance. There is no assurance that GMMS will continue to
operate successfully. Moreover, although the term of the PMSA and the MSA
between the Company and GMMS, which cover all management services provided to
GMMS, expire June 2025 and July 2001, respectively, there is no assurance
that the Company and GMMS will continue to maintain a productive working
relationship. The founder of GMMS and his son are principal shareholders of
the Company.
GMMS has advised the Company that it intends to continue its strategy of:
(a) integrating, through both internal growth and the acquisition of the
other medical practices, as many of the services rendered to patients (e.g.,
diagnostic tests and other non-neurological specialties such as orthopedics
and physical therapy) as possible; and (b) broadening its patient referral
base by continuing to provide diagnosis and treatment of patients referred by
attorneys handling their injury-related legal claims, as well as IME's of
injury claims required by insurance companies and employers. The Company
intends to obtain management agreements with other medical practices
throughout key markets in New York State and neighboring states as well as to
assist GMMS in providing services at additional locations throughout the
State. The Company believes that if it can provide services to a sufficient
number and variety of medical practices, it can form a network of these
physicians. The Company would attempt to assist network members in obtaining
new sources of patients by negotiating with managed care payors for a fixed
reimbursement schedule that would be advantageous to the network and managed
care payors. The Company may also be able to assist network members in
achieving efficiencies from centralized billing, purchasing and marketing
activities.
Under the PMSA and MSA, the Company furnishes GMMS with a comprehensive
range of management and related financial services encompassing all
non-medical aspects of the GMMS medical practice, including: (a) renting
"built-out" medical offices, including furnishings; (b) leasing equipment,
including diagnostic equipment; (c) purchasing supplies; (d) providing
non-medical personnel; (e) providing managerial, administrative, marketing
and fiscal management services; (f) providing various consulting services in
connection with the acquisition by GMMS of medical practices; (g) billing and
collection services; and (h) inclusion of GMMS in a network of medical
practices which the Company may ultimately form. The Company's fees are
related to services provided and include specified flat fees, hourly charges,
network fees and, in the case of billing and collections, varying percentages
of amounts collected depending upon length of collection period. All such
fees are subject to periodic upward readjustment starting in the third year,
based on specified formulae or methods for calculating the revised amounts.
The Company has also agreed to consider making working capital advances in
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unspecified amounts. Each month the Company takes ownership on a full
recourse basis of GMMS receivables with a net collectible value equal to the
amount of the management fee then currently owed by GMMS and also takes a
security interest in the balance of GMMS' receivable as security for the
payment of any uncollected fees. All of these receivables may, however, be
insufficient to secure all amounts due to the Company by GMMS. The PMSA also
gives the Company a right of first refusal to purchase the medical practice
of GMMS at its then fair market value in the event that New York State
permits the public corporate practice of medicine without the need to apply
for a certificate of need ("CON"). The transfer of ownership of a majority of
GMMS shares to anyone other than Dr. Lawrence Shields or Dr. Irving Friedman
(95% and 5% owners, respectively, of GMMS) constitutes an assignment under
such agreement and may not be made without the consent of the Company. The
term of the PMSA is thirty (30) years, expiring on June 2025 unless
terminated earlier for reasons such as material breach. The initial term and
any subsequent renewal term can be extended in five (5) year increments.
MARKETING
The Company's marketing goal is to increase the size, number and locations
of medical practices to which it provides its services both in its current
market, other areas in New York State and selected other markets including
New Jersey. The Amedisys Merger, if consummated, will, the Company believes,
help it to achieve this goal by providing it with skills not readily
available in New York State. The Company's goal is also to broaden the types
of medical practices which it services, to develop a client base of primary
care and specialty practices and to implement growth strategies for its
existing and new clients. The Company expects to promote growth of the
patient and revenue bases by assisting its clients in the development of
multi-specialty medical practices to eliminate the need for patient
referrals, opening of additional offices and implementing of an aggressive
program of acquiring other medical practices. A major focus of the Company's
near term marketing efforts will be the identification of high volume medical
practices in New York State, including those that specialize in orthopedics
and neurology, which could either be acquired by GMMS or make effective use
of the Company's management services. The Company may make working capital
advances and/or acquisition loans to its present and future clients to enable
them to implement such growth strategies.
The Company's marketing efforts to establish relationships with new clients,
both for its full range of management services and for management services
related to diagnostic imaging, are conducted by employees under the direction of
the Executive Vice President of Practice Development and Managed Care. Marketing
activities consist of locating medical practices which meet the size, quality
and operating parameters set by the Company. The Company's marketing staff also
helps existing clients analyze opportunities for expanding the services they
offer and expanding into new geographic areas either through opening new offices
or acquiring existing medical practices. Strategies are also developed for
increasing the patient volume of existing clients, including identifying to
clients attorneys handling workers' compensation and no-fault insurance claims
and arranging meetings with such attorneys to make them aware of the medical
capabilities of the Company's clients. Additionally, one senior executive of the
Company focuses on advising insurance carriers and large employers on GMMS'
skills as a definer of injuries and as a preparer of IME reports. The marketing
staff also oversees and facilitates the exchange of information with attorneys
and insurance companies that are sources of new patients for the Company's
clients.
The Company believes it can increase its market share in the medical
management services industry by providing its clients with significant
competitive advantages and by relieving them of the complex, burdensome and
time-consuming non-medical aspects of their businesses. The Company believes
that relieving medical personnel of these obligations may enhance the
productivity, efficiency and profitability of such personnel and the growth
potential of the client and thus also enhance the ability of such clients to
serve their patients. The Company also believes that a fully integrated
medical office for the diagnosis and treatment of injuries, as well as the
medical evaluation of injury claims for insurance carriers, provides
significant advantages to patients and third-party payors. By providing a
full array of medical and testing services in one facility, a medical
practice will serve the patient more effectively and efficiently and also
alleviate the injured patient's burden of traveling from one location to
another. The centralization of comprehensive medical services also
facilitates administrative and regulatory reporting to third-party payors.
THIRD-PARTY REIMBURSEMENT
The Company's management fees (including lease payments for office space
and equipment) are payable to the Company by its clients, as required by
applicable legal requirements, without regard to (i) the fees which the
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client charges its patients for its medical services or (ii) whether the
client actually receives payment for its services. The Company's ability to
collect its management fees in a timely manner, or at all, is affected by
such factors as whether its client is reimbursed for its medical services,
the timing of such reimbursement and the amount of reimbursement. The
Company's own cash flow is adversely affected by its clients' long collection
cycle from various third-party payors, which typically range from nine months
to 40 months for workers' compensation insurers, six months to 32 months for
no-fault insurance carriers of the no-fault payment pool, two months to six
months for Medicare and other commercial insurers and three months to 24
months for medical malpractice injuries. The historical, aggregate collection
cycle of the Company's clients was based on the Company's approximate 3 1/2
years of experience and GMMS' historical collection experience. As a result
of this slow payment pattern, the Company requires more capital to finance
its receivables than other businesses with a shorter receivable payment
cycle. Further, third-party payors may reject the clients' medical claims if,
in their judgment, the procedures performed were not medically necessary or
if the charges exceeded such payors' allowable fee standards. It is common
practice for third-party payors to initially deny/reject the first submission
of a medical claim. This does not mean that the claim will not be ultimately
paid. The Company normally will re-submit the claim with such revised
information as requested and/or forms and documentation. Outstanding claims
that continue to be disputed after one year or more are then submitted to an
arbitration process. Normally, when final arbitration decisions are about to
be rendered, the third-party payor will agree to pay the claim or a portion
thereof. In many instances the Company is entitled to collect the settlement
amount, filing fees and interest on the agreed-upon payment on behalf of its
clients. Finally, the reimbursement forms required by third-party payors for
payment of medical claims are long, detailed and complex and payments may be
delayed or refused unless these forms are properly completed in a timely
manner. Although the Company takes all legally available steps, including
legally prescribed arbitration, to collect the receivables generated by its
clients, there is a significant risk that some client receivables may not be
collected due to the determination by third-party payors that certain
procedures performed by the clients were not medically necessary or were
performed at excessive fees or because of omission or errors in timely
completion of the required claim. The inability of its clients to collect
their receivables could adversely affect their ability to pay in full all
amounts owed by them to the Company.
The healthcare industry is undergoing significant change as third-party
payors increase their efforts to control the cost, use and delivery of
healthcare services. Several states have taken measures to reduce the
reimbursement rates paid to healthcare providers in their states. The Company
believes that additional reductions will be implemented from time to time.
Reductions in Medicare rates often lead to reductions in the reimbursement
rates of other third-party payors as well and the Company believes that such
further reductions are probable. Further changes in Medicare reimbursement
rates whether pursuant to legislation presently under active consideration or
otherwise, or other changes in reimbursements by third-party payors to
clients of the Company could have a material adverse affect on the Company's
operations and profitability.
RECENT DEVELOPMENTS
Pursuant to its acquisition program, since January 1, 1996 the Company
acquired, or assisted its clients in acquiring, the seven medical practices
and businesses described below. Further, in October 1996, the Company entered
into a letter of intent for the acquisition of Amedisys. See "Proposed
Amedisys Merger." As a result of these acquisitions and the continuing growth
of GMMS, the number of doctors to whom the Company is providing broad-based
integrated physician practice management services increased from 16 at
December 31, 1995 to 76 at November 15, 1996. The company also now provides
limited management services, such as transcription, billing and collection
and temporary staffing to 50 medical practices with more than 820 doctors, as
well as to 32 hospitals.
o In January 1996, the Company acquired MMI, which provided diagnostic
imaging equipment and related practice management services.
o In July 1996, the Company acquired the businesses of a billing and
collection company serving pri- marily medical practices and a billing
and collection company serving, primarily, hospitals in New York City
and Long Island, both with common ownership. The businesses are now
both operated by the Company through its subsidiary Intertech/Penta
Group, Inc. They provided services to a base of approximately 700
doctors and 23 hospitals at the time of acquisition.
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o In August 1996, the Company acquired the assets of Greenport Services
Corp. ("Greenport"), a practice management company servicing a five
physician multi-specialty community based medical practice in Brooklyn,
New York. Since the acquisition, the Company has provided a full range
of physician practice management services to the practice formerly
managed by Greenport.
o In August 1996, the Company assisted with and financed the acquisition
by GMMS of the practice of two board certified neurologists with
offices in the boroughs of the Bronx and Queens in New York City.
o In August 1996, the Company acquired the assets of Northern
Metropolitan Physicians Network, LLC, a practice management company
servicing four primary care offices with a total of 10 physicians in
Orange, Putnam and Westchester counties of New York State.
o In October 1996, the Company acquired the assets of AAMC, a physician
practice management company holding a 30-year management contract with
a 30 physician group to which it provides comprehensive management
services. AAMC also provides transcription, billing, collection and
temporary staffing services to a total of 50 medical practices
employing 120 doctors and to nine hospitals located in the Hudson
Valley region of New York State.
o In November 1996, the Company acquired the assets of Tenbroeck
Management Corp., a physician practice management company servicing one
primary care and internal medicine office with a total of eight
physicians in New York City.
In June and July 1996, MMI expanded its business by supplying MRI units
and administratively managing such units at two major New York City
hospitals, Brookdale Hospital, a 1,000 bed teaching hospital and Bronx
Lebanon Hospital, a 900 bed hospital. The agreements with these hospitals
expire in December 1997 and May 2003, respectively. Brookdale is presently
planning to construct and operate a multi modality imaging facility after the
expiration of the agreement term and may not require management services from
MMI thereafter.
GOVERNMENT REGULATION
The Company's provision of management and administrative services to
medical practices, its plans to finance its clients' acquisitions of medical
practices and its purchase of certain medical practice assets incidental to
obtaining new practice management service agreements are subject to extensive
and increasing regulation of numerous laws, rules, approvals and licensing
requirements by federal, state and local governmental agencies. The Company
is also subject to laws and regulations relating to business corporations in
general.
Many of the laws and regulations that affect the Company's operations and
relationships with its clients have not been definitively interpreted by
courts or regulatory authorities. Regulatory authorities have broad
discretion concerning how these laws and regulations are interpreted and how
they are enforced. The Company may, therefore, be subject to lengthy and
expensive investigations of its business operations, or prosecutions which
may have uncertain merit, by various state or federal governmental
authorities. If the Company or any of its medical practice or hospital
clients were found by an agency or judicial authority to be in violation of
these laws and regulations, the Company could be subject to criminal and/or
civil penalties, including substantial fines, injunctions and
disqualification from participation in Medicare, Medicaid and other payor
programs, which could limit or terminate the Company's ability to provide its
services to medical practices and hospital clients.
The Company believes that its current operations are in material compliance
with applicable laws and regulations and the structure of the Company's
relationships with its medical practice and hospital clients (including GMMS,
the Company's principal medical practice client, whose 95% shareholder, Dr.
Lawrence Shields, is a founder and principal shareholder of the Company) is
similar in material respects to that of many firms in the physician practice
management industry. Nevertheless the laws and regulations in this are are
extremely complex and subject to changing interpretaions and many aspects of the
Company's business and business opportunities have not been the subject of
federal or state regulatory review or interpretation. The Company has neither
obtained nor applied for any opinion of any regulatory or judicial authority
that its business operations are in compliance with applicable laws and
regulations. Therefore, there is no assurance that the Company's operations have
been in compliance at all times with all such laws and regulations. Nor is there
assurance that scrutiny of the Company's business or its relationships with its
medical practice or hospital clients by court or regulatory authorities will not
result in determinations adverse to the Company. If the Company's interpretation
of the relevant laws is inaccurate, or if laws and regulations change or are
interpreted so as to restrict the Company's or its clients' operations or
expansion plans, the Company's business and its prospects could be materially
and adversely affected.
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The following are among the laws and regulations that affect the Company's
operations and development activities:
Corporate Practice of Medicine: The laws of New York State and various
other states prohibit business corporations such as the Company from
practicing medicine and employing or engaging physicians to practice
medicine. The Company leases space and equipment to medical practices and
hospital clients and provides these clients with a range of non- medical
administrative and managerial services. The Company also plans to provide
financing for its clients' acquisitions of physician practices. The Company
does not, however, employ or supervise physicians or other licensed
healthcare professionals, does not represent to the public or to the patients
of its clients that it offers or arranges for medical services, and does not
exercise influence or control over the practice of medicine by its clients.
The Company does not initiate direct contact with its clients' patients
except as an agent and at the specific request of its clients, and then does
so only for the purpose of rendering non-medical services such as insurance
verification, appointment scheduling and collection. The Company does not
direct patient referrals or assign patients to particular physicians. The
Company is not responsible for patient care services, medical charts or
patient records and does not provide any ancillary medical services to
patients or determine when patients will be admitted to or discharged from
care. The Company does not establish standards of medical practice or
policies for its clients, nor ensure adherence to such standards or policies.
Moreover, the Company does not determine what charges are to be made to its
clients' patients or to the third-party payors, nor are patient care bills
payable to the Company, but only to the Company's clients. The Company does
not determine how its clients' income will be distributed or the scope of
patient care services that its clients will provide. Accordingly, the Company
believes that it is not in violation of New York State laws prohibiting the
corporate practice of medicine. If the Company were determined to be engaged
in the corporate practice of medicine. The Company's contractual
relationships with its clients could be jeopardized and it could be found
guilty of criminal offenses and be subject to substantial civil penalties,
including fines and an injunction preventing continuation of its business.
Fee Splitting: New York and various other states prohibit a physician from
sharing or "splitting" fees with persons or entities not authorized to
practice medicine. In New York, this prohibition precludes the Company from
receiving fees based upon a percentage of its clients' gross income or net
revenue. Accordingly, the fee structure set forth in the Company's practice
management service agreements with its New York clients, including the
Company's agreement for the use and management of diagnostic imaging
equipment based on a fixed fee per use charge, provides for fixed
remuneration based upon the estimated fair market value of the services and
equipment provided to such clients by the Company. Although the Company's
charges to its clients are payable to the Company without regard to the
amount of the fees charged by its clients to their patients or whether such
clients actually receive payment of their fees, there is a risk that the
inability of its clients to collect their receivables will result in their
being unable to make payments to the Company on a timely basis, if at all.
The Company believes that its charges to its clients are not based upon their
professional fees or level of income and, accordingly, do not violate fee
splitting prohibitions. If this belief is incorrect and the Company is
determined to be engaged in fee splitting arrangements with its physician
clients, such clients could be subject to charges of professional misconduct
and penalties ranging from censure and reprimand to revocation of medical
license. In addition, the Company could be unable to judicially enforce its
fee arrangements with its physician clients, thereby materially and adversely
affecting the Company's revenues and prospects.
Self-Referral Laws: Under New York Law (and similar laws in a number of
other states) and the federal Self-Referral Law (the "Stark Law") (which is
presently only applicable to Medicare and Medicaid patients), certain health
practitioners (including physicians, dentist, chiropractors and podiatrists)
are prohibited from referring their patients for the provision of designated
health services (including clinical lab, diagnostic imaging and physical
therapy services) to any entity with which they or their immediate family
members have a financial relationship, unless the referral fits within one of
the specific exceptions in the statutes or regulations. The penalties for
violating the Stark Law include, among others, denial of payment for the
designated health services performed, civil fines of up to $15,000 for each
service provided pursuant to a prohibited referral, a fine of up to $100,000
for participation in a circumvention scheme and possible exclusion from
Medicare and Medicaid programs. Additional penalties of up to $2,000 for each
improperly billed service may also be imposed under the Federal Civil
Monetary Penalties Law. Statutory exceptions under the Stark Law include,
among others, direct physician services, in-office ancillary services
rendered within a group practice, space and equipment
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rental, and services rendered to enrollees of certain prepaid health plans. Some
of these exceptions are also available under the New York self referral law. The
Company believes that its financial relationships with its health practitioner
clients and physicians affiliated with such clients do not fall within the Stark
Law or state self-referral laws, do not involve the provision of designated
health services by the Company or fit within one of the exceptions in such laws,
as the Company is neither a healthcare practitioner in a position to refer
patients nor an entity that provides prohibited designated health services.
Rather, the Company only furnishes management, administrative and financial
services to its healthcare practitioner clients who may perform such designated
health services. Similarly, although the Company offers stock in the Company to
certain physicians associated with the Company's clients, which physicians or
clients may be in a position to refer patients for designated health services to
other entities which receive management and related services from the Company,
the Company believes that such investment interests offered to such physicians
either do not fall under the New York or Stark self referral laws or fit within
one of the exceptions to the laws. Nevertheless, the interpretation of both the
New York and Stark self referral laws is subject to broad discretion by state
and federal regulators and an adverse determination by such regulators could
affect the Company's continued ability to offer investment interests to
physicians or the ability of such physician investors and/or the medical
practices with which such physicians are associated to refer patients to
entities that receive management and related services from the Company. In
general, moreover, there can be no assurance that future interpretations or
changes to the Stark Law (including its extension to all third-party payors) or
the regulations promulgated thereunder, (or to similar New York and other state
anti-referral laws or regulations), will not prohibit or otherwise affect the
Company's arrangements with its clients and physician shareholders in ways that
could materially and adversely affect the Company's business.
Anti-Kickback Laws: The Social Security Act imposes criminal penalties for
paying or receiving remuneration (which is deemed a kickback, bribe or rebate)
in connection with any federal healthcare program, including Medicare or
Medicaid. Violation of this law is a felony, punishable by fines of up to
$25,000 per violation and imprisonment for up to five (5) years. This law and
related regulations have been broadly interpreted to prohibit the payment,
solicitation, offering or receipt of any form of reimbursement in return for the
referral of program patients or any item or service that is covered by any
federal healthcare program reimbursement. Similar state law prohibitions, not
limited to particular payor programs, exist under the laws of New York and other
states. Because the breadth of these prohibitions, when read literally, may
place many legitimate business relationships into question, the U.S. Department
of Health and Human Services ("HHS") promulgated "Safe Harbor" regulations in
1991 specifying certain relationships and activities that do not violate the
federal law and regulations. The Company does not believe that all of its
business practices satisfy the conditions of the "Safe Harbor" regulations.
Moreover, certain arrangements involving payment of management fees that vary
based upon the volume of services provided may be subject to increased scrutiny
with respect to remuneration for referral. However, failure of an activity to
fall within a "Safe Harbor" provision or the fact that an arrangement may be
subject to scrutiny, does not mean that such activity constitutes a violation of
the law, rather the arrangement will be analyzed on the basis of its specific
facts and circumstances. The Company believes that its medical practice and
hospital client agreements under which it is currently providing management
services do not put it in a position to make or induce the referral of patients
or services by its clients and that, in any event, the compensation payable to
the Company by its clients is unrelated to referrals and is based upon the
estimated fair market value of the services and equipment provided to such
clients by the Company. Accordingly, the Company believes that these agreements
do not violate the federal anti-kickback law or statute or similar state laws.
If, however, the Company's management arrangements were found to violate these
federal or state laws, the Company and its medical clients could be subject to
substantial civil monetary fines and/or criminal sanctions, including a minimum
mandatory five (5) year exclusion from participation in any federal healthcare
programs which would adversely affect the Company's future results, operations
and profitability.
Certificate of Need and Facility Licenses: In the case of the Company's
magnetic resonance imaging units, New York and several other states have laws
and regulations that require hospitals to obtain a CON to establish an
imaging center or to purchase magnetic resonance imaging or other major
medical equipment. Under CON laws, a hospital is required to substantiate the
need and financial feasibility for the establishment of new facilities,
commencement of new services or the purchase of major medical equipment in
excess of statutory thresholds. The Company's ability to manage imaging
equipment for hospitals could be adversely affected by the existence of state
CON laws. Under current New York law, a CON is not required for the
acquisition or lease of a magnetic resonance imaging unit by a physician
engaged in the private practice of medicine. Thus, GMMS and other medical
practices which have contracted with the Company have not obtained a CON with
respect to any magnetic resonance imaging units leased from the Company.
However, the adoption of legislation extend-
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ing CON requirements to private medical practices would make it more
difficult for physicians to lease diagnostic imaging equipment and could
adversely affect the Company's expansion plans. New York also prohibits the
operation of a diagnostic and treatment center without obtaining a CON and
license and such a license is not currently available in New York to a public
company such as the Company. The Company believes that its relationships with
its medical clients do not constitute the operation of a diagnostic and
treatment center. See, "Business -- Government Regulation -- Corporate
Practice of Medicine". However, if the Company were determined to be
operating a diagnostic and treatment center, the Company's contractual
relationships with its clients could be jeopardized and it could be found
guilty of criminal offenses and be subject to substantial penalties,
including fines and an injunction preventing continuation of its business.
Regulation of Diagnostic Imaging Facilities: The operation by the
Company's clients of diagnostic imaging equipment administratively managed by
the Company is subject to federal and state regulations relating to
licensing, standards of testing, accreditation of certain personnel, and
compliance with governmental reimbursement programs. The Company believes
that its clients are in compliance with these federal and state requirements,
however, failure of the Company's clients to comply with the federal and
state requirements applicable to the clients' medical practices could
adversely affect the Company's continued ability to provide management and
related services to its clients.
No-Fault Insurance: The Company's initial client, GMMS, generates
significant revenue from patients covered by no-fault insurance carriers and
the no-fault insurance payment pool. In the event that changes in the
no-fault insurance law create greater or lesser demand for physician services
or impose additional or different administrative requirements, the Company
could be required to modify its business practices and its administrative
services in ways that could be more costly or more burdensome to the Company
or in ways that limit or otherwise decrease the revenues which the Company
receives from its present and potential future clients for its services.
Workers' Compensation: The Company's initial client, GMMS, generates
significant revenue from patients covered by the New York Workers'
Compensation Program. In the event that changes in the Workers' Compensation
Law create greater or lesser demand for physician services or impose
additional or different administrative requirements, the Company could be
required to modify its business practices and its administrative services in
ways that could be more costly or more burdensome to the Company or in ways
that limit or otherwise decrease the revenues which the Company receives from
its present and potential future clients for its services. See "Business --
Government Regulation -- Proposed HealthCare Reform Legislation."
Factors Affecting the Ability of Clients to Make Payments to the Company:
In order to comply with applicable federal and state laws, the Company's
management fees (including lease payments for office space and equipment) are
payable to the Company by its clients without regard to (i) the fees which
the client charges its patients for its medical services or (ii) whether the
client actually receives payment for such services. The Company's ability to
collect the management fees it earns from its clients in a timely manner, or
at all, is affected by such factors as whether its client is reimbursed for
its medical services, the timing of such reimbursement and the amount of
reimbursement. In this regard, a substantial portion of the revenues of the
Company's clients are derived from payments by government sponsored or
regulated programs (i.e., no-fault insurance, workers' compensation and
Medicare), private insurers and managed care companies. All of these
third-party payors are engaged in cost reduction programs that may adversely
affect the ability of the Company's clients to meet their contractual
obligations to the Company which, in turn, could cause the Company to
experience significant losses.
Anti-Trust: It is possible as the Company provides network, management and
administrative services to several clients in a particular market, these
medical practices may be deemed competitors subject to a range of antitrust
laws which prohibit anti-competitive conduct, including price fixing,
concerted refusals to deal and division of markets. The Company intends to
comply with such federal and state laws, but there is no assurance that a
review of the Company's business by courts or regulatory authorities would
not result in a determination that could adversely affect the operation of
the Company and its clients.
Anti-Fraud: There are also federal and state civil and criminal statutes
imposing substantial penalties, including substantial civil and criminal
fines and imprisonment, on healthcare providers and those who provide
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services to such providers (including management businesses such as the
Company) which fraudulently or wrongfully bill governmental or other
third-party payors for healthcare services. In addition, the federal law
prohibiting false Medicare/Medicaid billings allows a private person to bring
a civil action in the name of the United States government for violations of
its provisions and obtain a portion of the false claims recovery if the
action is successful. The Company believes that it and its clients are in
material compliance with such laws, but there is no assurance that the
Company's (and its clients') activities will not be challenged or scrutinized
by governmental authorities or private parties asserting a false claim action
in the name of the United States government.
Proposed HealthCare Reform Legislation: In addition to current laws and
regulations, the federal government and New York State are considering new
laws and regulations that, if enacted, could result in comprehensive changes
affecting the healthcare industry and the payment for, and availability of,
the type of healthcare services furnished by the Company's clients.
Specifically, New York State has adopted a pilot managed care workers'
compensation program that seeks to more closely regulate expenditures for
workers' compensation cases. It is not possible at this time to predict if
this New York project will be expanded or to assess its full impact on the
Company. In addition, it is anticipated that Congress and the President will
be forced to agree on some form of Medicare spending cuts that may result in
future reductions in Medicare payments to physicians for physician services.
Nevertheless, it is not certain which, if any, reforms will be adopted by
Congress or state legislatures, or when such reforms will be adopted or
implemented. New federal and state healthcare legislation and changes in the
current regulatory environment may require the Company's business strategies,
operations and agreements to be modified and there can be no assurance that
such restructuring will be possible without adversely affecting the Company's
profitability.
LIABILITY INSURANCE
The Company carries insurance providing coverage for general liability,
comprehensive property damage and workers' compensation. While the Company
believes its insurance policies are adequate in amount and coverage for
protection of its assets and operations as currently conducted, there is no
assurance that the coverage limits of such policies will be adequate. A
successful claim against the Company in excess of its insurance coverage
could have a material adverse effect on the Company and its financial
condition. Claims against the Company, regardless of their merit or outcome,
could also have an adverse effect on the Company's reputation and business.
In addition, there is no assurance that the Company's coverage will, in fact,
be or continue to be available in sufficient amounts and on reasonable terms,
or at all.
COMPETITION
The medical practice management field is highly competitive, although the
Company believes that competition from practice management companies in New
York State is more limited than elsewhere in the United States and the
Company is not aware of any significant competition in New York State which
focuses on medical practices significantly involved in the evaluation,
diagnosis and treatment of injury-related cases. A number of large hospitals
in New York State and elsewhere have acquired medical practices and this
trend is expected to continue. The Company expects that more competition will
develop, in part as a result of its having demonstrated that management
companies can operate in the highly regulated New York environment. Potential
competitors include large hospitals and a number of public corporations
operating through a regional or national network of offices that have greater
financial and other resources than the Company. The Company's experience in
providing medical practice management services in the highly regulated New
York State environment is believed to be an important competitive factor. The
Company provides a full range of management and administrative services in a
manner which it believes does not violate the state's laws prohibiting the
corporate practice of medicine and also provides an expertise in
administering receivable processing and collections.
EMPLOYEES
At November 15, 1996, the Company employed 510 persons on a full time
basis, comprised of 42 executive and managerial employees; 148 non-medical
support persons "on-site" at clients' offices; nine marketing support
persons; six information systems support persons; six legal support persons;
16 accounting staff members; 244 billing, collection and verification
employees and 39 recording and clerical employees. The Company
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<PAGE>
believes that employees suitable for its needs are available in its current
and expected areas of activity. None of the Company's employees are
represented by a labor union and the Company is not aware of any activities
seeking such organization. The Company considers its relationships with its
employees to be good.
PROPERTIES
The Company's principal executive offices are located in approximately
8,500 square feet on the fifth and seventh floors of 254 West 31st Street,
New York, New York 10001. The floors are leased, pursuant to separate leases,
for terms expiring on March 31, 2001, at an aggregate current annual base
rent of $128,000, increasing to approximately $136,000. The Company also
leases at this location approximately 9,540 square feet on the ground floor,
mezzanine and second floor which it subleases to GMMS for medical offices.
The ground floor and mezzanine are leased for a term expiring on February 28,
2003 at a current annual base rent of $68,000, increasing to approximately
$99,700. The second floor is leased for a term expiring on August 31, 2002 at
a current annual base rent of approximately $56,900, increasing to
approximately $67,000.
The Company leases an aggregate of approximately 13,500 square feet of
leased space in a multi-story office building at 26 Court Street, Brooklyn,
New York 11242. The leases, which expire on November 30, 1998 and April 30,
2001, provide for annual base rents of up to $307,000. The current aggregate
annual base rent is approximately $297,000.
In addition, the Company leases for sublease to certain of its clients
medical office facilities, containing an aggregate of approximately 37,000
square feet in the greater New York metropolitan area. The leases expire on
various dates from February 28, 1997 through May 31, 2006 and currently
provide for aggregate annual rentals of approximately $713,000. Certain of
the leases provide for fixed annual increases in their annual base rent
during their terms.
46
<PAGE>
PROPOSED AMEDISYS MERGER
On October 17, 1995, CMI entered into the Letter of Intent for the
acquisition of Amedisys, through its merger into a wholly-owned subsidiary of
CMI in exchange for approximately 1.44 to 1.84 million Common Shares.
Although the Company has no obligation to do so, the Letter of Intent also
contemplates that CMI may invest up to $15 million in Amedisys ambulatory
surgery centers now owned or to be acquired and $4 million in other Amedisys
operations following the merger, provided such operations meet certain
post-merger financial goals. Amedisys has granted CMI an option to purchase
500,000 shares of Common Stock exercisable only upon the occurrence of
certain Prohibited Events, as defined in the Letter of Intent. The Letter of
Intent is nonbinding, except for the provisions relating to the option and
certain other ancillary matters, and is subject to the execution of a
definitive agreement, the completion of due diligence and the approval of the
Amedisys Merger by the Boards of Directors of both parties and the
shareholders of Amedisys. In addition, the Letter of Intent contemplates, and
the Company believes, that the Amedisys Merger will be treated, for
accounting and financial statement purposes, as a pooling of interests. If
the Company determines that the transaction will not be given pooling of
interests treatment, whether before or after due diligence and regulatory
review, the Company will seek to re-negotiate the terms of the Amedisys
Merger. No assurances can be given that the transaction will be given pooling
of interests treatment or, if not, the Company can reach agreement with
Amedisys on a restructured transaction. Accordingly, whether for the
foregoing or other reasons, no assurances can be given that the Amedisys
Merger will be consummated. However, since it is not improbable that the
Amedisys Merger will occur, certain business and financial information
relating to Amedisys and certain new investment considerations which will be
applicable to the Company if the Amedisys Merger is consummated are included
in this Prospectus. See "Investment Considerations" and the material with
respect to the business of Amedisys set forth below.
The Company believes that the Amedisys Merger, if consummated, will
provide the Company with added expertise in obtaining capitated fee contracts
for its clients and assisting these clients in operating in a capitated fee
environment. The Company believes that these skills are not generally
available in New York State. Further, Amedisys will also provide the Company
with additional skills in managing large independent physician associations
and ambulatory surgery centers.
AMEDISYS BUSINESS
Amedisys provides home healthcare, supplemental staffing nurses,
management services to independent home care agencies and services to
physicians. These physician services include physician practice management
and the organization, development and management of independent practice
associations ("IPA"). It also operates outpatient surgical centers and has
recently organized Future Care, Inc., a wholly owned subsidiary to organize
and operate a preferred provider network and engage in certain related
activities. Amedisys maintains 24 home healthcare and supplemental staffing
offices in eight states, operates two outpatient surgery centers in Texas,
and is developing a surgery center in Louisiana. Amedisys also manages home
health agencies, physician practices and rural health clinics and is the
network manager of the Home Care Alliance of Louisiana.
Home HealthCare. Amedisys has a network of 12 home healthcare offices in
Louisiana and four offices in Texas. Amedisys is distinguished by its
specialty home care services and a staff dominated by RNs and professional
therapists. In addition to these services, Amedisys expanded its product line
to include private duty, psychiatric home care and additional rehabilitation
services. Amedisys received Joint Commissions on Accreditation of Healthcare
Organizations ("JCAHO") accreditation with commendation in 1995 which assures
managed care organizations, Medicare and Medicaid, as well as physicians and
patients, that Amedisys has met national quality standards and places it in a
competitive position for state-wide and regional insurance, managed care and
governmental contracts.
In 1995, Amedisys developed the Home Care Alliance of Louisiana. This
alliance is a consortium of independent home care agencies which are Medicare
certified and accredited by the JCAHO. The alliance is positioned to
negotiate with managed care organizations for discounted service fees and
capitated contracts. Amedisys serves as network manager and provides central
intake and business systems to the affiliated agencies.
Home HealthCare Management Services. Amedisys offers management services
to independent home care agencies through its resource management division.
Management services include home health licensing, regulatory compliance,
administrative support services, clinical support services, billing and
reimbursement systems and proposal and bid development.
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<PAGE>
Supplemental Staffing. Amedisys has provided supplemental staffing
services for 11 years. Amedisys distinguishes itself from its competitors in
the following ways: (i) clinical managers at each office recruit nurses and
manage client services, (ii) it offers 24-hour access to staffing
coordinators who use computerized scheduling and information systems, (iii)
it maintains rigorous orientation and screening procedures, and (iv) it
utilizes a proprietary software scheduling program which generates faster
scheduling response time than traditional methods.
Outpatient Surgery. Amedisys entered the outpatient surgery market and
expanded its service delivery network through the acquisition of Surgical
Care Centers of Texas, L.C. in June 1995. This subsidiary operates two
outpatient surgery centers in the Houston, Texas area and recently changed
its name to Amedisys Surgery Centers, L.C. Amedisys is currently building a
new facility in Hammond, Louisiana in a joint venture with area surgeons and
other physicians. Amedisys plans to strategically buy, build or manage
surgery centers where they complement a network of physicians or
Amedisys-owned alternative services. Amedisys believes that this industry
will grow due to advances in technology which allow more procedures to be
performed in the outpatient setting. Specifically, endoscopic and laser
technologies are making certain procedures less invasive and lowering the
amount of time required in surgery and post-surgical care. Pain management
techniques are also a rising trend in outpatient surgery procedures. Through
the acquisition of Surgical Care Centers of Texas, L.C., Amedisys gained
entry into the outpatient surgery market which expanded Amedisys' service
delivery network. In addition, outpatient surgery centers have a higher
earning potential than nursing services. As Amedisys expands its outpatient
surgery centers in Louisiana, this expansion will provide physicians
participating in Amedisys- affiliated independent practice associations an
opportunity to provide services within the Amedisys network and have an
alternative to costly hospital services. Amedisys believes that this feature
will have a high value to physicians who want to assume some risks with
capitated fees, a developing national trend.
Physician Services. Physician services consists of physician practice
management services and development of independent practice associations
("IPA"). Amedisys believes that physician practice management companies are
ready for significant consolidation. According to the Medical Group
Management Associates (MGMA), there are approximately 600,000 physicians in
the U.S., and 16,500 medical groups to which 185,000 physicians belong. Less
than 5% of all group practices have been acquired or are affiliated with
investor owned physician practice management companies.
Amedisys' affiliated IPAs have a higher percentage of primary care
physicians than traditional IPAs. Primary care physicians are the first
access point to the managed care system. Managed care emphasizes primary
care, and efficiently delivered services at an affordable cost. Providers
give managed care organizations discounted fees for a volume of patients. In
capitated arrangements, managed care organizations pre-pay physicians for
their services with a negotiated flat fee per patient in the plan regardless
of the services performed. Providers, including physicians and hospitals,
form integrated networks to achieve a critical mass of patients which are
attractive to large managed care groups. Amedisys is positioning itself for
continuing integration and consolidation by developing physician practice
management and IPA network services to assist physicians in remaining
independent but aligned in a larger entity.
Future Care. In February 1996, Amedisys formed FutureCare, Inc., a Nevada
corporation, to organize and operate a preferred provider network ("PPO");
provide healthcare services to independent health care providers, including
IPAs; and to merge with and capitalize FutureCare Health Plans of Louisiana,
Inc. ("Health Plans"), a licensed health maintenance organization ("HMO") in
the state of Louisiana. Amedisys currently owns 33% of Health Plans. Upon
completion of an offering to capitalize FutureCare, Health Plans will merge
with and become a 70% owned subsidiary of FutureCare and Amedisys' ownership
will be reduced to 30% of Health Plans. Amedisys owns approximately 33% of
Health Plans and has provided $1 million in cash to Health Plans in order to
enable it to meet the capital requirements for licensing as an HMO in the
State of Louisiana. In addition, Amedisys has committed to advance up to
$300,000 in start-up expenses which are expected to be reimbursed upon
completion of a Louisiana securities offering of FutureCare stock.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
----- ----- ---------
<S> <C> <C>
Steven Rabinovici . 44 Chairman of the Board and Chief Executive Officer
David Jacaruso .... 52 Vice Chairman of the Board and President
Arthur L. Goldberg 57 Senior Executive Vice President and Chief Operating Officer
Dennis Shields .... 28 Executive Vice President and Director
Vice President, Chief Financial Officer, Treasurer, Secretary and
Joseph M. Scotti .. 53 Director
Dennis W. Simmons . 46 Executive Vice President of Practice Development and Managed Care
Senior Executive Vice President, Director of Operations -- Medical
Robert Keating .... 56 Legal Services
John T. Dooley .... 53 Vice President and Chief Information Officer
Richard DeMaio .... 39 Vice President and Director
Claire Cardone .... 50 Vice President
Kenneth Theobalds . 38 Vice President - Workers' Compensation
Steven Cohn ....... 46 Director
Steven A. Hirsh ... 57 Director
</TABLE>
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Directors, other
than officers or employees of the Company or holders of 10% or more of its
shares, receive an option upon taking office to purchase 20,000 Common Shares
exercisable at the fair market value on the date of grant. Officers are
elected to serve, subject to the discretion of the Board of Directors, until
their successors are appointed.
Steven Rabinovici has been Chairman of the Board and Chief Executive
Officer of the Company since December 28, 1995. From December 31, 1992
through December 27, 1995 he was the President, Chief Executive Officer and a
director of MMI. He is a founder of the Company and also provided certain
consulting services to the Company during 1994 and 1995. From July 1990
through December 31, 1992, he was an independent healthcare and business
consultant. On July 21, 1992, MEBE Enterprises, Inc., the owner and operator
of a single Roy Rogers fast food restaurant, filed for protection under
Chapter 11 of the Bankruptcy Code. Messrs. Rabinovici and Jacaruso were
founders and principals of MEBE Enterprises, Inc. Earlier in his career, Mr.
Rabinovici had more than 10 years experience in hospital administration,
including approximately two years as associate administrator of Brookdale
Hospital Medical Center, a 1,000 bed teaching hospital, and two years as the
administrator of the Division of Psychiatry, Cornell University New York
Hospital. Mr. Rabinovici has a Bachelors degree from City University of New
York, Brooklyn College, a Masters degree in Public Health from Columbia
University School of Public Health and a Juris Doctorate degree from New York
Law School.
David Jacaruso has been Vice Chairman of the Board of the Company since
December 28, 1995, as well as President, a founder and a director of the
Company since April 1993. From April 1993 through December 27, 1995 he was
Chairman of the Board of the Company. From July 1990 to April 1993 he was an
independent healthcare and business consultant. On July 21, 1992, MEBE
Enterprises, Inc., the owner and operator of a single Roy Rogers fast food
restaurant, filed for protection under Chapter 11 of the Bankruptcy Code.
Messrs. Rabinovici and Jacaruso were founders and principals of MEBE
Enterprises, Inc. Earlier in his career, Mr. Jacaruso was associated with
Brookdale Hospital for ten years and with Mt. Sinai Medical Center, holding
various administrative positions including Senior Associate Administrator for
Operations. Mr. Jacaruso has a Bachelors degree in Urban Health, a Masters
degree in Quantitative Analysis from St. John's University, and he completed
a one-year residency at Columbia University School of Public Health for
Hospital Administration.
Arthur L. Goldberg has been Senior Executive Vice President and Chief
Operating Officer of the Company since April 2, 1996. From August 1993
through March 1996 he was an independent management consultant. Prior thereto
he was the Chief Financial Officer of Elek-Tek, Inc., a reseller of computer
and related equipment
49
<PAGE>
since December 1990. Mr. Goldberg has a Bachelor's degree in Business
Administration from City University of New York, Juris Doctor and Masters of
Law degrees from New York University School of Law and a Masters of Business
Administration degree from the University of Chicago. He is also a Certified
Public Accountant.
Dennis Shields has been Executive Vice President and Director of the
Company since December 28, 1995. Prior thereto he was Vice President, Chief
Operating Officer and a Director of MMI since 1992. He is a founder of CMI.
His father, Dr. Lawrence Shields, a founder of MMI and CMI, is the 95% owner
of GMMS, the largest client of the Company. Mr. Shields has a Bachelors
degree from New York University School of Liberal Arts.
Joseph M. Scotti has been Vice President, Chief Financial Officer,
Treasurer, Secretary and Director of the Company since December 28, 1995.
Prior thereto he held similar positions with MMI since January 1993. From
February 1992 to January 1993, Mr. Scotti was a consultant to Burke & Burke,
a food store chain and from November 1986 to February 1992 he was controller
of Rols Capital Co., a mortgage lender. He has a Bachelors degree in
Accounting from Hofstra University.
Dennis Simmons has been Executive Vice President of Practice Development
and Managed Care of the Company since April 2, 1996. Mr. Simmons has over
twenty years of healthcare experience. From November 1992 to March 1996 he
was the Senior Vice President for Coastal Physician Group, Inc. Prior thereto
he worked for Medical Care Development, Inc. as a consultant to the Saudi
Arabian government and United Healthcare Corp. in Central Texas since October
1986. Mr. Simmons also developed the Emergency Medical Services Program and
STAR Flight medical helicopter service in Austin, Texas. He has a Bachelors
degree in environmental design from Texas A & M and a Master of Business
Administration degree from St. Edwards University.
Robert Keating has been Senior Executive Vice President, Director of
Operations - Medical Legal Services of the Company since April 8, 1996. From
January 1995 to April 7, 1996, Mr. Keating was the Administrative Judge,
Second Judicial District, Supreme Court, State of New York responsible for
the day to day management of the Supreme Court district that encompasses
Brooklyn and Staten Island, New York and has general jurisdiction over both
civil litigation and criminal matters. Prior thereto he was the
Administrative Judge, Criminal Court of the City of New York since April
1985. Mr. Keating managed the daily judicial and non-judicial operations of
the court, which has general jurisdiction over all violations, infractions,
misdemeanors and pre-indictment processing of felony matters in New York
City. Concurrently, from 1992 to present he has supervised and developed the
Midtown Community Court. The court opened in October 1993 and focuses on
"quality of life" crimes or crimes that erode the public's sense of pride in
its neighborhood. Mr. Keating has a Bachelors degree from Georgetown
University and a Bachelor of Law degree from Duke University.
John T. Dooley has been a Vice President and Chief Information Officer of
the Company since September 1996. From May 1996 to September 1996, Mr. Dooley
was the Chief Information Officer for three corporations affiliated with Long
Island Jewish Medical Center: CHP: The Medical Group, Managed Health Inc. and
LIJ-MS. From January 1995 to May 1996 Mr. Dooley served as the Chief
Information Officer of New Hanover Regional Medical Center, a 628 bed
tertiary care medical center and teaching hospital in Wilmington, NC. From
March 1994 to December 1995, Mr. Dooley was a Senior Manager of
Implementation Specialists for Healthcare, a management consulting firm
specializing in healthcare systems. Prior thereto, from December 1992 to
February 1995, Mr. Dooley served as the Chief Information Officer of North
Shore University Hospitals, a series of tertiary care teaching and community
hospitals comprising 1,250 beds. From May 1988 to December 1992, Mr. Dooley
served as the Assistant Vice President, Information Services of St. Vincent's
Hospital and Medical Center, an 813 bed tertiary care teaching hospital
located in New York City.
Richard DeMaio has been Vice President of Operations and Director of the
Company since March 1994. From March 1989 through February 1994, he was
assistant administrator at the Long Island Jewish Medical Center with
administrative responsibilities for various clinical and support services.
Mr. DeMaio is a member of the American College of Healthcare Executives and
has also served on the Executive Committee of the Metropolitan Health
Administrators Association. He has a Bachelors degree in Urban Health
Management from St. John's University and a Masters degree in Healthcare
Administration from Long Island University.
Claire A. Cardone has been Vice President of Operations for diagnostic
imaging of the Company since December 28, 1995. Prior thereto she was the
Vice President of Operations of MMI since 1993. From 1985 until
50
<PAGE>
1993, Ms. Cardone was Senior Associate Administrator at St. John's Episcopal
Hospital, a 300 bed community teaching hospital in Queens, New York. She has
a Master in Business Administration degree from Adelphi University and a
Bachelor's degree, cum laude, from St. John's University.
Kenneth Theobalds has been Vice President of Workers' Compensation of CMI
since July 1995. Prior thereto Mr. Theobalds was Executive Director of The
State Insurance Fund of New York State since September 1992. From 1989 to
September 1992 he served as an Assistant Secretary for Human Resources to New
York State Governor Mario M. Cuomo. Mr. Theobalds holds a Bachelor of Science
degree from Cornell University.
Steven Cohn has been a member of the law firm of Goldberg and Cohn, which
has its offices in Brooklyn, New York, and a State Committeeman for the 50th
Assembly District for more than five years. He has a Doctor of Jurisprudence
degree from Brooklyn Law School, a Masters of Law degree from New York
University School of Law and a Bachelor of Arts degree from New York
University.
Steven A. Hirsh has been a portfolio manager for William Harris & Co., a
financial services company, for more than five years. Since 1994 he has also
been Chairman, Chief Executive Officer and President of Astro Communications,
Inc., a manufacturer of strobe lights. He holds a Bachelor of Science degree
from the University of Colorado and Masters of Business Administration from
the University of Chicago.
Steven Rabinovici, David Jacaruso, Marie Graziosi, Dennis Shields and Dr.
Lawrence Shields, founders of the Company, are parties to a shareholders'
agreement (the "Shareholders' Agreement") pursuant to which they have agreed
to vote (and subsequently voted) all of their shares of the Company, for a
period of 10 years, in favor of election to the Board of Directors of the
Company and for such other or additional nominees as may be designated from
time to time and approved by the Board and to vote on all other matters in
accordance with the recommendations of the Board. Mr. Rabinovici is the
Chairman of the Board and Chief Executive Officer of the Company, Mr.
Jacaruso is the Vice Chairman of the Board and President of the Company and
Dennis Shields, the son of Dr. Shields, is the Executive Vice President and a
Director of the Company. Marie Graziosi is the wife of David Jacaruso. Dr.
Shields is a founder of CMI and MMI, the Company's largest shareholder and
the founder and a 95% shareholder of GMMS, a client which accounted for
almost all of the Company's revenues in 1995. Messrs. Rabinovici, Jacaruso,
Dennis Shields, Ms. Graziosi and Dr. Lawrence Shields beneficially own an
aggregate of approximately 3,094,581 shares or 38.5% of the Company's
outstanding Common Shares (2,594,581 shares or 25% of the Company's
outstanding shares after giving effect to the transactions contemplated
hereby or, if the over-allotment option is exercised in full, 2,197,358
shares and 21% of the outstanding shares) and, accordingly, as long as they
vote as required by the Shareholders' Agreement, may be in a position to
elect all of the persons nominated by the Board of Directors. Furthermore,
such control may adversely affect the market price of the Common Shares by
precluding any unsolicited acquisition of the Company. See "Principal
Shareholders."
The Company's Board of Directors has established Compensation and Audit
Committees, whose members are Messrs. Cohn and Hirsh. The Compensation
Committee reviews and recommends to the Board of Directors the compensation
and benefits of all officers of the Company, reviews general policy matters
relating to compensation and benefits of employees of the Company and
administers the issuance of stock options to the Company's officers,
employees, directors and consultants. The Audit Committee meets with
management and the Company's independent auditors to determine the adequacy
of internal controls and other financial reporting matters. The Compensation
Committee has not met since Mr. Hirsh became one of its members and has
advised the Board that it will convene its next meeting only after the
appointment of a third committee member. It is the intention of the Company
to appoint only independent directors to the Audit and Compensation
Committees.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information concerning the
aggregate total annual salary and bonus paid or accrued by the Company for
services rendered in 1995 to its chief executive officer and to the other
executive officers named below who received annual compensation in excess of
$100,000. None of the below named executive officers were granted options by
the Company in 1995.
51
<PAGE>
<TABLE>
<CAPTION>
Annual compensation
---------------------- All other
Salary Bonus compensation
Name and principal position Year ($) ($) ($)
--------------------------- ------ ------------ ------- --------------
<S> <C> <C> <C> <C>
Steve Rabinovici
Chairman & CEO ........... 1995 109,842(1) -- 21,124
David Jacaruso
Vice Chairman, President . 1995 165,063(2) -- 6,334
Dennis Shields
Executive Vice President . 1995 136,920(3) -- 19,870
Joseph M. Scotti
Vice President & CFO ..... 1995 117,225 -- 10,004
Jack Schwartzberg
Vice President ........... 1995 149,573 -- 15,289
</TABLE>
- ------
(1) Consists of fees of $30,650 from CMI for consultation and advice to
senior management and salary from MMI of $79,192.
(2) Includes consulting fees of $63,075 paid by CMI to Marie Graziosi for
interior design services; Ms. Graziosi is Mr. Jacaruso's wife.
(3) Consists of fees of $57,728 from CMI for consultation and advice to
senior management and salary from MMI of $79,192.
EMPLOYMENT CONTRACTS
In October 1995, the Company entered into an employment agreement with
Steven Rabinovici providing for his employment, effective upon the closing of
both the IPO and the Merger, as Chairman of the Board and Chief Executive
Officer for an initial term expiring on December 31, 1999. On December 31 of
each year, the term is automatically extended for an additional year unless
on or before such date either party elects to terminate the agreement at the
expiration of the term. The agreement provides for an annual base salary of
$250,000 and for participation in all executive benefit plans. The agreement
also provides, among other things, that, if Mr. Rabinovici's employment is
terminated without cause (as defined in the agreement), the Company will pay
him an amount equal to the salary which would have been payable to him over
the unexpired term of his employment agreement. Prior to the closing of the
IPO, Mr. Rabinovici was President, Chief Executive Officer and a director of
MMI.
In October 1995, the Company entered into an employment agreement with
David Jacaruso, providing for his employment, effective upon the closing of
both the IPO and the Merger, as Vice Chairman of the Board and President, for
an initial term expiring on December 31, 1999. On December 31 of each year,
the term is automatically extended for an additional year unless on or before
such date either party elects to terminate the agreement at the expiration of
the term. The agreement provides for an annual base salary of $250,000 and
for participation in all executive benefit plans. The agreement also
provides, among other things, that, if Mr. Jacaruso's employment is
terminated without cause (as defined in the agreement), the Company will pay
him an amount equal to the salary which would have been payable to him over
the unexpired term of his employment agreement.
In October 1995, the Company entered into an employment agreement with
Dennis Shields, providing for his employment, effective upon the closing of
both the IPO and the Merger, as Executive Vice President, for an initial term
expiring on December 31, 1999. On December 31 of each year, the term is
automatically extended for an additional year unless on or before such date
either party elects to terminate the agreement at the expiration of the term.
The agreement provides for an annual base salary of $250,000 and for
participation in all executive benefit plans. The agreement also provides,
among other things, that, if his employment is terminated without cause (as
defined in the agreement), the Company will pay Mr. Shields an amount equal
to the salary which would have been payable to him over the unexpired term of
his employment agreement. Prior to the closing of the IPO, Mr. Shields was
Vice President, Chief Operating Officer and a director of MMI.
In January 1996, the Company entered into an employment agreement with
Joseph M. Scotti, providing for his employment upon the closing of both the
IPO and the Merger, as Vice President and Chief Financial Officer
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<PAGE>
for an initial term expiring on December 31, 1999. The agreement provides for
an annual base salary of $175,000 and for participation in all executive
benefit plans. The agreement also provides, among other things, that, if Mr.
Scotti's employment is terminated without cause (as defined in the
agreement), the Company will pay him an amount equal to the salary which
would have been payable to him over the unexpired term of his employment
agreement. Prior to the closing of the IPO, Mr. Scotti was Vice President and
Chief Financial Officer and a director of MMI. In April 1996, an option to
purchase 50,000 shares exercisable at $9.00 per share during a ten year
period was granted to Mr. Scotti. The options are exercisable for one-third
of the shares covered thereby as of the date of the grant and for an
additional one-third of the shares covered thereby each year thereafter.
In March 1996, the Company entered into an employment agreement with
Arthur L. Goldberg as Senior Executive Vice President and Chief Operating
Officer expiring on March 10, 1999. The Agreement, as amended, provides for
an annual base salary of $200,000, for participation in all executive benefit
plans and for the grant of an option for 100,000 shares exercisable for a ten
year period. The option will be exercisable for 50,000 shares beginning April
1997 and 50,000 shares in April 1998.
In March 1996, the Company entered into an employment agreement with
Dennis W. Simmons providing for his employment as Executive Vice President of
Practice Development and Managed Care for a term expiring on March 10, 1999.
The agreement provides for an annual base salary of $175,000, for
participation in all executive benefit plans and for the grant of an option
for 100,000 shares exercisable for a ten year period. The option will be
exercisable for 50,000 shares beginning April 1997 and 50,000 shares in April
1998.
In March 1996, the Company entered into an employment agreement with
Robert Keating commencing on April 8, 1996, providing for his employment as
Senior Executive Vice President, Director of Operations - Medical Legal
Services. The agreement expires on December 31, 1999, but may be
automatically extended for two years on mutually agreeable terms. The
agreement provides for an annual base salary of $185,000 with escalations to
a base salary of $199,800 and $215,784 on March 7, 1997 and March 7, 1998,
respectively. The agreement also provides for participation in all executive
benefit plans and for the grant of an option for 150,000 shares exercisable
for a three year period. Up to 50,000 options vest at the end of each year of
employment: 47,500 options in each of the next three years will vest based
upon a performance formula (as defined in the agreement) and 2,500 options in
each of the next three years will vest without regard to the formula.
In September 1996, the Company entered into an employment agreement with
John T. Dooley providing for his employment as Vice President and Chief
Information Officer for a term expiring on September 23, 1997. The agreement
provides for an annual base salary of $150,000 and for participation in all
executive benefit plans and for the grant of an option for 50,000 shares
exercisable for approximately one-third of the shares covered, on a
cumulative basis, on each of the first three anniversaries on the date of
grant.
STOCK OPTIONS
In May 1995, in order to attract and retain persons necessary for the
success of the Company, the Company adopted its 1995 Stock Option Plan (the
"Option Plan") covering up to 700,000 of its Common Shares, pursuant to which
officers, directors and key employees of the Company and consultants to the
Company are eligible to receive incentive and/or non-incentive stock options.
The Option Plan, which expires in May 2005, will be administered by the Board
of Directors or a committee designated by the Board of Directors. The
selection of participants, allotment of shares, determination of price and
other conditions relating to the purchase of options will be determined by
the Board of Directors, or a committee thereof, in its sole discretion.
Incentive stock options granted under the Option Plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the
Option Plan to a shareholder owning more than 10% of the outstanding Common
Stock may not exceed five years and its exercise price may not be less than
110% of the fair market value of the Common Stock on the date of the grant.
Since the beginning of the year and through October 15, 1996, the Company
granted options for an aggregate of 941,000 shares under the Option Plan as
follows: 620,000 shares to nine officers or former officers; 40,000 to two
outside directors; and 281,000 shares to 20 key employees (including officers
of acquired com-
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panies) and consultants at exercise prices ranging from $8.375 to $15.75.
Options for 225,000 Shares included in the foregoing grants are subject to
shareholder approval of an amendment to the Option Plan increasing the number
of shares authorized for issuance thereunder. These options will have an
exercise price per share equal to the fair market value of a Common Share on
the date of such approval.
Outside directors are granted options for 20,000 shares, exercisable for
50% of the shares covered immediately upon grant and for the remainder of the
shares following one year's service, as soon as practicable after taking
office. Mr. Hirsh has waived this grant.
Options are for either five or ten year terms and, generally, vest to the
extent of one-third of the shares received on the date of grant or the first
anniversary thereof and on each of the next two anniversaries. Certain
options are exercisable only if specific performance criterion are met.
In addition the Company granted options to purchase 225,000 shares to nine
consultants including professional advisors at prices ranging from $8.375 to
$15.75.
CERTAIN TRANSACTIONS
The Company received approximately 95% and 93% of its revenue during 1994
and 1995, respectively, from its initial client, GMMS, pursuant to an
agreement dated as of April 1, 1993. On July 1, 1995, the Company and GMMS
entered into the PMSA effective April 1, 1995 which provides for the
furnishing by the Company of comprehensive management services, related
financial services and the inclusion of GMMS in a medical practices network
expected to be formed by the Company. The 95% shareholder of GMMS, Dr.
Lawrence Shields, is a founder of the Company. The agreement is for a term of
thirty years, expiring in June 2025, and can be extended in five (5) year
intervals. The various practice management fees set forth in the agreement
are subject to upward adjustment every two (2) years depending on cost of
living and other factors.
Immediately following the closing of the IPO on January 3, 1996, CMI
acquired the assets and business of MMI through its merger into a
wholly-owned subsidiary. In the Merger, the MMI shareholders received .777777
CMI Common Shares for each MMI common share which they held. The holders of
outstanding options to purchase MMI common shares received a number of CMI
Common Shares equal to the difference between their aggregate option exercise
prices and the value thereof at $7.00 per share. An aggregate of 2,364,444
and 93,281 CMI Common Shares were issued in the Merger to MMI shareholders
and option holders, respectively.
The Company is the beneficiary of key-man life insurance policies
aggregating $10,000,000 covering the life of Dr. Lawrence Shields, the 95%
shareholder of GMMS, the Company's principal client.
As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among CMI, MMI, Steven Rabinovici, David
Jacaruso, Dennis Shields, Dr. Lawrence Shields and Gail Shields ("Ms.
Shields"), the former wife of Dr. Lawrence Shields. Under the terms of the
Settlement Agreement, as revised on December 21, 1995, CMI arranged for the
sale of 117,187 MMI common shares owned by Ms. Shields at a net price to Ms.
Shields of $5.50 per share and obtained Ms. Shields' release as the maker of
a promissory note for a bank loan whose proceeds were used by GMMS (which had
previously been satisfied by GMMS) and as lessee of certain premises occupied
by GMMS, which lease has been assigned to CMI. There was no material impact
on the financial statements of CMI or MMI as a result of the foregoing
settlement.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of September 30,
1996 with respect to the beneficial ownership of the Company's Common Shares
by each shareholder known by the Company to be the beneficial owner of more
than 5% of its outstanding shares, by each director of the Company, by the
executive officers named in the table above and by the directors and
executive officers as a group and as adjusted for consummation of the
issuance of shares by the Company and the sale of shares by the Selling
Shareholder in this Offering.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Owned
Before this Offering Shares After this Offering
Name and Address(1) Number Percent Offered Number Percent
------------------------------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Steven Rabinovici (2) ......... 476,813 5.99% 476,813 4.56%
David Jacaruso (3) ............ 424,640 5.34% 424,640 4.06%
Dennis Shields (4) ............ 567,837 7.13% 567,837 5.43%
Joseph M. Scotti (5) .......... 71,690 0.90% 71,690 0.69%
Richard DeMaio (5) ............ 19,843 0.25% 19,843 0.19%
Steven Cohn (5) ............... 14,921 0.19% 14,921 0.14%
Steven A. Hirsh (6) ........... 212,054 2.66% 212,054 2.02%
Lawrence Shields (7) .......... 1,625,291 20.42% 500,000 1,125,291 10.76%
All Officers and Directors as a
group (7 persons) (5) ........ 1,735,021 21.80% 1,735,021 16.59%
</TABLE>
- ------
(1) The addresses of the persons named in this table are as follows: Steven
Rabinovici, David Jacaruso, Dennis Shields, Joseph M. Scotti and Richard
DeMaio, c/o Complete Management, Inc., 254 West 31st Street, New York,
New York 10001-2813; Steve Cohn c/o Goldberg and Cohn, 16 Court Street,
Suite 2304, Brooklyn, New York 11241; Lawrence Shields, M.D., 26 Court
Street, Brooklyn, New York 11242 and Steven A. Hirsh, c/o William Harris
& Co., 2 N. LaSalle Street, Suite 505, Chicago, IL, 60602.
(2) Includes 351,813 shares held as custodian for benefit of his minor son,
Jeffrey.
(3) Includes shares held by his wife, Marie Graziosi and shares held as
custodian for his minor children, Cara Elizabeth and David Francis.
(4) Dennis Shields is the son of Dr. Lawrence Shields.
(5) Includes options granted under the Company's stock option plan
exercisable within 60 days of the date hereof as follows: Joseph M.
Scotti, 16,667; Steven Cohn, 10,000; and Richard DeMaio, 10,000.
(6) Consists of (i) 14,833 shares and 94,444 shares issuable on the
conversion of Convertible Subordinated Notes owned by a trust of which
Mr. Hirsh is the portfolio manager with investment power, (ii) 50,000
shares issuable upon conversion of Convertible Subordinated Notes owned
by a limited partnership of which Mr. Hirsh is a general partner with
investment power and (iii) 8,333 shares and 44,444 shares issuable on
conversion of Convertible Subordinated Notes owned by Astro
Communications, Inc., a company of which Mr. Hirsh is President and Chief
Executive Officer.
(7) Dr. Lawrence Shields is the father of Dennis Shields.
The Company's officers and directors, other than Steven Hirsh, have agreed
with the Representatives that they will not sell or otherwise dispose of any
Common Shares, or any securities convertible into Common Shares without the
prior written consent of such Representatives until , 1997 [120 days after
the effective date of this Offering]. After that date, an aggregate of
3,164,368 Common Shares will become eligible for sale pursuant to Rule 144
and the limitations specified therein.
Messrs. Rabinovici, Jacaruso and Shields and Astro Communications, Inc.
have granted to the Representatives a 45-day over-allotment option, to
purchase 124,132 shares, 124,132 shares, 148,959 shares and 52,777 shares,
respectively or up to an additional 450,000 Common Shares in the aggregate,
at the public offering price, less underwriting discount, solely for the
purpose of covering overallotments, if any. Steven A. Hirsh, a director of
the Company, is President and Chief Executive Officer of Astro
Communications, Inc. Messrs. Rabinovici, Jacaruso and Shields are each
executive officers, directors and principal shareholders of the Company.
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<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures will be issued under an Indenture, to be dated as of
[December], 1996, (the "Indenture"), between CMI, as issuer, and the Chase
Manhattan Bank, as trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement. The descriptions of the Debentures and
the Indenture in this Prospectus are summaries, do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
provisions of the Indenture. Wherever terms defined in the Indenture are used
in this Prospectus, such defined terms are incorporated herein by reference.
Article and Section references appearing below refer to the Indenture.
The Debentures will be unsecured subordinated obligations of the Company,
will be limited to an aggregate principal amount of $28,750,000 (including
$3,750,000 subject to the Underwriters' Over-Allotment Option) and will
mature on [December] 15, 2003. The Debentures will bear interest at the rate
per annum stated in their title from May or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semi-annually on [December] 15 and [May] 15 of each year, commencing [May]
15, 1997, to each holder in whose name a Debenture (or any predecessor
Debenture) is registered at the close of business on the Regular Record Date
for such interest payment, which shall be [May] 1 or [December] 1 (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date (unless, with certain exceptions, such Debentures are converted or
redeemed prior to such Interest Payment Date). Interest on the Debentures
will be paid on the basis of a 360-day year consisting of twelve 30-day
months (Sections 202 and 302). Principal of and interest on the Debentures
will be payable at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, City of New York, and such other office
or agency of the Company as may be maintained for such purpose (initially the
corporate trust office of the Trustee in New York, New York). Debentures may
be surrendered for transfer, exchange, repurchase, redemption or conversion
at that agency or office. Payment of interest may, at the option of the
Company, be made by check mailed to the address of the holder entitled
thereto as it appears in the Debenture Register (See Sections 301, 305, 1002
and 1202). The Debentures will be issued only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple thereof
(Section 302). No service charge will be made for any transfer or exchange of
Debentures, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith (Section
305). The Company is not required to transfer or exchange any Debenture (i)
during a period beginning at the opening of business 15 days before the date
of the mailing of a notice of redemption and ending at the close of business
on the date of such mailing or (ii) selected for redemption, in whole or in
part, except the unredeemed portion of Debentures being redeemed in part. All
moneys paid by the Company to the Trustee or any Paying Agent for the payment
of principal of and premium, if any, and interest on any Debenture which
remain unclaimed for two years after such principal, premium or interest
became due and payable may be repaid to the Company. Thereafter, the holder
of such Debenture may, as an unsecured general creditor, look only to the
Company for payment thereof.
The Indenture does not contain any provisions that would provide
protection to holders of the Debentures against a sudden and dramatic decline
in credit quality of the Company resulting from any takeover,
recapitalization or similar restructuring, except as described under
"Description of Debentures -- Certain Rights to Require Repurchase of
Debentures."
The Indenture contains no financial covenants or covenants restricting the
incurrence of indebtedness by the Company or any Subsidiary (as defined in
the Indenture). Although certain of the agreements under which the Senior
Indebtedness is outstanding contain, and agreements in the future may
contain, limitations on the incurrence of indebtedness by the Company or its
Subsidiaries, such agreements may be amended or modified as provided therein,
may provide only incidental protection to holders of Debentures in the event
of a Repurchase Event (as described below), and are not intended for the
benefit of the holders of the Debentures. In addition, agreements under which
Senior Indebtedness is outstanding contain, and future agreements under which
future Senior Indebtedness may be outstanding may contain, provisions which
may require repayment of such Senior Indebtedness prior to repayment of the
Debentures upon, among other things, a Repurchase Event.
CONVERSION RIGHTS
The Debentures (or any portion thereof that is an integral multiple of
$1,000) will be convertible into Common Shares at the option of the holders
thereof at any time and from time to time prior to and including the
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<PAGE>
maturity date unless a Debenture or a portion thereof shall have been called
for redemption, through optional redemption, a sinking fund or otherwise, in
which case it will be convertible if duly surrendered on or before the close
of business on the fifth day preceding the Redemption Date at the conversion
price stated on the cover hereof (subject to adjustment as described below.)
The conversion price shall be subject to adjustment upon certain events
including if:
(a) The Company shall declare a dividend or make a distribution on its
outstanding Common Shares payable in Common Shares or shall declare or make a
dividend or other distribution on any other class of capital stock of the
Company or any subsidiary not wholly owned by the Company which dividend or
distribution includes Common Shares.
(b) The Company shall subdivide the outstanding Common Shares into a
greater number of shares, or combine the outstanding Common Shares into a
smaller number of shares.
(c) The Company shall fix a record date for the issuance of rights or
warrants to all holders of its Common Shares entitling them (for a period
expiring within 45 days after the record date therefor) to subscribe for or
purchase Common Shares (or securities convertible into Common Shares) at a
price per share (or having an initial conversion price per share) less than
the Current Market Price (as defined in Section 1204(h) of the Indenture) of
a Common Share of the Company on such record date.
(d) The Company shall fix a record date for making a distribution to
holders of its Common Shares or holders (other than the Company or its
wholly-owned subsidiaries) of capital stock of any Subsidiary (i) of
evidences of indebtedness of the Company or any Subsidiary, (ii) of assets
(including shares of any class of capital stock, cash or other securities,
but excluding any rights or warrants referred to in subsection (c), above, or
securities referred to in subsection (e), below, excluding any dividend or
distribution referred to in subsection (a), above, and excluding any dividend
or distribution paid exclusively in cash out of retained or current earnings)
or (iii) of rights or warrants entitling the holders thereof to receive upon
payment of the consideration set forth therein shares of capital stock of the
Company (excluding those referred to in subsection (c) above).
(e) The Company shall issue or distribute Common Shares, (excluding shares
issued (i) in any of the transactions described in subsection (a) above, (ii)
upon conversion or exchange of securities convertible into or exchangeable
for Common Shares described in subsection (f) below, (iii) to employees or
consultants under the Company's 1995 Stock Option Plan, as now in effect or
hereafter amended, if such shares would otherwise be included in this Section
(e), (iv) to the Company's employees or consultants under bona fide benefit
plans, employment agreements or consulting agreements adopted by the
Company's Board of Directors and approved by its stockholders or granted at
an exercise price of at least 100% of the fair market value of the shares on
the date of grant whether or not approved by stockholders, if such shares
would otherwise be included in this Section (e) (but only to the extent that
the aggregate number of shares excluded by this subdivision (iv), and issued
after the date of the Indenture shall not exceed 10% of the Common Shares
outstanding at the time of any such issuance), (v) upon exercise of rights or
warrants issued to the holders of Common Shares, (vi) to acquire, or in
connection with the acquisition of, all or any portion of a business as a
going concern, whether such acquisition shall be effected by purchase of
assets, exchange of securities, merger, consolidation or otherwise, (vii) in
connection with the entry into a medical practice or other professional
practice management agreement by the Company for a term of at least 5 years,
(viii) upon exercise of rights or warrants issued in a bona fide public
offering pursuant to a firm commitment underwriting, but only if no
adjustment is required pursuant to these conversion price adjustments
(without regard to Section 1204(j) of the Indenture) with respect to the
transaction giving rise to such rights or (ix) pursuant to an offering
effected at a discount of less than 5% from the Current Market Price per
share determined as provided in Section 1204(h) of the Indenture) for a
consideration per share less than the Current Market Price per share on the
date the Company fixes the offering price of such additional shares.
(f) The Company shall issue any securities, convertible into or
exchangeable for its Common Shares (excluding securities issued in
transactions described in sections (c) and (d) above, or the Securities (as
defined in the Indenture) for a consideration per Common Share initially
deliverable upon conversion or exchange of such securities less than the
Current Market Price per share in effect immediately prior to the issuance of
such securities.
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<PAGE>
Upon the termination of the right to convert or exchange such securities,
the conversion price shall forthwith be readjusted to such conversion price
as would have obtained had the adjustments made upon the issuance of such
convertible or exchangeable securities been made upon the basis of the
delivery of only the number of Common Shares actually delivered upon
conversion or exchange of such securities and upon the basis of the
consideration actually received by the Company for such securities.
No adjustment in the conversion price need be made unless such adjustment
would require an increase or decrease of at least 1% in such price; provided,
however, that any such adjustment which is not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
Fractional shares will not be issued upon conversion, but in lieu thereof,
the Company will pay cash equal to the market value of such fractional share
computed with reference to the Closing Price of the Common Shares on the last
business day prior to conversion (Section 1203). Debentures surrendered for
conversion during the period from the close of business on any Regular Record
Date to the opening of business on the next succeeding Interest Payment Date
(except Debentures whose maturity is prior to such Interest Payment Date and
Debentures called for redemption on a Redemption Date within such period)
must be accompanied by payment of an amount equal to the interest thereon to
be paid on such Interest Payment Date (provided, however, that if the Company
shall default in payment of such interest, such payment shall be returned to
the payor thereof.) Except for Debentures surrendered for conversion which
must be accompanied by payment as described above, no interest on converted
Debentures will be payable by the Company on any Interest Payment Date
subsequent to the date of conversion (Sections 307 and 1202).
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Shares or any securities convertible into or exchangeable
for Common Shares or for payment of dividends on the Common Shares or any
preferred shares of the Company.
The Company has covenanted under the Indenture to reserve and keep
available at all times out of its authorized but unissued Common Shares, for
the purpose of effecting conversions of Debentures, the full number of Common
Shares deliverable upon the conversion of all outstanding Debentures.
CERTAIN RIGHTS TO REQUIRE PURCHASE OF DEBENTURES
In the event of any Fundamental Change (as described below) affecting the
Company which constitutes a Repurchase Event occurring after the date of
issuance of the Debentures and on or prior to maturity, each holder of
Debentures will have the right, at the holder's option, to require the
Company to repurchase all or any part of the holder's Debentures on the date
(the "Repurchase Date") that is 30 days after the date the Company gives
notice of the Repurchase Event as described below at a price (the "Repurchase
Price") equal to 100% of the principal amount thereof, together with accrued
and unpaid interest to the Repurchase Date. On or prior to the Repurchase
Date, the Company shall deposit with the Trustee or a Paying Agent an amount
of money sufficient to pay the Repurchase Price of the Debentures which are
to be repurchased on or promptly following the Repurchase Date (Section
1403). In the event the Company becomes obligated to repurchase some or all
of the Debentures, the Company expects that it would seek to finance the
Repurchase Price with its available cash and short-term investments, through
available bank credit facilities (if any), or through a public or private
issuance of debt or equity securities.
Failure by the Company to repurchase the Debentures when required as
described in the second preceding paragraph will result in an Event of
Default under the Indenture whether or not such repurchase is permitted by
the subordination provisions of the Indenture (Section 501). On or before the
15th day after the occurrence of a Repurchase Event, the Company shall mail
(or at its option cause the Trustee to mail) to all holders of record of
Debentures notice of the occurrence of such Repurchase Event, setting forth,
among other things, the date by which the repurchase right must be exercised,
the Repurchase Price and the procedures which the holder must follow to
exercise this right. No failure of the Company to give such notice shall
limit any holder's right to exercise a repurchase right (Section 1402).
Failure to give notice of the Repurchase Event in accordance with the terms
of the Indenture will result in an Event of Default. To exercise the
repurchase right, the holder of a Debenture must deliver, on or before the
5th day prior to the Repurchase Date, written notice to the Company
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(or an agent designated by the Company for such purpose) of the holder's
exercise of such right, together with the certificates evidencing the
Debentures with respect to which the right is being exercised, duly endorsed
for transfer (Section 1402). Such notice of exercise may be withdrawn by the
holder by a written notice of withdrawal delivered to the Trustee at any time
prior to the close of business on the 5th day prior to the Repurchase Date
and thereafter only with the consent of the Company (Section 1402).
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Shares
shall be exchanged for, converted into, acquired for or constitute the right
to receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation in any NASDAQ system or any similar system of
automated dissemination of quotations of securities prices. For purposes of
the definition of a "Fundamental Change," (i) "substantially all of the
Common Shares" shall mean at least 85% of the Common Shares outstanding
immediately prior to the transaction or event giving rise to a Fundamental
Change and (ii) consideration shall be "substantially all common stock" if at
least 80% of the fair value (as determined in good faith by the Board of
Directors) of the total consideration is attributable to common stock. A
Fundamental Change would not include an acquisition of a majority of the
outstanding Common Shares by any person or group so long as it does not
result in termination of such listing or approval for quotation.
A Repurchase Event is a right to require the Company to repurchase the
Debentures and a Repurchase Event shall have occurred if a Fundamental Change
shall have occurred unless (i) the Current Market Price of the Common Shares
is at least equal to the conversion price of the Debentures in effect
immediately preceding the time of such Fundamental Change or (ii) the
consideration in the transaction or event giving rise to such Fundamental
Change to the holders of Common Shares consists of cash, securities that are,
or immediately upon issuance will be, listed on a national securities
exchange or quoted in the Nasdaq National Market (or in the case of
securities which are Common Shares in any NASDAQ system or any similar system
of automated dissemination of quotations of securities prices), or a
combination of cash and such securities, and the aggregate fair market value
of such consideration (which, in the case of such securities, shall be equal
to the average of the daily Closing Prices of such securities during the 10
consecutive trading days commencing with the sixth trading day following
consummation of such transaction or event) is at least 105% of the conversion
price of the Debentures in effect on the date immediately preceding the
closing date of such transaction or event. The right to require the Company
to repurchase the Debentures as a result of the occurrence of a Repurchase
Event could create an event of default under Senior Indebtedness, as a result
of which any repurchase could, absent a waiver, be prevented by the
subordination provisions of the Debentures. Failure by the Company to
repurchase the Debentures when required will result in an Event of Default
with respect to the Debentures whether or not such repurchase is permitted by
the subordination provisions. The Company's ability to pay cash to the
holders of the Debentures upon a repurchase may be limited by certain
financial covenants contained in the Senior Indebtedness. In the event a
Repurchase Event occurs and the holders exercise their rights to require the
Company to repurchase Debentures, the Company intends to comply with
applicable tender offer rules under the Exchange Act, including Rules 13e-4
and 14e-1, as then in effect, with respect to any such purchase. This right
to require repurchase would not necessarily afford holders of the Debentures
protection in the event of highly leveraged or other transactions involving
the Company that may impair the rights of holders of Debentures.
The effect of these provisions granting the holders the right to require
the Company to repurchase the Debentures upon the occurrence of a Repurchase
Event may make it more difficult for any person or group to acquire control
of the Company or to effect a business combination with the Company and may
discourage open market purchases of the Common Shares or a non-negotiated
tender or exchange offer for the Common Shares. Accordingly, such provisions
may limit a stockholder's ability to realize a premium over the market price
of the Common Shares in connection with any such transaction.
SUBORDINATION
The payment of the principal of, and interest on, the Debentures will, to
the extent set forth in the Indenture, be subordinated in right of payment to
the prior payment in full of all Senior Indebtedness. Upon any pay-
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ment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, or marshaling of assets, whether voluntary, involuntary or in
receivership, bankruptcy, insolvency or similar proceedings, the holders of
all Senior Indebtedness will be first entitled to receive payment in full of
cash amounts due or to become due thereon before any payment is made on
account of the principal of and premium, if any, or interest on the
indebtedness evidenced by the Debentures or on account of any other monetary
claims, including such monetary claims as may result from rights of
repurchase or rescission, under or in respect of the Debentures, before any
payment is made to acquire any of the Debentures for cash, property or
securities or before any distribution is made with respect to the Debentures
of any cash, property or securities. No payments on account of principal of,
sinking fund requirements, if any, or premium, if any, or interest on the
Debentures shall be made, and no Debentures shall be redeemed or repurchased,
if at the time thereof: (i) there is a default in the payment of all or any
portion of the obligations under any Senior Indebtedness; or (ii) there shall
exist a default in any covenant with respect to the Senior Indebtedness
(other than as specified in clause (i) of this sentence), and, in such event,
such default shall not have been cured or waived or shall not have ceased to
exist, the Trustee and the Company shall have received written notice from
any holder of such Senior Indebtedness stating that no payment shall be made
with respect to the Debentures and such default would permit the maturity of
such Senior Indebtedness to be accelerated provided that no such default will
prevent any payment on, or in respect of, the Debentures for more than 120
days unless the maturity of such Senior Indebtedness has been accelerated
(Section 1303).
The holders of the Debentures will be subrogated to the rights of the
holders of the Senior Indebtedness to the extent of payments made on Senior
Indebtedness upon any distribution of assets in any such proceedings out of
the distributive share of the Debentures (Section 1302).
By reason of such subordination, in the event of insolvency, creditors of
the Company, who are not holders of Senior Indebtedness or of the Debentures,
may recover less, ratably, than holders of Senior Indebtedness but may
recover more, ratably, than the holders of the Debentures.
Senior Indebtedness is defined in the Indenture as: (a) the principal of
and unpaid interest (whether accruing before or after filing of any petition
in bankruptcy or any similar proceedings by or against the Company and
whether or not allowed as a claim in bankruptcy or any similar proceeding) on
the following, whether heretofore or hereafter created, incurred, assumed or
guaranteed: (i) all indebtedness for borrowed money, created, incurred,
assumed or guaranteed by the Company (other than indebtedness evidenced by
the Debentures and indebtedness which by the terms of the instrument creating
or evidencing the same is specifically stated to be not superior in right of
payment to the Debentures); (ii) bankers' acceptances and reimbursement
obligations under letters of credit; (iii) obligations of the Company under
interest rate and currency swaps, caps, floors, collars or similar agreements
or arrangements intended to protect the Company against fluctuations in
interest or currency rates; (iv) any other indebtedness evidenced by a note
or written instrument; and (v) obligations of the Company under any agreement
to lease, or lease of, any real or personal property, which obligations are
required to be capitalized on the books of the Company in accordance with
generally accepted accounting principles then in effect (other than leases
which by their terms are specifically stated to be not superior in right of
payment to the Debentures), or guarantees by the Company of similar
obligations of others; and (b) all deferrals, modifications, renewals or
extensions of such indebtedness, and any debentures, notes or other evidence
of indebtedness issued in exchange for such indebtedness or to refund the
same (Section 101).
The Debentures are obligations exclusively of the Company. Certain
operations of the Company are currently conducted through its subsidiaries,
principally MMI and AAMC (the "Subsidiaries"). The Subsidiaries are separate
distinct entities that have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Debentures. In addition, the payment of
dividends, interest and the repayment of certain loans and advances to the
Company by the Subsidiaries may be subject to certain statutory or
contractual restrictions and are contingent upon the earnings of such
Subsidiaries. The Debentures will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of the Subsidiaries. In addition, the right of the
Company and, therefore, the right of creditors of the Company (including
holders of Debentures) to receive assets of any such Subsidiary upon the
liquidation or reorganization of any such Sub-
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sidiary or otherwise will be effectively subordinated to the claims of the
Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any secured claim on the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company.
At November 15, 1996, the Company had indebtedness to which the Debentures
would be effectively subordinated aggregating approximately $7,903,000. The
Company expects that it and its Subsidiaries will from time to time incur
additional indebtedness, including Senior Indebtedness. The Indenture does
not prohibit or limit the incurrence, assumption or guarantee by the Company
or its Subsidiaries of additional indebtedness, including Senior
Indebtedness.
EVENTS OF DEFAULT
Events of Default under the Indenture are: (i) failure to pay principal of
any Debenture when due, whether at maturity, upon redemption or acceleration,
or otherwise, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (ii) failure to pay any interest on any
Debenture when due or within 30 days thereafter, whether or not such payment
is prohibited by the subordination provisions of the Indenture; (iii) failure
to deposit when due or within 30 days thereafter any sinking fund payment for
the Debentures, whether or not such deposits are prohibited by the
subordination provisions of the Indenture; (iv) failure to pay any Repurchase
Price when due or within 10 days thereafter on any Debenture, whether or not
such payments are prohibited by the subordination provisions of the
Indenture; (v) failure to perform any other covenant of the Company in the
Indenture, which default continues for 60 days after written notice to the
Company by the Trustee or to the Company and the Trustee by the holders of
not less than 25% in aggregate principal amount of the outstanding
Debentures; (vi) default on any indebtedness of the Company or the
Subsidiaries in excess of $1,000,000 for borrowed money or on any Senior
Indebtedness resulting in such indebtedness being declared due and payable
after the expiration of any applicable grace period or becoming due and
payable and the holders thereof taking any action to collect such
indebtedness; and (vii) certain events in bankruptcy, insolvency or
reorganization of the Company or significant Subsidiaries (Section 501).
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders, unless
such holders shall have offered to the Trustee reasonable indemnity (Section
514). Subject to such provisions for the indemnification of the Trustee, the
holders of a majority in principal amount of the outstanding Debentures will
have the right to determine the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee (Section 512). If an Event of Default (other
than those relating to certain events of bankruptcy, insolvency and
reorganization) shall occur and be continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount of the outstanding
Debentures may by written notice to the Company and, if applicable, to the
Trustee, accelerate the maturity of all Debentures; provided, however, that
after such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding Debentures may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture
(Section 502). If an Event of Default occurs by reason of certain events in
bankruptcy, insolvency and reorganization, all principal and accrued and
unpaid interest due under the Debentures then outstanding shall automatically
become immediately due and payable. No holder of any Debenture will have any
right to institute any proceeding with respect to the Indenture or for any
remedy thereunder, unless such holder shall have previously given to the
Trustee written notice of a continuing Event of Default, the holders of at
least 25% in aggregate principal amount of the outstanding Debentures shall
have made written request and offered reasonable indemnity to the Trustee to
institute such proceeding as trustee, the Trustee shall not have received
from the holders of a majority in principal amount of the outstanding
Debentures a direction inconsistent with such request and the Trustee shall
have failed to institute such proceeding within 60 days after such notice
(Section 507). However, such limitations do not apply to a suit instituted by
a holder of a Debenture for the enforcement or payment of the principal or
Repurchase Price of, sinking fund payment for, if any, or interest on such
Debenture on or after the respective due dates expressed in such Debenture or
of the right to convert such Debenture in accordance with the Indenture
(Section 508).
The Indenture provides that the Trustee shall, within 90 days after a
Responsible Officer of the Trustee has actual knowledge of the occurrence of
a default (not including any grace period allowed), mail to the holders of
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the Debentures, as their names and addresses appear on the Debenture
Register, notice of all uncured defaults known to it; provided, however, that
except in the case of default in the payment of principal or Repurchase Price
of, sinking fund payment for or interest on any of the Debentures, the
Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interests of the
holders of the Debentures (Section 602).
The Company will be required to furnish to the Trustee annually a
certificate with respect to its compliance with the terms, provisions and
conditions of the Indenture and as to any default with respect thereto
(Section 1004).
OPTIONAL REDEMPTION
The Debentures are not redeemable prior to [three years after the
effective date of this Offering]. Thereafter, the Debentures will be
redeemable until maturity, at the Company's option, in whole or from time to
time in part, upon not less than 45 nor more than 60 days' notice mailed to
each holder of the Debentures at such holder's address appearing in the
Debenture Register at a redemption price equal to 100% of the principal
amount thereof plus accrued but unpaid interest to the date fixed for
redemption (subject to the right of holders of record on a relevant record
date to receive interest due on an Interest Payment Date that is on or prior
to the date fixed for redemption) except that the Debentures may not be
redeemed prior to maturity unless, for the 20 consecutive trading days
immediately preceding the date of the notice of redemption, the Closing Price
has equaled or exceeded $ [150% of the Closing Price of the Common Shares on
the effective date of this offering], subject to adjustment in the case of
the same events which result in an adjustment of the conversion price. For
purposes of optional redemption, the "Closing Price" on any trading day shall
mean the last reported sales price of the Common Shares, or, in case no such
reported sale takes place on such day, the closing bid price of the Common
Shares, on the principal national securities exchange on which the Common
Shares are listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, on the Nasdaq National Market or
NASDAQ, as the case may be, or, if the Common Shares are not listed or
admitted to trading on any national securities exchange or quoted on the
Nasdaq National Market or NASDAQ, the closing bid price in the
over-the-counter market as furnished by any New York Stock Exchange member
firm that is selected from time to time by the Company for that purpose and
is reasonably acceptable to the Trustee. If less than all of the Debentures
are to be redeemed, the Trustee, in its discretion, will select those to be
redeemed as a whole or in part by such method as the Trustee shall deem fair
and appropriate. Notice of redemption will be given to holders of the
Debentures to be redeemed by first class mail at their last address appearing
on the Debenture Register.
SINKING FUND
If the Company provides for one or more sinking funds for securities
representing indebtedness for money borrowed ranking equal or junior to the
Debentures, and such indebtedness has a maturity or weighted average time to
maturity which is on or prior to August 15, 2003, the Company will provide a
sinking fund for the Debentures calculated to retire that amount of
Debentures equal to the lesser of (i) the same percentage of outstanding
Debentures prior to maturity as the percentage of the principal amount of
such other indebtedness to be retired prior to maturity on the same payment
schedule as such other indebtedness or (ii) such amount of Debentures
necessary to result in the Debentures having the same weighted average time
to maturity as other indebtedness. Except as set forth herein with respect to
the credit against mandatory sinking fund payments, the redemption price and
other terms of the sinking fund applicable to the Debentures shall be the
same as those applicable to the relevant indebtedness, except that the
redemption price of the Debentures in connection with the sinking fund shall
be 100% of the principal amount thereof plus accrued and unpaid interest to
the date fixed for redemption. The Company may, at its option, receive credit
against mandatory sinking fund payments for the principal amount of (i)
Debentures acquired by the Company and surrendered for cancellation, (ii)
Debentures previously converted into Common Shares and (iii) Debentures
redeemed or called for redemption otherwise than through the operation of the
sinking fund.
LIMITATIONS ON DIVIDENDS AND REDEMPTIONS
The Indenture provides that the Company will not (i) declare or pay any
dividend or make any other distribution on any Junior Securities (as
described below), except dividends or distributions payable in Junior Sec-
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rities, or (ii) purchase, redeem or otherwise acquire or retire for value any
Junior Securities, except Junior Securities acquired upon conversion thereof
into other Junior Securities, or (iii) permit a Subsidiary to purchase,
redeem or otherwise acquire or retire for value any Junior Securities, if,
upon giving effect to such dividend, distribution, purchase, redemption,
retirement or other acquisition, a default in the payment of any principal or
Repurchase Price of, sinking fund payment for, if any, premium, if any, or
interest on any Debenture shall have occurred and be continuing.
The term "Junior Securities" means (i) the Common Shares, (ii) shares of
any other class or classes of capital stock of the Company, (iii) any other
non-debt securities of the Company (whether or not such other securities are
convertible into Junior Securities) and (iv) debt securities of the Company
(other than Senior Indebtedness and the Debentures) as to which, in the
instrument creating or evidencing Senior Indebtedness and the same or
pursuant to which the same is outstanding, it is expressly provided that such
debt securities are not Senior Indebtedness with respect to, or do not rank
pari passu with, the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the holders of any of the Debentures,
may consolidate with or merge into any other Person or convey, transfer, sell
or lease its assets substantially as an entirety to any Person, provided
that: (i) either (a) the Company is the continuing corporation or (b) the
corporation or other entity formed by such consolidation or into which the
Company is merged or the Person to which such assets are conveyed,
transferred, sold or leased is organized under the laws of the United States
or any state thereof or the District of Columbia and expressly assumes all
obligations of the Company under the Debentures and the Indenture; (ii)
immediately after and giving effect to such merger, consolidation,
conveyance, transfer, sale or lease no Event of Default, and no event which,
after notice or lapse of time, would become an Event of Default, under the
Indenture shall have occurred and be continuing; (iii) upon consummation of
such consolidation, merger, conveyance, transfer, sale or lease, the
Debentures and the Indenture will be a valid and enforceable obligations of
the Company or such successor Person, corporation or other entity and (iv)
the Company has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer, sale or lease complies with the provisions of the Indenture
(Sections 801 and 802).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of not less than a majority
in aggregate principal amount of the outstanding Debentures; provided,
however, that no such modification or amendment may, without the consent of
the holder of each outstanding Debenture affected thereby, (i) change the
Stated Maturity of the principal of, or any installment of interest on, any
Debenture, (ii) reduce the principal amount of any Debenture or reduce the
rate or extend the time of payment of interest thereon, (iii) change the
place or currency of payment of principal of, or Repurchase Price or interest
on, any Debenture, (iv) impair the right to institute suit for. the
enforcement of any payment on or with respect to any Debenture, (v) adversely
affect the right to convert Debentures, (vi) reduce the percentage of the
aggregate principal amount of outstanding Debentures, the consent of the
holders of which is necessary to modify or amend the Indenture, or (vii)
reduce the percentage of the aggregate principal amount of outstanding
Debentures, the consent of the holders of which is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (viii) modify the provisions of the Indenture with respect to the
subordination of the Debentures in a manner adverse to the holders of the
Debentures or (ix) modify the provisions of the Indenture with respect to the
right to require the Company to repurchase Debentures in a manner adverse to
the holders of the Debentures (Section 902). The holders of a majority in
aggregate principal amount of the Outstanding Debentures may, on behalf of
all holders of Debentures, waive any past default under the Indenture or
Event of Default except a default in the payment of principal or interest on
any of the Debentures or in respect of a provision which under the Indenture
cannot be modified without the consent of the holder of each outstanding
Debenture (Section 902).
DISCHARGE
The Indenture provides that the Company may discharge its obligations
under the Indenture while Debentures remaining outstanding if (i) all
outstanding Debentures will become due and payable at their scheduled
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maturity within one year or (ii) all outstanding Debentures are scheduled for
redemption within one year, and in either case the Company has deposited with
the Trustee an amount sufficient to pay and discharge all outstanding
Debentures on the date of their scheduled maturity or scheduled redemption
(Section 401).
GOVERNING LAW
The Indenture and the Debentures will be governed and construed in
accordance with the laws of the State of New York without giving effect to
such state's conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its Subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee or its affiliates in the ordinary
course of business, and the Trustee and its affiliates may from time to time
in the future provide the Company and its Subsidiaries with banking and
financial services in the ordinary course of their businesses.
INCOME TAX CONSEQUENCES
The following summary sets forth the principal federal income tax
consequences of holding and disposing of Debentures. This summary is based
upon laws, regulations, rulings and judicial decisions now in effect, all of
which are subject to change, possibly on a retroactive basis. This summary is
presented for informational purposes only and relates only to Debentures or
Common Shares received in exchange therefor that are held as "capital assets"
(generally, property held for investment within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code"). The summary
discusses certain federal income tax consequences to holders of Debentures
("holders") that are citizens or residents of the United States. It does not
discuss state, local or foreign tax consequences, nor does it discuss tax
consequences to categories of holders that may be subject to special rules,
such as tax exempt organizations, insurance companies, financial institutions
and dealers in stocks and securities. Tax consequences may vary depending on
the particular status of an investor.
This summary does not purport to deal with all aspects of federal income
taxation that may be relevant to an investor's decision to purchase
Debentures. Each investor should consult his or her own tax advisor as to the
particular tax consequences to such person of purchasing, holding and
disposing of the Debentures, including the applicability and effect of any
state, local or foreign tax laws and any recent proposed changes in
applicable tax laws.
STATED INTEREST
A holder using the accrual method of accounting for tax purposes generally
will be required to include interest in income as such interest accrues,
while a cash basis holder generally will be required to include interest in
income when cash payments are received (or made available for receipt) by
such holder.
CONVERSION OF DEBENTURES
Except as otherwise indicated below, no gain or loss will be recognized
for federal income tax purposes upon the conversion of Debentures into Common
Shares. Cash paid in lieu of fractional Common Shares will be taxed as if the
fractional Common Shares were issued and then redeemed for cash, resulting in
either sale or exchange treatment or dividend treatment depending upon
whether the redemption is considered "not essentially equivalent to a
dividend." The tax basis of the Common Shares received upon conversion will
be equal to the tax basis of the Debentures converted reduced by the portion
of such basis, if any, allocable to any fractional share interest exchanged
for cash. The holding period of the Common Shares received upon conversion
will include the holding period of the Debentures converted.
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (e.g. distributions of cash, evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Shares) and, pursuant to the anti-dilution
provisions of the Indenture, conversion price of the Debentures is reduced,
such reduction will be deemed to be the payment of a stock distribution to
holders which may be taxable as a divi-
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dend. If the Company voluntarily reduces the conversion price for a period of
time, holders may, in certain circumstances, have to include in gross income
an amount equal to the value of the reduction in the conversion price.
Holders could, therefore, have taxable income as a result of an event
pursuant to which they received no cash or property that could be used to pay
the related income tax.
POSSIBLE ORIGINAL ISSUE DISCOUNT
Because the Debentures have an initial interest accrual period that is
longer than each subsequent interest accrual period, it is possible that upon
retirement of the Debentures, the holders thereof would be required to
recognize income equal to the "de minimis OID" amount, within the meaning of
Section 1.1273-1 (d)(6) of regulations under the Code. Assuming a holder
holds the Debenture as a capital asset, any such income required to be
recognized thereunder will be characterized as capital gain.
DISPOSITION OF DEBENTURES OR COMMON SHARES
In general, the holder of a Debenture or the Common Shares into which it
is converted will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the Debenture or Common Shares in an
amount equal to the difference between the amount of cash and the fair market
value of property received (except to the extent attributable to the payment
of accrued interest) and the holder's adjusted tax basis in the Debenture or
Common Shares. The holder's tax basis in a Debenture-generally will be such
holder's cost, increased by the amount of accrued market discount a holder
elects to include in income with respect to the Debenture (discussed below),
and reduced by (i) any principal payments received by such holder and (ii)
the amount of any amortizable bond premium the holder elects to amortize with
respect to the Debenture. If a holder holds a Debenture as a capital asset,
such gain or loss will be a capital gain or loss except to the extent of any
accrued market discount (see "Market Discount on Resale") if the Debenture
has been held for the then requisite holding period at the time of the sale,
exchange, redemption or retirement.
MARKET DISCOUNT ON RESALE
The tax consequences of the sale of a Debenture by a holder may be
affected by the market discount provisions of the Code. Market discount is
defined as the excess of a debt instrument's stated redemption price (or its
revised issue price in the case of a debt instrument issued with original
issue discount) at maturity over the holder's tax basis in such debt
instrument immediately after its acquisition. If the market discount is less
than 25% of the stated redemption price (or the revised issue price, as the
case may be) at maturity multiplied by the number of complete years to
maturity (after the holder acquired the debt instrument), then the market
discount will be considered to be zero.
If a holder purchases a Debenture at a market discount and thereafter
recognizes gain on its disposition (or the disposition of the Common Shares
into which such Debenture is converted) such gain is treated as ordinary
interest income to the extent it does not exceed the accrued market discount
on such Debenture. In addition, recognition of gain to the extent of accrued
market discount may be required in the case of some dispositions which would
otherwise be nonrecognition transactions. Unless a holder elects to use a
constant rate method, accrued market discount equals a Debenture market
discount multiplied by a fraction, the numerator of which equals the number
of days the holder holds such Debenture and the denominator of which equals
the total number of days following the date the holder acquires such
Debenture up to and including the date of its maturity. If a holder of a
Debenture acquired at a market discount receives a partial principal payment
prior to maturity, that payment is treated as ordinary income to the extent
of the accrued market discount on the Debenture at the time payment is
received. However, when the holder disposes of the Debenture, the accrued
market discount is reduced by the amount of the partial principal payment
Enviously included in income.
A holder that acquires a Debenture at a market discount may be required to
defer a portion of any interest expense that may otherwise be deductible on
any indebtedness incurred to purchase such Debenture until the holder
disposes of such Debenture in a taxable transaction. A holder of Debentures
acquired at a market discount may elect to include the market discount in
income as the discount accrues, either on a ratable basis, or, if elected, on
a constant interest rate basis. Once made, the current inclusion election
applies to all market discount obligations acquired on or after the first day
of the first taxable year to which the election applies and may not
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be revoked without the consent of the Internal Revenue Service (the "IRS").
If a holder of a Debenture elects to include the market discount in income as
it accrues, the foregoing rules with respect to the recognition of ordinary
income on sales and certain other dispositions and with respect to the
deferral of interest deductions on related indebtedness, would not apply.
BOND PREMIUM
If, as a result of a purchase at a premium, a holder's adjusted tax basis
in a Debenture exceeds the Debenture's stated redemption price at maturity,
such excess may constitute amortizable bond premium. If the Debenture is a
capital asset in the hands of the holder, Section 171 of the Code allows the
holder to elect to amortize any such bond premium under the constant interest
rate method as an offset against interest income earned on the Debenture. The
amount of amortizable bond premium equals the excess of the holder's basis
(for determining loss on sale or exchange) in the Debenture over the amount
payable at maturity or, if it results in a smaller amortizable bond premium,
an earlier call date. If a holder is required to amortize bond premium by
reference to such a call date and the Debenture is not in fact called on such
date, the remaining unamortized premium must be amortized to a succeeding
call date or to maturity.
A holder's tax basis in a Debenture must be reduced by the amount of
amortized bond premium. An election to amortize bond premium applies to all
bonds (other than tax-exempt bonds) held by the holder at the beginning of
the first taxable year to which the election applies or thereafter acquired
by the holder and is irrevocable without the consent of the IRS.
BACKUP WITHHOLDING
Under the "backup withholding" provisions of federal income tax law, the
Company, its agent, a broker or any paying agent, as the case may be, will be
required to withhold a tax equal to 31% of any payment of (i) principal,
premium, if any, and interest on the Debentures, (ii) proceeds from the sale
or redemption of the Debentures, (iii) dividends on the Common Shares and
(iv) proceeds from the sale or redemption of the Common Shares, unless the
holder (a) is exempt from backup withholding and, when required, demonstrates
this fact to the payor or (b) provides a taxpayer identification number to
the payor, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules. Certain holders (including corporations, tax-exempt organizations,
individual retirement accounts and, to a limited extent, nonresident aliens)
are not subject to the backup withholding importing requirements. A
nonresident alien must submit a statement, signed under penalties of perjury,
attesting to that individual's exemption from backup withholding. A holder of
Debentures or Common Shares that is otherwise required to but does not
provide the Company with a correct taxpayer identification number may be
subject to penalties imposed by the Code. Any amounts paid as backup
withholding with respect to the Debentures or Common Shares will be credited
to the income tax liability of the person receiving the payment from which
such amount was withheld. Holders of Debentures and Common Shares should
consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 20,000,000 Common
Shares, par value $.001 per share, of which 8,031,471 shares are outstanding
on the date of this Prospectus, and 2,000,000 Preferred Shares, par value
$.001 per share, issuable in series, none of which are outstanding.
COMMON SHARES
Holders of the Common Shares are entitled to one vote for each share held
of record by them. The Common Shares have no redemption, preemptive, or
sinking fund rights. Holders of the Common Shares are entitled to dividends
as and when declared by the Board of Directors from funds legally available
therefor and, upon liquidation, dissolution or winding up of the Company, to
participate ratably in all assets remaining after pay-
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ment of all liabilities. The Common Shares are not redeemable and do not have
any conversion rights or preemptive rights. All Common Shares issued and
outstanding are, and those offered hereby when issued will be, legally
issued, fully-paid and non-assessable. See "Dividend Policy."
Steven Rabinovici, David Jacaruso, Marie Graziosi, Dennis Shields and Dr.
Lawrence Shields, the founders of the Company, have entered into a
Shareholders' Agreement pursuant to which they have agreed to vote all of
their shares, for a period of 10 years, in favor of the election to the Board
of Directors of the Company of the nominees approved by the Board and to vote
on all other matters in accordance with the recommendations of the Board. Mr.
Rabinovici is Chairman of the Board and Chief Executive Officer of the
Company, and Mr. Jacaruso is Vice Chairman of the Board and President of the
Company. Dr. Shields is the Company's largest shareholder and the father of
Dennis Shields who is Executive Vice President and a Director of the Company.
Marie Graziosi is the wife of David Jacaruso. Messrs. Rabinovici, Jacaruso
and Shields, Ms. Graziosi and Dr. Lawrence Shields beneficially own
approximately 38.5% of the Company's outstanding Common Shares and,
accordingly, as long as they vote as required by the Shareholders' Agreement,
will be in a position to elect all of the persons nominated by the Board of
Directors. Further, such control by the founding shareholders could preclude
any unsolicited acquisition of the Company and consequently affect the market
price of the Common Shares.
PREFERRED SHARES
The Company's Certificate of Incorporation provides that the Board of
Directors of the Company has the authority, without further action by the
holders of the outstanding Common Shares, to issue up to 2,000,000 Preferred
Shares from time to time in one or more classes or series, to fix the number
of shares constituting any class or series and the stated value thereof, if
different from the par value, and to fix the terms of any such series or
class, including dividend rights, dividend rates, conversion or exchange
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price and the liquidation preference of such
class or series. The Company does not have any Preferred Shares outstanding
and has no present intention to issue any Preferred Shares. The designations,
rights and preferences of any Preferred Shares would be set forth in a
Certificate of Designation which would be filed with the Secretary of State
of New York.
IPO REPRESENTATIVES' WARRANTS
In connection with the Company's IPO, it sold to the IPO Representatives,
at a price of $.001 per Warrant, 200,000 IPO Representatives' Warrants,
entitling the holders thereof to purchase up to 200,000 Common Shares at a
purchase price of $10.80 per share for a period of four (4) years commencing
one year from the effective date of the IPO, December 28, 1995.
FIRST SERIES DEBENTURE OFFERING REPRESENTATIVE'S WARRANTS
In connection with the First Series Debenture Offering, the Company sold
to the First Series Debenture Offering Representative, or its designee, for
nominal consideration, 250,000 First Series Debenture Offering
Representative's Warrants entitling the holders thereof to purchase 250,000
Common Shares at a purchase price of $21.04 per share for a period of four
years commencing one year from June 5, 1996, the effective date of the First
Series Debenture Offering.
REPRESENTATIVES' WARRANTS
In connection with this offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants (the "Representative's
Warrants") to purchase up to ________ Common Shares [i.e. that number of
Common Shares as equal 10% of the aggregate principal amount of the
Debentures when valued at the Closing Price of the Common Shares on the AMEX
on the effective date of this offering (the "Closing Price") plus 250,000
Common Shares at a price equal to 165% of the market price of the Common
Shares on the effective date of this Offering]. The Representatives' Warrants
are exercisable for a period of four years commencing one year from the date
of this Prospectus. The Representatives' Warrants provide for reductions,
which in certain circumstances could be material, in the exercise price of
the Representatives' Warrants upon the occurrence of certain events,
including the issuance by the Company of Common Shares for a price below the
market price of the Common Shares, and corresponding potentially significant
increases in the number of shares
67
<PAGE>
purchasable upon exercise of the Representatives' Warrants. The
Representatives' Warrants also provide for adjustment of the type of
securities issuable upon exercise of the Representatives' Warrants to reflect
changes in the Common Shares. The Representatives' Warrants grant to the
holders thereof certain rights with respect to the registration under the
Securities Act of the securities issuable upon exercise of the
Representatives' Warrants.
REPORTS
The Company intends to furnish to its shareholders annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information. In addition, the Company is required to file periodic reports on
Forms 8-K, 10-Q and 10-K with U.S. Securities and Exchange Commission and
make such reports available to its shareholders.
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty
to the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through
negligent or grossly negligent conduct, to satisfy their duty of care, which
requires them to exercise informed business judgment. The liability of
directors under the federal securities laws is not affected. A director may
be liable for monetary damages only if a claimant can show a breach of the
individual director's duty of loyalty to the Company, a failure to act in
good faith, intentional misconduct, a knowing violation of the law, an
improper personal benefit or an illegal dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized
by the Business Corporation Law, against all expense, liability and loss
(including attorneys fees, judgments, fines, Employee Retirement Income
Security Act, excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith.
LISTING ON AMEX
CMI Common Shares are listed on the AMEX under the symbol "CMI."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Continental
Stock Transfer and Trust Company, 2 Broadway, New York, NY 10004.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
10,458,971 Common Shares. Of these shares, the 3,000,000 shares (or a maximum
of 3,450,000 Common Shares in the event the Representatives exercise its
Over-Allotment Option in full) sold in this offering, the 1,410,520 Common
Shares issued to non-affiliates in the MMI Merger and the 2,300,000 Common
Shares in the IPO will be freely tradable without restrictions under the
Securities Act. The remaining 3,748,451 Common Shares held by existing
shareholders (3,298,451 shares if the Over-Allotment Option is exercised in
full) were issued by the Company in private transactions in reliance upon one
or more exemptions under the Securities Act, are "restricted securities"
within the meaning of Rule 144 under that Act, and may be resold in a public
distribution only if registered under the Securities Act or pursuant to an
exemption therefrom, including Rule 144. In general, under Rule 144 a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least two years is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding Common Shares and the average weekly trading volume in composite
trading on all exchanges during the four calendar weeks preceding such sale.
In addition, sales under Rule 144 may be made only through unsolicited
"broker's transactions" or to a "market maker" and are subject to various
other conditions.
The Company's executive officers and directors, other than Steven Hirsh,
have agreed with the Representatives that they will not sell or otherwise
dispose of any Common Shares or any securities convertible into
68
<PAGE>
Common Shares without the prior written consent of such Representatives until
, 1997 [180 days after the effective date of this offering]. The lock-up does
not apply to the sale of shares by the Selling Shareholder in this offering
or the shares subject to the Over-Allotment Option. After the lock-up period,
such Common Shares will be eligible for sale in the public market pursuant to
Rule 144 if the conditions of that Rule have been met. The Company is unable
to estimate the amount of restricted securities that will be sold under Rule
144 because this will depend, among other factors, on the market price for
the Common Shares and the personal circumstances of the sellers.
The Company has reserved 1,157,792 Common Shares for issuance upon the
exercise of options that have been granted to officers, directors, key
employees and consultants pursuant to and outside its Option Plan, of which
options for 232,792 Common Shares are subject to shareholder approval of an
amendment to the Option Plan. Unless registered under the Securities Act,
Common Shares issued upon the exercise of outstanding options will be
restricted securities. After this offering, the Company intends to file a
registration statement under the Securities Act to register the Common Shares
issuable pursuant to the Stock Option Plan. Such registration statement will
become effective automatically 20 days after filing. Common Shares issued
after the effective date of such registration statement under the Option Plan
will generally be eligible for resale in the open market.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
the Company and the Underwriters named below (the "Underwriters"), the
Company has agreed to sell to the Underwriters for whom National Securities
Corporation and Commonwealth Associates are acting as representatives (in
such capacity, the "Representatives"), and the Underwriters have severally
and not jointly agreed to purchase the principal amount of Debentures set
forth below.
<TABLE>
<CAPTION>
Amount of Number
Underwriters Debentures of Shares
------------ ------------- -----------
<S> <C> <C>
National Securities Corporation
Commonwealth Associates .......
------------- -----------
Total .................... $25,000,000 3,000,000
============= ===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by their
counsel and various other conditions. The maturing of the Underwriters'
obligations are such that they are committed to purchase all of the above
Debentures if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Debentures to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of ___% of the principal amount of the
Debentures. The Underwriters may allow, and such dealers may allow, a
concession not in excess of ___% of the principal amount of the Debentures to
certain other dealers. After the offering, the offering price and other
selling terms may be changed by the Representatives. The Company has granted
to the Underwriters an option exercisable during the 45-day period commencing
on the date of this Prospectus to purchase from the Company, at the offering
price less underwriting discount, up to an aggregate of $3,750,000 principal
amount of Debentures for the sole purpose of covering over-allotments, if
any. To the extent that the Underwriters exercise the option, each
Underwriter will have a firm commitment to purchase approximately the same
percentage thereof that the principal amount of Debentures shown in the above
table bears to the total shown, and the Company will be obligated, pursuant
to the option, to sell such principal amount of Debentures to the
Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Representatives a non-accountable expense allowance
equal to 2% of the gross proceeds derived from the sale of the Debentures and
the Common Shares underwritten, $25,000 of which has been advanced.
69
<PAGE>
In connection with this offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants (the "Representatives'
Warrants") to purchase up to ________ Common Shares [i.e., that number of
Common Shares as equal 10% of the aggregate principal amount of the
Debentures when valued at the closing price of the Common Shares on the AMEX
on the effective date of this offering plus 250,000 Common Shares at a price
equal to 165% of the market price of the Common Shares on the effective date
of this Offering]. The Representatives' Warrants are exercisable for a period
of four years commencing one year from the date of this Prospectus. The
Representatives' Warrants provide for adjustment in the exercise price of the
Representative's Warrants in the event of certain mergers, acquisitions,
stock dividends and capital changes. The Representatives' Warrants grant to
the holders thereof certain rights with respect to the registration under the
Securities Act of the securities issuable upon exercise of the
Representatives' Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the Registration
Statement, of which this Prospectus forms a part. See "Available
Information."
LEGAL MATTERS
The validity of the Debentures and the Common Stock issuable upon
conversion thereof will be passed upon for the Company by Morse, Zelnick,
Rose & Lander, LLP, 450 Park Avenue, New York, New York 10178. Members of the
firm beneficially own an aggregate of 116,194 Common Shares. Camhy Karlinsky
& Stein LLP, 1740 Broadway, Sixteenth Floor, New York, New York 10019-4315
has acted as counsel to the Underwriters in connection with this offering.
EXPERTS
The consolidated financial statements of Complete Management, Inc.,
Medical Management, Inc., Advanced Alliance Management Corp., and Amedisys,
Inc. and Subsidiaries and schedules included (incorporated by reference) in
this Prospectus and elsewhere in the Registration Statement to the extent and
for the periods indicated in their reports have been audited by Arthur
Andersen LLP, independent public accountants and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of Medical Management, Inc. at December 31, 1994
and 1993, and for each of the two years in the period ended December 31,
1994, appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended and, in accordance therewith, files reports
and other information with the SEC. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. and at the following
regional offices of the SEC: New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048; and Chicago Regional Office, 500 West
Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the public reference section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus does not contain all of the information set forth in the
Registration Statement on Form S-l, of which this Prospectus forms a part,
and the exhibits thereto which the Company has filed with the SEC under the
Securities Act, to which reference is hereby made for further information
concerning the Company and the Debentures.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
COMPLETE MANAGEMENT, INC.
Report of Independent Public Accountants ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (Unaudited) .. F-3
Consolidated Statements of Income for the period from April 1, 1993 to December 31, 1993, for the
years ended December 31, 1994 and 1995 and for nine month periods ended September 30, 1995 and
1996 (Unaudited) .............................................................................. F-4
Consolidated Statements of Stockholders' Equity for the period from April 1, 1993 to December 31,
1993, for the years ended December 31, 1994 and 1995 and for the nine month period ended
September 30, 1996 (Unaudited) ................................................................ F-5
Consolidated Statements of Cash Flows for the period from April 1, 1993 to December 31, 1993, for
the years ended December 31, 1994 and 1995 and for the nine month periods ended September 30,
1995 and 1996 (Unaudited) ..................................................................... F-6
Notes to Consolidated Financial Statements ....................................................... F-7
MEDICAL MANAGEMENT, INC.
Report of Independent Public Accountants ......................................................... F-21
Report of Independent Auditors ................................................................... F-22
Balance Sheets as of December 31, 1994 and 1995 .................................................. F-23
Statements of Income for the years ended December 31, 1993, 1994 and 1995 ........................ F-24
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 .......... F-25
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 .................... F-26
Notes to Financial Statements .................................................................... F-27
ADVANCED ALLIANCE MANAGEMENT CORP.
Report of Independent Public Accountants ......................................................... F-39
Consolidated Balance Sheets as of December 31, 1994, 1995, and September 30, 1996 (Unaudited) .... F-40
Consolidated Statements of Income for the years ended December 31, 1994 and 1995 and for the nine
month periods ended September 30, 1995 and 1996 (Unaudited) ................................... F-41
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995 and
for the nine month period ended September 30, 1996 (Unaudited) ................................ F-42
Consolidated Statements of Cash Flows for the year ended December 31, 1994 and 1995 and the nine
month periods ended September 30, 1995 and 1996 (Unaudited) ................................... F-43
Notes to Consolidated Financial Statements ....................................................... F-44
AMEDISYS, INC.
Report of Independent Public Accountants ......................................................... F-48
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (Unaudited) .. F-49
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995 and for the
nine month periods ended September 30, 1995 and 1996 (Unaudited) .............................. F-50
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995 and for the nine month period ended September 30, 1996 (Unaudited) ....................... F-51
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for
the nine month periods ended September 30, 1995 and 1996 (Unaudited) .......................... F-52
Notes to Consolidated Financial Statements ....................................................... F-54
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Complete Management, Inc.:
We have audited the accompanying consolidated balance sheets of Complete
Management, Inc. (a New York corporation) and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for the period from April 1, 1993 to
December 31, 1993 and the years ended December 31, 1994 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Complete
Management, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for the period from April 1,
1993 to December 31, 1993 and the years ended December 31, 1994 and 1995, in
conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP
New York, New York
March 26, 1996
F-2
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 AND
AS OF SEPTEMBER 30, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
September 30,
1994 1995 1996
------------ ------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash ................................................................. $ -- $ -- $ 11,792,115
Marketable Securities ................................................ -- -- 25,177,222
Notes Receivable from a related party ................................ -- -- 1,952,792
Accounts Receivable:
From a related party, less allowances of -0-, -0-, and $609,000,
respectively, and net of unamortized discount of $971,064,
$1,307,034 and $1,651,643 (unaudited) respectively ................ 4,074,764 5,325,147 13,414,708
Other ................................................................ -- -- 3,021,180
------------ ------------- ---------------
4,074,764 5,325,147 16,435,888
Short-term Investments ............................................... -- -- 800,800
Prepaid expenses and other current assets ............................ 1,664 356,097 1,196,771
------------ ------------- ---------------
Total current assets ................................................ 4,076,428 5,681,244 57,355,588
Long-term portion of notes receivable from a related party ............. -- -- 67,193
Long-term portion of accounts receivable, net of unamortized discount of
$508,537, $603,758 and $620,151 (unaudited) respectively ............. 3,604,571 9,559,424 23,171,951
Marketable securities held to maturity--non-current .................... -- -- 673,789
Property and equipment, less accumulated depreciation and amortization
of $71,708, $173,483 and 2,111,466 (unaudited) ....................... 303,774 400,170 6,544,134
Excess of cost over net assets acquired, less accumulated amortization
of $325,332 (unaudited) .............................................. -- -- 12,068,217
Deferred registration costs ............................................ -- 1,985,446 --
Deferred note issuance costs ........................................... -- -- 4,691,560
Other assets ........................................................... 24,172 233,777 635,543
------------ ------------- ---------------
Total assets ....................................................... $8,008,945 $17,860,061 $105,207,975
============ ============= ===============
Liabilities and stockholders' equity
Current liabilities:
Notes payable ........................................................ $ -- $ 1,000,000 $ --
Accounts payable and accrued expenses ................................ 742,252 2,815,718 1,845,336
Income taxes payable ................................................. 39,971 39,371 2,354,258
Deferred income taxes -- current ..................................... 1,679,052 1,799,523 5,102,647
Current portion of long-term debt .................................... -- 89,369 316,458
Current portion of obligations under capital leases .................. -- -- 521,910
------------ ------------- ---------------
Total current liabilities ............................................ 2,461,275 5,743,981 10,140,609
Deferred income taxes -- non-current ................................... 1,694,148 4,435,776 5,164,834
Long-term debt ......................................................... -- 228,534 398,227
Deferred rent .......................................................... -- 121,595 --
Obligations under capital leases ....................................... -- -- 1,567,208
Convertible subordinated debt .......................................... -- -- 45,250,000
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized, 2,000,000 shares
Issued and outstanding, none ...................................... -- -- --
Common stock, $.001 par value:
Authorized, 20,000,000 shares
Issued and outstanding, 2,952,795 shares at December 31, 1994,
2,980,573 shares at December 31, 1995 and 7,673,293 shares at
September 30, 1996 (unaudited) .................................. 2,953 2,981 7,673
Paid-in capital ...................................................... -- 249,972 31,687,169
Retained earnings .................................................... 3,850,569 7,077,222 10,992,255
------------ ------------- ---------------
Total stockholders' equity .......................................... 3,853,522 7,330,175 42,687,097
------------ ------------- ---------------
Total liabilities and stockholders' equity ........................ $8,008,945 $17,860,061 $105,207,975
============ ============= ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIOD FROM APRIL 1, 1993 TO
DECEMBER 31, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Period from
April 1, 1993 to
December 31, Year ended December 31, Nine months ended September 30
---------------- ------------------------------ ------------------------------
1993 1994 1995 1995 1996
---------------- ------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
From a related party ............ $5,282,614 $10,654,298 $12,293,830 $ 9,056,236 $18,020,364
Other ........................... -- -- -- -- 2,009,529
Interest discount ............... (864,664) (1,743,900) (2,016,357) (1,482,328) (1,747,825)
---------------- ------------- ------------- ------------- -------------
Net revenue ....................... 4,417,950 8,910,398 10,277,473 7,573,908 18,282,068
---------------- ------------- ------------- ------------- -------------
Cost of revenue ................... 1,102,900 1,948,755 2,771,256 1,721,692 6,597,746
General and administrative expenses 1,482,653 2,374,695 2,863,806 2,090,455 4,859,068
Fees paid to related parties ...... 204,529 196,627 109,975 77,175 10,425
---------------- ------------- ------------- ------------- -------------
2,790,082 4,520,077 5,745,037 3,889,322 11,467,239
---------------- ------------- ------------- ------------- -------------
Operating income .................. 1,627,868 4,390,321 4,532,436 3,684,586 6,814,829
Interest discount included in
income .......................... 206,981 921,977 1,585,171 1,144,210 1,855,382
Interest expense .................. -- -- (45,502 ) -- (1,829,734)
Other income ...................... 61,723 54,870 16,048 13,179 --
Interest and Dividend Income ...... -- -- -- -- 687,356
---------------- ------------- ------------- ------------- -------------
Income before provision for income
taxes ........................... 1,896,572 5,367,168 6,088,153 4,841,975 7,527,833
Provision for income taxes ........ 890,729 2,522,442 2,861,500 2,276,000 3,612,800
---------------- ------------- ------------- ------------- -------------
Net income ........................ $1,005,843 $ 2,844,726 $ 3,226,653 $ 2,565,975 $ 3,915,033
================ ============= ============= ============= =============
Primary net income per share ...... $ 0.34 $ 0.95 $ 1.08 $ 0.87 $ 0.50
================ ============= ============= ============= =============
Weighted average number of shares
outstanding ..................... 2,980,573 2,980,573 2,980,573 2,963,906 7,839,899
================ ============= ============= ============= =============
Fully diluted net income per share N/A N/A N/A N/A $ 0.42
================ ============= ============= ============= =============
Fully diluted weighted average
number of shares outstanding. ... N/A N/A N/A N/A 9,264,473
================ ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM APRIL 1,
1993 TO
DECEMBER 31, 1993 AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR
THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
----------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of 2,952,795 shares of
common stock at $.001 par value $ -- $2,953 $ -- $ -- $ 2,953
Net income from April 1, 1993 to
December 31, 1993 ............. -- -- -- 1,005,843 1,005,843
----------- -------- ------------- ------------- -------------
Balance at December 31, 1993 ... -- 2,953 -- 1,005,843 1,008,796
Net income for the year ended
December 31, 1994 ............. -- -- -- 2,844,726 2,844,726
----------- -------- ------------- ------------- -------------
Balance at December 31, 1994 ... -- 2,953 -- 3,850,569 3,853,522
Issuance of 27,778 shares of
common stock at $.001 par value
to secured lenders ............ -- 28 249,972 -- 250,000
Net income for the year ended
December 31, 1995 ............. -- -- -- 3,226,653 3,226,653
----------- -------- ------------- ------------- -------------
Balance at December 31, 1995 ... $ -- $2,981 $ 249,972 $ 7,077,222 $ 7,330,175
Issuance of 2,000,000 shares of
common stock, net of
registration costs (unaudited) -- 2,000 14,318,226 -- 14,320,226
Issuance of 2,525,261 shares of
common stock, net of
registration costs in
conjunction with merger with
MMI (unaudited) ............... -- 2,525 14,817,696 -- 14,820,221
Issuance of 167,459 shares of
common stock relating to
acquisitions (unaudited) ...... -- 167 2,301,275 -- 2,301,442
Net income for the nine months
ended September 30, 1996 ...... -- -- -- 3,915,033 3,915,033
----------- -------- ------------- ------------- -------------
Balance at September 30, 1996 .. $ -- $7,673 $31,687,169 $10,992,255 $42,687,097
=========== ======== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM APRIL 1, 1993 TO
DECEMBER 31, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Period from
April 1, 1993 to
December 31, Year ended December 31, Nine months ended September 30
--------------- ------------------------------ -------------------------------
1993 1994 1995 1995 1996
--------------- ------------- ------------ ------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income ........................................ $ 1,005,843 $ 2,844,726 $ 3,226,653 $ 2,565,975 $ 3,915,033
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................... 16,914 54,794 101,775 74,955 1,303,590
Discount of accounts receivable, net of
amortization ................................. 657,683 821,918 431,191 338,122 361,002
Provision for deferred income taxes ............. 850,100 2,523,100 2,862,099 2,103,500 3,572,000
Amortization of prepaid insurance ............... -- -- 24,306 -- --
Amortization of original issue discount ......... -- -- 12,500 -- --
Write off of original issue discount ............ -- -- -- -- 237,500
Changes in operating assets and liabilities:
Notes receivable from a related party ........ -- -- -- (103,415) (1,170,999)
Accounts receivable .......................... (2,622,777) (6,536,159) (7,636,427) (5,284,265) (16,141,820)
Prepaid expenses and other current assets .... (2,739) 1,075 (266) 523 (925,795)
Accounts payable and accrued expenses ........ 194,755 402,846 1,945,655 464,801 (3,206,755)
Deferred costs and other assets .............. -- -- -- -- 281,458
Income taxes payable ......................... 40,629 (658) (600) 172,500 (115,168)
Other assets ................................. (23,092) (1,080) (578) -- --
Deferred rent ................................ -- -- 121,595 -- --
--------------- ------------- ------------- ------------- --------------
Net cash provided by (used in) operating
activities ...................................... 117,316 110,562 1,087,903 332,696 (11,889,954)
--------------- ------------- ------------- ------------- --------------
Investing activities
Purchase of property and equipment ................ (182,516) (192,966) (177,768) (138,466) (1,539,705)
Purchase of marketable securities ................. -- -- -- -- (99,461,657)
Proceeds from sale of marketable securities ....... -- -- -- -- 73,719,580
Businesses acquired net of cash received .......... -- -- -- -- (1,538,671)
Purchase of short-term investments ................ -- -- -- -- (800,800)
--------------- ------------- ------------- ------------- --------------
Net cash used in investing activities ............. (182,516) (192,966) (177,768) (138,466) (29,621,253)
--------------- ------------- ------------- ------------- --------------
Financing activities
Deferred registration costs ....................... -- -- (1,985,446) -- --
Proceeds from issuance of notes payable ........... -- -- 1,000,000 -- --
Bank overdraft .................................... 62,247 82,404 75,311 (79,620) --
Issuance of common stock .......................... 2,953 -- -- -- --
Proceeds from issuance of common stock, net of
underwriters' commission and expenses ........... -- -- -- -- 16,380,000
Payments of registration costs of common stock .... -- -- -- (215,184) (2,222,611)
Proceeds from issuance of subordinated debentures
and notes, net of underwriters' commission and
expenses ........................................ -- -- -- -- 41,144,000
Deferred note issuance cost ....................... -- -- - -- (793,127)
Proceeds from long-term debt ...................... -- -- -- 400,000 --
Proceeds from capital lease obligations ........... -- -- -- -- --
Cash acquired in merger ........................... -- -- -- -- 199,614
Repayment of notes payable ........................ -- -- -- -- (1,000,000)
Principal payment of long-term debt ............... -- -- -- -- (83,119)
Repayment of capital lease obligations ............ -- -- -- -- (321,435)
--------------- ------------- ------------- ------------- --------------
Net cash provided by (used in) financing activities 65,200 82,404 (910,135) 105,196 53,303,322
--------------- ------------- ------------- ------------- --------------
Net increase (decrease) in cash ................... -- -- -- 299,426 11,792,115
Cash at the beginning of the period ............... -- -- -- -- --
--------------- ------------- ------------- ------------- --------------
Cash at the end of the period ..................... $ -- $ -- $ -- $ 299,426 $ 11,792,115
=============== ============= ============= ============= ==============
Supplemental disclosures of cash flow
information
Cash paid during the period
Interest ........................................ $ -- $ -- 21,233 -- 1,103,844
Taxes ........................................... -- -- -- -- 145,514
Non-cash financing activities:
Issuance of common stock ......................... -- -- 250,000 -- --
Capital stock issued for acquisition .............. -- -- -- $ 100,000 $ 17,556,309
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
COMPLETE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 1, 1993 TO DECEMBER 31, 1993
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Complete Management, Inc. (the "Company"), a New York corporation, was
incorporated on December 30, 1992, and commenced operations on April 1, 1993.
The Company had no operations from the time of its incorporation through
March 31, 1993. The Company provides comprehensive management services
primarily to high volume medical practices in New York State. The Company's
services include development, administration and leasing of medical offices
and equipment, staffing and supervision of non-medical personnel, accounting,
billing and collection, and development and implementation of practice growth
and marketing strategies.
In April 1993, the Company commenced servicing its initial client, Greater
Metropolitan Medical Services', a multi-site medical practice in the New York
metropolitan area (the "PC" or "GMMS"). The PC, at December 31, 1994, was
wholly owned by a physician stockholder (95% owned effective July 1995) who
is a neurologist and also a founder and principal stockholder of the Company.
All of the Company's net revenues in 1993, 1994 and 1995, were earned under a
management contract with the PC and a substantial part of that growth in the
Company's business is a direct result of comparable growth of the PC. While
the Company expects to continue to market to other potential clients, it
expects that its relationship with the PC will be a dominant factor in its
business for the foreseeable future. There is no assurance however, that
future relationships will produce similar results of operations as currently
experienced by the Company under this arrangement with the PC. The continued
vitality of the PC is subject to numerous risks, including its continued
ability to retain its key medical personnel, malpractice claims and
regulatory compliance (see Note 12 for additional related party information).
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Preparation of Financial Statements
The consolidated financial statements include the accounts of the Company
and subsidiaries. All significant inter-company balances and transactions
have been eliminated in consolidation.
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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Periods Presented
The interim consolidated financial statements for the nine month period
ended September 30, 1995 and 1996 are unaudited. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1996, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
Revenue Recognition
Fee revenue is recognized based upon a contractual agreement for
management services rendered by the Company. The Company's agreement with the
PC stipulated a fee for services rendered to be a fixed annual amount. This
annual fee was billed ratably over the year. In July 1995, the Company
re-negotiated this contract effective April 1, 1995 and entered into a thirty
year agreement ending in June 2025. The fees are primarily calculated on a
cost-plus basis, including an allocation for Company-wide overhead, as in the
case of personnel, space, supplies, etc., and/or activity based efforts at
pre-determined rates per unit of activity such as consulting and collection.
All fees are re-negotiable at the second anniversary of this agreement and
each year thereafter. This contract may be renewed for additional six-five
year periods at the option of either party (see Note 12).
F-7
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Due to the long term collection cycle associated with assigned receivables
from the PC (as described in Note 3), these receivables are discounted using
the Company's incremental borrowing rate and management's estimate of the
collection cycle.
GMMS is a multi-specialty medical practice group which provides
evaluations, diagnoses and treatment in the New York metropolitan area.
Currently, the practice's primary medical focus is to treat patients with
injury- related conditions who carry insurance with various insurance
carriers under the workers' compensation and no-fault guidelines.
The following "unaudited" tabulation sets forth the operating results of
the GMMS for the years ended December 31, 1993, 1994 and 1995 and for the
nine month period ended September 30, 1995 and 1996. GMMS is an entity
separate from CMI and the amounts reflected below are not included in the
results of operations of CMI, except for the portion of the management fee
related to CMI.
<TABLE>
<CAPTION>
Year Ended
December 31,
1993
----------------------------------------------------
General
Medical Diagnostic Total
Unaudited: Services Imaging GMMS
------------- ------------ -------------
<S> <C> <C> <C>
Services rendered . $ 9,414,011 $3,855,618 $13,269,629
Contractural
allowances ....... (1,849,637) (107,000) (1,956,637)
Net medical service
fee .............. 7,564,374 3,748,618 11,312,992
Less expenses:
Medical personnel
payroll ...... 1,205,684 429,793 1,635,477
Other ........... 319,622 40,196 359,818
------------- ------------ -------------
Total expenses 1,525,306 469,989 1,995,295
------------- ------------ -------------
Owner physicians
payroll and
entity income 756,454 -- 756,454
Management fee .. $ 5,282,614 $3,278,629 $ 8,561,243
============= ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1994 1995
--------------------------------------------- ---------------------------------------------
General General
Medical Diagnostic Total Medical Diagnostic Total
Unaudited: Services Imaging GMMS Services Imaging GMMS
------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Services rendered . $15,873,681 $6,362,166 $22,235,847 $17,324,953 $6,685,483 $24,010,436
Contractural
allowances ....... (2,243,719) (502,000) (2,745,719) (2,037,223) (302,297) (2,339,520)
Net medical service
fee .............. 13,629,962 5,860,166 19,490,128 15,287,730 6,383,186 21,670,916
Less expenses:
Medical personnel
payroll ...... 1,418,973 665,695 2,084,668 1,969,157 371,148 2,340,305
Other ........... 474,998 1,177 476,175 502,367 22,186 524,553
------------- ------------ ------------- ------------- ------------ -------------
Total expenses 1,893,971 666,872 2,560,843 2,471,524 393,334 2,864,858
------------- ------------ ------------- ------------- ------------ -------------
Owner physicians
payroll and
entity income 1,081,693 -- 1,081,693 522,376 -- 522,376
Management fee .. $10,654,298 $5,193,294 $15,847,592 $12,293,830 $5,989,852 $18,283,682
============= ============ ============= ============= ============ =============
</TABLE>
F-8
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
<TABLE>
<CAPTION>
Nine months ended
September 30, 1995
---------------------------------------------
General
Medical Diagnostic Total
Services Imaging GMMS
------------- ------------ -------------
<S> <C> <C> <C>
Unaudited:
Services rendered ................ $12,547,508 $5,257,646 $17,805,154
Contractual allowances ........... (1,059,725) (280,000) (1,339,725)
------------- ------------ -------------
Net medical service fees ......... 11,487,783 4,977,646 16,465,429
------------- ------------ -------------
Less expenses:
Medical personnel payroll ...... 1,153,399 353,339 1,506,738
Other .......................... 508,277 25,759 534,036
------------- ------------ -------------
Total expenses .............. 1,661,676 379,098 2,040,774
------------- ------------ -------------
Owner physician payroll and
entity income/(loss) ........ 769,871 -- 769,871
Management fee ................... $ 9,056,236 $4,598,548 $13,654,784
============= ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Nine months ended
September 30, 1996
---------------------------------------------
General
Medical Diagnostic Total
Services Imaging GMMS
------------- ------------ -------------
<S> <C> <C> <C>
Unaudited:
Services rendered ................ $16,355,840 $6,143,756 $22,499,596
Contractual allowances ........... (1,144,909) (309,645) (1,454,554)
------------- ------------ -------------
Net medical service fees ......... 15,210,931 5,834,111 21,045,042
------------- ------------ -------------
Less expenses:
Medical personnel payroll ...... 2,145,157 548,827 2,693,984
Other .......................... 497,875 95,556 593,431
------------- ------------ -------------
Total expenses .............. 2,643,032 644,383 3,287,415
------------- ------------ -------------
Owner physician payroll and
entity income/(loss) ........ (262,737) -- (262,737)
Management fee ................... $12,830,636 $5,189,728 $18,020,364
============= ============ =============
</TABLE>
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
RELATIONSHIP BETWEEN THE COMPANY AND THE GMMS (UNAUDITED)
General
GMMS' operations consist primarily of the following activities:
1) Rendering medical services to patients;
2) Payment of compensation to both the owner physician and other medical
personnel; and
3) Payment of miscellaneous expenses incidental to the rendering of the
medical service.
As more fully discussed below, the Company's operations as they relate to
GMMS include the following activities:
1) Patient scheduling, record transcription, non-clinical intake
examination, and insurance verification;
2) Billing and collection for all patient medical services rendered; and
3) Any other activity necessary to ensure the proper delivery of medical
services.
Economics
Because GMMS is engaged in the business of rendering medical services and
its principal asset is the accounts receivable due from third-party payors
and/or its patients (minimal services are paid for by the patient at the time
service is rendered). Further, substantially all of the non-clinical
activities of GMMS, as defined by the management agreement, are performed by
the Company (whose activities are fully discussed above and elsewhere in this
annual report) and its principle liability is the amount due to the owner
physician and other medical personnel for services and the fee due under the
management agreement.
The above tabulation reflects those dynamics in that revenue generated by
GMMS in the amount of $13,269,629, $22,235,847 and $24,010,436 for the years
ended December 31, 1993, 1994 and 1995, respectively, and $17,805,154 and
$22,499,596 for the nine month period ended September 30, 1995 and 1996,
respectively, have been allocated to the owner physician, medical personnel,
other medical expenses or management fee.
Finally, because the management fee is paid through an assignment of the
accounts receivable and the doctors' compensation is paid currently, GMMS'
cash flow is principally a pass through of cash received for the delivery of
services rendered and cost of those services.
Financial Statements of GMMS
Audited financial statements have not been presented because management
believes that audited financial statements of GMMS would not provide any
additional information that would be meaningful in the evaluation of the
Company's financial position, results of operations, and cash flows, because
GMMS' balance sheets are prepared on the accrual basis and include a very
limited amount of accounts receivable, and immaterial liabilities for
miscellaneous costs not paid due to the timing of cash flows. Further, its
statements of operations would reflect three components: revenues,
compensation to owner physician and medical personnel and management fee,
which information is presented in substantially that form in the above
tabulation. Finally, GMMS as an entity is merely a conduit which distributes
all cash for compensation of the medical professionals.
F-9
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Depreciation and Amortization
Medical equipment, office furniture and computer and telephone equipment
are depreciated on the straight- line basis over the estimated useful lives
of the assets (5 to 7 years). Leasehold improvements are amortized over the
shorter of the term of the lease or the life of the asset.
Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In performing this review the Company estimates the
future cash flows expected to result from the use of the asset and its
eventual disposition.
Income Taxes
Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
determined based upon differences between the financial reporting and the tax
basis of assets and liabilities.
Earnings Per Share
Net income per common share has been computed by dividing net income by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the periods, retroactively adjusted to reflect
the stock split (see Note 4), and the issuance of shares in connection with
the Secured Notes (see Note 7). Such shares have been outstanding for all
periods presented.
Accounting for Impairments in Long-Lived Assets
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
Being Disposed Of", which the Company adopted on January 1, 1996. This
statement requires that long-lived assets and identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amounts of the assets may not be recoverable. In evaluating
recoverability, the Company estimates the future cash flows expected to
result from the assets and its eventual disposition. If the sum of future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. No such loss was recognized in the June 30,
1996 financial statements.
Marketable Securities
The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting For Certain Investments in Debt and Equity Securities".
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax effect, reported as a
separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities,
F-10
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
over the estimated life of the security. Such amortization is included in
interest income from investments. Realized gains and losses, and declines in
value judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific identification
method.
At September 30, 1996 Marketable Securities was comprised of securities
available-for-sale and those the Company intend to hold to maturity of
$11,087,414 (unaudited) and $14,763,597 (unaudited), respectively.
3. ACCOUNTS RECEIVABLE
To the extent permitted under federal and state law, the Company takes
ownership on a recourse basis of receivables generated by the PC's medical
practice from third-party payors with a net collectible value equal to the
then current management fee owed to the Company. These third-party payors are
billed at negotiated rates and are principally insurance carriers. Payment
from these sources generally have long collection cycles. To the extent any
receivables are disputed and/or referred to arbitration proceedings, such
receivables are immediately substituted under the recourse arrangements
between the PC and the Company. In the event that the laws and regulations
establishing these third-party payors are amended, rescinded or overturned
with the effect of eliminating this system of payment reimbursement for
injured parties, the ability of the Company to market its management services
could be affected.
Collection by the Company of its accounts receivable may be impaired by
the uncollectibility of medical fees from third-party payors. The PC is
liable to the Company for payment of its fees regardless of whether payment
is received for medical services. The Company takes ownership on a recourse
basis of client receivables on amounts equal to the net collectible value of
the then current management fee. The Company has historically experienced
delays in collecting from third-party payors. Many third-party payors,
particularly insurance carriers covering automobile no-fault and workers'
compensation claims refuse, as a matter of business practice, to pay claims
unless submitted to arbitration, and then further defer payment until or near
the date of a scheduled arbitration hearing, generally not to exceed three
years after the submission of a fully documented medical claim. As a result
of such delayed payment, the Company requires more capital to finance its
receivables than businesses with a shorter receivable payment cycle. Further,
third-party payors may reject medical claims if, in their judgment, the
procedures performed were not medically necessary or if the charges exceed
such payors allowable fee standards. Finally, the requirements of many
third-party payors regarding claims submissions are detailed and complex and
payments may be delayed or refused if the payors' requirements are not fully
complied with. Nevertheless, although the Company takes all legally available
steps, including legally prescribed arbitration, to collect the receivables
generated by the PC, there is a risk that some of those receivables may not
be collected, which may impede the ability of the PC to pay in full all
amounts owed by them to the Company. Accordingly, the collection cycle tends
to be long-term in nature. The Company assesses the recoverability of its
accounts receivable at a minimum, but no less than, quarterly, and may, on a
calendar quarter basis, exchange receivables, at its sole discretion, without
limitations or conditions which it deems uncollectible within a period of
time, for newly generated receivables. The PC has receivables substantially
in excess of the amounts owed the Company after giving effect to their
collectibility. The Company has not had to exercise such option with respect
to any receivables assigned to it for periods ended December 31, 1993, 1994
and 1995.
Periodically, the Company reviews all third-party payor receivables prior
to acceptance for payment of its fee in order to determine those amounts that
are potentially impaired as a result of disputes, billing differences and
length of time outstanding. Those amounts deemed to be impaired are
subtracted from the total third-party payor receivables that are available
for payment to the Company. This factor, along with the fact that the PC
assigns its receivables to the Company on a full recourse basis in payment of
its fees, indicates that recognition for bad debts are not required.
F-11
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
3. ACCOUNTS RECEIVABLE - (Continued)
Management has determined, based on actual results and industry factors,
that these receivables have a collection cycle of approximately three years,
and accordingly, have been reflected in the accompanying financial statements
on a discounted basis (12% per annum for the period of April 1, 1993 through
December 31, 1995; 8% per annum for the first quarter in 1996 (unaudited); 7
1/4 % for the second and third quarters in 1996 (unaudited). Management
believes that its experience and that of the Company is a good indication of
the timing of the collection process. Because numerous factors affect the
timing and the manner in which these receivables are collected (i.e.,
government regulations, etc.) it is the Company's policy to periodically
assess the collection of its receivables. As a result, the Company's estimate
of its incremental borrowing rate and collection period may change.
4. STOCKHOLDERS' EQUITY
Recapitalization
In December 1995, the Company increased its authorized common stock from
1,000 shares $.001 par value to 20,000,000 shares in addition to authorizing
2,000,000 shares of preferred stock with a par value of $.001. Prior thereto,
there had been no authorized preferred stock.
On December 21, 1995 the Company declared a 4921.3243 to 1 stock split in
the form of a stock dividend. After the split, all presently outstanding
shares of the Company, other than shares issued to the Secured Lenders, plus
shares issuable to the principal stockholders of the Company in connection
with the merger of Medical Management, Inc. ("MMI") into a wholly-owned
subsidiary of CMI (the "Merger") aggregated 4,000,000 shares (See Note 13).
All outstanding shares and per share amounts included in the accompanying
financial statements have been retroactively adjusted to reflect the stock
split.
Stock Option Plan
The Financial Accounting Standards Board has issued Statement of
Accounting Standard 123 "Accounting for Stock-based Compensation" (SFAS 123).
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The accounting requirements of SFAS
123 are effective for transactions entered into in fiscal years that begin
after December 15, 1995, though they may be adopted upon issuance. The
disclosure requirements of SFAS 123 are effective for financial statements
for fiscal years beginning after December 15, 1995. Management believes the
adoption of this statement would have had no material effect on the financial
statements.
In May 1995, the Company adopted the 1995 Stock Option Plan (the "Plan")
covering up to 700,000 shares of the Company's common stock, pursuant to
which, officers, directors and key employees of the Company and consultants
to the Company are eligible to receive incentive and/or non-incentive stock
options. The Plan, which expires on May 14, 2005, will be administered by the
Board of Directors of the Company or a committee designated by it. Incentive
stock options granted under the Plan are exercisable for a period of up to
ten years from the date of the grant, at an exercise price not less than the
fair market value at the date of the grant, except that the term of the
incentive options granted under the Plan to a stockholder owning more than
10% of the outstanding common stock of the Company may not exceed five years.
The Company has reserved 700,000 shares of its stock for the future grant
or exercise of options. During 1995 the Company granted 400,000 shares under
the plan at an exercise price of $9.00 per share.
F-12
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
---------- -----------
<S> <C> <C>
Medical equipment ............................. $ 82,091 $ 83,986
Leasehold improvements ........................ 62,165 169,124
Office furniture .............................. 104,220 140,120
Computer and telephone equipment .............. 127,006 157,666
Motor vehicle ................................. -- 22,757
---------- -----------
375,482 573,653
Less: accumulated depreciation and amortization (71,708) (173,483)
---------- -----------
Net property and equipment .................... $303,774 $ 400,170
========== ===========
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1995
---------- -----------
<S> <C> <C>
Accounts payable ........................... $401,771 $ 932,862
Accruals and other current liabilities ..... 107,777 1,531,684
Due to affiliate ........................... 88,053 131,210
Bank overdraft ............................. 144,651 219,962
---------- -----------
Total accounts payable and accrued
expenses .............................. $742,252 $2,815,718
========== ===========
</TABLE>
7. NOTES PAYABLE
In September and October 1995, the Company borrowed an aggregate of
$1,000,000 secured by all assets from three lenders (the "Secured Lenders");
$400,000 from InterEquity Capital Partners ("IECP") and $300,000 each from
Astro Communications, Inc. and William Harris & Company Employee Profit
Sharing Trust. The loans were evidenced by secured notes (the "Secured
Notes") which were due on the earlier of the consummation of the Initial
Public Offering ("IPO") or five years following their issuance. The Secured
Note to IECP carried interest at the rate of 12% per annum for the first six
months, thereafter at 14% until maturity. The other Secured Notes carried
interest at 14% from issuance. In addition, the Company paid IECP a
processing fee of $12,500 and reimbursed it for costs of approximately
$20,000, which were charged to operations in the period paid. In connection
with execution of the Secured Notes, the Company issued to the Secured
Lenders 27,778 common shares which have an aggregate value of $250,000 (this
original issue discount was charged to operations over the term of the loan;
$12,000 in 1995 and the balance when the loans were paid in full) when valued
at the IPO price of $9.00 per share (See Note 13). The unamortized portion of
the discount of $237,500 at December 31, 1995 is classified as prepaid and
other current assets on the accompanying balance sheet. Each loan was
pre-payable at any time by the Company without fees, except for a prepayment
fee in the case of the loan from IECP, declining from 5% in the first year to
1% in the fifth year, provided that no prepayment fee was due if the loan was
prepaid from the proceeds of the IPO or upon the exercise of the call. The
loan from IECP was superior to the loans from the other Secured Lenders in
right of payment and security. The loans were paid in full in January 1996
from the proceeds of the IPO.
F-13
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
------ ----------
<S> <C> <C>
Note payable to a finance company for a three year
liability insurance policy covering the Company's
directors and officers. The Company is required to
remit thirty monthly payments of $12,379 (including
principal and interest) commencing in March 1996, with
annual interest at 5.45% ............................. $ -- $297,500
Note payable to a finance company for the purchase of a
1995 motor vehicle. The Company is required to remit
forty-eight monthly payments of $524 (including
principal and interest) commencing in December 1995,
with annual interest at 9.75% ........................ -- 20,403
------ ----------
317,903
Less: current portion ................................. -- 89,369
------ ----------
Total long-term debt ................................ $ -- $228,534
====== ==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
At December 31, 1995, future payments for long-term
debt were approximately as follows:
Year ended December 31,
1996 ............................................. $ 89,369
1997 ............................................. 124,909
1998 ............................................. 98,133
1999 ............................................. 5,492
----------
$317,903
==========
</TABLE>
9. COST OF REVENUE
Cost of revenue consists of the following:
<TABLE>
<CAPTION>
Period from
April 1, 1993 to
December 31, Year Ended December 31,
----------------------------
1993 1994 1995
---------------- ------------ ------------
<S> <C> <C> <C>
Compensation/temporary help $ 834,528 $1,396,413 $1,954,208
Equipment .................. 114,167 191,441 147,439
Medical supplies ........... 52,510 111,038 85,123
Transcription fees ......... 60,783 157,970 286,852
Insurance .................. 40,912 91,893 297,634
---------------- ------------ ------------
Total cost of revenue .... $1,102,900 $1,948,755 $2,771,256
================ ============ ============
</TABLE>
10. INCOME TAXES
The provision for income taxes on income for the period from April 1, 1993
to December 31, 1993, and for the years ended December 31, 1994 and 1995,
differs from the amount computed by applying the federal statutory rate due
to the following:
F-14
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
10. INCOME TAXES - (Continued)
<TABLE>
<CAPTION>
Period from Year Ended
April 1, 1993 to December 31,
December 31, ---------------
(in percentages) 1993 1994 1995
--------------- ---------------- ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate ... 34.0 34.0 34.0
State and local taxes, net of federal
benefit ............................ 12.9 12.9 12.9
Other ............................... 0.1 0.1 0.1
---------------- ------ ------
Total ............................. 47.0 47.0 47.0
================ ====== ======
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Period from
April 1, 1993 to Year Ended December 31,
December 31, -------------------------------
1993 1994 1995
---------------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal ...... $ 20,500 $ (6,600) $ (69,500)
State and
local ..... 20,129 5,942 13,300
---------------- ------------ ------------
40,629 (658) (56,200)
---------------- ------------ ------------
Deferred: ......
Federal ...... 514,500 1,544,600 1,778,500
State and
local ..... 335,600 978,500 1,139,200
---------------- ------------ ------------
850,100 2,523,100 2,917,700
---------------- ------------ ------------
Total ..... $890,729 $2,522,442 $2,861,500
================ ============ ============
</TABLE>
Deferred income taxes are the result of temporary differences between the
carrying amounts of assets and liabilities on the accrual basis used for
financial statement reporting purposes and the cash basis used for income tax
reporting. These temporary differences primarily affect accounts receivable
at December 31, 1994 and 1995. The classification of deferred income taxes
has been determined based upon the collection cycle of accounts receivable
(as more fully described in Note 3) estimated to be approximately three
years. Accordingly, deferred income tax liabilities have been accrued at the
effective tax rate of 47.0%. The following sets forth the components of
deferred tax liabilities.
F-15
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
10. INCOME TAXES - (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1994 1995
------------ ------------
<S> <C> <C>
Current:
Accounts receivable ......... $2,371,539 $3,117,125
Less: Discount .............. (456,400) (614,306)
Accounts payable ............ (236,087) (641,821)
Original issue discount ..... -- (5,875)
Net operating loss
carryforward ............. -- (55,600)
------------ ------------
Non-current:
Accounts receivable ......... 1,933,161 4,776,693
Less: Discount .............. (284,013) (283,766)
Deferred rent ............... -- (57,151)
------------ ------------
Total non-current .......... 1,649,148 4,435,776
------------ ------------
Total ..................... $3,328,200 $6,235,299
============ ============
</TABLE>
The Company currently utilizes the cash basis method of accounting for tax
reporting purposes. This method allows the Company to defer recognition of
income for tax purposes until the actual collection of cash. Beginning with
calendar year 1997, the Company will be required to change to the accrual
method of accounting for tax purposes. As a result of this change the Company
will be unable to defer payment of taxes on reported income earned in 1997
and beyond. The tax relating to untaxed accrual basis income at December 31,
1996 will be payable over a minimum three year period beginning in 1997.
11. COMMITMENTS AND CONTINGENCIES
The Company leases various medical and office equipment ranging in terms
from one to four years, the last to expire in June 1999. Equipment rental
amounted to approximately $104,000, $141,000 and $126,000, respectively, for
the period from April 1, 1993 to December 31, 1993 and for the years ended
December 31, 1994 and 1995.
The Company leases nine offices in the New York metropolitan area with
remaining terms ranging from two months to approximately seven years, the
last to expire in August 2002. The leases generally require the Company to
pay for increases in real estate taxes and operating costs in addition to
minimum rentals. Rent expense recorded on a straight-line basis is over the
full terms of the leases, was approximately $185,000, $356,000 and $603,000,
respectively, for the period from April 1, 1993 to December 31, 1993 and the
years ended December 31, 1994 and 1995.
Future minimum lease payments under the above leases, excluding real
estate taxes and operating cost escalations, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31:
1996 ...................... $ 571,000
1997 ...................... 471,000
1998 ...................... 392,000
1999 ...................... 157,000
2000 ...................... 154,000
Thereafter ................ 449,000
-----------
Total minimum lease
payments ............... $2,194,000
===========
</TABLE>
F-16
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
11. COMMITMENTS AND CONTINGENCIES - (Continued)
Other income included in the statements of income represents sub-rental
income received on a monthly basis which was discontinued during 1994.
During the latter part of 1995 and early 1996 the Company entered into a
series of employment agreements with its Chief Executive Officer and certain
other Officers and key employees. The agreements have a term of approximately
3 years expiring in 1999 with an aggregate annual compensation of
approximately $1,500,000. In addition and in connection with the execution of
these agreements, the Company intends to grant approximately 325,000 options
at the then fair market value, certain of which will be subject to
shareholder approval.
As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among CMI, MMI, Steven Rabinovici, David
Jacaruso, Dennis Shields, Dr. Lawrence Shields (the "Interested
Shareholders") and Gail Shields ("Ms. Shields"), the former wife of Dr.
Lawrence Shields. Under the terms of the Settlement Agreement, as revised on
December 21, 1995, CMI arranged for the sale of 117,187 MMI common shares
owned by Ms. Shields at a net price to Ms. Shields of $5.50 per share and
obtained Ms. Shields' release as the maker of a promissory note for a bank
loan whose proceeds were used by GMMS (which has previously been satisfied by
GMMS) and as lessee of certain premises occupied by GMMS, which lease has
been assigned to CMI. There was no material impact on the financial
statements of CMI or MMI as a result of the foregoing settlement.
12. RELATED PARTY TRANSACTIONS
Since the commencement of operations virtually all of the Company's
revenue has been received from the PC, a medical practice which is 95% owned
by a neurologist who is also a founder and principal stockholder in the
Company. The loss of this customer, or the curtailment of its practice as a
result of the death or disability of its principal stockholder, could have a
material adverse effect on the Company's results of operations. The Company
is the beneficiary of key-man life insurance policies aggregating $5,000,000
insuring the life of the principal stockholder of the PC.
For the years ended December 31, 1994 and 1995, the Company paid an entity
controlled by a principal stockholder of the Company approximately $22,300
and $45,000, respectively, to provide design services and to acquire
furniture and furnishings for the Company.
Amounts due to an affiliate of approximately $88,000 and $131,000, at
December 31, 1994 and 1995 respectively, reflect primarily cash advances made
by the affiliate to the Company and are included in accounts payable and
accrued expenses as they are due on demand.
During 1993, 1994 and 1995 the Company paid, to a related party, all real
estate and other costs for an office occupied by the PC. These costs were
approximately $9,000 per year.
In connection with management services provided to the PC, the Company has
informal arrangements with three stockholders and an unrelated third party
under which they act as general financial advisors on matters pertaining to
the business and operations of the Company. Consulting fees for the period
from April 1, 1993 to December 31, 1993 and for the years ended December 31,
1994 and 1995 amounted to approximately $292,000 ($205,000 to the related
parties), $313,000 ($200,000 to the related parties) and $193,000 ($110,000
to the related parties), respectively. Such arrangements with the three
stockholders terminated as of the effective date of the Merger, at which time
they became employees of the Company.
13. SUBSEQUENT EVENTS
In January 1996, the Company completed an initial public offering of
2,000,000 common shares at $9.00 per share and received net proceeds of
$13,480,000. Estimated costs incurred with respect to the registration of
F-17
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
13. SUBSEQUENT EVENTS - (Continued)
the common shares in addition to the underwriter's commission and expenses
and amount to $3,520,000. In addition, the Company sold to the underwriter,
or its designee, at a price of $.001 per Representative's Warrant, up to
200,000 Warrants entitling the holders thereof to purchase 200,000 common
shares of the Company at a purchase price of $10.80 per share for a period of
four years commencing one year from the date of the IPO.
In January 1996, the Company completed the Merger. The terms of the Merger
provided that MMI shareholders received .778 CMI Common Shares for each MMI
Common share which they held based upon an IPO price of $9.00 per share (see
above). The holders of outstanding options to purchase MMI common shares
received 93,281 CMI Common Shares based upon the difference between their
aggregate option exercise prices and the value thereof at $7.00 per share
divided by the IPO price. In January 1996, the Company issued 2,211,953
common shares to effect the merger including shares to be issued in
satisfaction of outstanding options and warrants to purchase MMI shares. The
excess of purchase price over net assets acquired as a result of the
acquisition, estimated at $8,856,000, will be amortized over a period not to
exceed twenty years.
In March 1996, the Company sold $2,000,000 of Convertible Subordinated
Notes (the "Notes") to accredited investors. The notes bear interest at 8%,
payable quarterly. The entire principal is due five years from the date of
issuance. Holders of the Notes may convert all or any portion into common
shares of the Company at $9.00 per share, subject to adjustment for stock
splits, dividends, recapitalization, etc. Under certain circumstances, such
as a change in control, holders of the Notes may require the company to
redeem the Notes at 125% of the original principal amount. The Notes are
subordinate in right of payment to certain future indebtedness which may be
incurred by the company. The purchasers and/or affiliates have an option for
120 days to acquire an additional $3,000,000 of Notes from the Company under
the same terms and conditions.
14. GOVERNMENT REGULATION
The health-care industry is highly regulated by numerous laws,
regulations, approvals and licensing requirements at the federal, state and
local levels. Regulatory authorities have very broad discretion to interpret
and enforce these laws and promulgate corresponding regulation. The Company
believes that its operations under agreements pursuant to which it is
currently providing services are in material compliance with these laws and
regulations. However, there can be no assurance that a court or regulatory
authority will not determine that the Company's operations (including
arrangements with new or existing clients) violate applicable laws or
regulations. If the Company's interpretation of the relevant laws and
regulations is inaccurate, the Company's business and its prospects could be
materially and adversely affected. The following are among the laws and
regulations that affect the Company's operations and development activities:
corporate practice of medicine; fee splitting; anti-referral laws;
anti-kickback laws; certificates of need; regulation of diagnostic imaging;
no-fault insurance; worker's compensation; and proposed healthcare reform
legislation.
15. UNAUDITED PRO FORMA FINANCIAL DATA
The following table summarizes selected unaudited pro forma financial data
for the nine month period ended September 30, 1995. The amounts shown have
been prepared to illustrate the effect of the consummation of the acquisition
as if the transaction had taken place on January 1, 1995.
F-18
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
15. UNAUDITED PRO FORMA FINANCIAL DATA - (Continued)
<TABLE>
<CAPTION>
Nine months ended September 30, 1995 Pro forma Pro forma
------------------------------------------------------------
CMI MMI IPG Total Adjustments Total
------------- ------------ ------------ ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................. $ 9,056,236 $5,691,022 $2,452,286 $17,199,544 $ -- $17,199,544
Interest discount ........ (1,482,328) -- -- (1,482,328) (517,000) (1) (1,999,328 )
------------- ------------ ------------ ------------- ----------------- --------------
Net revenue .............. $ 7,573,908 $5,691,022 $2,452,286 $15,717,216 $ (517,000) $15,200,216
============= ============ ============ ============= ================= ==============
Net income before provision
for income taxes ....... $ 4,841,975 $2,142,081 $ 294,455 $ 7,278,511 $ (1,786,000) (2) $ 5,492,511
Provision for income taxes . 2,276,000 1,007,000 27,000 3,310,000 (650,000) (3) 2,660,000
------------- ------------ ------------ ------------- ----------------- --------------
Net income ............... $ 2,565,975 $1,135,081 $ 267,455 $ 3,968,511 $ (1,136,000) $ 2,832,511
============= ============ ============ ============= ================= ==============
Net income per share ..... $ 0.37
==============
Weighted average number of
common shares and
equivalents outstanding . 7,605,757
==============
Pro forma adjustments:
(1) Reflects an interest discount taken for the presumed collection cycle of MMI revenues over a two-year period
at an interest rate of 12% which was management's estimate of its incremental borrowing rate ............ $ (517,000)
==============
(2) Adjustments consist of the following:
(a) Reflects an interest discount taken for the presumed collection cycle of MMI revenues over a two-year
period at an interest rate of 12% which was management's estimate of its incremental borrowing rate . $ (517,000)
(b) Reflects increased costs of employment agreements .................................................. (1,279,000)
(c) Reflects the amortization on the straight-line method over a 20-year period of the excess of cost over
net assets acquired recorded at approximately $9,981,000 ........................................... (466,000)
(d) Represents interest income as a result of the amortization over a two-year period of the interest discount
in (1) above ....................................................................................... 476,000
--------------
Total expense adjustments .............................................................................. $(1,786,000)
==============
(3) Assumes an effective tax rate after adjustments of 48% .................................................. $ (650,000)
==============
</TABLE>
16. NOTES RECEIVABLES FROM A RELATED PARTY (UNAUDITED)
Notes receivables from a related party at September 30, 1996 consists of
the following:
<TABLE>
<CAPTION>
<S> <C>
Notes receivable from GMMS in equal quarterly installments of $33,449 commenced June
30, 1995. Interest is payable monthly at 7.5% per annum ............................ $ 234,439
Notes receivable from GMMS due on March 31, 1997 with interest at 7.5% per annum .... $ 195,997
Notes receivable from GMMS due on demand at interest of 9% per annum ................ $1,589,549
Total ............................................................................. $2,019,985
</TABLE>
17. SHORT-TERM INVESTMENTS (UNAUDITED)
During the third quarter ended September 30, 1996 the Company made bridge
loans aggregating $800,000 to two unrelated entities repayable in 1997 and
bearing interest at 10% and 12% per annum. In addition, the Company acquired
80,000 shares of common stock with a par value of $.001 per share.
18. SIGNIFICANT EVENTS (UNAUDITED)
For the three month and nine month periods ended September 30, 1996 owner
physician payroll and entity income at GMMS showed a loss of $10,000 and
$263,000 respectively, as compared to income of $87,000 and
F-19
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the period from April 1, 1993
to December 31, 1993
and the years ended December 31, 1994 and 1995
and for the nine month period ended September 30, 1996
(Unaudited) - (Continued)
18. SIGNIFICANT EVENTS (UNAUDITED) - (Continued)
$770,000 in 1995. The Company believes that this loss principally results
from an increase of $1,187,000 in medical personnel payroll at GMMS as GMMS
increased its professional staff in expectation of future higher levels of
operation. A continuation of losses at GMMS, or its failure to operate
successfully, could jeopardize GMMS' ability to pay management fees to the
Company.
On April 2, 1996, options for an aggregate of 925,000 shares, exercisable
at $8.375 price during a ten-year period were granted to 8 officers and 14
other employees and consultants of the Company. These options will be
exercisable at various dates from the date of the grant. In addition, options
for 20,000 shares were granted to each of the Company's two outside
directors. Options granted to outside directors are exercisable for 50% of
the shares covered immediately upon grant and for the remainder of the shares
following one year's service.
On April 24, 1996, the common shares of the Company were approved for
listing on the American Stock Exchange under the symbol "CMI" and began
trading on May 6, 1996.
On June 5, 1996, the Company completed a public offering of $40,250,000 of
Convertible Subordinated Debentures (the "Debentures") due 2003 at an
interest rate of 8% per annum, payable semi-annually on August 15 and
February 15. The debentures are convertible into common shares, par value
$.001 per share, of the Company at any time prior to maturity, unless
previously redeemed, at a conversion price of $14 per share, subject to
adjustment in certain events. On June 5, 1996, the closing sale price for the
common shares on the American Stock Exchange ("AMEX") was $12.75 per share.
The debentures are listed on the AMEX under the symbol "CMLA." The Debentures
are redeemable, in whole or in part on 45 days' prior written notice, at the
option of the Company at a redemption price equal to 100% of the principal
amount, plus accrued interest, at any time on or after June 5, 1999, provided
that the closing price of the Common Shares, during the 20 consecutive
trading days prior to the date of notice of such redemption, has equaled or
exceeded $19.125, subject to adjustment in certain events. The Debentures are
subordinated to all existing and future Senior Indebtedness and are
effectively subordinated to all indebtedness of the Company's subsidiaries.
Net proceeds to the Company after Underwriters Discount and debt issuance
costs was $36,144,000. Additionally, in connection with the Debentures
offering, the Company issued warrants to the representatives of its
underwriters to purchase up to 250,000 additional Common Shares.
In July 1996, the Company acquired Intertech Corporation and Penta
Automation Resources, Inc., which are related medical billing and collection
companies located in the greater metropolitan area. The companies currently
serve more than 700 physicians and 20 hospitals. Revenues in 1995 were over
$3,000,000.
In August 1996, the Company purchased the assets of a physican practice
management company for a five physician multi-specialty community healthcare
practice located in Brooklyn, New York. The acquired assets include a 30-year
contract to manage the practice.
In October 1996, the Company acquired Advanced Alliance Management Corp.
("AAMC"). AAMC, located in New York's Hudson Valley Region, offers a variety
of practice management and other services to its hospital and physican-group
client base.
In October 1996, the Company entered into a non-binding letter-of-intent
to acquire Amedisys Inc. ("Amedisys"). Amedisys is based in Baton Rouge,
Louisiana , and was formed in 1982 to provide nursing services to medical
facilities. Currently, Amedisys also provides to its clients specialty home
care and practice management services and manages ambulatory surgical
centers.
In November 1996, the Company approved the filing of a registration
statement with the Securities and Exchange Commission to register
approximates $25,000,000 of Convertible Subordinated Debentures due December
15, 2003 and 2,500,000 shares of its common stock on Form S-1.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Medical Management, Inc.:
We have audited the accompanying balance sheet of Medical Management, Inc. (a
New York Corporation) as of December 31, 1995, and the related statements of
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Medical Management, Inc. as of
December 31, 1993 and 1994, were audited by other auditors whose report dated
March 21, 1995, except for paragraph 3 of Note 4 and paragraph 2 of Note 13
as to which the date is April 17, 1995, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Management, Inc. as
of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
As explained in Note 3 to the financial statements, effective January 1,
1995, the Company changed its method of accounting for certain accounts
receivable.
ARTHUR ANDERSEN
LLP
New York, New York
April 26, 1996
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Medical Management, Inc.
We have audited the accompanying balance sheet of Medical Management, Inc.
(formerly MRI Management Associates, Inc.) (the "Company") as of December 31,
1994 and the related statements of income, stockholders' equity and cash
flows for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Management, Inc.
(formerly MRI Management Associates, Inc.) at December 31, 1994, and the
results of its operations and its cash flows for the years ended December 31,
1993 and 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 21, 1995, except for paragraph 3
of Note 4 and paragraph 2 of Note 13,
as to which the date is April 17, 1995
F-22
<PAGE>
MEDICAL MANAGEMENT, INC.
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1995
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................... $ 92,813 $ 103,631
Marketable securities available-for-sale ........................ 905,157 121,940
Notes receivable from a related party ........................... -- 166,745
Accounts receivable:
From a related party, less allowances of $434,000 and $609,000,
respectively, and net of unamortized discount of $407,300 at 1995 2,461,667 3,478,204
Other, less allowances of $57,000 and $-0-, respectively ..... 363,542 429,875
------------ -------------
2,825,209 3,908,079
Prepaid expenses and other current assets, less allowances of $9,000
and $8,000, respectively ..................................... 240,660 156,418
Amounts due from related parties ................................ 20,386 131,210
------------ -------------
Total current assets ............................................ 4,084,225 4,588,023
Long-term portion of notes receivable from a related party ........ -- 167,841
Long-term portion of accounts receivable:
From a related party, less allowances of $370,000 and $-0-, respectively,
and net of unamortized discount of $-0- and $61,300, respectively 2,097,000 3,511,337
Other, less allowances of $48,000 and $-0- respectively ......... 310,000 --
------------ -------------
2,407,000 3,511,337
Amounts due from related parties .................................. 195,997 195,997
Property and equipment, net ....................................... 2,793,752 4,256,732
Deferred registration costs ....................................... -- 699,240
Deferred costs, net of amortization of $21,040 and $55,000, respectively 195,463 40,020
Deposits .......................................................... 40,900 60,013
------------ -------------
Total assets .................................................... $9,717,337 $13,519,203
============ =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses (including consulting fees payable
to related party of approximately $36,000 and $-0-, respectively) $ 435,934 $ 1,334,958
Income taxes payable ............................................ 81,430 86,255
Deferred income taxes -- current ................................ 1,084,000 1,473,000
Current portion of long-term debt ............................... 326,289 110,084
Current portion of obligations under capital leases ............. 19,105 370,439
------------ -------------
Total current liabilities ....................................... 1,946,758 3,374,736
Deferred income taxes -- non-current .............................. 1,041,000 1,331,000
Long-term debt .................................................... 279,716 169,633
Obligations under capital leases .................................. 94,457 1,350,857
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value:
Authorized, 20,000,000 shares
Issued and outstanding, 3,010,000 shares at 1994 and 3,040,000 shares
at 1995 .................................................... 3,010 3,040
Additional paid-in capital ...................................... 4,996,826 5,064,296
Retained earnings ............................................... 1,431,546 2,212,635
Unrealized gain (loss) on marketable securities available-for-sale (75,976) 13,006
------------ -------------
Total stockholders' equity ...................................... 6,355,406 7,292,977
------------ -------------
Total liabilities and stockholders' equity ................... $9,717,337 $13,519,203
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
From a related party ............................ $3,278,629 $5,193,294 $5,989,852
Other ........................................... -- 856,018 1,297,089
Interest discount ............................... -- -- (701,874)
------------ ------------ ------------
3,278,629 6,049,312 6,585,067
Cost of revenue ................................... 760,750 1,220,516 2,791,839
General and administrative expenses ............... 1,170,642 1,852,070 2,382,494
Provision for uncollectible accounts receivable:
From a related party ............................ 107,000 397,000 --
Other ........................................... -- 105,000 --
------------ ------------ ------------
2,038,392 3,574,586 5,174,333
------------ ------------ ------------
Operating income .................................. 1,240,237 2,474,726 1,410,734
Other income (expense):
Interest discount included in income ............ -- -- 650,992
Interest and dividend income .................... 43,033 133,230 119,442
Other income .................................... 29,108 24,879 29,684
Interest expense ................................ (41,291) (133,789) (333,898)
(Loss) gain on sale of marketable securities .... -- (26,512) 14,812
------------ ------------ ------------
Income before provision for income taxes and
cumulative effect of change in accounting
principle ....................................... 1,271,087 2,472,534 1,891,766
Provision for income taxes ........................ 925,000 1,171,000 889,000
------------ ------------ ------------
Income before cumulative effect of change in
accounting principle ............................ 346,087 1,301,534 1,002,766
Cumulative effect of change in accounting principle
net of income tax benefit of $196,000 ........... -- -- 221,677
------------ ------------ ------------
Net income ........................................ $ 346,087 $1,301,534 $ 781,089
============ ============ ============
Income before cumulative effect of change in
accounting principle per share .................. $ 0.33
Cumulative effect of change in accounting principle
net of tax benefit per share .................... (0.07)
------------
Net income per share .............................. $ 0.43 $ 0.26
============ ============
Historical income before provision for income taxes $1,271,087
Unaudited pro forma information:
Pro forma adjustment for officers compensation .. 126,000
------------
Pro forma income before income taxes ............ 1,145,087
Pro forma provision for income taxes ............ 570,000
------------
Pro forma net income .............................. $ 575,087
============
Pro forma net income per share .................... $ 0.26
============
Pro forma amounts assuming the discounting of
certain accounts receivable is applied
retroactively:
Pro forma net income .............................. $ 553,902 $1,211,459 $1,002,766
============ ============ ============
Pro forma net income per share .................... $ 0.25 $ 0.40 $ 0.33
============ ============ ============
Weighted average number of common shares and
equivalents outstanding ......................... 2,185,062 3,008,329 3,035,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995
<TABLE>
<CAPTION>
Unrealized
gain (loss) on
marketable
Additional securities
Common paid-in available- Retained
stock capital for-sale earnings Total
-------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ............ $2,000 $ -- $ -- $ 1,214,617 $ 1,216,617
Net income for the year ended December
31, 1993 ............................... -- -- -- 346,087 346,087
Distributions to stockholders during the
year ended December 31, 1993 ........... -- -- -- (317,420) (317,420)
Deferred financing charge representing
the estimated fair value ascribed to
shares contributed by stockholders ..... -- 40,000 -- -- 40,000
Proceeds from issuance of 1,000,000
shares of common stock of $.001 par
value in an initial public offering .... 1,000 4,999,000 -- -- 5,000,000
Shares issuance expenses ................ -- (1,180,436) -- -- (1,180,436)
Undistributed retained earnings as of
effective date of initial public
offering ............................... -- 1,113,272 -- (1,113,272) --
Unrealized loss on marketable securities -- -- (213) -- (213)
-------- ------------- -------------- ------------- -------------
Balance at December 31, 1993 ............ 3,000 4,971,836 (213) 130,012 5,104,635
Net income for the year ended December
31, 1994 ............................... -- -- -- 1,301,534 1,301,534
Unrealized loss on marketable securities -- -- (75,763) -- (75,763)
Issuance of 10,000 shares of common stock
of $.001 par value ..................... 10 24,990 -- -- 25,000
-------- ------------- -------------- ------------- -------------
Balance at December 31, 1994 ............ 3,010 4,996,826 (75,976) 1,431,546 6,355,406
Net income for the year ended December
31, 1995 ............................... -- -- -- 781,089 781,089
Unrealized gain on marketable securities -- -- 88,982 -- 88,982
Issuance of 30,000 shares of common stock
of $.001 par value ..................... 30 67,470 -- -- 67,500
-------- ------------- -------------- ------------- -------------
Balance at December 31, 1995 ............ $3,040 $ 5,064,296 $ 13,006 $ 2,212,635 $ 7,292,977
======== ============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income ............................................ $ 346,087 $ 1,301,534 $ 781,089
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................... 9,242 327,462 928,385
Provision for deferred income taxes ................. 821,000 1,152,000 875,000
Discount of accounts receivable, net of amortization -- -- 50,882
Provision for (recovery of) uncollectible accounts
receivable ....................................... 107,000 502,000 (300,000)
Non cash expense related to issuance of common stock -- 25,000 67,500
Non cash financing charge ........................... 40,000 -- --
Loss (gain) on sale of marketable securities ........ -- 26,512 (14,812)
Cumulative effect on prior year (to December 31,
1994) of implementing discounting of accounts
receivable ....................................... -- -- 221,677
Changes in operating assets and liabilities:
Notes receivable from a related party ............ -- -- (334,586)
Accounts receivable .............................. (726,310) (3,432,969) (2,355,766)
Prepaid expenses and other current assets ........ (44,097) (187,389) 84,242
Amounts due from related parties ................. (3,694) (212,689) (110,824)
Accounts payable and accrued expenses ............ 54,588 71,255 899,024
Income taxes payable ............................. 96,381 (18,951) 4,825
------------- ------------- -------------
Net cash provided by (used in) operating activities ... 700,197 (446,235) 796,636
------------- ------------- -------------
Investing activities
Purchase of property and equipment .................... (1,143,605) (1,380,940) (283,009)
Purchase of marketable securities ..................... (1,642,799) (393,661) (120,902)
Proceeds from maturing of marketable securities ....... -- 100,000 --
Proceeds from sale of marketable securities ........... -- 928,815 1,007,913
Deferred costs ........................................ (57,203) (159,300) (1,791)
Deposits .............................................. (3,700) (11,600) (19,113)
------------- ------------- -------------
Net cash (used in) provided by investing activities ... (2,847,307) (916,686) 583,098
------------- ------------- -------------
Financing activities
Proceeds from issuance of common stock ................ 5,000,000 -- --
Share issuance expenses ............................... (1,164,815) -- --
Distributions to stockholders ......................... (317,420) -- --
Deferred registration costs ........................... -- -- (699,240)
Proceeds from long-term debt and other borrowings ..... 230,000 836,129 --
Principal payments on long-term debt and other
borrowings .......................................... (646,714) (460,916) (326,289)
Repayment of capital lease obligations ................ -- -- (343,387)
------------- ------------- -------------
Net cash provided by (used in) financing activities ... 3,101,051 375,213 (1,368,916)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .. 953,941 (987,708) 10,818
Cash and cash equivalents, beginning of period ........ 126,580 1,080,521 92,813
------------- ------------- -------------
Cash and cash equivalents, end of period .............. $ 1,080,521 $ 92,813 $ 103,631
============= ============= =============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ......................................... $ 456 $ 100,166 $ 333,898
Taxes ............................................ 7,350 39,325 9,175
Non-cash investing activities:
Capital lease obligations ................... -- -- $ 1,951,122
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995
1. DESCRIPTION OF BUSINESS
Medical Management, Inc. (the "Company"), a New York corporation, was
incorporated as MRI Management Associates, Inc. on December 24, 1991.
Effective January 3, 1995, the Company's name was changed to Medical
Management, Inc. The Company provides magnetic resonance imaging ("MRI") and
other medical equipment and comprehensive services for the financing,
installation and administrative management of MRI and other facilities on
behalf of physicians.
In April 1992, the Company commenced operations and began servicing its
initial client, Greater Metropolitan Medical Services ("GMMS"), a multi-site
neurological medical practice located in the New York metropolitan area.
Currently, the Company operates six diagnostic imaging units for three
clients. GMMS is the primary client of the Company. Separate MRI units and
other medical equipment are used exclusively for the treatment of patients of
each client. All fee revenue for the period from inception to December 31,
1993, and approximately 86% and 82% of fee revenue for the years ended
December 31, 1994 and 1995, respectively, is from GMMS. The Company's
agreement with GMMS is for a period of twenty-nine years ending in June 2025.
In addition, the Company also has an agreement with a neurology practice
located in the New York metropolitan area. The Company's agreement with the
client is for a period of seven years ending in March 2002.
At December 31, 1995, Dr. Lawrence Shields, the 95% physician stockholder
of GMMS was also a major stockholder of the Company. The loss of GMMS as a
customer or curtailment of its practice as a result of the death or
disability of Dr. Shields could have a material adverse effect on the
Company's results of operations. The Company is the beneficiary of key-man
life insurance policies aggregating $5,000,000 covering the life of Dr.
Shields.
On January 3, 1996, Complete Management, Inc. ("CMI") completed an initial
public offering ("IPO") of 2,000,000 of its common shares at $9.00 per share
and a simultaneous acquisition and merger of the Company as a wholly owned
subsidiary of CMI (see Note 18). CMI provides comprehensive management
services primarily to high volume medical practices in New York State. CMI's
services include development, administration and leasing of medical offices
and equipment, staffing and supervision of non-medical personnel, accounting,
billing and collection, and development and implementation of practice growth
and marketing strategies.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Fee revenue is recognized when the medical procedure is performed.
Depreciation and Amortization
Medical equipment, office furniture and computer and telephone equipment
are depreciated on the straight- line basis over the shorter of the estimated
useful lives of the assets (5 to 7 years) or the term of the capital lease.
Leasehold improvements are amortized over the shorter of the term of the
lease or life of the assets.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
F-27
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Accounting for Impairments in Long-Lived Assets
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
Being Disposed Of," which the Company has adopted on January 1, 1995. This
statement requires that long-lived assets and identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amounts of the assets may not be recoverable. In evaluating
recoverability, the Company estimates the future cash flows expected to
result from the asset and its eventual disposition. If the sum of future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. No such loss was recognized in the December
31, 1995 financial statements.
Marketable Securities
The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting For Certain Investments in Debt and Equity Securities".
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax effect, reported as a
separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific identification
method
Income Taxes
Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
determined based upon differences between the financial reporting and tax
basis of assets and liabilities.
Earnings per Share
Net income per common share has been computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period. All options issued were anti-dilutive and, accordingly, were excluded
from the calculation for weighted average shares.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
3. CHANGE IN ACCOUNTING PRINCIPLE -- DISCOUNTING OF ACCOUNTS RECEIVABLE
Effective January 1, 1995, the Company adopted the policy of discounting
certain of its accounts receivable balances which have historically been
collected in a period in excess of one year. Discounting was not implemented
in prior years as the Company's period of operations was insufficient to
adequately determine the appropriate collection period. In 1995, discounting
of certain accounts receivable was adopted based upon the results of the
Company's periodic reviews of its accounts receivable from GMMS and its
analysis of the related collec-
F-28
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
3. CHANGE IN ACCOUNTING PRINCIPLE -- DISCOUNTING OF ACCOUNTS RECEIVABLE
- (Continued)
tion period which indicated that these receivables have a collection cycle of
approximately two years. The applicable accounts receivable have been
discounted utilizing an interest rate of 12% per annum, management's best
estimate of its incremental borrowing rate from April 1992 (commencement of
operations) through December 31, 1995. The impact of this change in
accounting policy considers accounts receivable generated in prior years. The
effect of the change in 1995 was to decrease income before income taxes by
approximately $51,000. The adjustment of $221,677 (after an income tax
benefit of $196,000) is shown as a cumulative effect of change in accounting
principle in the accompanying statements of income.
4. ACCOUNTS RECEIVABLE
The Company is entitled to an agreed-upon fee for each medical procedure
performed. As collateral for its fee revenue receivable from its primary
client, GMMS, the Company has a security interest in GMMS' trade receivables.
The Company's clients (the "Clients") bill at rates negotiated with third
party payors, principally commercial insurance carriers. Reimbursements may
result in amounts received being less than established charges. Many
third-party payors, particularly insurance carriers covering automobile
no-fault and workers' compensation claims refuse, as a matter of business
practice, to pay claims unless submitted to arbitration, and then further
defer payment until or near the date of a scheduled arbitration hearing,
generally not to exceed three years after the submission of a fully
documented medical claim. As a result of such delayed payment, the Company
requires more capital to finance its receivables than businesses with a
shorter receivable payment cycle. Further, third-party payors may reject
medical claims if, in their judgment, the procedures performed were not
medically necessary or if the charges exceed such payors allowable fee
standards. Finally, the application forms required by third-party payors for
payment of claims are long, detailed and complex and payments may be delayed
or refused unless such forms are properly completed. Nevertheless, although
the Company takes all legally available steps, including legally prescribed
arbitration to collect the receivables generated by its clients, there is a
risk that some of those receivables may not be collected which may impede the
ability of the Clients to pay in full all amounts owed by them to the
Company. Accordingly, the collection cycle tends to be long-term in nature.
Although Clients are ultimately liable for payment of its fees to the
Company, the Company has deferred the collection of its receivable from its
Clients and allowed the Clients to pay the Company its fees as collections of
the Clients receivable are made from third-party payors or, if rejected by
third-party payors, until the Clients receivable is collected on a lien in
litigation. If the Company determines that receivables cannot be collected
from third party payors, including liens placed in litigation, it intends to
use all appropriate means including litigation to enforce collection of its
fees from the Client. In July 1995, the Company re-negotiated its agreement
with GMMS and entered into a new agreement which expires in June 2025. Under
terms of the new agreement, the Company takes ownership on a recourse basis
of receivables generated by GMMS' medical practice from third-party payors
with a net collectible value equal to the then current management fee owed to
the Company. To the extent any receivables assigned to the Company are
disputed and/or referred to arbitration proceedings, such receivables are
immediately substituted under the recourse arrangements between GMMS and the
Company. In the event that the laws and regulations establishing these
third-party payors are amended, rescinded or overturned with the effect of
eliminating this system of payment reimbursement for injured parties, the
ability of the Company to collect its fees could be affected. Under the
re-negotiated agreement, the Company has not had to exercise such option with
respect to any receivables assigned to it for the six months ended December
31, 1995.
On April 17, 1995, under the terms of the former GMMS agreement, the
Company agreed to receive a promissory note, effective March 31, 1995 from
GMMS, for $401,384 of GMMS accounts receivable which the Company determined
could be collected and used to pay the Company's fees from GMMS. This note is
payable
F-29
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
4. ACCOUNTS RECEIVABLE - (Continued)
by GMMS in equal quarterly installments of $33,349, commencing on June 30,
1995 and ending March 31, 1998, but may be prepaid. Interest on this note is
payable monthly at 7.5% per annum commencing in April 1995. The balance of
the note outstanding on December 31, 1995 was $334,586.
During 1993 and 1994, because of the various factors that influenced the
collection of Clients' accounts receivable due from third-party payors and
liens in litigation, the Company reviewed at a minimum, but no less than
quarterly, the status of Clients' accounts receivable due from third-party
payors which collateralized its receivable from its Clients. As a result, the
Company established an allowance for possible uncollectible accounts
receivable ($407,000 at December 31, 1993 and $909,000 at December 31, 1994).
This periodic review included but was not limited to the review of patient's
files, discussions with third-party payors on individual patient billings and
analysis of past experience. It was also the Company's policy to estimate the
portion of accounts receivable from Clients that will not be collected within
a twelve month period. Such receivables are presented as a long-term asset in
the accompanying balance sheets.
In 1995, as part of the Company's periodic review for potential impairment
of all third-party payor receivables prior to the acceptance for payment of
its fee, the Company determined that based upon its clients' historical
collection experience and the results of the review, its clients had
receivables substantially in excess of the amounts owed to the Company after
giving effect to their collectability. Accordingly, the Company determined
that a portion of its estimated allowance for bad debts was no longer
required. This factor along with the fact that its Client assigns it
receivables to the Company on a full recourse basis in payment of its fees
would preclude further recognition of bad debts.
The Company has determined that $300,000 of the December 31, 1994 accounts
receivable allowance related to accounts receivable balances collected in
1995. Such amounts were credited to general and administrative expenses on
the accompanying December 31, 1995 statement of income.
As more fully described in Note 3, the Company changed its accounting
policy to implement discounting of accounts receivable from a related party.
GMMS Management believes that its experience and that of the Company is a
good indication of the timing of the collection process. Because numerous
factors affect the timing and the manner in which these receivables are
collected (i.e., government regulations, etc.) it is the Company's policy to
periodically assess the collection of its receivables. As a result, the
Company's estimate of its collection period and incremental borrowing rate
may change.
5. MARKETABLE SECURITIES AVAILABLE-FOR-SALE
Marketable securities available-for-sale at December 31, 1994 and 1995 are
as follows:
<TABLE>
<CAPTION>
December 31, 1994: Gross unrealized Estimated
Cost Gains Losses fair value
---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Equity securities .............................. $277,335 $ 3,279 $ -- $280,614
Equity funds ................................... 45,601 -- 1,885 43,716
U.S. Treasury securities and obligations of U.S.
government agencies ........................... 354,702 -- 43,187 311,515
U.S. corporate securities ...................... 303,495 -- 34,183 269,312
---------- --------- --------- ------------
$981,133 $ 3,279 $79,255 $905,157
========== ========= ========= ============
December 31, 1995:
Equity securities .............................. $108,934 $13,006 $ -- $121,940
========== ========= ========= ============
</TABLE>
During the year ended December 31, 1995, the proceeds from the sale of
available-for-sale-securities was $1,007,913. Gross realized gains totaled
$62,937 and gross realized losses totaled $48,125.
F-30
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
6. STOCKHOLDERS' EQUITY
Recapitalization
In August 1993, the Company increased its authorized common stock from 200
shares at no par value to 20,000,000 shares as $.001 par value. In addition,
the Company declared a 9,999 for 1 stock split in the form of a stock
dividend on the then issued and outstanding common shares. All outstanding
share amounts included in the accompanying financial statements have been
retroactively adjusted to reflect the 9,999 for 1 stock split.
Stock Option Plan
The Financial Accounting Standards Board has issued Statement of
Accounting Standard 123 "Accounting for Stock-based Compensation" (SFAS 123).
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The accounting requirements of SFAS
123 are effective for transactions entered into in fiscal years that begin
after December 15, 1995, though they may be adopted upon issuance. The
disclosure requirements of SFAS 123 are effective for financial statements
for fiscal years beginning after December 15, 1995. Management believes the
effect of adopting this statement would have had no material effect on the
financial statements.
In August 1993, the Company adopted the 1993 stock option plan (the
"Plan") covering 150,000 shares of the Company's common stock, pursuant to
which, officers, directors and key employees of the Company and consultants
to the Company are eligible to receive qualified and/or nonqualified stock
options. The Plan, which expires on August 2, 2003, will be administered by
the Board of Directors of the Company or a committee designated by them.
Qualified stock options granted under the plan are exercisable for a period
of ten years from the date of the grant, except that the term of qualified
stock options granted under the Plan to a shareholder owning more than 10%
the outstanding common stock of the Company may not exceed five years. In
August 1993, an option for 45,000 shares was granted to the Company's Chief
Financial Officer. One-third of the shares covered by the option were
exercisable at an exercise price of $4 per share when granted, and an
additional one- third of the shares, at an exercise price of $5 per share,
became exercisable each year thereafter. However, all shares under the option
must be exercised during the ten-year period from the date of the grant. In
addition, options for 15,000 shares exercisable at $4.875 per share were
granted to each of the Company's two outside directors upon their taking
office immediately following the consummation of the offering.
In June 1994, the Company agreed to issue options to purchase 50,000
shares of common stock to a consultant as an inducement for the consultant to
enter a contract to render investor relations services. Options to purchase
30,000 shares of common stock vested immediately and the remaining options
vested in June 1995. The options are exercisable at $4.31 per share (quoted
market value on date of grant).
The Company has reserved 250,000 shares of its common stock for the future
grant or exercise of options and an additional 100,000 shares for the future
exercise of warrants.
Common Stock and Warrants
The Company completed an initial public offering of 1,000,000 common
shares at $5.00 per share on October 26, 1993, and received net proceeds of
$4,400,000. Costs incurred with respect to the registration of the common
shares, inclusive of underwriter commissions, amounted to $1,180,436. In
addition, the Company sold to the underwriter, or its designee, at a price of
$.001 per Underwriter Warrant, up to 100,000 Underwriter's Warrants entitling
the holder's thereof to purchase 100,000 common shares of the Company at a
purchase price of $6.00 per share for a period of four years commencing one
year from the date of the initial public offering.
On March 3, 1994, the Company issued 10,000 shares of common stock to a
consultant for services rendered and to be rendered. Such shares are subject
to certain restrictions under which the consultant is to remain
F-31
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
6. STOCKHOLDERS' EQUITY - (Continued)
available for substantial services during a two-year period. The shares are
subject to forfeiture unless this condition was satisfied. Accordingly, the
shares were valued at a 50% discount from market on the date of the award and
is being amortized over the "risk of forfeiture" period. The Company recorded
a charge of $25,000 for financial reporting purposes.
During the second quarter of 1995, the Company issued 30,000 shares of
common stock to a consultant for services rendered and to be rendered. Such
shares are subject to certain restrictions under which the consultant is to
remain available for substantial services during a two-year period. The
shares are subject to forfeiture unless this condition is satisfied.
Accordingly, the shares were valued at a 50% discount from market on the date
of the award and is being amortized over the "risk of forfeiture" period. The
Company recorded a charge of $28,125 for financial reporting purposes.
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Cost:
Medical equipment ......................... $1,723,797 $1,749,143
Leasehold improvements .................... 1,070,840 1,098,964
Office furniture and equipment ............ 101,385 221,783
Computer and telephone equipment .......... 102,331 184,410
Property and equipment under capital leases 119,129 2,097,313
------------ ------------
3,117,482 5,351,613
Less: accumulated depreciation and
amortization ............................ 323,730 1,094,881
------------ ------------
Net property and equipment ................ $2,793,752 $4,256,732
============ ============
</TABLE>
The construction of the corporate headquarters and operating facility was
completed in February 1994. Construction costs consisted of site preparation
and installation of the medical equipment of the Company's initial fixed site
MRI unit, completion of the medical practice office of the Company's initial
client and the completion of the offices to house the corporate headquarters
of the Company. Final construction costs of $2,308,000 were allocated
$1,237,000 to medical equipment and $1,071,000 to leasehold improvements. For
the years ended December 31, 1993, 1994 and 1995, the Company incurred
interest expense of $160,900, $142,000 and $18,700 respectively, of which,
$159,609 for 1993 and $8,000 for 1994, (relating to interest paid to Pantepec
and Swenvest), were capitalized as medical equipment and leasehold cost in
1993 and 1994, respectively. Interest incurred in 1995 was expensed as period
costs in 1995. In addition, lender participation fees (see Note 8) of $70,000
and $12,000 for the years ended December 31, 1993 and 1994, respectively,
were capitalized. Lender participation fees of $29,900 were expensed as
period costs in 1995.
In 1994 and 1995 the Company entered into capital leases for computer,
office and medical equipment ranging in terms from 36 months to 60 months.
The aggregate accumulated amortization of the computer, office and medical
equipment as of December 31, 1994 and 1995 were $1,700 and $345,000,
respectively.
F-32
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
8. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases consist of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1995
---------- ------------
<S> <C> <C>
Loan payable Pantepec (A) ........... $229,003 $ --
Other loan payable (B) .............. 377,003 279,717
Obligations under capital leases (C) 113,561 1,721,296
---------- ------------
719,567 2,001,013
Less current portion ................ 345,394 480,523
---------- ------------
$374,173 $1,520,490
========== ============
</TABLE>
At December 31, 1995, future, principal payments for long-term debt and
obligations under capital leases were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1996 .................. $ 480,523
1997 .................. 536,912
1998 .................. 499,980
1999 .................. 454,336
2000 .................. 29,262
------------
$2,001,013
============
</TABLE>
(A) The Company entered a loan and security agreement effective June 30,
1992, with Pantepec International, Inc. ("Pantepec") (an unrelated third
party) to borrow up to $700,000 to finance the purchase and installation
of the medical equipment. Borrowings as of December 31, 1993 and December
31, 1994, amounted to $344,354 and $229,003, respectively. The Company,
Pantepec and Swenvest Corporation ("Swenvest") (an unrelated third
party), from whom Pantepec had borrowed $273,000 to fund the loan to the
Company, entered into an agreement dated May 1, 1993, to refinance this
loan and the original loan agreement was terminated. Under the refinance
agreement, the Company had the option to borrow up to $700,000 up to 45
days from acceptance of the Medical Equipment from the manufacturer.
Interest on the borrowing accrues as follows:
Loan year ending June 30, 1993
(including period prior to refinancing) -14% per annum
Loan year ending June 30, 1994 -10% per annum
Loan year ending June 30, 1995 -10% per annum
In addition to interest, the lenders are entitled to lender participation
payments of $10 per Scan. Lender participation payments may not be less
than $70,000 for the years ending June 30, 1993 and 1994 and $30,000 for
the loan year ending June 30, 1995. For the years ended December 31, 1993
and 1994 lender participation payments of $70,000 and $12,000,
respectively, were capitalized. Subsequent to the completion of the
installation of the medical equipment in February 1994, lender
participation payments have been expensed as period costs. Interest which
accrued for the loan year ending June 30, 1993 was paid monthly. The
repayment terms were renegotiated after the initial public offering and,
effective July 31, 1993, principal and interest payments were payable in
monthly installments of $15,729 and $3,787, respectively. In February
1994 the Company borrowed $277,000, the balance of the original
commitment and the monthly principal and interest installment was
increased to $26,380 and $11,787, respectively, per month. In July 1995,
all unpaid principal and interest was paid in full.
F-33
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
8. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES - (Continued)
(B) In April 1994, the Company entered into a loan and security agreement to
borrow $440,000 to finance a mobile MRI unit to be used for its second
client. This borrowing bears interest at 13.2% and is repayable in equal
monthly installments of $11,559 (including interest) through April 1998.
(C) At December 31, 1995, future minimum lease payments payable in monthly
installments, including interest ranging from 10% to 12% per annum, were
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
<S> <C>
1996 ............................ $ 673,479
1997 ............................ 673,479
1998 ............................ 577,752
1999 ............................ 481,136
2000 ............................ 30,012
------------
2,435,858
Less amount representing interest 434,845
------------
$2,001,013
============
</TABLE>
Substantially all assets of the Company have been pledged as collateral
for the above borrowings.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995
---------- ------------
<S> <C> <C>
Consulting fees payable .................... $178,272 $ 222,114
Professional fees .......................... 41,000 --
Lender participation fees .................. 29,970 --
Deferred registration costs ................ -- 298,285
Other accounts payable and accrued expenses 186,692 814,559
---------- ------------
$435,934 $1,334,958
========== ============
</TABLE>
10. INCOME TAXES
In December 1992, the Company, upon its incorporation had elected to be
treated as an S Corporation under Subchapter S of the Internal Revenue Code
for federal income tax purposes. In addition, the Company had elected to be
treated for New York State income tax purposes as an S Corporation.
Consequently, the Company was not subject to federal income taxes because the
stockholders include the Company's income in their own personal income tax
returns. For New York State purposes, S Corporations were subject to an
income tax of approximately 2.475%.
The Company was liable for New York City income taxes because New York
City does not allow Subchapter S Status. The New York City income tax rate is
approximately 9%.
Effective October 26, 1993, as a result of the initial public offering,
the Company is no longer treated as an S Corporation. Upon the change in
status of the Company, in the fourth quarter of 1993, the Company had an
additional income tax expense of approximately $680,000 due to federal and
state income taxes being payable on the temporary differences which are
principally due to the cash basis of reporting for income taxes.
F-34
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
10. INCOME TAXES - (Continued)
The provision for income taxes on historical net income for the years
ended December 31, 1993, 1994 and 1995 differs from the amount computed by
applying the federal statutory rate due to the following:
(IN PERCENTAGES)
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate ....................... 34.0 34.0 34.0
State and local taxes, net of federal benefit ........... 13.1 13.2 12.9
Federal income taxes paid or payable related to prior
year S Corporation income .............................. 24.2 -- --
Other ................................................... 1.5 0.2 0.1
------ ------ ------
72.8 47.4 47.0
====== ====== ======
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ------------ ----------
<S> <C> <C> <C>
Current:
Federal ... $ -- $ -- $ --
State ..... 10,000 9,000 8,000
Local ..... 94,000 10,000 6,000
---------- ------------ ----------
104,000 19,000 14,000
---------- ------------ ----------
Deferred:
Federal ... 588,000 657,000 539,948
State ..... 170,000 273,000 159,794
Local ..... 63,000 222,000 175,258
---------- ------------ ----------
821,000 1,152,000 875,000
---------- ------------ ----------
$925,000 $1,171,000 $889,000
========== ============ ==========
</TABLE>
Deferred income taxes are the result of temporary differences between the
carrying amounts of assets and liabilities on the accrual basis used for
financial statement reporting purposes and the cash basis used for income tax
reporting. Accordingly, deferred income tax liabilities have been accrued at
the effective tax rate of 47.4% in 1994 and 47.0% in 1995. The classification
of deferred tax liabilities related to accounts receivable has been
determined based upon the collection cycle of certain accounts receivable,
which is estimated to be approximately two years. The following sets forth
the components of deferred tax liabilities:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1995
------------ ------------
<S> <C> <C>
Current:
Accounts receivable ............. $1,207,849 $1,870,983
Prepaid expenses ................ 66,039 40,000
Accounts payable and accrued
expenses ...................... (189,888) (437,983)
------------ ------------
Total current .............. $1,084,000 $1,473,000
============ ============
Non-current:
Accounts receivable ............. 1,074,017 1,486,520
Depreciation .................... 131,461 87,000
Net operating loss carryforwards (164,478) (242,520)
------------ ------------
Total non-current .......... 1,041,000 1,331,000
------------ ------------
Total ................. $2,125,000 $2,804,000
============ ============
</TABLE>
F-35
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
10. INCOME TAXES - (Continued)
The Company currently utilizes the cash basis method of accounting for tax
reporting purposes. This method allows the Company to defer recognition of
income for tax purposes until actual collection of cash. Beginning with
calendar year 1997, the Company will be required to change to the accrual
method of accounting for tax purposes. As a result of this change the Company
will be unable to defer payment of taxes on reporting income earned in 1997
and beyond. The tax relating to untaxed accrual basis income at December 31,
1996 will be payable over a minimum three year period beginning in 1997. The
Company has cumulative net operating loss carryforwards of $516,000 as of
December 31, 1995 which begin to expire in 2009.
11. OPERATING LEASE OBLIGATIONS
Prior to the completion of the construction of the medical equipment in
February 1994, the Company leased a magnetic resonance imaging scanner under
a month-to-month lease. In addition, the Company paid approximately $42,000
and $7,000, respectively, as parking fees for the mobile trailer in which the
MRI equipment was located. For the years ended December 31, 1993, 1994 and
1995 equipment rental amounted to $460,000, $70,000 and $125,000,
respectively.
In August, 1992, the Company entered into an operating lease for office
space with rent commencing on March 1, 1993. The lease, which expires in
2003, provides for the Company to pay for increases in real estate taxes and
operating costs in addition to minimum rentals.
With respect to the servicing of one of its clients, the Company entered
into an operating lease for an area of a parking lot to locate and station
the MRI trailer and office space to service the client's patients. The leases
expire in March 1997.
Future minimum lease payments under the above leases, excluding real
estate and operating cost escalations, are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1996 ............................. $113,000
1997 ............................. 96,000
1998 ............................. 89,000
1999 ............................. 89,000
2000 ............................. 98,000
Thereafter minimum lease payments 216,000
----------
$701,000
==========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
In connection with services provided to GMMS, the Company has a consulting
agreement with an unrelated third party. Under the terms of the agreement
which expires in March 2025, the consultant acts as general financial advisor
and consultant on matters pertaining to the business and operations of the
Company. As compensation for these services, the unrelated third party is
paid a consulting fee of 5% of revenue, of which 1% has been assigned by such
unrelated third party to a less than 5% shareholder in the Company. These
fees are payable only on revenues collected. Consulting fees for the years
ended December 31, 1993, 1994 and 1995 amounted to approximately $167,000
(approximately $33,000 to the less than 5% stockholder) $214,000
(approximately $43,000 to the less than 5% stockholder), and $264,000
(approximately $53,000 to the less than 5% stockholder), respectively. The
consulting agreement can be renewed at the option of the consultant for an
additional five years.
In 1993, the Company entered into a joint marketing agreement with the New
York District of Siemens Medical Systems, a lending manufacture and supplier
of medical imaging equipment, to cooperatively develop
F-36
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (Continued)
December 31, 1993, 1994 and 1995
12. COMMITMENTS AND CONTINGENCIES - (Continued)
the market for MRI systems in out-patient offices. Under the terms of the
agreement, Siemens will give the Company the "right of first refusal" in
situations where they are asked to recommend an "outside" provider of MRI
services. In exchange, the Company will select Siemens Medical Systems,
whenever possible, as the "vendor of choice" for MRI placements over the next
two years. The Company has made a refundable advance payment in medical
practice offices at prices and terms to be agreed upon. If the Company and
Siemens do not agree on the purchase price or on the terms and conditions,
the Company may cancel its order and obtain a refund of the $20,000 recorded
as an other current asset.
As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among CMI, the Company, Steven Rabinovici, David
Jacaruso, Dennis Shields, Dr. Lawrence Shields, (the "Interested
Shareholders") and Gail Shields ("Ms. Shields"), the former wife of Dr.
Lawrence Shields. Under the terms of the Settlement Agreement, as revised on
December 21, 1995, CMI arranged for the sale of 117,187 common shares of the
Company owned by Ms. Shields at a net price to Ms. Shields of $5.50 per share
and obtained Ms. Shields' release as the maker of a promissory note for a
bank loan whose proceeds were used by GMMS (which has previously been
satisfied by GMMS) and as lessee of certain premises occupied by GMMS, which
lease has been assigned to CMI. There was no material impact on the financial
statements of CMI or the Company as a result of the foregoing settlement.
13. OTHER RELATED PARTY TRANSACTIONS
For the years ended December 31, 1993, 1994 and 1995, the Company paid to
an entity controlled by a principal stockholder of the Company or to the
stockholder approximately $75,000, $102,000 and $132,000, respectively, to
provide design services and as reimbursement for acquiring furniture and
furnishings for the Company. Included in these amounts were design fees of
approximately $16,000, $7,000 and $32,000, respectively. In addition, for the
years ended December 31, 1993, 1994 and 1995, the Company paid approximately
$6,000, $16,000 and $30,000, to another stockholder as compensation for
services rendered to the Company.
Amounts due from related parties at December 31, 1994 and 1995, include
$196,000 due from GMMS for expenses paid on its behalf and is payable
pursuant to a note on March 31, 1997 with interest payable quarterly at 7.5%
per annum. In addition, included in due from related parties at December 31,
1995, is a $131,000 working capital loan to CMI due on demand.
14. GOVERNMENT REGULATION
The healthcare industry is highly regulated. The ownership, operation and
acquisition of medical equipment is subject to regulations and approvals that
vary from state to state, including licensing regulations, Medicare
regulations and regulations in certain jurisdictions requiring certificates
of need for certain types of "healthcare facilities" and "major medical
equipment".
15. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Adjustments
The Company completed an initial public offering of 1,000,000 common
shares at $5.00 per share in October 1993. Effective October 26, 1993, the
date of the initial public offering, the Company no longer was treated as an
S Corporation and, accordingly, is subject to federal and New York State
income taxes. In August 1993, the Company entered into separate employment
contracts with its President and Chief Executive Officer and Vice President
and Chief Operating Officer. These contracts expire on August 31, 1996 and
provided for annual base salaries of $75,000 to each officer commencing from
the date of consummation of the initial public offering. The pro forma
adjustments reflect (i) an adjustment to include officers' compensation
payable under current employment contracts and (ii) a provision for income
taxes based upon pro forma income as if the Company had not been an S
Corporation.
F-37
<PAGE>
16. NET INCOME PER SHARE
Net income per common share has been computed by dividing pro forma net
income by the weighted average number of shares of common stock outstanding
during the periods. The weighted average number of common shares outstanding
has been computed in accordance with Staff Accounting Bulletin 83 ("SAB 83")
of the Securities and Exchange Commission. SAB 83 requires that common shares
and warrants, issued within a one- year period prior to the initial filing of
a registration statement relating to an initial public offering at amounts
below the public offering price, be considered outstanding for all periods
presented in the Company's Registration Statement. In August 1993, the
Company issued options to purchase 15,000 shares of common stock at $4.00 per
share to its Chief Financial Officer (see Note 6). Such options have been
considered outstanding through June 1993 for purpose of calculating net
income per share. Such shares have been reduced, using the treasury stock
method, by the number of shares which the Company would be able to purchase
with the proceeds which would be received from the exercise of such options.
All other options issued were anti-dilutive and, accordingly, were excluded
from the calculation for weighted average shares.
17. RETAINED EARNINGS
Effective October 26, 1993, the Company was no longer an S Corporation.
Accordingly, in accordance with the provisions of Staff Accounting Bulletin
59 of the Securities and Exchange Commission, undistributed earnings as of
the date of change in status from an S Corporation (October 26, 1993)
amounting to $1,113,272 is considered to be a constructive distribution to
the owners followed by a contribution to the capital of the Company and has
been transferred to additional paid-in capital.
18. SUBSEQUENT EVENT (UNAUDITED)
On January 3, 1996, CMI completed an Initial Public Offering ("IPO") of
2,000,000 of its common shares at $9.00 per share and the simultaneous
acquisition and merger of the Company as a wholly owned subsidiary of CMI.
The terms of the merger provided that the Company's shareholders receive .778
CMI common shares for each common share which they held based upon the IPO
price of $9.00 per share. The holders of outstanding options to purchase the
Company's common shares received 93,281 of CMI common shares based upon the
difference between their aggregate option exercise prices and the value
thereof at $7.00 per share divided by the IPO price. In January 1996, the
Company issued 2,211,953 common shares to effect the merger including shares
to be issued in satisfaction of outstanding options and warrants to purchase
the Company's shares. Upon the closing of CMI's initial public offering on
January 3, 1996, the President and Chief Executive Officer and Vice President
and Chief Operating Officer of the Company became officers of CMI.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Advanced Alliance Management Corp.:
We have audited the accompanying balance sheets of Advanced Alliance
Management Corp. (a New York corporation) as of December 31, 1994 and 1995,
and the related statements of income, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Alliance Management
Corp. as of December 31, 1994 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
October 18, 1996
F-39
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
BALANCE SHEETS AS OF
DECEMBER 31, 1994, 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
------------------------- --------------
1994 1995 1996
---------- ----------- --------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and Cash Equivalents (Note 2) ...................... $ -- $ 73,234 $ --
Accounts Receivable:
Others ............................................. 161,402 220,356 843,486
Related Parties .................................... 109,071 189,444 442,467
Note Receivable from Stockholder (Note 7) ............... -- 30,500 7,625
Prepaid Expenses ........................................ 17,500 8,108 --
---------- ----------- --------------
Total Current Assets .......................... 287,973 521,642 1,293,578
Note Receivable from Stockholder, less current portion .. -- 30,500 --
Property and Equipment (Note 3) ......................... 279,470 395,438 432,555
Less: Accumulated Depreciation .......................... (82,435) (157,619) (220,768)
---------- ----------- --------------
Property and Equipment, Net ................... 197,035 237,819 211,787
Management Agreement .................................... -- -- 2,025,254
Other Assets ............................................ 9,972 9,972 11,972
TOTAL ASSETS .................................. $494,980 $ 799,933 $3,542,591
========== =========== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts Payable:
Others ............................................. $ 37,537 $ 127,470 $ 957,267
Related Parties .................................... 37,689 14,489 --
Accrued Expenses ........................................ 93,702 43,875 593,751
Due to Related Parties .................................. -- -- 443,809
Note Payable to Stockholder (Note 6) .................... -- 40,664 --
Current Portion of Capital Lease Obligations (Note 4) ... 43,578 48,905 35,390
---------- ----------- --------------
Total Current Liabilities ..................... 212,506 275,403 2,030,217
Capital Lease Obligations, less current portion (Note 4) 129,766 80,861 63,481
---------- ----------- --------------
TOTAL LIABILITIES ............................. 342,272 356,264 2,093,698
Common Stock, no par value, 200 shares authorized, 40
shares issued and outstanding as of December 31, 1994;
and 45 shares issued and outstanding as of December 31,
1995; and 59 shares issued and outstanding as of
September 30, 1996 (Unaudited) ........................ 78,000 139,000 2,164,254
Retained Earnings (Deficit) ............................. 74,708 365,669 (715,361)
---------- ----------- --------------
152,708 504,669 1,448,893
Less: Treasury Stock, at cost, 0 shares as of December
31, 1994; and 5 shares as of December 31, 1995; and 0
shares as of September 30, 1996 (Unaudited) (Note 6) .. -- (61,000) --
---------- ----------- --------------
152,708 443,669 1,448,893
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................ $494,980 $ 799,933 $3,542,591
========== =========== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF INCOME FOR THE YEARS DECEMBER 31, 1994, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September
December 31, 30,
---------------------------- ------------------------------
1994 1995 1995 1996
------------ ------------ ------------ --------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Others ................................ $1,869,759 $2,645,692 $2,213,812 $ 2,468,953
Related parties ....................... 3,434,798 3,884,525 2,900,407 3,112,034
------------ ------------ ------------ --------------
5,304,557 6,530,217 5,114,219 5,580,987
------------ ------------ ------------ --------------
Cost of Revenue ............................ 3,442,932 3,905,168 2,919,932 4,712,530
General and Administrative expenses ........ 1,632,777 2,128,860 1,843,117 1,722,071
Expenses paid to related parties ........... 174,356 193,880 64,604 116,798
------------ ------------ ------------ --------------
5,250,065 6,227,908 4,827,653 6,560,399
------------ ------------ ------------ --------------
Operating income (loss) .................... 54,492 302,309 286,566 (970,412)
Other expense .............................. 15,368 -- -- 63,770
Interest expense ........................... 14,009 10,803 7,309 6,848
------------ ------------ ------------ --------------
Income (loss) before provision of income tax 25,115 291,506 279,257 (1,041,030)
Provision of income tax .................... 492 545 -- --
------------ ------------ ------------ --------------
Net income (loss) .......................... $ 24,623 $ 290,961 $ 279,257 $(1,041,030)
============ ============ ============ ==============
Net income (loss) per share ................ $ 456 $ 5,595 $ 5,476 $ (17,949)
Weighted Average number of shares
outstanding .............................. 54 52 51 58
Pro forma information (unaudited):
Net income (loss) (historical) ........ $ 24,623 $ 290,961 $ 279,257 $(1,041,030)
Pro forma adjustments -- income taxes . 41,000 120,000 115,172 --
------------ ------------ ------------ --------------
Pro forma net (loss) income ........... $ (16,377) $ 170,961 $ 164,085 $(1,041,030)
============ ============ ============ ==============
Pro forma (loss) earnings per share ... $ (303) $ 3,287 $ 3,217 $ (17,949)
Pro forma weighted average number of
shares outstanding .................. 54 52 51 58
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Number Number Retained
of Shares Amount of Shares Amount Earnings/Deficit Total
----------- ------------ ----------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ..... 40 $ 78,000 $ $ 50,085 $ 128,085
Net income for the year ended
December 31, 1994 ............... -- -- -- -- 24,623 24,623
----------- ------------ ----------- ----------- ---------------- -------------
Balance at December 31, 1994 ..... 40 $ 78,000 -- -- 74,708 152,708
Purchase of Treasury Stock ....... -- (5) (61,000) -- (61,000)
Issuance of Common Stock ......... 5 61,000 -- -- -- 61,000
Net Income for the year ended
December 31, 1995 ............... -- -- -- -- 290,961 290,961
----------- ------------ ----------- ----------- ---------------- -------------
Balance at December 31, 1995 ..... 45 $ 139,000 (5) $(61,000) $ 365,669 $ 443,669
Issuance of Common Stock
(Unaudited) ..................... 5 61,000 -- -- -- 61,000
Retirement of Treasury Stock
(Unaudited) ..................... (5) (61,000) 5 61,000 -- --
Issuance of Common Stock in
exchange for management agreement
(unaudited) ..................... 14 2,025,254 -- -- -- 2,025,254
Dividends (unaudited) ............ -- -- -- -- (40,000) (40,000)
Net loss for the nine months ended
September 30, 1996 (unaudited) .. -- -- -- -- (1,041,030) (1,041,030)
Balance at September 30, 1996
(unaudited) ..................... 59 $2,164,254 -- $ -- $ (715,361) $ 1,448,893
=========== ============ =========== =========== ================ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
------------------------- -----------------------------
1994 1995 1995 1996
---------- ----------- ----------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net Income ............................. $ 24,623 $ 290,961 $ 279,257 $ (1,041,030)
Adjustments to reconcile net income to
net cash provided operating activities:
Depreciation ...................... 34,063 75,184 52,500 63,149
Loss on sale of property .......... 15,368 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable ............. (16,473) (139,327) (262,982) (876,153)
Prepaid expenses ................ (17,500) 9,392 (10,974) 8,108
Other Assets .................... (6,648) -- 9,972 (2,000)
Accounts payable ................ (11,446) 66,733 50,974 815,308
Accrued expenses ................ (666) (49,827) 4,099 549,876
Due to related parties .......... -- -- -- 443,809
---------- ----------- ----------- --------------
Net cash provided by (used in) operating
activities ........................... 21,321 253,116 122,846 (38,933)
Investing activities
Purchases of property and equipment .... -- (115,968) (44,818) (37,117)
Proceeds from note receivable .......... -- -- -- 73,711
---------- ----------- ----------- --------------
Net cash provided by (used in) investing
activities ........................... -- (115,968) (44,818) 36,594
---------- ----------- ----------- --------------
Financing activities
Payment of note payable to a stockholder -- (20,336) (7,626) --
Dividends Paid ......................... -- -- -- (40,000)
Principal payment under capital lease
obligations .......................... (22,792) (43,578) (24,638) (30,895)
---------- ----------- ----------- --------------
Net cash used in financing activities .. (22,792) (63,914) (32,264) (70,895)
---------- ----------- ----------- --------------
Net (decrease) increase in cash ........ (1,471) 73,234 45,764 (73,234)
Cash and cash equivalents at the
beginning of the period .............. 1,471 -- -- 73,234
Cash and cash equivalents at the end of
the period ........................... $ -- $ 73,234 $ 45,764 $ 0
========== =========== =========== ==============
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest .......................... $ 14,654 $ 13,868 $ 7,309 $ 6,848
Taxes ............................. 475 492 492 498
Noncash activities:
Investment in Capital Lease ....... $ 68,500 $ -- $ -- $ --
Note payable to stockholder ....... -- 61,000 61,000 --
Note receivable from stockholder .. -- 61,000 61,000 20,336
Issuance of stock in exchange for
management agreement ............ -- -- -- 2,025,254
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Advanced Alliance Management Corp. ("AAMC" or the "Company") was
incorporated on July 15, 1988 in the state of New York. The Company was
formed for the purpose of offering practice management services to Northern
Metropolitan Radiology Associates, P.C. ("NMRA"), an entity under common
ownership, which provides expertise in various radiological subspecialties
including, but not limited to: neuroradiology, mammography, and
interventional, pediatric and nuclear radiology. Presently, the Company
offers a variety of practice management and other services to its hospital
and physician-group client base. These services include: billing and
collection, transcription, provision of ultrasound, x-ray and nuclear
medicine technicians, mobile x-ray services, non-medical personnel staffing,
OSHA compliance and credentialling.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized when services are rendered for all but billing and
collection services. Revenue earned from billing and collection services
rendered are recognized only upon the collection of the customers' accounts
receivable balance by AAMC.
Property and Equipment
Medical equipment, office furniture and computer equipment are depreciated
on the straight-line basis over the estimated useful lives of the assets
(generally 5 years).
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less, when purchased, to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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.
Income Taxes
Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities are
determined based upon differences between financial reporting and tax basis
assets and liabilities.
Recently Issued Accounting Standards
During March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to Be
Disposed Of." This statement establishes financial accounting and reporting
standards for the impairment of long lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and
for long lived assets and certain identifiable intangibles to be disposed of.
SFAS 121 is effective for financial statements for fiscal years beginning
after December 15, 1995, although earlier application is encouraged. The
Company does not expect that the adoption of SFAS 121 will have a material
effect on its financial statements.
Earnings Per Share
Earnings per share are computed using the weighted average number of
common shares outstanding.
F-44
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
Notes to Financial Statements
for the years ended December 31, 1994 and 1995
and for the nine months ended September 30, 1996 (unaudited) - (Continued)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Medical equipment ............. $270,898 $ 369,172
Office furniture .............. 1,506 15,375
Computer equipment ............ 7,066 10,891
---------- -----------
279,470 395,438
Less: accumulated depreciation (82,435) (157,619)
---------- -----------
Property and equipment, net ... $197,035 $ 237,819
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
The Company leases medical and other equipment under capital leases
expiring through November 1998. At December 31, 1995, future minimum lease
payments including interest at 11% to 12% annually, were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------
<S> <C>
1996 ............................. $ 61,248
1997 ............................. 61,248
1998 ............................. 26,288
----------
148,784
Less: Amount representing interest (19,018)
----------
$129,766
</TABLE>
5. OPERATING LEASE OBLIGATIONS
The Company leases medical and other equipment under operating leases on a
month-to-month basis. Medical and other equipment rental amounted to
approximately $161,943 and $78,338 for the years ended December 31, 1995 and
1994, respectively.
6. TREASURY STOCK/NOTE PAYABLE TO FORMER SHAREHOLDER
In March 1995, the Company purchased five shares of its previously issued
stock. The purchase price of $61,000, in the form of a note, is payable in 24
equal monthly installments commencing in April 1995. At December 31, 1995,
the balance due to the former shareholder was approximately $41,000. The
treasury shares were then retired by the Company.
Subsequent to year end, the former shareholder purchased five new shares
of the Company's previously unissued common stock. As consideration for these
shares, the balance of the note payable due to the shareholder was forgiven
and a note approximating $20,000 was provided to the Company.
7. NOTES RECEIVABLE FROM RELATED PARTY
In July 1995, five shares of the Company's unissued common stock was sold
to an unrelated party for $61,000. The consideration received for the shares
was in the form of a note due in 24 equal monthly payments commencing in July
1995. Subsequent to December 31, 1995, the repayment terms of the note were
modified to commence in January 1996. At December 31, 1995, the entire
$61,000 face amount of the note was due.
F-45
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
Notes to Financial Statements
for the years ended December 31, 1994 and 1995
and for the nine months ended September 30, 1996 (unaudited) - (Continued)
8. PROFIT-SHARING PLAN
All eligible employees of the Company who meet certain requirements with
respect to age and years of service are covered under the NMRA Profit-Sharing
Plan and Trust. AAMC's contributions to the plan are determined annually by
the Board of Directors. The Company made no contributions and $56,702 to the
plan for the years ended December 31, 1995 and 1994, respectively.
9. RELATED PARTY TRANSACTIONS
Sales to NMRA and its divisions and subsidiaries under common ownership
totaled approximately $3,885,000 or 59% of total sales and approximately
$3,435,000 or 63% of total sales for the years ended December 31, 1995 and
1994, respectively.
The Company leases its office space, on a month-to-month basis, from
Northern Metropolitan Service Corporation ("NMSC"), a related party. During
the year ended December 31, 1994, the Company paid no rent expense to NMSC.
Rent expense for the year ended December 31, 1995 was approximately $82,000.
Certain operating expenses of the Company are paid to a related party.
Such operating expenses amounted to $193,880 and $174,356 for the years ended
December 31, 1995 and 1994, respectively.
As described in Note 8, the employees of the Company are covered under the
NMRA Profit Sharing Plan and Trust.
10. INCOME TAXES
Commencing July 15, 1988, the Company elected to be treated as a
Subchapter S Corporation and use the cash method of accounting under
applicable sections of the Internal Revenue Code for federal income tax
purposes. In addition, the Company elected to be treated for New York State
and New Jersey State income tax purposes as a Subchapter S Corporation. As
such, in lieu of corporate income taxes, the shareholders of the Company
report their proportionate share of the Company's income or loss on their
personal income tax returns. Consequently, no provision is made for federal
income taxes and a statutory minimum provision is made for state income
taxes.
Immediately after the transfer of ownership discussed in Note 12, the
Company will no longer be treated as a Subchapter S Corporation or be
eligible to use the cash method of accounting. The accompanying consolidated
financial statements reflect a provision for income taxes on a pro forma
basis as if the Company was liable for federal, state and local income taxes
as an accrual basis taxable corporate entity throughout the years presented.
The proforma adjustments reflected in the income statement for the year ended
December 31, 1994 includes a $30,000 income tax liability which would have
resulted due to the change from the cash to the accrual method of accounting
and from a nontaxable to taxable entity as of January 1, 1994.
The pro forma income taxes represent the liability which would have
occurred if the Company was a taxable entity from January 1, 1994.
The following summarizes pro forma income taxes provision:
Pro forma income tax adjustment:
<TABLE>
<CAPTION>
For the year ended For the year ended
------------------ ------------------
1994 1995
------------------ ------------------
Current
<S> <C> <C>
Federal .............. $30,000 $ 89,000
State ................ 11,000 31,000
------------------ ------------------
Total income tax provision $41,000 $120,000
</TABLE>
F-46
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
Notes to Financial Statements - (Continued)
for the years ended December 31, 1994 and 1995
and for the nine months ended September 30, 1996 (unaudited)
10. INCOME TAXES - (Continued)
The pro forma provision for income taxes differs from the amounts computed
by applying federal statutory rates due to the following:
<TABLE>
<CAPTION>
For the year ended For the year ended
---------------------- ----------------------
1994 1995
---------------------- ----------------------
<S> <C> <C>
Pro forma provision computed at the federal
statutory rate ................................ 34.0% 34.0%
Pro forma state income taxes, net of federal tax
benefit ....................................... 7.5% 7.5%
---------------------- ----------------------
Total .......................................... 41.5% 41.5%
</TABLE>
11. GOVERNMENT REGULATION
The healthcare industry is highly regulated. Requirements pertaining to
the ownership, operation and acquisition of medical equipment and the
provision of medical practice management services vary from state to state,
including licensing regulations, third-party payor regulations, corporate
practice of medicine, fee splitting, physician self-referral, anti-kickback
laws and regulations in certain jurisdictions requiring certificates of need
for certain types of "healthcare facilities" and "major medical equipment".
12. SUBSEQUENT EVENTS
On October 2, 1996, the Company was acquired by Complete Management, Inc.
("CMI") for approximately $8.5 million of consideration (the "Acquisition").
CMI, a New York corporation, provides comprehensive management services
primarily to high volume medical practices in New York State. These services
include development, administration and leasing of medical offices and
equipment, staffing and supervision of non-medical personnel, accounting,
billing and collection, and development and implementation of practice growth
and marketing strategies. Directly prior to the Acquisition, in September
1996, the Company issued 3.5 shares to each of four shareholders of NMRA for
a nominal amount, and, entered into a formal 30 year management agreement
with NMRA. As a result of these series of transactions, approximately $2.0
million has been assigned to the management agreement and will be amortized
over a period not to exceed 20 years. The value assigned to the management
agreement is based upon the fair value per share of the Company's outstanding
common stock based upon the Acquisition price.
13. UNAUDITED INTERIM PERIODS PRESENTED
The interim consolidated financial statements for the six months periods
ended June 30, 1995 and 1996 are unaudited. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation have been included. Operating results for
the six months period ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
14. SIGNIFICANT EVENTS (UNAUDITED)
During September 1996, the Company paid substantially all of its employees
(approximately 183 persons) a bonus aggregating approximately $473,646 for
past services. Such amount has been charged to operations.
F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Amedisys, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Amedisys,
Inc. (a Delaware Corporation, formerly known as Analytical Nursing Management
Corporation) and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amedisys, Inc.
and Subsidiaries as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP HANNIS T. BOURGEOIS & CO., LLP
March 15, 1996
F-48
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994, 1995 AND AS OF SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
September 30,
1994 1995 1996
------------ ------------- --------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash (Note 14) ............................................ $ 140,804 $ 870,004 $ 2,383,453
Accounts receivable, net of allowance for doubtful accounts
of $733,912 on September 30, 1996 (unaudited), $258,670
in 1995 and $277,845 in 1994 ........................... 5,307,433 6,124,269 7,414,761
Prepaid expenses .......................................... 185,823 432,930 363,187
Inventory and other current assets ........................ 134,087 219,610 460,233
------------ ------------- --------------
Total current assets ................................. 5,768,147 7,646,813 10,621,634
NOTES RECEIVABLE FROM RELATED PARTIES (Note 10) ............. 362,621 402,736 270,758
OTHER ....................................................... -- -- 1,444
PROPERTY, PLANT AND EQUIPMENT, net (Notes 3 and 7) .......... 2,449,685 2,449,468 3,348,140
ASSETS HELD FOR SALE, net (Note 4) .......................... 101,940 76,456 64,174
DEFERRED TAX ASSET (Note 9) ................................. 46,500 208,000 --
OTHER ASSETS, net (Note 5) .................................. 431,302 753,254 1,599,270
------------ ------------- --------------
Total assets ......................................... $9,160,195 $11,536,727 $15,905,420
============ ============= ==============
CURRENT LIABILITIES:
Accounts payable .......................................... $ 496,213 $ 402,140 $ 1,357,258
Accrued expenses:
Payroll and payroll taxes .............................. 443,616 862,498 964,040
Insurance (Note 12) .................................... 70,301 483,155 827,037
Income taxes (Note 9) .................................. 39,993 287,987 50,724
Other .................................................. 359,738 616,869 1,141,126
Notes payable (Note 6) .................................... 1,674,468 2,456,971 3,933,814
Current portion of notes payable to related parties (Note
10) .................................................... 286,221 90,711 90,711
Current portion of long-term debt (Note 7) ................ 95,890 386,848 386,848
Current portion of obligations under capital leases (Note
8) ..................................................... 99,313 181,964 181,964
------------ ------------- --------------
Total current liabilities ............................ 3,565,753 5,769,143 8,933,522
LONG-TERM DEBT (Note 7) ..................................... 216,171 211,187 167,400
NOTES PAYABLE TO RELATED PARTIES (Note 10) .................. 1,028,457 987,924 1,047,227
OBLIGATIONS UNDER CAPITAL LEASES (Note 8) ................... 292,448 291,282 942,614
------------ ------------- --------------
Total liabilities .................................... 5,102,829 7,259,536 11,090,763
------------ ------------- --------------
COMMITMENTS AND CONTINGENCIES
(Notes 8, 12 and 14) ...................................... -- -- --
------------- -------------- ---------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES .............. 14,942 3,345 19,090
STOCKHOLDER' EQUITY (Note 11):
Common stock ................................................ 2,547 2,584 2,585
Additional paid-in capital .................................. 1,652,630 1,976,593 1,983,792
Retained earnings ........................................... 2,494,381 2,378,636 2,880,909
Stock subscriptions receivable .............................. (107,134) (83,967) (71,719)
------------ ------------- --------------
Total stockholders' equity ........................... 4,042,424 4,273,846 4,795,567
------------ ------------- --------------
Total liabilities and stockholders' equity ........... $9,160,195 $11,536,727 $15,905,420
============ ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
1993 1994 1995 1995 1996
------------ ------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME:
Net service revenues ............... 22,445,026 $28,902,219 $37,589,088 $ 27,747.776 $33,647,998
Cost of service revenues ........... 14,673,624 16,996,011 22,424,192 16,973,499 19,168,820
------------ ------------- ------------- ------------- -------------
Gross margin ................ 7,771,402 11,906,208 15,164,896 10,774,277 14,479,178
------------ ------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and benefits .............. 3,667,373 4,863,770 6,732,356 4,673,297 7,567,966
Other .............................. 3,537,030 4,875,985 7,052,610 5,028,129 5,866,605
------------ ------------- ------------- ------------- -------------
Total general and
administrative expenses .. 7,204,403 9,739,755 13,784,966 9,701,426 13,434,571
------------ ------------- ------------- ------------- -------------
Operating income ............ 566,999 2,166,453 1,379,930 1,072,851 1,044,607
============ ============= ============= ============= =============
OTHER INCOME (EXPENSE):
Interest expense ................... (147,880) (270,764) (409,763) (292,468) (399,354)
Interest income .................... 53,405 66,510 71,969 57,044 37,026
Loss on investment in unconsolidated
subsidiary (Note 10) ............. -- (122,699) -- -- --
Miscellaneous ...................... 61,844 93,870 87,686 57,866 103,189
------------ ------------- ------------- ------------- -------------
Total other income (expense) (32,631) (233,083) (250,108) (177,558) (259,139)
------------ ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST ................ 534,368 1,933,370 1,129,822 895,293 785,468
INCOME TAX EXPENSE (Note 9) ........ 39,495 13,393 199,636 83,455 267,450
------------ ------------- ------------- ------------- -------------
Income before minority
interest in net income of
consolidated subsidiary .. 494,873 1,919,977 930,186 811,838 518,018
MINORITY INTEREST IN (INCOME) LOSS 7
OF CONSOLIDATED SUBSIDIARIES ..... -- (14,942) 11,597 18,053 (15,745)
------------ ------------- ------------- ------------- -------------
Net income .................... 494,873 $ 1,905,035 $ 941,783 829,891 502,273
------------ ------------- ------------- ------------- -------------
EARNINGS PER COMMON SHARE (Notes 1
and 2) ........................... $ .22 $ 0.75 $ 0.37 $ 0.32 $ 0.19
------------ ------------- ------------- ------------- -------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ...................... 2,285,000 2,525,000 2,570,000 2,584,000 2,584,000
============ ============= ============= ============= =============
PROFORMA INFORMATION
(unaudited): (Note 2)
Net income (historical) .......... $ 494,873 $ 1,905,035 $ 941,783 $ 829,891 $ --
Proforma adjustments:
Income taxes on Surgicare
results ..................... 154,950 645,682 190,760 190,760 --
------------ ------------- ------------- ------------- -------------
Proforma net income .............. $ 339,923 $ 1,259,353 $ 751,023 $ 639,131 $ --
------------ ------------- ------------- ------------- -------------
Proforma earnings per common share . $ 0.15 $ 0.50 $ 0.29 $ 0.25 $ --
============ ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Additional Stock Total
Common Stock Paid-In Retained Subscriptions Stockgolders'
------------------------
Shares Amount Capital Earnings Receivable Equity
----------- --------- ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 ...... 2,074,649 $ 3,575 $ 3,925 $ 2,369,226 $ -- $ 2,376,726
Public offering (Note 11) ..... 250,000 250 1,499,750 -- $ -- 1,500,000
Public offering costs ......... -- -- (283,853) -- -- (283,853)
Issuance of stock ............. 351 -- 37,053 -- -- 37,053
Equity adjustment from purchase
of ANMC stock .............. 175,000 (1,325) 6,195 (4,870) -- --
Pooled
acquisitions-distribution to
previous owners (Note 2) ... -- -- -- (54,000) -- (54,000)
Net income .................... -- -- -- 494,873 -- 494,873
--------- ------------ ------------- --------------- ---------------
BALANCE, December 31, 1993 ...... 2,500,000 2,500 1,263,070 2,805,229 -- 4,070,799
Private placement stock
offering (Note 11) ......... 29,721 30 233,577 -- (122,015) 111,592
Payments received on stock
subscriptions .............. -- -- -- -- 14,881 14,881
Issuance of stock for
acquisitions (Note 2) ...... 15,800 16 149,984 -- -- 150,000
Issuance of stock in connection
with stock option (Note 11) 1,200 1 5,999 -- -- 6,000
Pooled acquisition:
Distributions to previous
owners ................... -- -- -- (2,068,883) -- (2,068,883)
Purchase of owners'
interests ................ -- -- -- (147,000) -- (147,000)
Net income ................. -- -- -- 1,905,035 -- 1,905,035
----------- --------- ------------ ------------- --------------- ---------------
BALANCE, December 31, 1994 ...... 2,546,721 2,547 1,652,630 2,494,381 (107,134) 4,042,424
Issuance of stock for
acquisitions (Note 2) ...... 37,143 37 323,963 -- -- 324,000
Pooled acquisition -
distribution to previous
owners (Note 2) ............ -- -- -- (1,057,528) -- (1,057,528)
Payments received on stock
subscriptions .............. -- -- -- -- 23,167 23,167
Net income .................... -- -- -- 941,783 -- 941,783
--------- ------------ ------------- --------------- ---------------
BALANCE, December 31, 1995 ...... 2,583,864 2,584 1,976,593 2,378,636 (83,967) 4,273,846
Payments on stock options
(unaudited) ................ -- -- -- -- 12,248 12,248
Options exercised by Carnegie
Investor Services
(unaudited) ................ 1,000 1 7,199 -- -- 7,200
Net Income (unaudited) ........ -- -- -- 502,273 -- 502,273
--------- ------------ ------------- --------------- ---------------
BALANCE, September 30, 1996
(unaudited) ................... 2,584,864 $ 2,585 $1,983,792 $ 2,880,909 $ (71,719) $ 4,795,567
=========== ========= ============ ============= =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-51
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- ------------
(Unaudited)
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 494,873 $ 1,905,035 $ 941,783 $ 829,891 $ 502,273
Adjustments to reconcile net income to net cash used
in operating activities --
Depreciation and amortization .................... 179,215 447,334 646,810 481,038 566,628
Provision for bad debts .......................... 96,241 342,722 482,706 341,241 593,780
(Gain) loss on disposal of property and equipment 18,017 -- 7,088 7,088 (3,711)
Deferred income taxes (benefit) .................. (5,000) (26,600) (161,500) -- --
Loss from unconsolidated subsidiaries ............ 15,960 122,699 -- -- --
Minority interest ................................ -- 14,942 (11,597) (18,053) 15,745
Changes in assets and liabilities-- ..............
(Increase) decrease in accounts receivable .... (243,959) (1,713,397) (1,012,343) 53,753 (1,884,271)
(Increase) decrease in prepaid expenses ....... 9,497 (55,887) (247,107) (77,949) 69,743
(Increase) decrease in inventory and other
current assets .............................. (21,689) (4,477) (83,240) (115,847) (240,623)
(Increase) decrease in other assets ........... (69,071) (194,699) (114,409) (36,198) (627,910)
Increase (decrease) in accounts payable ....... 135,632 54,433 (188,251) 129,538 955,119
Increase (decrease) in accrued expenses ....... (167,874) 246,995 1,292,246 632,112 732,419
------------- ------------- ------------- ------------- ------------
Net cash provided by operating activities ... 441,842 1,139,100 1,552,186 2,226,614 679,192
------------- ------------- ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in notes receivable ............ 13,533 (321,022) 10,483 29,758 3,868
Proceeds from sale of property, plant and equipment -- -- 42,000 51,197 156,388
Purchase of property, plant and equipment .......... (971,734) (1,573,525) (445,809) (340,074) (1,452,648)
Investment in unconsolidated subsidiaries .......... (87,580) (34,446) -- -- --
Decrease in note receivable -- other ............... -- -- -- -- --
------------- ------------- ------------- ------------- -----------
Net cash (used by) investing activities ..... (1,045,781) (1,928,993) (393,326) (259,119) (1,292,392)
------------- ------------- ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in purchase acquisitions ............. -- -- 10,890 10,890 --
Net borrowings on line of credit agreement ......... 325,948 299,359 782,503 (196,285) 1,476,843
Proceeds from issuance of notes payable and capital
leases ........................................... 705,702 647,009 661,389 226,395 1,358,819
Payments on notes payable and capital leases ....... (247,916) (824,887) (573,923) (629,338) (653,059)
Increase (decrease) in notes payable ............... (47,745) 1,265,964 (236,043) -- --
(Increase) decrease in notes receivable -- related
parties .......................................... (119,868) 160,000 (40,115) (21,673) (75,401)
Proceeds from issuance of stock .................... 1,524,558 132,577 -- -- 7,199
Payments received on stock subscriptions receivable -- -- 23,167 86,971 12,248
Distributions to previous members (Note 2) ......... (54,000) (2,068,883) (1,057,528) (942,531) --
Purchase of members' interest ...................... -- (147,000) -- -- --
Purchase of treasury stock ......................... (71,000) -- -- -- --
Proceeds for sale of treasury stock ................ 95,538 -- -- -- --
Offering costs ..................................... (283,853) -- -- -- --
------------- ------------- ------------- ------------- -----------
Net cash provided (used) by financing
activities ............................... 1,827,364 (535,861) (429,660) (1,465,571) 2,126,649
------------- ------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN CASH .................... 1,223,425 (1,325,754) 729,200 501,924 1,513,449
CASH AT BEGINNING OF YEAR .......................... 243,113 1,466,558 140,804 140,803 870,004
------------- ------------- ------------- ------------- -----------
CASH AT END OF YEAR ................................ 1,466,538 $ 140,804 $ 870,004 $ 642,727 $2,383,453
------------- ------------- ------------- ------------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for--
Interest ......................................... 156,520 $ 204,424 $ 365,934 $ 181,823 $ 373,272
------------- ------------- ------------- ------------- -----------
Income taxes (refunds) ........................... 209,287 $ (24,393) $ 36,000 $ 82,155 $ 504,713
------------- ------------- ------------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
1993 1994 1995 1995 1996
------ ---------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for acquisition
of Priority Home Care, Inc. ... $ -- $150,000 $ -- $ -- $ --
====== ========== =========== =========== ===========
Acquisition of Health Care 24 Inc.
Value of stock issued in
exchange .................... $ -- $ -- $ 50,000 $ 50,000 $ --
Value of note payable issued in
exchange .................... -- -- 50,000 50,000 --
Working capital acquired net of
cash and cash equivalents ... -- -- -- -- --
Fair value of property and
equipment acquired .......... -- -- (15,000) (15,000) --
------ ---------- ----------- ----------- -----------
Client lists acquired ......... $ -- $ -- $ 85,000 $ 85,000 --
====== ========== =========== =========== ===========
Acquisition of Home Care Plus,
Inc.
Value of stock issued in
exchange .................... -- -- 274,000 274,000 --
Cash acquired in exchange ..... -- -- (10,890) (10,890) --
Working capital acquired net of
cash and cash equivalents ... -- -- (150,659) (150,659) --
Fair value of property and
equipment acquired .......... -- -- (30,245) (30,245) --
Long-term debt assumed ........ -- -- 229,991 229,993 --
====== ========== =========== =========== ===========
Goodwill recorded in exchange . $ -- $ -- $ 312,197 $ 312,199 $ --
====== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF ORGANIZATION
Amedisys, Inc. (the Company--formerly known as Analytical Nursing
Management Corporation) was acquired on December 21, 1993 by M & N Capital
Corp. (M & N) which had been incorporated under the laws of the State of New
York on October 20, 1992 to serve as a vehicle to effect a combination with
an operating business. In connection with this transaction, 75,000 shares of
M & N common stock were issued as a finders fee to three individuals and the
former shareholders of the Company acquired approximately 73% of the issued
and outstanding capital stock of M & N. Prior to the acquisition, none of the
officers, directors or shareholders of M & N were affiliated with the
officers, directors or shareholders of the Company. This transaction was
accounted for as a reverse acquisition.
In July, 1994, Analytical Nursing Management Corporation (ANMC) was
reincorporated in the state of Delaware, and in August, 1994, M & N Capital
Corp. merged with and into ANMC, changing the name of the Company to
"Analytical Nursing Management Corporation." During 1995, the Company changed
its name and began doing business as Amedisys; the Company also acquired an
outpatient surgery center company in Texas and two home care companies (see
Note 2) in Louisiana. The Company provides a variety of supplemental
staffing, home healthcare, home care management, outpatient surgery and
primary care clinical services. The Company's home care division now services
all major metropolitan areas in the state of Louisiana as well as the areas
of Houston, Dallas and Beaumont in Texas. The outpatient surgery centers are
located in Houston, Texas.
NATURE OF OPERATIONS
The Company provides services through a network of subsidiaries which
include:
AMEDISYS Staffing Services, Inc. (AME) supplies highly trained critical
care registered nurses and licensed practical nurses to all types of
healthcare facilities. Independent contract nurses are utilized to meet the
staffing needs of client healthcare facilities.
AMEDISYS Nursing Services, Inc. (ASI) is an employee-based staffing agency
that provides a variety of relief personnel such as registered and licensed
practical nurses; and certified nurses' aides for staff relief in all types
of healthcare facilities.
Amerinurse, Inc. provides highly trained nurses who travel to client
healthcare facilities and work on a contract basis. Effective January 1,
1996, Amerinurse, Inc. was merged into ASI.
AMEDISYS Specialized Medical Services, Inc. (AMS), Amedisys Home Health,
Inc. and Amedisys Home Health, Inc. of Texas provide skilled nursing care,
home health aid, physical therapy, occupational therapy, speech therapy and
medical social workers to homebound patients. During 1994, IHS acquired a 60%
ownership interest in three rural health clinics located in Louisiana.
AMEDISYS Surgery Centers, L.C. (ASC) operates two outpatient surgery
centers in Houston, Texas.
AMEDISYS Physician Services, Inc. (APS) provides physician services in
rural areas through an internal medicine clinic. Its services have been
expanded to include a "walk-in" clinic and laboratory.
USE OF ESTIMATES
The accounting and reporting policies of the Company and its subsidiaries
conform with generally accepted accounting principles. In preparing the
consolidated financial statements, the Company is required to make estimates
and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
F-54
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- (Continued)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company;
and its wholly-owned subsidiaries (AME, ASI, AMS and ASC) and its 60%-owned
subsidiary (APS) and their wholly-owned and partially- owned subsidiaries
Analytical Nursing Management Corporation of Texas, a wholly-owned subsidiary
of AME; MedAmerica, Inc. of Texas and MedAmerica, Inc., 80%-owned
subsidiaries of AME; Amedisys Home Health, Inc. and Amedisys Home Health,
Inc. of Texas, both wholly-owned subsidiaries of ASM; and Jackson Rural
Health Clinic, Inc. (clinic closed February, 1996), Kentwood Rural Health
Clinic, Inc. (clinic closed in August, 1995), and Bastrop Rural Health
Clinic, Inc., all 60%-owned subsidiaries of ASM. All material intercompany
accounts and transactions have been eliminated in these financial statements.
Prior year financial statements have been restated to include the accounts
of business combinations accounted for as poolings-of-interests. Business
combinations accounted for as purchases are included from the respective
dates of acquisition. Certain prior years' amounts have been reclassified to
conform with current year financial statement presentation.
REVEUE RECOGNITION POLICY
Gross revenue is recorded on an accrual basis based upon the date of
service at amounts equal to the Company's established rates or estimated cost
reimbursement rates, as applicable. Allowances and contractual adjustments
representing the difference between the established rates and the amounts
estimated to be paid by third parties are also recorded on an accrual basis
and deducted from gross revenue to determine net service revenues.
Reimbursement for home healthcare services to patients covered by the
Medicare program is based on cost reimbursement rates. Final reimbursement is
determined after submission of annual cost reports and audits thereof by the
fiscal intermediaries. Proposed legislation by the U.S. Congress may change
the payment methodology for home healthcare services to Medicare patients
from a cost based reimbursement system to a prospective payment system.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash includes certificates of
deposit and all highly liquid debt instruments with maturities of three
months or less when purchased. The carrying amount approximates fair value
because of the short maturity of those instruments.
INVENTORY
Inventories consist of medical supplies which are utilized in the
treatment and care of home health and outpatient surgery patients.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is generally carried at cost except for certain
property purchased from related parties (see Note 3). Additions and
improvements are capitalized, but ordinary maintenance and repair expenses
are charged to income as incurred. The cost of property sold or otherwise
disposed of and the accumulated depreciation thereon are eliminated from the
property and related accumulated depreciation accounts, and any gain or loss
is credited or charged to income.
F-55
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- (Continued)
Included in property and equipment are capitalized leases which consist
primarily of computer equipment, phone systems, and vans used by the home
care divisions. Capital leases are recorded at the present value of the
future rentals at lease inception and are amortized over the lesser of the
applicable lease term or the useful life of the equipment.
For financial reporting purposes, depreciation and amortization of
property subject to capital leases ($468,000 in 1995 and $351,000 in 1994) is
included in other general and administrative expenses and is provided
utilizing the straight-line method basis upon the following estimated useful
service lives:
Buildings 40 years
Leasehold Improvements 5 years
Equipment and furniture 5-7 years
Vehicles 5 years
Computer software 5 years
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income (loss) by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. The warrants discussed in Note 11
were not included in the computation of the earnings per common share because
the market value of the common stock was not in excess of the exercise price
through December 31, 1995 and 1994 and their inclusion would have an
anti-dilutive effect.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Additionally, long-lived assets and
certain identifiable intangible assets to be disposed of are required to be
reported at the lower of carrying amount or fair value less selling costs.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
The adoption of this statement will not have a material impact on the
consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement provides accounting and reporting standards for
stock-based employee compensation plans and also applies to equity
instruments issued to acquire goods and services from nonemployees. SFAS No.
123 defines a fair value based method of accounting for employee stock
options or similiar equity instruments. Entities may either adopt that
accounting method or may elect to continue the accounting treatment outlined
in APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to continue following Opinion No. 25 are required to make pro forma
disclosures of net income and earning per share, as if the fair value based
method had been adopted. SFAS No. 123 is effective for fiscal years beginning
after December 25, 1995. The Company expects to continue following Opinion
No. 25. Adoption of this statement will not have a material impact on the
consolidated financial statements but will only require pro forma disclosure
in future years.
UNAUDITED FINANCIAL INFORMATION
The financial information as of September 30, 1995 and 1996, included
herein is unaudited; however, such information reflects, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) that are necessary to present fairly the results of operations
for such periods. Results of operations for the interim periods are not
necessarily indicative of results of operations which will be realized for
the year ending December 31, 1996.
F-56
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
2. ACQUISITIONS
On June 30, 1995, the Company acquired all issued and outstanding
membership interests in ASC in exchange for 1,000,000 shares of Company
common stock. ASC's assets on June 30, 1995 were approximately $3,000,000.
Upon closing of the transaction, the former members of ASC owned
approximately 40% of the issued and outstanding stock of the Company. This
transaction has been accounted for as a pooling of interests and accordingly
the financial statements have been restated to include the results of ASC for
all periods presented, as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------------------------------------- ---------------------------------------
As Originally Reported As Restated As Originally Reported As Restated
---------------------- ------------- ---------------------- -------------
<S> <C> <C> <C> <C>
Operating revenues ....... $8,728 $11,906 $6,099 $7,771
Net income ............... 6 1,905 39 495
Earnings per common share 0.00 0.75 .03 .22
</TABLE>
Combined and separate results of the Company and Surgicare for the six
months ended June 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Combined
Amedisys Surgicare Total
---------- ----------- ----------
<S> <C> <C> <C>
Operating revenue $5,722 $1,118 $6,840
---------- ----------- ----------
Net income ....... $ 11 $ 561 $ 572
---------- ----------- ----------
</TABLE>
ASC was a limited liability company and, accordingly, had no income tax
liabilities. The effect of providing for income taxes on results of ASC
operations prior to the 1995 acquisition are shown under "Proforma
Information" in the accompanying statements of income.
On May 31, 1995, the Company acquired all of the outstanding stock of Home
Care Plus, Inc. in exchange for 30,000 shares of its common stock value at
$274,000. The excess of the total acquisition cost over the fair value of the
net assets acquired of $312,197 is being amortized over seven years using the
straight-line method.
On March 19, 1995, the Company acquired all of the outstanding stock of
HealthCare Services 24, Inc. in exchange for 7,143 shares of its common stock
and notes payable in the amount of $50,000, payable in monthly installments
through March, 1996. The remaining balance on these notes at December 31,
1995 was approximately $8,500.
On April 28, 1994, the Company acquired all of the outstanding stock of
Priority Home Care, Inc. in exchange for 15,800 shares of its common stock
valued at $150,000. The excess of the total acquisition cost over the fair
value of the net assets acquired of $144,348 is being amortized over seven
years using the straight-line method.
The acquisitions of Home Care Plus, Inc., HealthCare Services 24, Inc. and
Priority Home Care, Inc. were accounted for as purchases and as a result,
operations of these entities subsequent to the date of acquisition have been
included in the consolidated financial statements. Unaudited pro forma
consolidated results of operations for the years ended December 31, 1995, and
1994 (operations of these companies prior to 1994 were not significant) as
though these companies had been acquired as of Janaury 1, 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Net service revenues ..... $38,108,293 $31,625,839
Net income ............... 850,874 1,750,446
Earnings per common share 0.33 0.68
</TABLE>
F-57
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
2. ACQUISITIONS - (Continued)
The above amounts reflect adjustments for amortization of goodwill.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Land ................................ $ 162,246 $ 162,246
Buildings and leasehold improvements 509,619 479,033
Equipment, furniture and vehicles ... 2,910,087 2,524,168
Computer software ................... 37,581 33,855
------------- ------------
Total .......................... 3,619,533 3,199,302
Accumulated depreciation ............ (1,170,065) (749,617)
------------- ------------
Net ............................ $ 2,449,468 $2,449,685
============= ============
</TABLE>
During 1994, prior to acquisition, ASC purchased a building, land and
equipment from a real estate partnership whose owners were also owners of
ASC, and are now owners of the Company. The purchase price of this property
was $1.2 million and resulted in a gain to the seller of approximately
$475,000, which amount was offset against the allocated purchase price of the
property and treated as a distribution in the accompanying financial
statements. Lease payments on this property prior to purchase ($104,000 in
1994 and $489,000 in 1993) are included in other expenses.
During 1995, prior to acquisition, ASC also purchased certain other
equipment from owners of ASC. The sellers' basis in the equipment was
undeterminable and thus the entire purchase price of $115,000 was offset
against the recorded equipment balance and treated as a distribution in the
accompanying financial statements. Rental payments on this equipment were
approximately $75,000 in 1994 and are included in other expenses. No rental
payments were made on this equipment in 1995.
4. ASSETS HELD FOR SALE:
On April 1, 1991, Cajun-a-La-Carte, a 57.95%-owned subsidiary of AME in
the frozen seafood processing business, was merged into AME. Cajun-a-La-Carte
ceased operations in 1992 and its principal assets are being held for sale.
The Company has an agreement to lease these assets for a period of three
years beginning April 1, 1994 for monthly lease payments ($1,025) which are
sufficient to cover the monthly debt service on these assets. Management
believes that these assets will be sold at a price sufficient to realize the
carrying value of $76,456 as of December 31, 1995, which is net of
accumulated depreciation of $70,932.
5. OTHER ASSETS:
Other assets include the following for the years ended December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
GOODWILL, net of accumulated
amortization of $59,554 and $12,615 $397,022 $131,763
START-UP COSTS, net of accumulated
amortization of $129,241 and
$45,377 ........................... 104,608 188,472
CLIENT LISTS ACQUIRED, net of
accumulated amortization of
$115,343 and $73,265 .............. 49,582 6,661
INVESTMENT IN A REAL ESTATE
PARTNERSHIP ....................... 50,174 42,585
OTHER .............................. 151,868 61,821
---------- ----------
$753,254 $431,302
========== ==========
</TABLE>
F-58
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
5. OTHER ASSETS: - (Continued)
The excess of the total acquisition costs over the fair value of the net
assets acquired (goodwill) in various acquisitions (see Note 2) is amortized
using the staight-line method over a seven-year period.
Costs incurred to establish regional offices of ASM prior to beginning
services are capitalized as Other Assets and amortized over a five-year
period.
In connection with the acquisition of various home health companies, ASM
purchased client lists whose cost is being amortized over a three-year
period.
Other assets also include an investment in a real estate partnership,
acquired in connection with the purchase of ASC (see Note 2), which has
certain partners who are also owners of the Company. The investment is
accounted for on the equity method.
Other assets also include deferred organizational costs, which are being
amortized over a five-year period, deposits on leased properties and workers'
compensation policy deposits.
6. NOTES PAYABLE:
Notes payable as of December 31, 1995 and 1994, consist primarily of
borrowings under a $3,500,000 revolving line of credit which matures on
August 7, 1996, bears interest at bank prime (10.25% at December 31, 1995),
and is secured by accounts receivable, life insurance on the major
stockholder and personal guarantees of several stockholders. Such borrowings
totaled $2,456,971 at December 31, 1995 ($1,666,993 at December 31, 1994) at
rates ranging from 8% to 10.25% (9% to 11% in 1994). As of December 31, 1995,
approximately $1,043,000 was unused under this line of credit. The weighted
average monthly interest rate on short-term borrowings was 10.67% and 10.04%
in 1995 and 1994, respectively.
The revolving line of credit is subject to certain covenants, including a
monthly borrowing base or margin requirement calculation, a debt service
coverage ratio and a leverage ratio. The Company was in default on one of the
covenants of these agreements at December 31, 1994, which default was waived
by the bank at that time. No such events of default existed at December 31,
1995. The Company expects to renew the line of credit prior to its
expiration.
7. LONG-TERM DEBT:
Long-term debt consists of notes payable to banks and other financial
institutions which are due in monthly installments through 2000:
<TABLE>
<CAPTION>
1995
-------------------------------------------
Payee Interest Rate Current Long-term
---- --------------- ---------- -----------
<S> <C> <C> <C>
Notes payable to banks .......................... 7.75-14.39% $103,474 $208,164
Notes payable to finance and equipment companies 8.00-12.75% 283,374 3,023
---------- -----------
$386,848 $211,187
========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------------
Payee Interest Rate Current Long-term
------------------------------------------------- --------------- --------- -----------
<S> <C> <C> <C>
Notes payable to banks .......................... 7.00-11.99% $69,519 $189,358
Notes payable to finance and equipment companies 9.75-12.75% 26,371 26,813
--------- -----------
$95,890 $216,171
========= ===========
</TABLE>
The fair value of long-term debt as December 31, 1995, estimated based on
the Company's current borrowing rate of 10.25%, is approximately $546,000.
F-59
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
7. LONG-TERM DEBT: - (Continued)
These borrowings are secured by equipment, vehicles and the personal
guarantee of a stockholder. Maturities of long-term debt as of December 31,
1995, are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996 .......................................... $386,848
December 31, 1997 .......................................... 91,320
December 31, 1998 .......................................... 99,042
December 31, 1999 .......................................... 9,946
December 31, 2000 .......................................... 10,879
----------
$598,035
==========
</TABLE>
8. CAPITAL LEASES:
During 1995 and 1994, the Company acquired certain equipment under capital
leases. The related liabilities under these capital leases were recorded at
the present value of future minimum lease payments due under the leases.
The present minimum lease payments under the capital leases and the net
present value of future minimum lease payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996 ............................ $ 234,205
December 31, 1997 ............................ 166,214
December 31, 1998 ............................ 123,952
December 31, 1999 ............................ 60,452
December 31, 2000 ............................ 2,365
-----------
Total future minimum payments ................ 587,188
Amount representing interest ................. (113,942)
-----------
Present value of future minimum lease
payments .............................. 473,246
Current portion .............................. 181,964
-----------
Long-term portion ............................ $ 291,282
===========
</TABLE>
9. INCOME TAXES:
The Companies file consolidated federal income tax returns, including all
subsidiaries which are owed more than 80%. State income tax returns are filed
individually by the subsidiaries in accordance with state statutes.
The Company utilizes the liability approach to measuring deferred tax
assets and liabilities based on temporary differences existing at each
balance sheet date using currently enacted tax rates in accordance with FASB
Statement No. 109. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Current portion $ 361,136 $ 51,893 $45,495
Deferred portion (161,500) (38,500) (5,000)
----------- ---------- ---------
$ 199,636 $ 13,393 $39,495
=========== ========== =========
</TABLE>
F-60
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
9. INCOME TAXES: - (Continued)
Net deferred tax assets consist of the following components:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Receivable allowance ......... $ 97,000 $ 53,900
Self-insurance reserves ...... 106,000 --
Losses of consolidated
subsidiaries
(not consolidated for tax
purposes) .................. 54,000 67,700
Deferred tax liabilities:
Property and equipment .......... (49,000) (30,900)
---------- ----------
208,000 90,700
Less: Valuation allowance ......... -- (44,200)
---------- ----------
$208,000 $ 46,500
========== ==========
</TABLE>
Total tax expense (benefit) on income before taxes resulted in effective
tax rates that differed from the federal statutory income tax rate. A
reconciliation follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income taxes computed on federal statutory rate . 34.00% 34.00% 34.00%
State income taxes .............................. 2.00 0.39 2.91
ASC income prior to merger (Note 2) ............. (16.88) (33.40) (31.30)
Losses of unconsolidated subsidiaries ........... 8.33 (0.65) --
Write-off of notes receivable from unconsolidated
subsidiaries ................................... (14.39) -- --
Net operating losses utilized ................... -- (1.61) --
Nondeductible expenses and other ................ 4.60 1.96 1.78
--------- --------- ---------
Total ......................................... 17.66% 0.69% 7.39%
========= ========= =========
</TABLE>
10. RELATED PARTY TRANSACTIONS:
NOTES RECEIVABLE
Notes receivable from related parties consist of unsecured and noninterest
bearing notes from the President and certain stockholders of the Company
totaling approximately $18,000 at December 31, 1995 and 1994, receivables
from an internal medicine clinic (IMC) totaling approximately $256,000 and
$345,000 at December 31, 1995 and 1994, respectively, and a receivable from
the developer of an outpatient surgery center to be leased by the Company in
the future of approximately $127,000 at December 31, 1995. The fair value of
the notes receivable from related parties is equal to the recorded value due
to the short term nature of the notes from the President, stockholders, and
developer, and the effective date of January 1, 1996 of the IMC notes.
In March 1994, the Company entered into an agreement with IMC, an
unrelated party, to form a new corporation (APS) which is 60% owned by the
Company and 40% owned by the owners of IMC. APS acquired equipment and
personal property from IMC for approximately $340,000 and manages the
continuing operations of IMC. The Company loaned funds to APS to acquire the
assets of IMC and meet working capital requirements. This loan to APS, which
is to be repaid solely from the revenues of APS over a five-year period,
bears interest at a rate of prime plus 2% and is eliminated in consolidation.
APS recorded management fees of $541,449 in 1995 and $585,491 in 1994 from
IMC. As discussed above, the unpaid management fees are included in notes
F-61
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
10. RELATED PARTY TRANSACTIONS: - (Continued)
receivable from related parties. Effective January 1, 1996, IMC issued new
notes to APS for the unpaid balance on this date. These notes bear interest
at 9%, require monthly principal and interest payments of $4,076 with the
balance due on maturity of January 1, 1999 and are secured by the accounts
receivable of IMC.
In accordance with the terms of the agreements with IMC, IMC has the right
and option to sell its stock back to APS at a price equal to 3.5 times the
earnings per share of APS attributable to each share of APS stock, to be
calculated based on the largest annual earnings per share amount during the
three-year period prior to the time such repurchase is requested by IMC. This
option is not exercisable until March 1, 1997 and, based on operations of APS
through December 31, 1995, would not have a material effect on the Company's
financial statements if exercised.
NOTES PAYABLE
Notes payable to related parties consist primarily of a note issued in
1994 in the original amount of $1,080,000, bearing interest at 9% (see Note
3). The note is secured by all real estate and personal property of one of
the surgical care centers. Maturities of this debt as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996 ....................................... $ 40,533
December 31, 1997 ....................................... 44,335
December 31, 1998 ....................................... 48,894
December 31, 1999 ....................................... 410,295
December 31, 2000 ....................................... 91,531
Thereafter .............................................. 392,869
------------
$1,028,457
============
</TABLE>
The fair value of this note at December 31, 1995, estimated based on the
Company's current borrowing rate of 10.25%, was approximately $987,624.
The remaining balance of notes payable to related parties ($50,178)
consists of unsecured notes to certain stockholders of the Company that are
due on demand and bear interest at rates from 0% - 12%. The fair value of
these notes is assumed to be equal to the recorded balance due to the
short-term nature of the notes.
OTHER
Prior to acquisition by the Company, ASC engaged in the following
transactions with related parties during 1995 and 1994:
During 1993, the Company made payments totaling $169,500 to three
doctors who were members of ASC for services rendered in the capacity of
medical director (no such payments were made or required for 1994).
During 1993, ASC made payments to RPH, Inc., an entity whose primary
owners were also the controlling owners of ASC, aggregating approximately
$1,014,000 for leased employees. Terms of the contract covering this
transaction provided for ASC to pay RPH the salary costs of these
employees plus 30% for the term of the contract.
The Company made payments aggregating approximately $75,000 in 1994 and
$16,000 in 1993 for equipment rented from doctors who were members of ASC.
Payments totalling approximately $108,000 in 1995, $229,000 in 1994 and
$206,000 in 1993 were made to RPH, Inc. for anesthesia services. The
primary owners of RPH, Inc. were also controlling owners of ASC.
F-62
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
10. RELATED PARTY TRANSACTIONS: - (Continued)
During 1994, the Company purchased the interest of two members
(totaling 7.6%) for $35,000 per percentage point, $252,000 in aggregate.
This purchase was effected through the issuance of notes payable. Of the
purchased interest, 3% was sold in 1994 for $35,000 per percentage point,
$105,000. The remaining repurchased interest of 4.6% has been reflected as
a reduction of retained earnings in the accompanying financial statements.
The Companies paid $18,935 for legal fees to a stockholder and director
(through July 1995) of the Company in 1995 and $21,000 in 1994 for legal fees
to a stockholder and director of the Company.
APS paid medical director fees of $24,000 to a stockholder of the Company
and a total of $24,000 to two of the owners of IMC.
The Company had an investment in Network Wellness Systems, Inc. (NWS), the
corporate general partner of Sports/Spa and Clinic, a Louisiana Partnership
In Commendam ("SSC"), which operated a health club, spa, salon and wellness
facility within the Sandestin Resort (the Resort) in Destin, Florida. SSC
began business in November, 1991, and subsequently was placed in Chapter 11
Reorganization on April 23, 1993. The bankruptcy proceeding was thereafter
converted to a Chapter 7 liquidation. The Company determined the unpaid
balance due from NWS ($99,487) to be uncollectible and charged it against
income in 1994. Two of the owners of IMC are also affiliated with NWS and
SSC.
11. CAPITAL STOCK:
Prior to its acquisition of ANMC, M & N completed its initial public
offering of 250,000 common shares for gross proceeds of $1,500,000 on August
26, 1993. In connection with the offering, M & N issued 25,000 warrants to
the Underwriter (the Underwriter's Warrants), which are exercisable at $7.20
per common share for a period of four years commencing April 28, 1994.
At December 31, 1993, there were 120,000,000 shares authorized of common
stock, $.001 par value per share, and 1,500,000 shares issued and
outstanding. Effective with the merger of M & N (merged corporation) with and
into ANMC (surviving corporation) in 1994 (see Note 1), each outstanding
share of common stock, $.001 par value per share, of the merged corporation
was converted into one share of common stock, $.001 par value per share, of
the surviving corporation. As a result of the merger and reincorporation of
ANMC in the state of Delaware, the number and class of authorized shares of
capital stock of the Company changed. As of December 31, 1994, there were
5,000,000 shares of common stock authorized, $.001 par value per share, and
5,000,000 shares of preferred stock authorized, $.001 par value per share. As
of December 31, 1995, there were 10,000,000 shares of common stock
authorized, $.001 par value per share, and 2,500,000 shares of preferred
stock authorized, $.001 per share.
STOCK OPTIONS
The Company's Board of Directors has approved a Statutory Stock Option
Plan providing incentive stock options to key employees. The Plan is to be
administered by a Compensation Committee (appointed by the Board) which is to
determine, within the provisions of the Plan, those eligible employees to
whom, and the times at which, options shall be granted. Each option granted
under the Plan is to be convertible into one (1) share of common stock,
unless adjusted in accordance with the provisions of the Plan. Options may be
granted for a number of shares not to exceed, in the aggregate, 500,000
shares of common stock at an option price per share of no less than 85% of
the fair market value of a share of common stock on the date the option is
granted. If the option is granted to any owner of 10% or more of the total
combined voting power of the Company and its subsidiaries, the option price
is to be at least 110% of the fair market value of a share of common stock on
the date the option is granted. Each option is to be fully exercisable when
granted and may be exercised during a period as determined by the
Compensation Committee, not to exceed 10 years from the date such option is
F-63
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
11. CAPITAL STOCK: - (Continued)
granted. The aggregate fair market value of common stock subject to an option
granted to a participant by the Committee in any calendar year shall not
exceed $100,000. As of December 31, 1994, no options had been granted under
this Plan. During 1995, the Company granted 27,650 options at an exercise
price of $7.00 per share (87.5% of the fair market value on date of grant).
These options expire April, 1998. No options were exercised during 1995.
On December 19, 1990, the Company granted an option to purchase 1,600
shares of its common stock at $5.00 per share to an employee under an
arrangement whereby share certificates were to be issued for all stock paid
for through December 31st of each year, for the years 1991, 1992 and 1993.
This option was later converted to an option to purchase 2,032 shares of
stock. This employee purchased 1,648 shares of stock during 1993 and 1,200
shares of stock during 1994.
All administrative employees were given the option to purchase 6,250
shares for $10,000 in September, 1992. Only one employee accepted this option
which was left open until March 31, 1993. This option to purchase 6,250
shares was later converted to an option to purchase 7,938 shares of stock.
During 1993, this employee purchased 7,300 shares of ANMC stock in connection
with this agreement.
An option to purchase shares of stock in a subsidiary was granted to an
employee in June 1992. This option was later converted to the right to
purchase 5,000 shares of the Company's stock for $6,300. During 1993, this
employee purchased 3,150 shares of stock in connection with this agreement.
STOCK PURCHASE AGREEMENTS
On March 21, 1994, the Company had a private placement stock offering of
45,000 units, consisting of one share of common stock and one common stock
purchase warrant (unit) for $7.86 per share based on 85% of the average of
the high and low bid price per share on the first day of the offering which
was March 21, 1994. The warrant included in the unit entitles the holder
thereof to purchase one share of common stock at a purchase price of $9.25
per share for a three-year period. The private placement resulted in a total
of 29,721 shares being sold for $233,607. A portion of the sale was financed
by the Company; actual cash received as of December 31, 1994, was $126,473.
The total amount of $233,607 was recorded as common stock and additional
paid-in capital. Equity has been reduced for these sales for which cash has
not been received as of December 31, 1994 and 1995.
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company and its subsidiaries have leased office space at various
locations under noncancelable agreements which expire between January, 1995,
and October, 2002, and require various minimum annual rentals. Total minimum
rental commitments at December 31, 1995, are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 .................................................... $ 781,756
1997 .................................................... 646,329
1998 .................................................... 570,163
1999 .................................................... 518,044
2000 .................................................... 473,746
Due thereafter .......................................... 1,083,733
------------
$4,073,771
============
</TABLE>
F-64
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
12. COMMITMENTS AND CONTINGENCIES: - (Continued)
SELF-FUNDED INSURANCE PLANS
During 1995, the Company became self-insured for workers' compensation
claims in the State of Louisiana up to certain policy limits. Claims in
excess of $200,000 per incident and $756,200 in the aggregate are insured by
third party reinsurers. The Company has accrued a liability for both
outstanding as well as incurred but not reported claims based on historical
experience. Such reserves totaled approximately $389,000 at December 31, 1995
and are included in accrued insurance in the accompanying financial
statements. In connection with the self insurance and as required by the
State of Louisiana, the Company issued a $175,000 letter of credit in favor
of the Louisiana Department of Labor, which expired February 17, 1996, and
was renewed to February 17, 1997.
PLANNED SURGICAL CARE CENTER
ASC plans to develop an additional surgical care operation in Hammond,
Louisiana in 1996. In connection with this development, ASC has committed to
purchase a 60% interest in Hammond Surgical Care Center, L.C., a limited
liability company (HSCC), for $960,000. HSCC is expected to operate the
surgical care facility which is to be leased from an unrelated entity who
plans to build the facility and lease it to HSCC.
OTHER
The Companies are subject to various types of claims and disputes arising
in the course of their businesses. While the resolution of such issues is not
presently determinable with certainty, management believes that the ultimate
resolution of such matters will not have a significant effect on the
Companies' financial position or results of operations.
13. PENSION PLAN:
The Company adopted a pension plan qualified under Internal Revenue Code
401(k) for all employees who are 21 years of age and have at least one year
of service. Under the plan, eligible employees may elect to defer a portion
of their compensation, subject to internal revenue service limits. The
Company may make matching contributions equal to a discretionary percentage
of the employee's salary reductions. No matching contributions were made for
the years ended December 31, 1995, 1994 and 1993.
14. SUBSEQUENT EVENTS:
During 1995, the Company began a process to develop a health maintenance
organization (HMO). In January, 1996, the Company deposited $500,000 in
connection with the HMO licensing process. The Company's president acquired a
67% interest in the HMO, which is still unlicensed, in exchange for arranging
a $1,000,000 letter of credit for the HMO, secured by shares in the Company
owned by the president. Neither the Company nor the Company's president have
any further formal commitment in connection with the HMO and the future
development of the HMO is undeterminable at this time.
15. UNAUDITED INTERIM FINANCIAL STATEMENT INFORMATION:
CASH
At September 30, 1996, cash balance includes $1,000,000 held by an entity,
33% owned by the Company, developing an HMO. The cash in the subsidiary is
available to the Company at any time.
F-65
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED) - (Continued)
15. UNAUDITED INTERIM FINANCIAL STATEMENT INFORMATION: - (Continued)
INCOME TAXES
The subsidiaries in which the Company owns interests greater that 80% file
a consolidated federal income tax return. These subsidiaries include all
nursing services and SCC beginning on July 1, 1995. SCC is a limited
liability company and through June 30, 1995, the individual owners are
responsible for all income taxes. Therefore, no provision has been made for
income taxes recorded on the income statements of SCC for the periods prior
to July 1, 1995. The primary care subsidiaries file individual income tax
returns.
F-66
<PAGE>
=============================================================================
No Underwriter, dealer, salesman or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or any Underwriter. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ......................... 3
Investment Considerations .................. 11
Use of Proceeds ............................ 17
Recent Financings .......................... 18
Price Range For Common Shares .............. 18
Capitalization ............................. 19
Dividend Policy ............................ 20
Pro Forma Combined Financial Information ... 20
Selected Financial Data .................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 25
Business ................................... 32
Proposed Amedysis Merger ................... 46
Management ................................. 48
Principal and Selling Shareholders ......... 53
Description of Debentures .................. 55
Income Tax Consequences .................... 63
Description of Capital Stock ............... 65
Shares Eligible for Future Sale ............ 67
Underwriting ............................... 68
Legal Matters .............................. 69
Experts .................................... 69
Available Information ...................... 69
Index to Financial Statements .............. F-1
</TABLE>
------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
COMPLETE
MANAGEMENT, INC.
3,000,000 Common Shares
and
$25,000,000
[6 1/2 TO 8%] Convertible
Subordinated Debetures Due
[December] 15, 2003
Interest payable [December] 15
and [May] 15
------
PROSPECTUS
------
NATIONAL SECURITIES
CORPORATION
COMMONWEALTH
ASSOCIATES
NOVEMBER , 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the
Securities being registered hereunder other than underwriting commissions and
expenses, are estimated below.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ...................................... $ 27,896
NASD registration fee ..................................... 9,706
AMEX listing fee .......................................... 17,500
Printing expenses ......................................... 150,000
Accounting fees and expenses .............................. 150,000
Legal fees and expenses ................................... 300,000
State securities law fees and expenses including fees of
counsel ................................................. 7,500
Transfer Agent and Registrar Fees ......................... 15,000
Stock Certificate Expenses ................................ 5,000
Miscellaneous expenses .................................... 117,398
----------
Total ................................................... $800,000
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 and 723 of the New York Business Corporation Law grant to the
Company the power to indemnify the officers and directors of the Company as
follows:
(a) A corporation may indemnify any person made, or threatened to be made,
a party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type
of kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of
the corporation served in any capacity at the request of the corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer of the corporation, or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees actually and necessarily incurred as a
result of such action or proceeding, or any appeal therein, if such director
or officer acted, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe that
his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director
or officer did not act, in good faith, for a purpose which he reasonably
believed to be in, or, in the case of service for any other corporation or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, not opposed to, the best interests of the corporation or that he
had reasonable cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made,
a party to an action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he, his testator or
intestate, is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of any
other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in connection with
the defense or settlement of such action, or in connection with an appeal
therein if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan
or other enterprise, not opposed to, the best interest of the
II-1
<PAGE>
corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is
settled or otherwise disposed of, or (2) any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the court on which the action was brought,
or, if no action was brought, any court of competent jurisdiction, determines
upon application that, in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to applicable law shall be considered
fines; and action taken or omitted by a person with respect to an employee
benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is
not opposed to the best interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character
described in section 722 shall be entitled to indemnification as authorized
in such section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or
officer has met the standard of conduct set forth in section 722 or
established pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal counsel
that indemnification is proper in the circumstances because the applicable
standard of conduct set forth in such sections has been met by such director
or officer, or
(B) By the shareholders upon a finding that the director or officer has
met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final disposition
of such action or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amounts as, and to the extent,
required by paragraph (a) of section 725.
The Company's certificate of incorporation provides as follows:
SIXTH: The personal liability of directors to the corporation or its
shareholders for damages for any breach of duty in such capacity is hereby
eliminated except that such personal liability shall not be eliminated if a
judgment or other final adjudication adverse to such director establishes
that his acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he personally gained in fact
a financial profit or other advantage to which he was not legally entitled or
that his acts violated Section 719 of the Business Corporation Law.
* * *
EIGHTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer, of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such pro-
II-2
<PAGE>
ceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Business Corporation Law,
as the same exists or may hereafter be amended (but, in case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that, except as
provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Business Corporation Law requires, the payment of such
expenses incurred by a director or officer (in his or her capacity as a
director or officer and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this Section
or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Business Corporation
Law for the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of
conduct set forth in the Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or
loss under the Business Corporation Law.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the
Underwriters and their respective controlling persons, on the other hand,
against certain liabilities in connection with this offering, including
liabilities under the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Company issued the following unregistered
securities:
II-3
<PAGE>
(a) In December 1992 the Company issued an aggregate of 3,057,515 Common
Shares for nominal amounts to founders, including its President and Chief
Executive Officer, the President and Chief Executive Officer of MMI and the
Vice President and Chief Operating Officer of MMI. All the shares were issued
for investment and without a view to distribution and bear appropriate
restricted security legends.
(b) In September and October 1995 the Company issued $1,000,000 face
amount of Secured Notes and agreed to issue Common Shares with a value of
$250,000 when valued at the initial offering price in the IPO. All of the
securities were issued for investment and without a view to distribution and
bear appropriate restricted security legends.
The transactions described above did not involve a public offering of the
Registrant's securities and were exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof. The transactions
described in sub-paragraph (5) were also exempt from registration by reason
of Regulation D under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES [TO BE REVISED]
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement among Complete Management, Inc., National Securities Corporation
and Commonwealth Associates.*
2.1 Revised Agreement and Plan of Merger (incorporated by reference to Exhibit A to the Proxy
Statement/Prospectus included in Registration Statement on Form S-4, File No 33-98714).
2.2 Agreement and Plan of Merger dated as of September 19, 1996 among Advanced Alliance Management
Corp., (the "Seller") and the shareholders of the Seller set forth on Exhibit A thereto, and
AAMC Acquisition Corp. and Complete Management, Inc.(6)
3.1 Certificate of Incorporation of CMI.(1)
3.2 Certificate of Amendment to the Certificate of Incorporation of CMI as filed on December 1,
1995.(1)
3.3 By-Laws of CMI.(1)
4.1 Specimen Stock Certificate.(1)
4.2 Form of Representatives' Warrant Agreement, including Form of Warrant.*
4.3 Form of Indenture.*
4.4 Form of Debenture Certificate.
4.5 Indenture, dated as of June 11, 1996 between Complete Management, Inc. and Chemical Bank covering
$40,250,000 aggregate amount Convertible Subordinated Debentures Due 2003.*
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP.
10.1 Practice Management Services Agreement as of July 1, 1995 between Greater Metropolitan Neurology
Services, P.C. and Complete Management, Inc. and Agreement Addendum as of such date.(1)
10.2 Shareholders Agreement among Steven Rabinovici, Lawrence W. Shields, Marie Graziosi, David
Jacaruso and Dennis Shields.(1)
10.3 Revised Form of Employment Agreement between the Company and Steven Rabinovici.(1)
10.4 Revised Form of Employment Agreement between the Company and David Jacaruso.(1)
10.5 Revised Form of Employment Agreement between the Company and Dennis Shields.(1)
10.6 1995 Stock Option Plan of the Company.(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
10.14 Lease Agreement between Whitehall Terrace Associates and Complete Management of Queens, Inc.
for 118-21 Queens Boulevard, Forest Hills, New York.(1)
10.15 Lease Agreement dated December 1, 1992 between 865 Realty Corp. and Physicians Administration
Services, Inc. for 865 Walton Avenue.(1)
10.18 Lease Agreement dated March 12, 1993 between Thirty-One, Co. and Complete Management, Inc.
for 254 West 31st Street.(1)
10.19 Form of Lease Agreement between Park South Tower Associates and Urban Associates for 425 West
59th Street.(1)
10.20 Lease Agreement dated August 31st between Thirty-One, Co. and MRI Management Associates, Inc.
for 254 West 31st Street.(1)
10.21 Lease Agreement between Lawrence W. Shields, Irving Friedman and Steven J. Schwartz party of
the first part and Complete Management, Inc., party of the second part for 736 East Park Avenue.(1)
10.22 Lease Agreement dated August 31, 1992 between MMI and Brause Realty, Inc. for office space
at 254 West 31st Street.(2)
10.23 Agreement of 865 Walton Avenue lease by Physicians Administration Services, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
P.C.(1)
10.24 Assignment of 118-21 Queen Boulevard Lease by Complete Management of Queens, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
P.C.(1)
10.26 Assignment of 26 Court Street by Physicians Administration Services to Complete Management,
Inc., which in turn sublet the Premises to Greater Metropolitan Neurology Services, P.C.(1)
10.27 Sublease of 254 West 34th Street by Complete Management, Inc. to Greater Metropolitan Neurology
Services, P.C.(1)
10.28 Consulting Agreement between MMI and Dr. Lawrence W. Shields, Physician, P.C. (now known as
Greater Metropolitan Neurology Services, P.C.) dated March 11, 1992.(3)
10.29 Employment Agreement between the Company and Arthur Goldberg.(4)
10.30 Employment Agreement between the Company and Dennis W. Simmons.(4)
10.31 Employment Agreement between the Company and Robert Keating.(4)
10.32 Employment Agreement between the Company and Joseph M. Scotti.(4)
10.33 Lease Agreement dated September 19, 1995 between CMI and Parp Center, Inc. for 230 Hilton Ave,
Hempstead, NY.(4)
10.34 Lease Agreement dated September 1, 1995 between CMI and KABB, Inc. for 180 North Plank Road,
Newburgh, NY.(4)
10.35 Note Agreement dated as of March 20, 1996 and Form of 8% Convertible Subordinated Note (included
as exhibit thereto).(5)
10.36 Management Services Agreement for Magnetic Resonance Imaging Practice, 1-Phase Agreement by
and Between Greater Metropolitan Neurology Services, P.C. d/b/a Greater Metropolitan Medical
Services and Medical Management, Inc.(5)
10.37 Practice Management Services Agreement dated as of September 17, 1996 By and Between Northern
Metropolitan Radiology Associates, P.C., Northern Metropolitan Radiology Associates, P.A.,
Personal Breast Services and Ultrasound of Northern Westchester, P.C., NMRA of Connecticut,
P.C. and Northern Westchester Diagnostic Partners, P.C. and Advanced Alliance Management Corp.*
10.38 Employment Agreement between the Company and William Fontanetta.*
10.39 Employment Agreement between the Company and Gregory Heineman.*
10.40 Employment Agreement between the Company and Dr. Kenneth Schwartz.*
10.41 Employment Agreement between the Company and John T. Dooley.*
10.42 Form of Employment Agreement between the Company and Harvey R. Hirschfeld.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
10.43 Form of IPO Representative's Warrant Agreement.(7)
10.44 First Series Debenture Offering Representative's Warrant Agreement (including form of Warrant).*
12. Statement re Computation of Ratios.
18. Preferability Letter.(5)
21. Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Hannis T. Bourgeois & Co., LLP.
23.4 Consent of Morse, Zelnick Rose & Lander, LLP (included in Exhibit 5.1).
24. Power of Attorney (included in signature page)*.
25. Statement of Eligibility of Trustee.*
</TABLE>
- ------
(1) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 33-97894.
(2) Previously filed as Exhibit 10.4 to MMI S-1 Registration Statement No.
33-68458.
(3) Previously filed as Exhibit 10.11 to MMI S-1 Registration Statement No.
33-68458.
(4) Previously filed as a similarly numbered Exhibit to CMI 10-K for the
Fiscal Year Ended December 31, 1995, Commission File No. 0-27260.
(5) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 333-4262.
(6) Previously filed as a similarly numbered Exhibit to CMI 8-K dated October
1, 1996.
(7) Previously filed as Exhibit 4.2 to CMI Registration Statement No.
33-97894.
* Previously filed.
ITEM 17. CERTAIN UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933:
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement, and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-6
<PAGE>
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City, County
and State of New York on November 26, 1996.
COMPLETE MANAGEMENT, INC.
by: /s/ Steven M. Rabinovici
-----------------------------
Steven M. Rabinovici,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirement of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on
November 26, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chairman of the Board and Chief Executive Officer
-------------------------------
Steven M. Rabinovici
* Vice President, Chief Financial Officer, Treasurer, Secretary
------------------------------- and Director
Joseph M. Scotti
* Director
-------------------------------
David Jacaruso
* Director
-------------------------------
Dennis Shields
* Director
-------------------------------
Richard DeMaio
* Director
-------------------------------
Steve Cohn
*by: /s/ Steven M. Rabinovici
-------------------------------
Steven M. Rabinovici
Attorney-in-fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement among Complete Management, Inc., National Securities Corporation
and Commonwealth Associates.*
2.1 Revised Agreement and Plan of Merger (incorporated by reference to Exhibit A to the Proxy
Statement/Prospectus included in Registration Statement on Form S-4, File No 33-98714).
2.2 Agreement and Plan of Merger dated as of September 19, 1996 among Advanced Alliance Management
Corp., (the "Seller") and the shareholders of the Seller set forth on Exhibit A thereto, and
AAMC Acquisition Corp. and Complete Management, Inc.(6)
3.1 Certificate of Incorporation of CMI.(1)
3.2 Certificate of Amendment to the Certificate of Incorporation of CMI as filed on December 1,
1995.(1)
3.3 By-Laws of CMI.(1)
4.1 Specimen Stock Certificate.(1)
4.2 Form of Representatives' Warrant Agreement, including Form of Warrant.*
4.3 Form of Indenture.*
4.4 Form of Debenture Certificate.
4.5 Indenture, dated as of June 11, 1996 between Complete Management, Inc. and Chemical Bank covering
$40,250,000 aggregate amount Convertible Subordinated Debentures Due 2003.*
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP.
10.1 Practice Management Services Agreement as of July 1, 1995 between Greater Metropolitan Neurology
Services, P.C. and Complete Management, Inc. and Agreement Addendum as of such date.(1)
10.2 Shareholders Agreement among Steven Rabinovici, Lawrence W. Shields, Marie Graziosi, David Jacaruso
and Dennis Shields.(1)
10.3 Revised Form of Employment Agreement between the Company and Steven Rabinovici.(1)
10.4 Revised Form of Employment Agreement between the Company and David Jacaruso.(1)
10.5 Revised Form of Employment Agreement between the Company and Dennis Shields.(1)
10.6 1995 Stock Option Plan of the Company.(1)
10.14 Lease Agreement between Whitehall Terrace Associates and Complete Management of Queens, Inc.
for 118-21 Queens Boulevard, Forest Hills, New York.(1)
10.15 Lease Agreement dated December 1, 1992 between 865 Realty Corp. and Physicians Administration
Services, Inc. for 865 Walton Avenue.(1)
10.18 Lease Agreement dated March 12, 1993 between Thirty-One, Co. and Complete Management, Inc. for
254 West 31st Street.(1)
10.19 Form of Lease Agreement between Park South Tower Associates and Urban Associates for 425 West
59th Street.(1)
10.20 Lease Agreement dated August 31st between Thirty-One, Co. and MRI Management Associates, Inc.
for 254 West 31st Street.(1)
10.21 Lease Agreement between Lawrence W. Shields, Irving Friedman and Steven J. Schwartz party of
the first part and Complete Management, Inc., party of the second part for 736 East Park Avenue.(1)
10.22 Lease Agreement dated August 31, 1992 between MMI and Brause Realty, Inc. for office space at
254 West 31st Street.(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
10.23 Agreement of 865 Walton Avenue lease by Physicians Administration Services, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
P.C.(1)
10.24 Assignment of 118-21 Queen Boulevard Lease by Complete Management of Queens, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
P.C.(1)
10.26 Assignment of 26 Court Street by Physicians Administration Services to Complete Management,
Inc., which in turn sublet the Premises to Greater Metropolitan Neurology Services, P.C.(1)
10.27 Sublease of 254 West 34th Street by Complete Management, Inc. to Greater Metropolitan Neurology
Services, P.C.(1)
10.28 Consulting Agreement between MMI and Dr. Lawrence W. Shields, Physician, P.C. (now known as
Greater Metropolitan Neurology Services, P.C.) dated March 11, 1992.(3)
10.29 Employment Agreement between the Company and Arthur Goldberg.(4)
10.30 Employment Agreement between the Company and Dennis W. Simmons.(4)
10.31 Employment Agreement between the Company and Robert Keating.(4)
10.32 Employment Agreement between the Company and Joseph M. Scotti.(4)
10.33 Lease Agreement dated September 19, 1995 between CMI and Parp Center, Inc. for 230 Hilton Ave,
Hempstead, NY.(4)
10.34 Lease Agreement dated September 1, 1995 between CMI and KABB, Inc. for 180 North Plank Road,
Newburgh, NY.(4)
10.35 Note Agreement dated as of March 20, 1996 and Form of 8% Convertible Subordinated Note (included
as exhibit thereto).(5)
10.36 Management Services Agreement for Magnetic Resonance Imaging Practice, 1-Phase Agreement by
and Between Greater Metropolitan Neurology Services, P.C. d/b/a Greater Metropolitan Medical
Services and Medical Management, Inc.(5)
10.37 Practice Management Services Agreement dated as of September 17, 1996 By and Between Northern
Metropolitan Radiology Associates, P.C., Northern Metropolitan Radiology Associates, P.A., Personal
Breast Services and Ultrasound of Northern Westchester, P.C., NMRA of Connecticut, P.C. and
Northern Westchester Diagnostic Partners, P.C. and Advanced Alliance Management Corp.*
10.38 Employment Agreement between the Company and William Fontanetta.*
10.39 Employment Agreement between the Company and Gregory Heineman.*
10.40 Employment Agreement between the Company and Dr. Kenneth Schwartz.*
10.41 Employment Agreement between the Company and John T. Dooley.*
10.42 Form of Employment Agreement between the Company and Harvey R. Hirschfeld.*
10.43 Form of IPO Representative's Warrant Agreement(7).
10.44 First Series Debenture Offering Representative's Warrant Agreement (including form of warrant).*
12. Statement re Computation of Ratios.
18. Preferability Letter.(5)
21. Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Hannis T. Bourgeois & Co., LLP.
23.4 Consent of Morse, Zelnick Rose & Lander, LLP (included in Exhibit 5.1).
24. Power of Attorney (included in signature page).*
25. Statement of Eligibility of Trustee.*
</TABLE>
- ------
(1) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 33-97894.
<PAGE>
(2) Previously filed as Exhibit 10.4 to MMI S-1 Registration Statement No.
33-68458.
(3) Previously filed as Exhibit 10.11 to MMI S-1 Registration Statement No.
33-68458.
(4) Previously filed as a similarly numbered Exhibit to CMI 10-K for the
Fiscal Year Ended December 31, 1995, Commission File No. 0-27260.
(5) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 333-4262.
(6) Previously filed as a similarly numbered Exhibit to CMI 8-K dated October
1, 1996.
(7) Previously filed as Exhibit 4.2 to CMI Registration Statement No.
33-97894.
* Previously filed.
<PAGE>
COMMON STOCK
NUMBER SHARES
----------------- -----------------
| | | |
| R | | $ |
| | | |
----------------- -----------------
CUSIP 20452C AB 0
COMPLETE MANAGEMENT, INC.
% CONVERTIBLE SUBORDINATED DEBENTURE DUE DECEMBER 15, 2003
Complete Management, Inc., a New York corporation (herein called the "Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to
, or registered assigns,
the principal sum of Dollars
on December 15, 2003, and to pay interest thereon from , 1996 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually on December15 and May 15 in each year, commencing
May 15, 1996 at the rate of % per annum, until the principal hereof is paid or
made available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the December 1 or May 1 (whether or not a
Business Day), as the case may be, next preceding each Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture. Payment of the principal
of and interest on this Security will be made at the office or agency of the
Company maintained for that purpose in the Borough of Manhattan, City of New
York or at any other office or agency maintained by the Company for such
purpose, in such coin or currency of the United States of America which at the
time of payment is legal tender for payment of public and private debts;
provided, however, that, at the option of the Company, payment of interest may
be made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee
referred to on the reverse hereof by manual signature, this Security shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
under its corporate seal.
Dated:
COMPLETE MANAGEMENT, INC.
Attest By:
---------------------------- --------------------------
SECRETARY CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK
AS TRUSTEE
BY:
----------------------------------------
AUTHORIZED OFFICER
COMPLETE MANAGEMENT, INC.
CORPORATE
SEAL
1992
NEW YORK
*
<PAGE>
COMPLETE MANAGEMENT, INC.
% Convertible Subordinated Debentures Due December 15, 2003
This Security is one of a duly authorized issue of Securities of the Company
designated as its % Convertible Subordinated Debentures Due 2003 (herein called
the "Securities"), limited in aggregate principal amount to $28,750,000 issued
and to be issued under an Indenture, dated as of December , 1996, (herein called
the "Indenture"), between the Company and The Chase Manhattan Bank, as Trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Indebtedness of the Company, and the Holders of the Securities
and the terms upon which the Securities are, and are to be, authenticated and
delivered.
Subject to and upon compliance with the provisions of the Indenture, the Holder
of this Security is entitled, at his irrevocable option, at any time and from
time to time, on or before the close of business on December 15, 2003, or in
case this Security or a portion hereof is called for redemption, through
optional redemption by the Company, a sinking fund or otherwise, then in respect
of this Security or such portion hereof until and including, but (unless the
Company defaults in making the payment due upon redemption) not after, the close
of business on the fifth (5th) day preceding the Redemption Date, to convert
this Security (or any portion of the principal amount hereof which is $1,000 or
an integral multiple thereof), at the principal amount hereof, or of such
portion, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock of the Company at a
conversion price equal to $ for each share of Common Stock (or at the
current adjusted conversion price if an adjustment has been made as provided in
the Indenture) by surrender of this Security, duly endorsed or assigned to the
Company or in blank, to the Company at its office or agency in the Borough of
Manhattan, The City of New York or at any other office or agency maintained by
the Company for such purpose, accompanied by written notice to the Company that
the Holder hereof elects to convert this Security, or if less than the entire
principal amount hereof is to be converted, the portion hereof to be converted,
and, in case such surrender shall be made during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date (unless this Security or
the portion thereof being converted matures prior to such Interest Payment Date
or has been called for redemption on a Redemption Date within such period), also
accompanied by payment in New York Clearing House or other funds acceptable to
the Company of an amount equal to the interest payable on such Interest Payment
Date on the principal amount of this Security then being converted. Subject to
the aforesaid requirements for payment and, in the case of a conversion after
the Regular Record Date next preceding any Interest Payment Date and on or
before such Interest Payment Date, to the right of the Holder of this Security
(or any Predecessor Security) of record at such Regular Record Date to receive
an installment of interest (with certain exceptions provided in the Indenture),
no payment or adjustment is to be made on conversion for interest accrued hereon
or for dividends on the Common Stock issued on conversion. No fractions of
shares or scrip representing fractions of shares will be issued on conversion,
but instead of any fractional interest the Company shall pay a cash adjustment
as provided in the Indenture. The conversion price is subject to adjustment as
provided in the Indenture. In addition, the Indenture provides that in case of
certain consolidations or mergers to which the Company is a party or the
transfer of substantially all of the assets of the Company, the Indenture shall
be amended, without the consent of any Holders of Securities, so that this
Security, if then outstanding, will be convertible thereafter, during the period
this Security shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon the consolidation,
merger or transfer by a holder of the number of shares of Common Stock into
which this Security might have been converted immediately prior to such
consolidation, merger or transfer (assuming such holder of Common Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a plurality of non-electing shares).
<PAGE>
The Securities are redeemable, at the Company's option, as a whole or from time
to time in part, upon not less than 45 nor more than 60 days' notice mailed to
each Holder of Securities to be redeemed at his address appearing in the
Security Register, on any date on or after , 1999 and prior to maturity,
at a Redemption Price equal to 100% of the principal amount together in the case
of any such redemption, with accrued but unpaid interest to the Redemption Date,
except that the Securities may not be redeemed prior to Maturity unless for a
period of 20 consecutive Trading Days ending on the date immediately preceding
the date on which notice of the Redemption Date is given, the Closing Price per
share of the Common Stock has equalled or exceeded $ , subject to
adjustment in the case of the same events which would result in an adjustment of
the conversion price as provided in Section 1204 of the Indenture with any
adjustments to the Closing Price to be effected in the same manner and to the
same extent as provided in Section 1204 with respect to adjustments to the
conversion price. Interest installments whose Stated Maturity is on or prior to
such Redemption Date will be payable to the Holders of such Securities (or one
or more Predecessor Securities) of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
If there is a Repurchase Event (as defined in the Indenture), the Company will
be required to offer to purchase all Securities outstanding on a date 30 days
after the Company gives notice of the Repurchase Event at a purchase price equal
to 100% of the principal amount thereof, together with accrued and unpaid
interest to the date of purchase.
In the event of redemption, conversion or repurchase of this Security in part
only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased portion hereof will be issued in the name of the Holder hereof
upon the cancellation hereof.
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and subject in right of payment to the prior payment in
full of all Senior Indebtedness of the Company, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of all the
Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
<PAGE>
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this Security or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed or to
convert this Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in the Borough of Manhattan, The City of New York or at
any other office or agency maintained by the Company for such purpose, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration or transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent for the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Security to
---------------------------------------------------------------------------
----------------------------------------------------------
| |
| |
| |
----------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- -------------------------------------------------------------------------------
agent to transfer this Security on the books of Complete Management, Inc. The
agent may substitute another to act for him.
Date: Your Signature:
---------------------------- ----------------------------
(Sign exactly as your name
appears on the other side of
this Security).
Signature Guarantee:*
---------------------------------------------------------
* Needed only if the certificate is to be registered in a name other than that
of the record holder.
<PAGE>
CONVERSION NOTICE
The undersigned owner of this Security hereby irrevocably exercises the option
to convert this Security, or the portion below designated, into shares of Common
Stock of Complete Management, Inc. in accordance with the terms of the Indenture
referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned registered
Holder hereof, unless a different name has been indicated in the assignment
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Security.
Dated:
Portion of Security to be converted ($1,000 or an integral multiple thereof): $
- ------------------------------------------------------------------------------
Signature (for conversion only)
If shares of Common Stock are to be issued and registered otherwise than to the
registered Holder named above, please print or typewrite the name and address,
including zip code, and social security or other taxpayer identification number.
------------------------------------------------------------------------------
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<PAGE>
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue, Suite 902
New York, New York 10022
(212) 838-1188
Fax (212) 838-1177
November 26, 1996
Complete Management, Inc.
245 West 31st Street
New York, NY 10001
Dear Sirs:
We have acted as counsel to Complete Management, Inc., a New York
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), to register (i) the offering by the Company of (a) 2,500,000 shares
of Common Stock ("Common Shares"), (b) $25,000,000 face amount of Convertible
Subordinated Debentures due 2003 (the "Debentures") (and the offering of an
additional $3,750,000 face amount of Debentures if the over-allotment option is
exercised in full), (c) Common Shares to be issued upon conversion of the
Debentures, (d) Representatives' Warrants to purchase Common Shares (the
"Warrants"), and (e) Common Shares underlying the Warrants, (ii) the offering by
a selling shareholder of 500,000 Common Shares and (iii) the offering by certain
additional over-allotment selling shareholders of an additional 450,000 Common
Shares if the over-allotment option is exercised in full.
In this regard, we have reviewed the Certificate of Incorporation of
the Company, as amended, the Company's By-laws, resolutions adopted by the
Company's Board of Directors, the Registration Statement, the proposed form of
the Warrants, the proposed form of Trust Indenture, the other exhibits to the
Registration Statement and such other records, documents, statutes and decisions
as we have deemed relevant in rendering this opinion. Based upon the foregoing,
we are of the opinion that:
Each Common Share being offered, each Debenture being offered, the
Common Shares to be issued upon conversion of the Debentures, the Warrants, and
the Common Shares underlying the Warrants have been duly and validly authorized
for issuance and when issued or transferred as contemplated by the Registration
Statement, including Common Shares which may be issued upon conversion of the
Debentures or upon exercise of the Warrants, will be legally issued, fully paid
and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not thereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder. Members of this firm or their affiliates own an aggregate
of 116,194 Common Shares of the Company.
Very truly yours,
/s/ MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
<TABLE>
<CAPTION>
Ratio of Earnings to Fixed Charges
----------------------------------
(in thousands)
For the Years Ended December 31, Nine Months Ended September 30,
---------------------------------------- -------------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Fixed charges $ - $ - $ 46 $ - $ 1,600
------------ ------------ ------------ -------------- --------------
- - 46 - 1,600
------------ ------------ ------------ -------------- --------------
Earnings - - 3,227 - 3,915
Add Back:
Income taxes - - 2,861 - 3,613
------------ ------------ ------------ -------------- --------------
$ - $ - $ 6,088 $ - $ 7,528
============ ============ ============ ============== ==============
Ratio of earnings to fixed charges N/A N/A 133.35 N/A 5.71
============ ============ ============ ============== ==============
</TABLE>
<PAGE>
SUBSIDIARIES OF COMPLETE MANAGEMENT, INC.
Medical Management, Inc.
Incorporated under the laws of the State of New York.
Doing business under the name Medical Management, Inc.
Intertech/Penta Group, Inc.
Incorporated under the laws of the State of New York.
Doing business under the name Intertech/Penta Group, Inc.
Northern Metropolitan Management Corp.
Incorporated under the laws of the State of Delaware.
Doing business under the name Northern Metropolitan Management Corp.
CMI Capital Corporation
Incorporated under the laws of the State of New York.
Doing business under the name Hobbas Capital.
Advanced Alliance Management Corp.
Incorporated under the laws of the State of New York.
Doing business under the name Advanced Alliance Management Corp.
Tenbroeck Management Corp.
Incorporated under the laws of the State of New York.
Doing business under the name Tenbroeck Management Corp.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
Amendment No. 1 to Form S-1 Registration Statement (registration No. 333-15531)
offering 3,000,000 common shares and $25,000,000 of 6.5% to 8.0% convertible
subordinated debentures due December 15, 2003.
ARTHUR ANDERSEN LLP
November 27, 1996
New York, New York
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated March 21, 1995, except for paragraph 3 of Note 4 and
paragraph 2 of Note 13, as to which the date is April 17, 1995, with respect to
the financial statements of Medical Management, Inc. included in Amendment No. 1
to the Registration Statement (Form S-1 No. 333-15531) and related Prospectus of
Complete Management, Inc.
ERNST & YOUNG LLP
-------------------------
ERNST & YOUNG LLP
New York, New York
November 26, 1996
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 15, 1996 on the consolidated financial statements of Amedisys,
Inc. as of December 31, 1995 and for each of the three years in the period
ended December 31, 1995 included in Amendment No. 1 to the S-1 Registration
Statement No. 333-15531 of Complete Management, Inc.
Hannis T. Bourgesis & Co., LLP
- -------------------------------
Hannis T. Bourgesis & Co., LLP
Baton Rouge, Louisiana
November 27, 1996
