<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NCS HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
Delaware
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
5912
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NO.)
34-1816187
(I.R.S. EMPLOYER IDENTIFICATION NO.)
3201 Enterprise Parkway, Suite 220
Beachwood, Ohio 44122
(216) 514-3350
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
Jon H. Outcalt
Chairman of the Board
NCS HealthCare, Inc.
3201 Enterprise Parkway, Suite 220
Beachwood, Ohio 44122
(216) 514-3350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
Thomas F. McKee
Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
(216) 622-8200
Frederick W. Kanner
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
(212) 259-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this 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. / /
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. / /
<TABLE>
<CAPTION>
============================================================================================================
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $.01 par value(2)............... $121,468,750 $41,886.00
============================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c) under the Securities Act of 1933, based
upon the average of the high and low sale prices of the Class A Common Stock
on The Nasdaq Stock Market's National Market on August 28, 1996.
(2) Includes shares of Class A Common Stock which the Underwriters have the
option to purchase to cover over-allotments.
------------------------
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> 2
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 AUGUST 30, 1996
PROSPECTUS
3,250,000 SHARES
[NCS LOGO]
NCS HEALTHCARE, INC.
CLASS A COMMON STOCK
------------------------
Of the 3,250,000 shares of Class A Common Stock offered hereby, 3,000,000
shares are being offered by NCS HealthCare, Inc. ("NCS" or the "Company") and
250,000 shares are being offered by the Selling Stockholders named under
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders.
The Class A Common Stock is traded on The Nasdaq Stock Market's National
Market under the symbol "NCSS." On August 28, 1996, the last sale price of the
Class A Common Stock as reported by Nasdaq was $32.00 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
==================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
487,500 additional shares of Class A Common Stock on the same terms as set
forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Class A Common Stock offered hereby will be available for delivery on
or about , 1996 at the offices of Smith Barney Inc., 333 West
34th Street, New York, New York 10001.
------------------------
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
MONTGOMERY SECURITIES
MCDONALD & COMPANY
, 1996 SECURITIES, INC.
<PAGE> 3
MAP OF UNITED STATES
DEPICTING DISTRIBUTION FACILITIES
AND THE COMPANY'S HEADQUARTERS
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.
---------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus. See
"Risk Factors" for a discussion of certain factors to be considered by
prospective investors.
THE COMPANY
NCS HealthCare, Inc. ("NCS" or the "Company") is a leading independent
provider of pharmacy services to long-term care institutions including skilled
nursing facilities, assisted living facilities and other institutional health
care settings. The Company purchases and dispenses prescription and
non-prescription pharmaceuticals and provides client facilities with related
management services, automated medical recordkeeping, drug therapy evaluation
and regulatory assistance. The Company also provides a broad array of ancillary
health care services to complement its core pharmacy services, including
infusion therapy, physical, speech and occupational therapies and nutrition
management. NCS currently provides pharmacy services to approximately 81,000
residents at over 975 facilities located in Ohio, Pennsylvania, Indiana,
Michigan, Illinois, New Hampshire, Maine, New Jersey, Oregon, Washington and
Oklahoma.
Based on data from industry sources, the U.S. market for pharmacy services
in long-term care facilities exceeded $3.5 billion in 1994. The Company believes
that several factors are driving market growth, including the aging of the U.S.
population, the increasing number of patients receiving care in non-hospital
settings such as long-term care institutions and the increasing acuity levels of
patients receiving care in long-term care institutions.
The institutional pharmacy services market is highly fragmented and
consolidating. Prior to the 1970s, retail pharmacies fulfilled the pharmacy
needs of most long-term care institutions. Today, long-term care institutions
are typically served by one of three types of providers: retail pharmacies,
long-term care facility operators with captive pharmacy companies and
independent pharmacy companies, like NCS. The Company believes that retail
pharmacies and, to a lesser extent, small independent pharmacy companies,
generally lack the sophistication, scale economies, breadth of services and
capital necessary to compete in an increasingly competitive and regulated
business environment. As a result, the Company believes that the industry will
continue to consolidate at the expense of these providers.
NCS's strategy is to capitalize on industry trends and Company expertise to
strengthen its position as a leading provider of high quality, integrated
pharmacy and related services to institutional clients. The Company intends to
implement this strategy by identifying and standardizing "best practices," cross
marketing its services across its customer base to generate internal growth,
utilizing its proprietary technology to deliver information, providing a broad
array of ancillary health care services to complement its core pharmacy services
and continuing its aggressive acquisition and development program. Since 1986,
NCS has completed 19 acquisitions, and since the Company's initial public
offering in February 1996, NCS has completed seven acquisitions, as set forth in
the table below:
<TABLE>
<CAPTION>
NAME OF ACQUISITION NUMBER OF BEDS/RESIDENTS SERVICE AREA
- ------------------------------- ------------------------ ------------------------------
<S> <C> <C>
Care Plus Pharmacy............. 1,700 Central Illinois
Uni-Care Health Services....... 9,200 New Hampshire, Maine
Family Care Nursing Home
Services..................... 1,950 Southern Illinois
Advanced Rx Services........... 2,800 New Jersey
IPAC Pharmacy.................. 6,250 Oregon and Washington
Thrifty Medical Systems........ 6,000 Oklahoma
Medical Arts Pharmacy.......... 2,160 Central Michigan
-------
Total................ 30,060
=======
</TABLE>
3
<PAGE> 5
As a result of these acquisitions the Company has expanded its geographic
presence into seven new states. The cumulative purchase price for these seven
acquisitions was $52.4 million, payable in a combination of cash, Class A Common
Stock and the assumption of debt. The Company intends to continue to expand
through acquisitions.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock being offered by:
The Company......................................... 3,000,000 shares(1)
The Selling Stockholders............................ 250,000 shares
Class A Common Stock outstanding after the
offering............................................ 9,098,690 shares(1)(2)
Class B Common Stock outstanding after the
offering............................................ 6,445,819 shares(3)
Use of proceeds....................................... For working capital and general
corporate purposes, including
acquisitions, and to repay
indebtedness
Nasdaq National Market symbol......................... NCSS
</TABLE>
- ---------------
(1) Excludes up to 487,500 shares of Class A Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based upon the number of shares of Class A Common Stock outstanding as of
August 26, 1996. Excludes, as of such date, (i) an aggregate of 103,018
shares issuable upon exercise of options granted under the Company's option
plans, and (ii) an aggregate of 651,281 shares issuable upon the conversion
of convertible debentures. See "Management -- Executive Compensation" and
Note 7 of Notes to Consolidated Financial Statements of the Company.
(3) Excludes an aggregate of 164,550 shares of Class B Common Stock issuable
upon exercise of outstanding options. Each share of Class B Common Stock is
entitled to ten votes per share and is convertible at any time into one
share of Class A Common Stock. See "Risk Factors -- Potential Effect of
Anti-Takeover Provisions and Certain Provisions of Delaware Law" and
"Description of Capital Stock."
---------------
Unless otherwise indicated, information in this Prospectus assumes no
exercise of the Underwriters' option to purchase from the Company up to 487,500
additional shares of Class A Common Stock to cover over-allotments, if any.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share and operating data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1996
-----------------------
1992 1993 1994 1995 ACTUAL PRO FORMA(1)
------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues........................... $28,478 $33,620 $48,205 $65,602 $113,281 $177,536
Cost of revenues................... 21,106 24,646 34,288 46,570 82,415 130,845
------- ------- ------- ------- -------- --------
Gross profit....................... 7,372 8,974 13,917 19,032 30,866 46,691
Selling, general and administrative
expenses......................... 5,964 7,037 10,531 14,539 22,236 33,749
Special compensation (2)........... -- -- -- -- 2,811 2,811
------- ------- ------- ------- -------- --------
Operating income................... 1,408 1,937 3,386 4,493 5,819 10,131
Interest expense, net.............. 59 428 525 1,089 1,611 1,605
------- ------- ------- ------- -------- --------
Income before income taxes......... 1,349 1,509 2,861 3,404 4,208 8,526
Income tax expense................. 632 696 1,327 1,536 1,852 3,750
------- ------- ------- ------- -------- --------
Net income......................... $ 717 $ 813 $ 1,534 $ 1,868 $ 2,356 $ 4,776
======= ======= ======= ======= ======== ========
Net income per share............... $ 0.11 $ 0.13 $ 0.24 $ 0.28 $ 0.26 $ 0.38
======= ======= ======= ======= ======== ========
Shares used in the computation..... 6,303 6,303 6,424 6,764 8,971 12,695
======= ======= ======= ======= ======== ========
OPERATING DATA (AT END OF PERIOD):
Number of beds serviced............ 18,000 20,000 25,000 37,000 63,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
PRO FORMA AS
ACTUAL ADJUSTED(3)
-------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 21,460 $ 90,168
Working capital.......................................................... 48,336 121,658
Total assets............................................................. 110,668 218,510
Long-term debt, excluding current portion................................ 1,961 5,049
Convertible subordinated debentures...................................... 6,549 6,549
Stockholders' equity..................................................... 91,100 192,300
</TABLE>
- ---------------
(1) Gives effect to acquisitions completed subsequent to June 30, 1995 and to
the sale by the Company in February 1996 of 4,476,000 shares of Class A
Common Stock and the application of the net proceeds therefrom as if such
transactions had occurred as of July 1, 1995. See "Pro Forma Consolidated
Financial Data" and Note 8 of Notes to Consolidated Financial Statements of
the Company.
(2) Represents a one-time, non-recurring charge in connection with the
termination of certain compensation and performance incentive arrangements
with the prior owners of certain acquired businesses. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) Gives effect to acquisitions completed subsequent to June 30, 1996 and to
the sale of the 3,000,000 shares of Class A Common Stock offered by the
Company hereby (at an assumed public offering price of $32.00 per share) and
the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." See "Pro Forma Consolidated Financial Data."
5
<PAGE> 7
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following factors in
evaluating an investment in the shares of Class A Common Stock offered hereby.
This Prospectus includes, in addition to historical information, forward looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below as well as
those described elsewhere in this Prospectus.
IMPACT OF ACQUISITIONS
In accordance with its strategy for growth, NCS is presently engaged in an
expansion program which incorporates an active acquisition program in the
long-term care pharmacy industry. For the years ended June 30, 1994, 1995 and
1996, more than half of the growth in the Company's revenues resulted from
acquisitions. The success of the Company's acquisition program and of its
underlying growth strategy will depend, among other things, on the continued
availability of suitable acquisition candidates. Many of the Company's
competitors have greater financial and other resources than the Company and are
often willing to pay higher prices for acquisitions. Competition for certain
acquisition targets is intense. There can be no assurance as to the Company's
ability to compete or pay for acquisitions, or that the Company will be able to
complete any acquisitions on favorable terms, or at all, in the future.
As a consequence of recent acquisitions, the Company has grown
significantly in size and has broadened the geographic area in which it
operates. Any acquisition involves inherent uncertainties, such as the effect on
the acquired businesses of integration into a larger organization and the
availability of management resources to oversee the operations of the acquired
business. The Company's ability to integrate the operations of acquired
companies is essential to its future success. Even though an acquired business
may have enjoyed excellent profitability and growth as an independent company
prior to the acquisition, there can be no assurance that such profitability and
growth would continue thereafter. There can be no assurance that the Company
will be able to integrate new businesses successfully, that it will succeed in
managing the significantly larger operations resulting therefrom or that any
acquisition will not have a material adverse affect on the Company.
In addition, the Company incurred significant amounts of goodwill in
connection with recent acquisitions. At June 30, 1996, goodwill represented
approximately 35% of total assets. In the event that the Company determines that
the carrying value of goodwill is impaired, it would write-down such carrying
value, which would result in a charge to earnings. Any such charge could have a
material adverse effect on the Company's financial results.
DECREASE IN NUMBER OF LONG-TERM CARE COMPANIES
There is an ongoing trend in the long-term care market to consolidate
facilities. Additionally, certain operators of long-term care facilities have
acquired their own companies to provide pharmacy products and services, rather
than obtaining such products and services from independent providers like the
Company. Both of these factors may adversely affect NCS by decreasing the number
of customers for whom the Company can effectively compete.
COMPETITION
Competition among providers of pharmacy services to the long-term care
industry is intense, both regionally and nationally. The Company competes with
numerous local retail pharmacies, local, regional and national institutional
pharmacies and pharmacies owned by long-term care facilities. In its program of
acquiring institutional pharmacy providers, the Company competes with several
other companies which have similar acquisition strategies. Some of the Company's
competitors have significantly greater financial and other resources than the
Company. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company.
6
<PAGE> 8
CAPITAL REQUIREMENTS RELATING TO GROWTH STRATEGY
To take advantage of the consolidation trend in the institutional pharmacy
industry and to expand the geographic area in which it operates, the Company's
strategy includes growth through acquisitions. This strategy may require
significant capital resources. Capital is needed not only for acquisitions, but
also for the effective integration, operation and expansion of such businesses.
The Company currently does not have a committed line of credit. There can be no
assurance that acceptable financing for future acquisitions or for the
integration, expansion and operation of existing businesses can be obtained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
REGULATION AND REIMBURSEMENT
The Company's pharmacy business is subject to federal, state and local
regulations, and its pharmacies are required to be licensed in the states in
which they are located. The failure to obtain or renew any required regulatory
approvals or licenses could adversely affect the continued operation of the
Company's business. In addition, the long-term care facilities that contract for
the services of NCS are also subject to federal, state and local regulations and
are required to be licensed in the states in which they are located. The failure
by these institutions to comply with such regulations or to obtain or renew any
required licenses could result in the loss of the Company's ability to provide
pharmacy services to their residents. The Company is also subject to federal and
state laws that prohibit certain direct and indirect payments between health
care providers that are intended, among other things, to induce or encourage the
referral of residents to, or the recommendation of, a particular provider of
items or services. Violation of these laws can result in loss of licensure,
civil and criminal penalties and exclusion from the Medicare and Medicaid
programs.
For the year ended June 30, 1996, approximately 40% of the Company's
pharmacy services billings were paid by Medicare and Medicaid and 18% were paid
by long-term care facilities which were, in turn, reimbursed by Medicare.
Medicare and Medicaid are highly regulated. The failure of NCS and/or its client
institutions to comply with applicable reimbursement regulations could adversely
affect the Company's business. Additionally, changes in such reimbursement
programs or in regulations related thereto, such as reductions in the allowable
reimbursement levels, modifications in the timing or processing of payments and
other changes intended to limit or decrease the growth of Medicare and Medicaid
expenditures, could adversely affect the Company's business. See
"Business -- Reimbursement and Billing" and "Business -- Government Regulation."
UNCERTAINTY DUE TO PROPOSED CHANGES IN NATIONAL AND STATE HEALTH CARE POLICIES
The Clinton administration and members of Congress have proposed reforms to
the system of health care delivery in the United States. None of these proposals
have been adopted. The process by which the administration or Congress will
pursue additional or modified proposals for national health care reform and the
precise nature of any such proposals are unclear at this time. In addition,
several states are considering various health care reforms, including reforms
through Medicaid managed care demonstration projects. Several states in which
the Company operates have applied for, or received, approval from the U.S.
Department of Health and Human Services ("HHS") for waivers from certain
Medicaid requirements, which are generally required for such managed care
projects. Although these demonstration projects generally exempt institutional
care, including long-term care facilities and institutional pharmacy services,
no assurance can be given that these waiver projects ultimately will not change
the reimbursement system for long-term care, including pharmacy services, from
fee-for-service to managed care negotiated or capitated rates. It is not
possible to predict what reforms of the health care system will be adopted and
the effect, if any, such reforms may have on the Company's business. See
"Business -- Reimbursement and Billing" and "Business -- Government Regulation."
DEPENDENCE ON KEY EMPLOYEES
The Company's operations are substantially dependent on the abilities of
Jon H. Outcalt, Kevin B. Shaw, Jeffrey R. Steinhilber, Phyllis K. Wilson and
William B. Byrum, the Company's Chairman of the Board;
7
<PAGE> 9
President and Chief Executive Officer; Senior Vice President and Chief Financial
Officer; Executive Vice President; and Vice President -- Corporate Development
respectively, to manage the Company's business and to identify acquisition
candidates. The Company does not have an employment agreement with any of these
individuals, and the loss of any of their services could have a material adverse
effect on its results of operations. In addition, in connection with the
Company's acquisition of certain significant subsidiaries, the Company has
entered into employment agreements with certain other key personnel. The
Company's ability to operate these subsidiaries is substantially dependent on
the contribution of these personnel to the day-to-day operation of those
businesses.
RISK OF PROFESSIONAL LIABILITY; AVAILABILITY OF INSURANCE
The Company's business exposes it to risks that are inherent in the
packaging and distribution of pharmaceuticals and the provision of ancillary
services. The Company currently maintains professional liability and errors and
omissions insurance. There can be no assurance that the coverage limits of such
insurance will be adequate to protect the Company against future claims. In
addition, there can be no assurance that the Company will be able to maintain
professional liability insurance in the future on acceptable terms or with
adequate coverage against potential liabilities.
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of this offering, the Directors and executive officers of
the Company and their affiliates collectively will own approximately 75.9% of
the outstanding voting power of the Company. As a result, these stockholders
will be able to exercise significant influence over matters requiring
stockholder approval, including the election of Directors and the approval of
significant corporate transactions. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS AND CERTAIN PROVISIONS OF DELAWARE
LAW
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and By-Laws could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. The Company's By-Laws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. Such classification of the Board of Directors lengthens the
time required to change the composition of a majority of directors and could
discourage a proxy contest or other takeover bid for the Company. The Company's
Certificate of Incorporation allows the Company to issue Preferred Stock with
rights senior to those of the Common Stock without any further vote or action by
the stockholders. The issuance of Preferred Stock could decrease the amount of
earnings and assets available for distribution to the holders of Common Stock or
could adversely affect the rights and powers, including voting rights, of the
holders of the Common Stock. In addition, the Company's Certificate of
Incorporation provides for Class B Common Stock, which has ten votes per share.
Although upon completion of this offering the outstanding shares of Class B
Common Stock will represent 41.5% of the shares of Common Stock outstanding,
such shares will entitle the holders thereof to 87.7% of the total voting power
of the Common Stock. The existence of the Class B Common Stock and the issuance
of Preferred Stock could have the effect of making an unsolicited acquisition of
the Company more difficult, and consequently cause a decrease in the market
price of the Class A Common Stock. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change in
control of the Company. See "Description of Capital Stock -- Preferred Stock"
and " -- The Delaware Business Combination Act."
8
<PAGE> 10
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market
after the offering, or the perception that such sales could occur, may adversely
affect prevailing market prices of the Class A Common Stock and could impair the
future ability of the Company to raise capital through an offering of its equity
securities. The Company, its officers and directors and the Selling
Stockholders, holding in the aggregate 35.8% of the Company's outstanding Common
Stock, after giving effect to this offering, have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Class A Common Stock, or
any securities convertible into or exercisable or exchangeable for Class A
Common Stock, for a period of 90 days after the date of this Prospectus without
the prior written consent of Smith Barney Inc. except, in the case of the
Company, in certain limited circumstances. See "Shares Eligible for Future Sale"
and "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced extreme price and volume
fluctuations which in some circumstances have been unrelated to the operating
performance of particular companies. The market price for shares of the Class A
Common Stock may be highly volatile depending on various factors, including, but
not limited to, the state of the national economy, stock market conditions,
industry research reports, actions by governmental agencies, litigation
involving the Company, earnings and other announcements by the Company or its
competitors and general conditions in the institutional pharmacy business.
THE COMPANY
The Company's principal executive offices are located at 3201 Enterprise
Parkway, Suite 220, Beachwood, Ohio 44122 and its telephone number at that
address is (216) 514-3350. Unless the context indicates otherwise, NCS
HealthCare, Inc. and its subsidiaries are referred to herein collectively as
"NCS" or the "Company."
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Class A Common Stock offered by the Company hereby, after deducting estimated
expenses of the offering payable by the Company and underwriting discounts and
commissions, will be approximately $90.6 million ($105.4 million if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $32.00 per share.
The Company intends to use approximately $4.0 million of the net proceeds
to repay outstanding indebtedness under a demand note due to a bank. The demand
note bears interest at the lending bank's prime rate (8.25% as of August 29,
1996). The indebtedness to be repaid was incurred during August 1996 in
connection with certain acquisitions. The balance of the net proceeds will be
used to fund acquisitions in the institutional pharmacy market and for working
capital and other general corporate purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Pending the use of
proceeds as described above, the net proceeds will be invested in short-term,
interest-bearing, investment grade securities.
The Company is engaged in an ongoing program of acquiring institutional
pharmacy and other related businesses in selected markets throughout the United
States. The Company is in various stages of discussions with potential
acquisition candidates and has entered into non-binding letters of intent for
the acquisition of two businesses. There can be no assurance that these or any
other potential acquisitions will be consummated. No material acquisition has
become the subject of any definitive agreement, letter of intent or agreement in
principle.
The Company will not receive any of the proceeds from the sale of the
shares of Class A Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders."
PRICE RANGE OF CLASS A COMMON STOCK
The Class A Common Stock was initially offered to the public on February
14, 1996 at a price of $16.50 per share and commenced trading on The Nasdaq
Stock Market, Inc. on that date under the symbol "NCSS". The following table
sets forth, for the calendar periods indicated, the high and low sale prices per
share for the Class A Common Stock, as reported on the Nasdaq National Market.
These prices do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
First Quarter (from February 14, 1996)......................... $26.50 $20.00
Second Quarter................................................. 34.50 24.50
Third Quarter (through August 28, 1996)........................ 34.00 23.25
</TABLE>
On August 28, 1996, the last sale price of the Class A Common Stock as
reported by Nasdaq was $32.00 per share. As of August 26, 1996, there were
approximately 216 holders of record of the Class A Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Class A Common
Stock. The Company currently intends to retain any earnings for use in its
business and therefore does not anticipate paying any dividends in the
foreseeable future. Any determination to pay cash dividends in the future will
be at the discretion of the Board of Directors after taking into account various
factors, including the Company's financial condition, results of operations,
current and anticipated cash needs and plans for expansion.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996, the pro forma capitalization of the Company giving effect to
acquisitions completed subsequent to June 30, 1996 and such pro forma
capitalization as adjusted to reflect the sale of the 3,000,000 shares of Class
A Common Stock offered by the Company hereby (at an assumed public offering
price of $32.00 per share) and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction with
the Pro Forma Consolidated Financial Data, the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt(1)....................... $ 801 $ 5,997 $ 1,997
======= ======== =========
Long-term debt, excluding current portion.................. $ 1,961 $ 5,049 $ 5,049
Convertible subordinated debentures........................ 6,549 6,549 6,549
Minority interests......................................... 201 201 201
------- -------- ---------
8,711 11,799 11,799
Stockholders' equity:
Preferred Stock, $.01 par value per share; 1,000,000
shares authorized; none issued........................ -- -- --
Class A Common Stock, $.01 par value per share;
50,000,000 shares authorized; 5,560,492 shares issued
and outstanding, actual; 5,941,281 shares issued and
outstanding, pro forma; and 9,098,690 shares issued
and outstanding, pro forma as adjusted(2)............. 56 59 91
Class B Common Stock, $.01 par value per share;
20,000,000 shares authorized; 6,603,228 shares issued
and outstanding, actual and pro forma; and 6,445,819
shares issued and outstanding, pro forma as
adjusted(2)........................................... 66 66 64
Paid-in capital............................................ 84,907 95,504 186,074
Retained earnings.......................................... 6,071 6,071 6,071
------- -------- ---------
Total stockholders' equity............................... 91,100 101,700 192,300
------- -------- ---------
Total capitalization.................................. $99,811 $113,499 $ 204,099
======= ======== =========
</TABLE>
- ---------------
(1) Subsequent to June 30, 1996, the Company incurred additional indebtedness
under a demand note due to a bank. At August 28, 1996, the Company owed
approximately $4.0 million under this note.
(2) Excludes (i) 164,550 shares of Class B Common Stock issuable upon the
exercise of outstanding options, (ii) an aggregate of 103,018 shares of
Class A Common Stock issuable upon the exercise of options outstanding under
the Company's 1995 Stock Option Plan and the 1996 Long Term Incentive Plan
and (iii) 651,281 shares of Class A Common Stock issuable upon conversion of
outstanding convertible subordinated debentures. See "Management -- 1996
Long Term Incentive Plan" and Note 7 of Notes to Financial Statements of the
Company. Pro forma as adjusted shares outstanding gives effect to the
conversion in connection with this offering of 157,409 shares of Class B
Common Stock into an equal number of shares of Class A Common Stock by
certain Selling Stockholders. See "Principal and Selling Stockholders."
11
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the five years
ended June 30, 1996 has been derived from the consolidated financial statements
of the Company. The consolidated financial statements for the four years ended
June 30, 1996 have been audited by Ernst & Young LLP, independent auditors. The
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements of the Company and related Notes thereto and the other financial
information included elsewhere herein. The data for the periods presented are
not necessarily comparable because of acquisitions throughout these periods.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................. $28,478 $33,620 $48,205 $65,602 $113,281
Cost of revenues.......................... 21,106 24,646 34,288 46,570 82,415
------- ------- ------- ------- --------
Gross profit.............................. 7,372 8,974 13,917 19,032 30,866
Selling, general and administrative
expenses................................ 5,964 7,037 10,531 14,539 22,236
Special compensation(1)................... --..... -- -- -- 2,811
------- ------- ------- ------- --------
Operating income.......................... 1,408 1,937 3,386 4,493 5,819
Interest expense, net..................... 59 428 525 1,089 1,611
------- ------- ------- ------- --------
Income before income taxes................ 1,349 1,509 2,861 3,404 4,208
Income tax expense........................ 632 696 1,327 1,536 1,852
------- ------- ------- ------- --------
Net income................................ $ 717 $ 813 $ 1,534 $ 1,868 $ 2,356
======= ======= ======= ======= ========
Net income per share...................... $ 0.11 $ 0.13 $ 0.24 $ 0.28 $ 0.26
======= ======= ======= ======= ========
Shares used in the computation............ 6,303 6,303 6,424 6,764 8,971
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 85 $ 577 $ 384 $ 286 $ 21,460
Working capital........................... 2,644 1,383 5,920 10,616 48,336
Total assets.............................. 6,812 8,651 15,556 38,595 110,668
Long-term debt, excluding current
portion................................. 1,897 1,575 4,608 18,505 1,961
Convertible subordinated debentures....... --..... -- -- 1,900 6,549
Stockholders' equity...................... 613 1,426 4,173 8,117 91,100
</TABLE>
- ---------------
(1) Represents a one-time, non-recurring charge in connection with the
termination of certain compensation and performance incentive arrangements
with the prior owners of certain acquired businesses. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
12
<PAGE> 14
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited Pro Forma Consolidated Balance Sheet as of June 30,
1996 and Consolidated Statement of Income for the year ended June 30, 1996 are
based on the historical consolidated financial statements of the Company. The
Consolidated Balance Sheet is adjusted to give effect to acquisitions completed
subsequent to June 30, 1996 and to the sale of the 3,000,000 shares of Class A
Common Stock offered by the Company hereby (at an assumed public offering price
of $32.00 per share) and the application of the estimated net proceeds therefrom
as described under "Use of Proceeds" as if these events had occurred on June 30,
1996. The Pro Forma Consolidated Statement of Income is adjusted to give effect
to the completion of acquisitions completed subsequent to June 30, 1995 and to
the sale by the Company in February 1996 of 4,476,000 shares of Class A Common
Stock and the application of the net proceeds therefrom as if these events had
occurred as of July 1, 1995. The Pro Forma Consolidated Statements of Income
combine the historical operations of the Company with the historical operations
of the acquired businesses prior to the dates the Company made such
acquisitions, using the purchase method of accounting. The pro forma operating
results are not necessarily indicative of the operating results that would have
been achieved had the acquisitions actually occurred at July 1, 1995.
These Pro Forma Consolidated Financial Statements are based on the
assumptions set forth in the notes to such statements and should be read in
conjunction with the related consolidated financial statements and notes thereto
of the Company included elsewhere in this Prospectus.
PRO FORMA CONSOLIDATED BALANCE SHEET(1)
JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
NCS HEALTHCARE OFFERING PRO FORMA
AND ACQUIRED PRO FORMA AS
SUBSIDIARIES COMPANIES(A) PRO FORMA ADJUSTMENTS(B) ADJUSTED
-------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....... $ 21,460 $(17,892) $ 3,568 $ 86,600 $ 90,168
Accounts receivable, net........ 27,762 5,200 32,962 -- 32,962
Inventories..................... 7,487 2,763 10,250 -- 10,250
Prepaid expenses and other
assets........................ 2,484 205 2,689 -- 2,689
-------------- ------------ --------- -------------- ---------
Total current assets.......... 59,193 (9,724) 49,469 86,600 136,069
Property, plant and equipment,
net............................. 10,283 2,727 13,010 -- 13,010
Goodwill, net..................... 39,101 26,930 66,031 -- 66,031
Other assets, net................. 2,091 1,309 3,400 3,400
-------------- ------------ --------- -------------- ---------
Total assets.................. $110,668 $ 21,242 $131,910 $ 86,600 $218,510
=============== ============= ========== ============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................ $ 4,968 $ 719 $ 5,687 $ -- $ 5,687
Accrued expenses and other
current liabilities........... 5,088 1,639 6,727 -- 6,727
Current portion of long term
debt.......................... 801 5,196 5,997 (4,000) 1,997
-------------- ------------ --------- -------------- ---------
Total current liabilities..... 10,857 7,554 18,411 (4,000) 14,411
Long-term debt, excluding current
portion......................... 1,961 3,088 5,049 -- 5,049
Convertible subordinated
debentures...................... 6,549 -- 6,549 -- 6,549
Minority interests................ 201 -- 201 -- 201
Stockholders' equity:
Preferred stock................. -- -- -- -- --
Common Stock, par value $.01 per
share:
Class A....................... 56 3 59 32 91
Class B....................... 66 -- 66 (2) 64
Paid-in capital................. 84,907 10,597 95,504 90,570 186,074
Retained earnings............... 6,071 -- 6,071 -- 6,071
-------------- ------------ --------- -------------- ---------
Total stockholders' equity.... 91,100 10,600 101,700 90,600 192,300
-------------- ------------ --------- -------------- ---------
Total liabilities and
stockholders' equity........ $110,668 $ 21,242 $131,910 $ 86,600 $218,510
=============== ============= ========== ============== ==========
</TABLE>
- ---------------
(1) See accompanying Notes to Pro Forma Consolidated Balance Sheet.
13
<PAGE> 15
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(A) Reflects acquisitions completed subsequent to June 30, 1996 by the Company,
all of which were accounted for under the purchase method, at an aggregate
purchase price of $36,705. See Note 8 of Notes to Consolidated Financial
Statements of the Company.
(B) Reflects the sale of 3,000,000 shares of Class A Common Stock offered by the
Company (at an assumed public offering price of $32.00 per share) and the
receipt and application of the proceeds therefrom as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------------------------------
<S> <C>
Gross proceeds from the offering................................ $96,000
Underwriting discounts and commissions.......................... (4,800)
Estimated expenses of the offering.............................. (600)
-------
Net proceeds.................................................... 90,600
Repayment of notes payable...................................... (4,000)
-------
Net increase in cash and cash equivalents....................... $86,600
=======
</TABLE>
Also reflects the conversion of 157,409 shares of Class B Common Stock into
an equal number of shares of Class A Common Stock in connection with this
offering by certain Selling Stockholders. See "Principal and Selling
Stockholders."
14
<PAGE> 16
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (1)
YEAR ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
NCS HEALTHCARE
AND ACQUIRED PRO FORMA PRO
SUBSIDIARIES COMPANIES(B) ADJUSTMENTS FORMA
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues....................... $113,281 $ 64,255 $ -- $ 177,536
Cost of revenues............... 82,415 48,430 -- 130,845
-------------- ------------ ----------- -----------
Gross profit................... 30,866 15,825 -- 46,691
Selling, general and
administrative expenses...... 22,236 11,132 381(C) 33,749
Special compensation........... 2,811(A) -- -- 2,811
-------------- ------------ ----------- -----------
Operating income(loss)......... 5,819 4,693 (381) 10,131
Interest expense............... (2,282) (567) 1,244(D) (1,605)
Interest income................ 671 -- (671)(D) --
-------------- ------------ ----------- -----------
Income before income taxes..... 4,208 4,126 192 8,526
Income tax expense............. 1,852 1,814 84 3,750
-------------- ------------ ----------- -----------
Net income..................... $ 2,356 $ 2,312 $ 108 $ 4,776
=============== ============= =========== ========
Net income per share........... $ 0.26 $ 0.38
=============== ========
Shares used in the
computation.................. 8,971 12,695
=============== ========
</TABLE>
- ---------------
(1) See accompanying Notes to Pro Forma Consolidated Statement of Income
15
<PAGE> 17
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1996
(A) Represents a one-time, non-recurring charge in connection with the
termination of performance incentive agreements with prior owners of certain
acquired companies. See Note 8 of Notes to Consolidated Financial Statements
of the Company.
(B) The historical statement of income data for the acquired companies for the
year ended June 30, 1996 represents the results of operations of such
companies from July 1, 1995 to the earlier of their respective dates of
acquisition or June 30, 1996. Each of the acquisitions has been accounted
for as a purchase. Accordingly, the results of the operations of each such
acquired company are included in the Company's results of operations from
the date of acquisition. The table below presents the details of the
historical operations of the acquired companies. See Note 8 of Notes to the
Consolidated Financial Statements of the Company and the financial
statements of the significant acquired companies appearing elsewhere in this
Prospectus.
The details of the historical operations of the acquired companies for the
periods from July 1, 1995 to the earlier of their respective dates of
acquisition or June 30, 1996 are as follows:
<TABLE>
<CAPTION>
ACQUIRED COMPANY
(DATE OF ACQUISITION)
---------------------------------------------------------------------------
UNI-CARE IPAC THRIFTY OTHERS OTHERS
(MAY 15, (AUGUST 1, (AUGUST 13, (FISCAL (FISCAL
1996) 1996) 1996) 1996) 1997) TOTAL
-------- ---------- ----------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $14,500 $ 13,829 $11,627 $12,821 $11,478 $64,255
Cost of revenues.............. 11,165 10,164 8,604 9,919 8,578 48,430
-------- ---------- ----------- ------- ------- -------
Gross profit.................. 3,335 3,665 3,023 2,902 2,900 15,825
Selling, general and
administrative expenses..... 2,300 3,079 1,789 1,618 2,346 11,132
-------- ---------- ----------- ------- ------- -------
Operating income.............. 1,035 586 1,234 1,284 554 4,693
Interest expense.............. -- 324 159 80 4 567
-------- ---------- ----------- ------- ------- -------
Income before income taxes.... 1,035 262 1,075 1,204 550 4,126
Income tax expense............ 455 115 473 529 242 1,814
-------- ---------- ----------- ------- ------- -------
Net income.................... $ 580 $ 147 $ 602 $ 675 $ 308 $ 2,312
======== ========== =========== ======= ======= =======
</TABLE>
(C) The adjustment to selling, general and administrative expenses consists of
(i) a reduction of $1,012 to acquired companies' historical amounts of
compensation for owners and certain employee benefits for the difference
between such historical amounts and amounts specified in the
post-acquisition employment contracts for such individuals and continuing
benefit programs and (ii) a $1,393 adjustment to increase amortization of
the excess of cost over the fair value of net assets of the acquired
companies, using a 30-year amortization schedule.
(D) The adjustments reflect the reduction in interest expense and the
elimination of interest income, had the entire net proceeds of approximately
$67.0 million from the Company's initial public offering in February 1996
been used to reduce certain outstanding indebtedness and to fund the
acquisitions, as if such offering had occurred on July 1, 1995.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Financial Data and the Consolidated Financial Statements of the
Company and Notes thereto included elsewhere in this Prospectus.
OVERVIEW
NCS entered the long-term care pharmacy business by acquiring a 5,500 bed
institutional pharmacy provider in 1986. Between 1986 and June 30, 1996, NCS
completed 14 additional acquisitions of institutional pharmacies. Through
acquisitions and internal growth, the number of residents served by the Company
has grown to over 63,000 in seven states as of June 30, 1996.
The Company's total revenues have grown at a compound annual rate of
approximately 41% from $28.5 million in 1992 to $113.3 million in 1996. The
Company's growth has been achieved principally through acquisitions of new
sites, increased market share at existing sites and cross selling of new
services.
The Company's revenues are derived primarily from providing pharmaceuticals
and related services to long-term care facilities. Other sources of revenue
include sales of infusion and other therapies, nutrition management and other
products and services.
The Company's successful integration of new sites depends on enhancing
operating efficiency, improving purchasing and formulary management, expanding
other health care services and increasing market share through both effective
integration of new acquisitions and internal growth. In the past two years, the
Company has expanded its management team, which the Company believes will allow
it to accommodate its growth plan.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's Statement of Income, expressed as a percentage of total
revenues.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues........................................................ 100.0% 100.0% 100.0%
Cost of revenues................................................ 71.1 71.0 72.8
----- ----- -----
Gross margin.................................................... 28.9 29.0 27.2
Selling, general and administrative expenses.................... 21.9 22.1 19.6
Special compensation............................................ -- -- 2.5
----- ----- -----
Operating income................................................ 7.0 6.9 5.1
Interest expense, net........................................... 1.1 1.7 1.4
----- ----- -----
Income before income taxes...................................... 5.9 5.2 3.7
Income tax expense.............................................. 2.7 2.3 1.6
----- ----- -----
Net income...................................................... 3.2% 2.9% 2.1%
===== ===== =====
</TABLE>
Years Ended June 30, 1996 and 1995
Revenues for the year ended June 30, 1996 rose $47.7 million or 72.7% to
$113.3 million from the $65.6 million recorded in the comparable period of 1995.
This increase is attributable to $35.9 million of revenues generated by
acquisitions and $11.8 million of revenues relating to internal growth.
Cost of revenues for the year ended June 30, 1996 grew to $82.4 million
from $46.6 million for the year ended June 30, 1995, representing an increase of
$35.8 million or 76.8%. Cost of revenues as a percentage of revenues increased
to 72.8% for the year ended June 30, 1996 from 71.0% for the year ended June 30,
1995. The increase in cost of revenues was primarily the result of acquisitions.
At the time of acquisition, the cost of
17
<PAGE> 19
revenues as a percentage of revenues of the acquired companies was generally
higher as a result of several factors, including less advantageous purchase
contracts, lack of formulary management and higher production costs.
Selling general and administrative expenses for the year ended June 30,
1996 were $22.2 million compared to $14.5 million for the year ended June 30,
1995, representing an increase of $7.7 million or 53.1%. Selling, general and
administrative expenses as a percentage of revenues decreased from 22.1% for the
year ended June 30, 1995 to 19.6% for the year ended June 30, 1996. The increase
in selling, general and administrative expenses in absolute terms was mainly
attributable to acquisitions completed since June 30, 1995. The decrease in
percentage terms was due to the relatively fixed nature of corporate general and
administrative expenses.
Special compensation of $2.8 million for the year ended June 30, 1996
represents a one-time, non-recurring charge resulting from the termination of
certain compensation and performance incentive arrangements with the prior
owners of certain acquired businesses.
Operating income for the year ended June 30, 1996 was $5.8 million compared
to operating income of $4.5 million for the year ended June 30, 1995. Excluding
the one-time, non-recurring charge described above, operating income for the
year ended June 30, 1996 was $8.6 million or a 91.1% increase over the $4.5
million for the year ended June 30, 1995. This improvement reflects increased
sales volume and the continued benefit of the Company's operating leverage which
is due to the higher rate of growth in sales and gross profit than in general
and administrative expenses. As a percentage of total revenues, operating
income, excluding the one-time, non-recurring charge, increased to 7.6% for the
year ended June 30, 1996 from 6.9% for the year ended June 30, 1995.
Interest expense, net, of $1.6 million for the year ended June 30, 1996
increased from $1.1 million for the year ended June 30, 1995. This increase was
primarily due to the increase in acquisition-related debt offset somewhat from
interest income generated from the approximately $67.0 million the Company
raised in its initial public offering on February 14, 1996.
Years Ended June 30, 1995 and 1994
Revenues for the year ended June 30, 1995 rose $17.4 million or 36.1% to
$65.6 million from the $48.2 million recorded in the comparable period of 1994.
This increase is attributable to $7.7 million of revenues generated by Tele-Rx,
Hunsicker's, Laurel and Quality, acquired during the year ended June 30, 1995,
$1.6 million of revenues reflecting a full year's effect of Klingensmith NCS,
Inc. ("Klingensmith") acquired during the year ended June 30, 1994, and $8.1
million relating to internal growth.
Cost of revenues for the year ended June 30, 1995 grew to $46.6 million
compared to $34.3 million for the year ended June 30, 1994, representing an
increase of $12.3 million or 35.9%. Cost of revenues as a percentage of revenues
decreased to 71.0% for the year ended June 30, 1995 from 71.1% for the year
ended June 30, 1994. The slight decrease in cost of revenues, as a percentage of
revenues, was primarily a result of improvements in purchasing and formulary
management and the growth of higher margin services offset by the higher cost of
sales at Hunsicker's and Tele-Rx. Hunsicker's higher cost of sales is primarily
a result of durable medical equipment products and services composing 25% of
Hunsicker's total sales. This is a higher percentage of sales than NCS maintains
at other sites, and these sales typically have higher cost of sales than
pharmaceutical sales. Tele-Rx, located in Detroit, Michigan, has a higher cost
of sales, which is due mostly to a Medicaid reimbursement rate in the state of
Michigan that is lower than reimbursement rates in other states in which NCS
operates.
Selling, general and administrative expenses for the year ended June 30,
1995 were $14.5 million compared to $10.5 million for the year ended June 30,
1994, representing an increase of $4.0 million or 38.1%. Selling, general and
administrative costs as a percentage of revenues increased from 21.9% for the
year ended June 30, 1994 to 22.1% for the year ended June 30, 1995. The increase
in selling, general and administrative expenses in absolute terms was mainly
attributable to the acquisitions of Tele-Rx, Hunsicker's and Laurel, the hiring
of management personnel and increased marketing expenses.
18
<PAGE> 20
Interest expense, net, of $1.1 million for the year ended June 30, 1995
increased $564,000 over the same period of 1994, due primarily to the increase
in acquisition-related debt.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company completed an initial public offering of
4,476,000 shares of Class A Common Stock resulting in net proceeds of
approximately $67.0 million of which approximately $27.0 million was used to
repay outstanding indebtedness.
The Company's principal capital requirements have been to fund
acquisitions, working capital needs and capital expenditures. NCS currently
finances its business through a $20.0 million demand note, of which
approximately $4.0 million was outstanding as of August 28, 1996. Interest on
this note, which accrues at the lending bank's prime rate, is payable monthly
beginning September 1, 1996. The Company plans to use the proceeds of this
offering to fund future acquisitions and reduce its borrowings under its demand
note.
Net cash provided (used) by operating activities was $1.5 million, $1.3
million and $(2.1) million in 1994, 1995 and 1996 respectively. Cash provided by
operating activities decreased over the three years due to an increase in trade
accounts receivable and, in 1996, a reduction in trade accounts payable.
Net cash used in investing activities increased from $3.1 million in 1994
to $19.2 million in 1995 and $34.7 million in 1996. The majority of the increase
was attributable to acquisitions along with an increase in capital expenditures.
The Company made capital expenditures in 1995 and 1996 of $2.8 million and
$4.7 million, respectively. The increase was due principally to purchase of
medication carts, computer equipment, vehicles and leasehold improvements.
Additionally, the Company has obtained financing through the issuance of
convertible subordinated debentures totaling $6.5 million. These debentures were
issued to fund two acquisitions completed during fiscal 1996. These debentures
carry interest rates of 7.0% to 8.0% and are redeemable or convertible into
Class A Common Stock.
In connection with an acquisition completed in August 1996, the Company
issued, in partial payment of the purchase price, approximately 273,245 shares
of Class A Common Stock valued at $26.34 per share, or approximately $7.2
million. The Company has granted the holder of such shares a one-time put option
exercisable in August 1998 to sell all but not less than all of such shares to
the Company for $7.2 million.
The Company's future cash requirements and cash flow expectations are
closely related to its expansion plans. The Company generally expects to meet
future financing needs for the coming fiscal year principally through proceeds
from this offering and bank borrowings. Although the Company does not currently
have any committed line of credit, it currently is in discussions with banks to
establish a credit facility and believes it could obtain bank financing under
commercially reasonable terms.
19
<PAGE> 21
BUSINESS
GENERAL
NCS is a leading independent provider of pharmacy services to long-term
care institutions including skilled nursing facilities, assisted living
facilities and other institutional health care settings. The Company purchases
and dispenses prescription and non-prescription pharmaceuticals and provides
client facilities with related management services, automated medical
recordkeeping, drug therapy evaluation and regulatory assistance. The Company
also provides a broad array of ancillary health care services to complement its
core pharmacy services, including infusion therapy, physical, speech and
occupational therapies and nutrition management. NCS currently provides pharmacy
services to approximately 81,000 residents at over 975 facilities located in
Ohio, Pennsylvania, Indiana, Michigan, Illinois, New Hampshire, Maine, New
Jersey, Oregon, Washington and Oklahoma.
RECENT EVENTS
Since the Company's initial public offering in February 1996, and in
keeping with the Company's acquisition strategy, NCS has completed seven
acquisitions, as set forth in the table below:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF ACQUISITION BEDS/RESIDENTS SERVICE AREA
- -------------------------------------------- -------------- ------------------------------
<S> <C> <C>
Care Plus Pharmacy.......................... 1,700 Central Illinois
Uni-Care Health Services.................... 9,200 New Hampshire, Maine
Family Care Nursing Home Services........... 1,950 Southern Illinois
Advanced Rx Services........................ 2,800 New Jersey
IPAC Pharmacy............................... 6,250 Oregon and Washington
Thrifty Medical Systems..................... 6,000 Oklahoma
Medical Arts Pharmacy....................... 2,160 Central Michigan
-------
Total............................. 30,060
=============
</TABLE>
As a result of these acquisitions, the Company has expanded its geographic
presence into seven new states. The cumulative purchase price for these
acquisitions was $52.4 million, payable in a combination of cash, Class A Common
Stock and the assumption of debt. The Company intends to continue to expand
through acquisitions.
MARKET OVERVIEW
Institutional pharmacies purchase, repackage and distribute pharmaceuticals
to residents of long-term care facilities such as skilled nursing facilities,
assisted living facilities and other institutional health care settings. Unlike
hospitals, most long-term care facilities do not have on-site pharmacies but
depend instead on outside sources to provide the necessary products and
services. In response to a changing regulatory environment and other factors,
the sophistication and breadth of services required by long-term care facilities
have increased dramatically in recent years. Today, in addition to providing
pharmaceuticals, institutional pharmacies provide consultant pharmacy services,
which include monitoring the control, distribution and administration of drugs
within the long-term care facility and assisting in compliance with applicable
regulations, as well as therapeutic monitoring and drug utilization review
services. With the average long-term care facility patient taking six to eight
medications per day, high quality, cost-efficient systems for dispensing and
monitoring patient drug regimens are critical. Providing these services places
the institutional pharmacy in a central role of influencing the effectiveness
and cost of care.
Based on data from industry sources, the Company estimates that the U.S.
market for pharmacy services (including consulting services and related
supplies) in long-term care facilities exceeded $3.5 billion in 1994. The
Company believes that the market is growing due primarily to two factors. First,
the number of long-term care facility residents is rising as a result of both
demographic trends and pressures faced by acute care hospitals to discharge
patients at earlier stages of recovery. According to the U.S. Bureau of the
Census, the
20
<PAGE> 22
number of persons over age 75 increased by approximately 30% from 1980 to 1990.
In 1990, 6.1% of the population ages 75 to 84 and 24.5% of the population ages
85 or older received care in long-term care facilities. The segment of the
population over age 85, which comprises the largest percentage of residents at
long-term care facilities, is the fastest growing segment of the population and
is expected to increase by more than 40% from 1990 to 2000.
The second factor creating growth in the institutional pharmacy market is
the increasing number of medications taken per day by long-term care facility
residents. This increase is due to (i) advances in medical technology which have
resulted in the availability of new drug therapy regimens and (ii) the generally
higher acuity levels of residents as a result of both payors' efforts to have
care delivered in the lowest cost setting and the generally older, and
consequently sicker, population of long-term care facility residents.
The Company believes that there are significant consolidation opportunities
in the institutional pharmacy market. Prior to the 1970's, pharmacy needs of
long-term care facilities were fulfilled by local retail pharmacies. Since then,
the pharmacy and information needs of long-term care facilities have grown
substantially and regulatory requirements and the reimbursement environment have
become more complex. Institutional pharmacy companies, both independent and
captive (those owned by an operator of long-term care facilities), are better
positioned to meet these changing market demands. As a result, over the past 25
years the proportion of the market served by retail pharmacies has steadily
declined, and institutional pharmacies have become the dominant providers of
pharmacy services to the long-term care market. Despite this shift, the
independent institutional pharmacy market remains highly fragmented. Faced with
uncertainties related to health care reform, an increasing need for capital
resources and the necessity to provide a wide range of specialized services, a
growing number of retail and small institutional pharmacies are seeking to
affiliate with, or be acquired by, large institutional pharmacies.
There are several factors driving the consolidation among providers of
long-term care pharmaceutical services. All of these factors relate to the
advantages that large institutional providers have over retail and small
institutional providers.
Scale Advantages. Larger pharmacies are able to (i) realize advantages
associated with size, including purchasing power, service breadth, more
sophisticated sales and marketing programs and formulary management
capabilities, (ii) achieve efficiencies in administrative functions and
(iii) access the capital resources necessary to invest in critical computer
systems and automation.
Ability to Serve Multi-Site Customers and Managed Care Payors. As a
result of their ability to serve long-term care customers with several
physical locations, larger pharmacies possess a significant competitive
advantage over their smaller counterparts. Additionally, the Company
believes that there are significant opportunities for full-service
institutional pharmacies with a comprehensive range of services and
regional coverage to provide a spectrum of health care products and
services to managed care payors.
Regulatory Expertise and Systems Capabilities. Long-term care
facilities are demanding more sophisticated and specialized services from
pharmacy providers due, in part, to the implementation in 1990 of the
Omnibus Budget Reconciliation Act of 1987 ("OBRA"). The OBRA regulations,
which were designed to upgrade and standardize care in nursing facilities,
mandated strict new standards relating to planning, monitoring and
reporting on the progress of patient care to include, among other things,
prescription drug therapy. As a result, long-term care administrators
increasingly seek experienced pharmacists and specialized providers with
computerized information and documentation systems designed to monitor
patient care and control the facilities' and payors' costs.
Changing Market. The long-term care market is undergoing change as
health care reform proposals are considered, cost-containment initiatives
are implemented, managed care organizations seek regional coverage and
consolidation takes place. Smaller providers are more concerned with, and
generally less capable of capitalizing on opportunities created by, these
changes.
21
<PAGE> 23
BUSINESS STRATEGY
NCS's strategy is to capitalize on industry trends and Company expertise to
strengthen its position as a leading provider of high quality, integrated
pharmacy and related services to institutional clients. The Company intends to
implement this strategy by continuing its aggressive acquisition and development
program, identifying and standardizing "best practices," cross marketing its
services across its customer base to generate internal growth, utilizing its
proprietary technology to deliver information and providing a broad array of
ancillary health care services to complement its core pharmacy services.
Acquisition and Development Program. NCS is continuing its aggressive
acquisition program to capitalize on consolidation opportunities in the
institutional pharmacy market. To date, the Company has completed 19
acquisitions. Through consolidation, the Company believes it can achieve
substantial economies of scale in areas such as drug purchasing and can
create efficiencies by consolidating administrative functions, centralizing
formulary management, providing management information systems support and
otherwise streamlining operations. In addition, by identifying areas in
which acquired companies outperform NCS and standardizing these "best
practices" Company-wide, the Company strives to provide its customers with
the highest quality services possible.
In addition, NCS has developed the systems and competencies necessary
to establish new market locations with the breadth of services and
standards of quality of existing branches. To date, NCS has developed new
sites in two locations, and the Company intends to develop additional sites
in markets in which competitive factors and economics make a start-up
preferable to an acquisition.
Standardize "Best Practices." The Company pursues a strategy of
identifying and standardizing "best practices" across all aspects of its
operations. In particular, in integrating acquisitions NCS reviews the
operations of the acquired companies to identify areas in which the
acquired companies outperform the Company. These and other "best practices"
are implemented throughout NCS. Critical in applying this strategy is
utilization of the Company's information systems to standardize accounting
and reporting practices, thereby facilitating site-to-site performance
comparisons. By continually reviewing and standardizing "best practices,"
the Company strives to provide the highest quality services to its
customers while maximizing financial results.
Cross-Marketing. By cross-marketing its pharmacy and ancillary
services, NCS seeks to increase revenues by layering additional services
onto its existing customer base without significantly increasing its fixed
costs. In addition, since many of the Company's competitors do not offer
the breadth of services provided by NCS, the Company's ability to offer a
broad range of ancillary services permits access to long-term care
facilities that contract with other institutional pharmacy companies. By
demonstrating expertise in one area, the Company believes that it gains the
opportunity to provide other services.
Broad Array of Services. In addition to its core pharmacy services,
NCS provides a broad array of specialized health care services tailored to
the needs of its institutional clients. These services include consultant
pharmacy services, infusion therapy, rehabilitation therapy management,
nutrition management, Medicare Part B products and services and oxygen
services. The Company believes that this range of services provides it with
a competitive advantage relative to its competitors, which do not generally
provide such a range of services, and represents a significant opportunity
for internal growth through cross-marketing.
Health Care Information Technology. The Company has developed a
proprietary pharmacy management information system, Concord, which gives
the Company's pharmacists access to data regarding drug interactions and
contraindications, provides patient medication profiles, captures patient
charges, manages drug purchasing and tracks physician prescribing patterns.
The ability to track and report information is critical in the long-term
care regulatory and reimbursement environment. NCS's proprietary system
also supports the Company's workflow, serving an important quality control
function. To date, six of the Company's largest distribution facilities,
representing approximately 63% of the Company's pharmacy revenues, have
been converted to Concord.
22
<PAGE> 24
SERVICES
The Company has traditionally provided institutional pharmacy and infusion
products and services to long-term care facility residents. In recent years, NCS
has developed an array of services which address the needs of long-term care
facilities to accommodate higher acuity admissions and manage costs. NCS
believes that it is one of the few companies capable of offering customers the
depth and breadth of these products and services. Approximately 74% of the
Company's revenues during fiscal year 1996 were derived from providing pharmacy
and consultant pharmacy services to long-term care facilities. An additional 10%
of revenues were derived from providing infusion therapy services, 6% were
derived from providing other therapies and the remaining 10% were primarily
derived from providing various other products and services, including nutrition
management, oxygen and Medicare Part B.
Pharmacy Services. The Company's core business is providing pharmaceutical
dispensing services to residents of long-term care facilities and other
institutions. The Company purchases, repackages and dispenses prescription and
non-prescription medication in accordance with physician orders and delivers
such prescriptions at least daily to long-term care facilities for
administration to residents by the nursing staffs of these facilities. The
Company typically serves facilities within a two hour drive time of its
distribution facility and provides 24 hour coverage 365 days per year. As of
August 28, 1996, the Company provided its services from 22 sites in ten states.
NCS also provides its services through the management of third party
institutional pharmacies.
Upon receipt of a doctor's order, the information is entered into the
Company's management information system, which automatically reviews the order
for patient-specific allergies and potentially adverse interactions with other
medications the patient is receiving. Following this analysis, a report on each
order is produced for review by a Company pharmacist, who performs a prospective
drug utilization analysis of the order and, if appropriate, substitutes generic
drugs approved for equivalence by the U.S. Food and Drug Administration ("FDA").
In addition, subject to the prescribing physician's approval, the pharmacist may
make therapeutic substitutions based on guidelines established by the Company's
Therapeutic Formulary Committee.
NCS provides pharmaceuticals to its clients through a unit dose
distribution system. The Company divides the pharmaceuticals received in bulk
form from its suppliers into unit dose packages for its customers. The unit dose
format is designed to reduce errors, improve control over the distribution of
pharmaceuticals and save nursing administration time relative to the bulk
systems traditionally used by retail pharmacies.
At those sites at which Concord has been implemented, the Company utilizes
its work flow control to improve efficiencies and uses its bar-coding system to
enhance safety. Under this system, a bar code label is applied to each unit dose
package. In most cases, this step is executed by the Company. At the request of
the Company, certain manufacturers have begun to provide pharmaceuticals which
are pre-packaged and bar coded. Through bar coding, information relating to the
contents and destination of each unit dose package distributed can be
automatically entered into the Concord system. This bar code technology enables
the Company to monitor pharmaceuticals throughout the production and
distribution process, thereby reducing errors, improving pharmacy control and
enhancing production efficiency.
As an additional service, NCS furnishes its clients with information
captured by its computerized medical records and documentation system. This
system captures patient care information which is used to create monthly
management and quality assurance reports. The Company believes that this system
of information management, combined with the unit dose delivery system, improves
the efficiency and controls in nursing administration and reduces the likelihood
of drug-related adverse consequences.
Consultant Pharmacy Services. Federal and state regulations mandate that
long-term care facilities improve the quality of patient care by retaining
consultant pharmacist services to monitor and report on prescription drug
therapy. The OBRA legislation implemented in 1990 seeks to further upgrade and
standardize health care by setting forth more stringent standards relating to
planning, monitoring and reporting on the progress of prescription drug therapy
as well as facility-wide drug usage. Noncompliance with these regulations may
result in monetary sanctions as well as the potential loss of the facility's
ability to participate in Medicare and Medicaid reimbursement programs.
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<PAGE> 25
NCS provides consulting services that help clients comply with federal and
state regulations applicable to long-term care facilities. The Company's
services include: (i) reviewing each patient's drug regimen to assess the
appropriateness and efficacy of drug therapies, including a review of the
patient's medical records, monitoring drug reactions to other drugs or food,
monitoring lab results and recommending alternate therapies or discontinuing
unnecessary drugs; (ii) participating on the Pharmacy and Therapeutics, Quality
Assurance and other committees of the Company's clients; (iii) inspecting
medication carts and storage rooms each month; (iv) monitoring and reporting
monthly on facility-wide drug usage and drug administration systems and
practices; (v) developing and maintaining the client's pharmaceutical policy and
procedure manuals; and (vi) assisting the long-term care facility in complying
with state and federal regulations as they pertain to patient care.
Additionally, NCS offers a specialized line of consulting services which
help long-term care facilities enhance care and reduce and contain costs as well
as comply with state and federal regulations. Under this service line, the
Company provides: (i) data required for OBRA and other regulatory purposes,
including reports on psychotropic drug usage (chemical restraints), antibiotic
usage (infection control) and other drug usage; (ii) plan of care programs which
assess each patient's state of health upon admission and monitor progress and
outcomes using data on drug usage as well as dietary, physical therapy and
social service inputs; (iii) counseling related to appropriate drug usage and
implementation of drug protocols; (iv) on-site educational seminars for the
long-term care facilities' staff on topics such as drug information relating to
clinical indications, adverse drug reactions, drug protocols and special
geriatric considerations in drug therapy, information and training on
intravenous drug therapy and updates on OBRA and other regulatory compliance
issues; (v) mock regulatory reviews for nursing staffs; and (vi) nurse
consultant services and consulting for dietary, social services and medical
records.
Infusion Therapy. Infusion therapy is the intravenous delivery of
medication. The Company's infusion therapy services include pain management,
antibiotic therapy and chemotherapy for long-term care residents and home care
patients. NCS received Joint Commission on the Accreditation of Healthcare
Organizations accreditation at four sites and accreditation with commendation at
another site. NCS prepares the product to be administered and delivers the
product to the long-term care facility for administration by the nursing staff.
Because the proper administration of infusion therapy requires a highly trained
nursing staff, the Company provides education and certification programs to its
clients in order to assure proper staff training and compliance with regulatory
requirements. NCS believes that, by enhancing the ability of client facilities
to administer infusion therapies, these programs have led to a greater use of
infusion therapies throughout the Company's long-term care facility customer
base.
Other Therapies. In 1993, the Company began providing physical, speech and
occupational therapy services. The Company currently provides these services to
residents of 26 long-term care facilities.
Nutrition Management. NCS assists long-term care facilities in menu
planning, purchasing and managing their dietary operations. Because the food
service area is typically one of the principal areas of regulatory violations,
this is an area of critical concern to long-term care facility operators.
Currently, NCS provides this service to over 160 long-term care facility
customers.
Other. The Company also provides long-term care facilities with
pharmaco-psychiatric services, recommending the appropriate treatment and dosage
amounts for behavioral syndromes and psychiatric illnesses of geriatric
residents as well as counseling and assistance with regulatory compliance in
connection with such services. Additional services offered by the Company
include assistance in complying with regulations concerning healthy and sanitary
environments. The Company also assists its customers with various regulatory
compliance matters and products and services relating to durable medical
equipment ("DME"), oxygen and Medicare Part B products and services. Finally,
NCS offers specialized educational services that aid facilities in the training
of their staffs. These services include surveys to prepare facilities for state
reviews and training on appropriate nursing techniques in infusion therapy,
wound care management and restorative nursing.
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<PAGE> 26
FORMULARY MANAGEMENT
NCS employs formulary management techniques designed to assist physicians
in making the best clinical choice of drug therapy for patients at the lowest
cost. Under the Company's formulary programs, NCS pharmacists assist prescribing
physicians in designating the use of particular drugs from among therapeutic
alternatives (including generic substitutions) and in the use of more
cost-effective delivery systems and dose forms. The formulary takes into account
such factors as pharmacology, safety and toxicity, efficacy, drug
administration, quality of life and other considerations specific to the elderly
population of long-term care facilities. The Company's formulary guidelines also
provide relative pharmaceutical cost information to residents, their insurers or
other payors of the pharmacy bill.
Successful implementation of formulary guidelines is dependent upon close
interaction between the pharmacist and the prescribing physician. NCS seeks to
attract and retain highly trained clinical pharmacists and encourages their
active participation in the caring for residents of long-term care facilities,
including consultation with the facilities' medical staff and other prescribing
physicians, to increase the likelihood that the most efficacious, safe and
cost-effective drug therapy is prescribed. The Company's formulary program is
directed by the NCS Formulary Committee, which is comprised of ten pharmacists
and two purchasing managers. The NCS Formulary Committee is responsible for
establishing protocols and procedures for evaluating alternative drug therapies.
To facilitate adherence to the Company's formulary guidelines, NCS annually
publishes the NCS Formulary Guide, which presents the findings and
recommendations of the NCS Formulary Committee as well as reimbursement
information. The Company believes that adherence to the NCS formulary guidelines
improves drug therapy results, lowers costs for residents and strengthens the
Company's purchasing power with pharmaceutical manufacturers.
ACQUISITION PROGRAM
The Company believes that through consolidation of other institutional
pharmacies it can provide a broad array of high quality pharmacy and related
services in a cost effective manner. Acquisition and effective integration can
result in efficiencies in service delivery, management, marketing, information
systems and administrative functions, substantial increases in purchasing
leverage, particularly with respect to drug purchases, the ability to provide a
broad range of ancillary services complementary to the Company's core pharmacy
services and the geographic scope necessary to service multi-facility customers
and market to managed care payors.
NCS targets acquisition candidates with strong management, a demonstrated
capacity for growth and opportunities to realize efficiencies through
consolidation and integration. The Company's philosophy is to create an
environment that maintains the importance of the entrepreneur in such key areas
as dispensing, consulting, marketing and customer service while consolidating
formulary management, purchasing, administration and information systems.
Central to the Company's integration strategy is implementation of NCS's
proprietary information systems, which improve communications between the
Company's sites and permit comparison of results, facilitating the
identification of "best practices." NCS further targets acquisition candidates
with management who intend to continue to participate in the operation of the
business but believe that there are more substantial opportunities in being
involved in a larger organization. The Company has historically included equity
in NCS as a component of the purchase price for an acquired company in order to
align the interests of the acquired company's management with those of NCS. The
Company typically values acquisition candidates based on number of beds served,
business mix, quality of management and whether the target is a regional hub or
a "fold-in."
NCS typically targets three classes of entities for acquisition, each with
its distinct economic profile and opportunities for value creation. The first
class of acquisitions consists of larger institutional pharmacies located in
markets not currently served by NCS. These acquisitions give the Company an
immediate point of entry into a new geographic market and provide a regional hub
for distribution. The second class consists of smaller companies that are
located near a current hub. These "fold-in" acquisitions are usually
consolidated with the larger hub, increasing market share without increasing
overhead. The third class consists of those
25
<PAGE> 27
companies that offer service extension opportunities. Since 1986, NCS has
completed 19 acquisitions. The following table lists the Company's completed
acquisitions to date:
<TABLE>
<CAPTION>
SERVICE AREA
YEAR NAME OF ACQUISITION (AT ACQUISITION)
- ----- --------------------------------------------------------- -------------------------
<S> <C> <C>
1986 Modern Pharmacy Consultants, Inc. Northeastern Ohio
1988 Woodlane Investments, Inc. Northeastern Ohio
1988 Nursing Center Services, Inc. Central Ohio
1992 Marlowe Drug, Inc. Eastern Ohio
1993 Klingensmith Adult Care Pharmacy Western Pennsylvania
1994 Tele-Rx, Inc. Southeastern Michigan
1995 Hunsicker's Pharmacy Long Term Care Eastern Pennsylvania
Division, Inc. and Hunsicker's Health Care, Inc.
1995 Laurel Extended Care Pharmacy, Inc. Western Pennsylvania
1995 Quality HealthCare of Indiana Central Indiana
1995 Corinthian Healthcare Systems, Inc. Central and Northern
Indiana
1995 The Apothecary, Inc. Eastern Pennsylvania
1995 DeMoss Rexall Drugs, Inc. Southern Indiana
1996 Care Plus Pharmacy Central Illinois
1996 Uni-Care Health Services, Inc. New Hampshire, Maine
1996 Family Care Nursing Home Service, Inc. Southern Illinois
1996 Advanced Rx Services, Inc. New Jersey
1996 IPAC Pharmacy, Inc. Oregon and Washington
1996 Thrifty Medical Systems Oklahoma
1996 Medical Arts Pharmacy Central Michigan
</TABLE>
MANAGEMENT INFORMATION SYSTEMS
The Company has developed a proprietary management information system,
Concord, which it employs as a pharmacy and information management system. Many
institutional pharmacy companies utilize non-customized information systems with
limited capabilities while other companies maintain multiple systems as a result
of acquisitions of companies with different systems. NCS developed Concord to
integrate and support the Company's locations and achieve customer specific
functionality and flexibility while retaining the ability to generate
standardized information for use by the Company. NCS believes that by developing
a customized and uniform system, it is better able to provide detailed
information to its customers and third party payors. Concord provides the
Company's pharmacists with computerized access to medication administration
records, physician order sheets and treatment records for each long-term care
facility resident. Concord also improves the pharmacists' control over the
review of prescriptions for safety and the dispensing of patient doses by giving
pharmacists access to data regarding drug interactions and contraindications,
providing patient medication profiles and providing updated information on
allergies which the pharmacist can use to calculate accurately dosages for drugs
that have a high potential for toxicity and therefore cannot be given in
standard doses. Concord also is an integral part of the implementation of the
Company's bar code system. The Company believes that Concord's computerized
documentation system, in combination with NCS's unit dose drug delivery and bar
coding systems, result in greater efficiency in nursing time, improved control,
reduced waste in the facility and lower error rates in both dispensing and
administration. These benefits enhance drug efficacy and result in fewer
drug-related adverse consequences.
In addition, Concord captures patient charges, manages drug purchasing and
coordinates formulary management, financial reporting and controls and work flow
analysis. The Company believes that through its centralized information systems,
"best practices" are more easily identified and standardized and acquisitions
are more readily integrated. NCS intends to use Concord's ability to compile
utilization, cost and outcome data as a competitive advantage in marketing to
managed care companies.
26
<PAGE> 28
Concord has been developed over a period of four years and is supported by
four on-site programmers, a full-time corporate staff of 21 employees and
several outside consultants. The Company believes that this system will
facilitate a unified NCS culture through improved site-to-site communication and
will enhance the Company's ability to deliver high quality, standardized
services throughout its geographic market. To date, six of the Company's largest
distribution facilities, representing approximately 63% of the Company's
pharmacy revenues, have been converted to Concord.
SALES AND MARKETING
In marketing to existing customers, NCS has organized the selling efforts
of each formerly independent location into a single sales force consisting of 17
field service representatives, four sales managers and five internal sales
personnel. All field sales representatives are trained in each of the Company's
products and services and sell these services throughout their respective
geographic territories. A typical territory consists of approximately 250
long-term care facilities, and the salesperson follows an eight week call cycle.
These individuals are paid base salaries with commissions comprising 25% to 50%
of a successful salesperson's compensation. The Company believes that long-term
care facilities change institutional pharmacies fairly infrequently, but when a
change is made, it is generally the result of a competitor's ability to offer
better service or a broader array of products and services.
PURCHASING
NCS purchases pharmaceuticals primarily from AmeriSource Health
Corporation, a national wholesale distributor, with whom it has negotiated a
prime vendor contract, and directly from certain pharmaceutical manufacturers.
The Company also is a member of industry buying groups that contract with
manufacturers for volume-based discounted prices which are passed through to the
Company by its wholesale distributor. The Company has numerous sources of supply
available to it and has not experienced any difficulty in obtaining
pharmaceuticals or other products and supplies used in the conduct of its
business.
CUSTOMERS
At August 28, 1996, NCS had contracts to provide services to approximately
81,000 residents in over 975 facilities. These contracts, as is typical in the
industry, are generally for a period of one year but are terminable by either
party for any reason upon thirty days' written notice. As of August 28, 1996, no
individual customer or market group represents more than 5% of the total sales
of the Company's institutional pharmacy business.
COMPETITION
Competition among providers of pharmacy services to long-term care
facilities is intense, both regionally and nationally. The Company believes that
it is one of the top three independent institutional pharmacies in the country.
Institutional pharmacies compete principally on the basis of service levels and
service breadth. In its program of acquiring institutional pharmacy providers,
NCS competes with several other companies with similar acquisition strategies,
many of whom may have greater resources than the Company.
REIMBURSEMENT AND BILLING
As is generally the case for long-term care facility services, NCS receives
payments through reimbursement from Medicaid and Medicare programs and directly
from individual residents (private pay), private third-party insurers and
long-term care facilities. For the fiscal year ended June 30, 1996, the
Company's payor mix was approximately 37% Medicaid, 3% Medicare, 21% private
pay, 5% third party insurance and 34% long-term care facilities, including
amounts for which the long-term care facility receives reimbursement under
Medicare Part A. Medicare and Medicaid are highly regulated. The failure of NCS
and/or its client institutions to comply with applicable reimbursement
regulations could adversely affect the Company's business.
Private Pay. For those residents who are not covered by
government-sponsored programs or private insurance, NCS generally bills the
patient or the patient's insurer or other responsible party on a monthly
27
<PAGE> 29
basis. Depending upon local market practices, NCS may alternatively bill private
residents through the long-term care facility. Pricing for private pay residents
is based on prevailing regional market rates or "usual and customary" charges.
Medicaid. The Medicaid program is a federal-state cooperative program
designed to enable states to provide medical assistance to aged, blind or
disabled individuals, or to members of families with dependent children whose
income and resources are insufficient to meet the costs of necessary medical
services. State participation in the Medicaid program is voluntary. To become
eligible to receive federal funds, a state must submit a Medicaid "state plan"
to the Secretary of HHS for approval. The federal Medicaid statute specifies a
variety of requirements which the state plan must meet, including requirements
relating to eligibility, coverage of services, payment and administration. For
residents eligible for Medicaid, the Company bills the individual state Medicaid
program. Medicaid programs are funded jointly by the federal government and
individual states and are administered by the states. The reimbursement rates
for pharmacy services under Medicaid are determined on a state-by-state basis
subject to review by the Health Care Financing Administration and applicable
federal law. Federal regulations and the regulations of certain states establish
"upper limits" for reimbursement for prescription drugs under Medicaid. In most
states pharmacy services are priced at the lower of "usual and customary"
charges or cost (which generally is defined as a function of average wholesale
price and may include a profit percentage) plus a dispensing fee. In addition,
most states establish a fixed dispensing fee which is adjusted to reflect
associated costs on an annual or less frequent basis.
State Medicaid programs generally have long-established programs for
reimbursement which have been revised and refined over time and have not had a
material adverse effect on the pricing policies or receivables collection for
long-term care facility pharmacy services. Any future changes in such
reimbursement program or in regulations relating thereto, such as reductions in
the allowable reimbursement levels or the timing of processing of payments,
could adversely affect the Company's business. The annual increase in the
federal share would vary from state to state based on a variety of factors. Such
provisions, if ultimately signed into law, could adversely affect the Company's
business.
Medicare. The Medicare program is a federally funded and administered
health insurance program for individuals age 65 and over or for certain
individuals who are disabled. The Medicare program consists of two parts: Part
A, which covers, among other things, inpatient hospital, skilled long-term care
facility, home health care and certain other types of health care services; and
Medicare Part B, which covers physicians' services, outpatient services and
certain items and services provided by medical suppliers. Medicare Part B also
covers a limited number of specifically designated prescription drugs. Medicare
Part A requires long-term care facilities to submit all of their costs for
patient care, including pharmaceutical costs, in a unified bill. Thus, fees for
pharmaceuticals provided to Medicare Part A patients are paid to the Company by
the long-term care facility on a monthly basis. Pricing is consistent with that
of private pay residents or is set between private pay rates and Medicaid
minimums. Medicare Part A has a cost-sharing arrangement under which
beneficiaries must pay a portion of their costs. These non-covered co-payments
are billed by the facility directly to residents or the state Medicaid plan, as
the case may be.
Medicare Part B provides benefits covering, among other things, outpatient
treatment, physicians' services, durable medical equipment ("DME"), orthotics,
prosthetic devices and medical supplies. Products and services covered for
Medicare Part B eligible residents in the long-term care facility include, but
are not limited to, enteral feeding products, ostomy supplies, urological
products, orthotics, prosthetics, surgical dressings, tracheostomy care supplies
and a limited number of other medical supplies. All claims for DME, prosthetics,
orthotics, prosthetic devices, including enteral therapy, and medical supplies
("DMEPOS") are submitted to and paid by four regional carriers known as Durable
Medical Equipment Regional Carriers ("DMERCs"). The DMERCs establish coverage
guidelines, allowable utilization frequencies and billing procedures for DMEPOS.
Payment is based on a fee schedule, which varies depending on the state in which
the patient receiving the items resides. Payments for Medicare Part B products
to eligible suppliers, which include long-term care facilities and suppliers
such as NCS, are made on a per-item basis directly to the supplier. In order to
receive Medicare Part B reimbursement payments, suppliers must meet certain
conditions set by the federal government. NCS, as an eligible supplier, either
bills Medicare directly for Part B covered products for each patient or,
alternatively, assist the long-term care facility in meeting Medicare Part B
28
<PAGE> 30
eligibility requirements and prepares bills on behalf of the facility. For Part
B services, such as physical, speech and occupational therapy, long-term care
facilities bill Medicare for reimbursement of the amounts paid to NCS for these
services. Medicare limits such reimbursement to the reasonable amount that would
have been paid if provider employees had furnished the services. To date,
Medicare has published "salary equivalency guidelines" for physical and
respiratory therapy services. Medicare does not currently have salary
equivalency guidelines for other therapy services, but may disallow payment for
rates that substantially exceed rates paid for such services by other providers
in the same area. Moreover, Medicare is likely to issue salary equivalency
guidelines for occupational and speech therapy services in the near future.
Medicare Part B also has an annual deductible as well as a co-payment obligation
on behalf of the patient, and the portion not covered by Medicare is billed
directly to the patient or appropriate secondary payor.
Third-Party Insurance. Third-party insurance includes funding for residents
covered by private plans, veterans' benefits, workers' compensation and other
programs. The resident's individual insurance plan is billed monthly and rates
are consistent with those for other private pay residents.
Long-Term Care Facilities. In addition to occasional private patient
billings and those related to drugs for Medicare eligible residents, long-term
care facilities are billed directly for consulting services, certain over-
the-counter medications and bulk house supplies.
GOVERNMENT REGULATION
Institutional pharmacies, as well as the long-term care facilities they
service, are subject to extensive federal, state and local laws and regulations.
These laws and regulations cover required qualifications, day-to-day operations,
reimbursement and the documentation of activities. NCS continuously monitors the
effects of regulatory activity on its operations.
Licensure, Certification and Regulation. States generally require that
companies operating a pharmacy within that state be licensed by the state board
of pharmacy. The Company currently has pharmacy licenses in each of the states
in which it operates a pharmacy. In addition, the Company's pharmacies are
registered with the appropriate state and federal authorities pursuant to
statutes governing the regulation of controlled substances.
Long-term care facilities are also separately required to be licensed in
the states in which they operate and, if serving Medicaid or Medicaid patients,
must be certified to be in compliance with applicable program participation
requirements. Long-term care facilities are also subject to the long-term care
facility reforms of OBRA, which impose strict compliance standards relating to
the quality of care for long-term care operations, including vastly increased
documentation and reporting requirements. In addition, pharmacists, nurses and
other health professionals who provide services on the Company's behalf are in
most cases required to obtain and maintain professional licenses and are subject
to state regulation regarding professional standards of conduct.
Federal and State Laws Affecting the Repackaging, Labeling and Interstate
Shipping of Drugs. Federal and state laws impose certain repackaging, labeling
and package insert requirements on pharmacies that repackage drugs for
distribution beyond the regular practice of dispensing or selling drugs directly
to patients at retail. A drug repackager must register with the FDA. The Company
believes that it holds all required registrations and licenses and that its
repackaging operations are in compliance with applicable state and federal
requirements.
Medicare and Medicaid. For an extensive period of time, the long-term care
facility pharmacy business has operated under regulatory and cost containment
pressures from state and federal legislation primarily affecting Medicaid and,
to a lesser extent, Medicare.
The Medicare program establishes certain requirements for participation of
providers and suppliers in the Medicare program. Pharmacies are not subject to
such certification requirements. Skilled long-term care facilities and suppliers
of DMEPOS, however, are subject to specified standards. Failure to comply with
these requirements and standards may adversely affect an entity's ability to
participate in the Medicare program and receive reimbursement for services
provided to Medicare beneficiaries. See "-- Reimbursement and Billing."
29
<PAGE> 31
Federal law and regulations contain a variety of requirements relating to
the furnishing of prescription drugs under Medicaid. First, states are given
broad authority, subject to certain standards, to limit or to specify conditions
as to the coverage of particular drugs. Second, federal Medicaid law establishes
standards affecting pharmacy practice. These standards include general
requirements relating to patient counseling and drug utilization review and more
specific requirements for long-term care facilities relating to drug regimen
reviews for Medicaid patients in such facilities. Recent regulations clarify
that, under federal law, a pharmacy is not required to meet the general
standards for drugs dispensed to long-term care facility residents if the
long-term care facility complies with the drug regimen review requirements.
However, the regulations indicate that states may nevertheless require
pharmacies to comply with the general standards, regardless of whether the long-
term care facility satisfies the drug regimen review requirement, and the states
in which the Company operates currently require its pharmacies to comply
therewith. Third, federal regulations impose certain requirements relating to
reimbursement for prescription drugs furnished to Medicaid residents. See
"-- Reimbursement and Billing -- Medicaid."
In addition to requirements imposed by federal law, states have substantial
discretion to determine administrative, coverage, eligibility and payment
policies under their state Medicaid programs which may affect the Company's
operations. For example, some states have enacted "freedom of choice"
requirements which prohibit a long-term care facility from requiring its
residents to purchase pharmacy or other ancillary medical services or supplies
from particular providers that deal with the long-term care facility. Such
limitations may increase the competition which the Company faces in providing
services to long-term care facility patients.
Referral Restrictions. The Company is subject to federal and state laws
which govern financial and other arrangements between health care providers.
These laws include the federal anti-kickback statute, which was originally
enacted in 1977 and amended in 1987, and which prohibits, among other things,
knowingly and willfully soliciting, receiving, offering or paying any
remuneration directly or indirectly in return for or to induce the referral of
an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Many states
have enacted similar statutes which are not necessarily limited to items and
services for which payment is made by Medicare or Medicaid. Violations of these
laws may result in fines, imprisonment and exclusion from the Medicare and
Medicaid programs or other state-funded programs. Federal and state court
decisions interpreting these statutes are limited, but have generally construed
the statutes to apply if "one purpose" of remuneration is to induce referrals or
other conduct within the statute.
Federal regulations establish "Safe Harbors," which give immunity from
criminal or civil penalties to parties in good faith compliance. While the
failure to satisfy all the criteria for a specific Safe Harbor does not
necessarily mean that an arrangement violates the statute, the arrangement is
subject to review by the HHS Office of Inspector General ("OIG"), which is
charged with administering the federal anti-kickback statute. Currently, there
are no procedures for obtaining binding interpretations or advisory opinions
from the OIG on the application of the federal anti-kickback statute to an
arrangement or its qualification for a Safe Harbor upon which the Company can
rely. However, on August 21, 1996, the President signed into law the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). Beginning
January 1, 1997, the Secretary of Health and Human Services will be required
under the HIPAA to issue written advisory opinions regarding the applicability
of certain aspects of the anti-kickback statute to specific arrangements or
proposed arrangements. Advisory opinions will be binding as to the Secretary and
the party requesting the opinion.
The OIG has issued "Fraud Alerts" identifying certain questionable
arrangements and practices which it believes may implicate the federal
anti-kickback statute. The OIG has issued a Fraud Alert providing its views on
certain joint venture and contractual arrangements between health care
providers. The OIG has recently issued a Fraud Alert concerning prescription
drug marketing practices that could potentially violate the federal
anti-kickback statute. Pharmaceutical marketing activities may implicate the
federal anti-kickback statute because drugs are often reimbursed under the
Medicaid program. According to the Fraud Alert, examples of practices that may
implicate the statute include certain arrangements under which remuneration is
made to pharmacists to recommend the use of a particular pharmaceutical product.
In addition, a number of states have recently undertaken enforcement actions
against pharmaceutical manufacturers involving pharmaceuti-
30
<PAGE> 32
cal marketing programs, including programs containing incentives to pharmacists
to dispense one particular product rather than another. These enforcement
actions arise under state consumer protection laws which generally prohibit
false advertising, deceptive trade practices and the like. Further, a number of
the states involved in these enforcement actions have requested that the FDA
exercise greater regulatory oversight in the area of pharmaceutical promotional
activities by pharmacists. It is not possible to determine whether the FDA will
act in this regard or what effect, if any, FDA involvement would have on the
Company's operations.
The Company believes its contract arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
Environmental Matters. In operating its facilities, NCS makes every effort
to comply with environmental laws. No major difficulties have been encountered
in effecting compliance. In addition, no material capital expenditures for
environmental control facilities are expected. While the Company cannot predict
the effect which any future legislation, regulations or interpretations may have
upon its operations, it does not anticipate any changes that would have a
material adverse impact on its operations.
EMPLOYEES
As of August 28, 1996, the Company had approximately 1,135 full-time
employees. None of the employees are represented by a union. The Company
considers relations with its employees to be good.
PROPERTIES
The Company presently maintains its executive offices in approximately
3,000 square feet of space in Beachwood, Ohio pursuant to a ten-year lease with
an unaffiliated third party. NCS currently considers this space to be sufficient
for its corporate headquarters operations.
As of August 28, 1996, the Company leased or owned 26 properties in ten
states with a total square footage of 281,455 square feet ranging in size from
approximately 1,200 square feet to approximately 38,000 square feet. The terms
of the leases relating to these properties vary in length remaining, from one
month to fifteen years and, in some cases, include options to extend.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business. The Company does not expect that any such proceedings
will have a material adverse effect on the Company's financial position or
results of operations.
31
<PAGE> 33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- --------------------------------------------
<S> <C> <C>
Jon H. Outcalt.......................... 60 Chairman of the Board of Directors
President, Chief Executive Officer and
Kevin B. Shaw........................... 39 Director
Phyllis K. Wilson....................... 55 Executive Vice President and Director
Senior Vice President and Chief Financial
Jeffrey R. Steinhilber.................. 39 Officer
Norman D. Leibow........................ 64 Senior Vice President
William B. Byrum........................ 52 Vice President -- Corporate Development
A. Malachi Mixon III.................... 56 Director
James B. Naylor......................... 42 Director
Richard L. Osborne...................... 58 Director
Boake A. Sells.......................... 59 Director
</TABLE>
Jon H. Outcalt, Chairman of the Board, is a founding principal of NCS and
has served as Chairman of the Board since 1986. He was a Senior Vice President
of Alliance Capital Management L.P., a global investment management company,
from 1975 to December 1995. Mr. Outcalt serves on the Board of Directors of
Capitol American Financial Corporation, a specialty insurance provider, Myers
Industries, Inc., a manufacturer of plastic and rubber parts for the automotive
and other industries, and Ohio Savings Financial Corporation, a savings and loan
holding company. He is a graduate of Trinity College (B.A.) and the Wharton
Graduate School of Business (M.B.A.).
Kevin B. Shaw, President, Chief Executive Officer and a Director of the
Company, is a founding principal of NCS and has served as President, Secretary
and a Director of the Company since 1986 and as Chief Executive Officer since
December 1995. Prior to joining the Company, he was employed by McKinsey &
Company and Owens Corning Fiberglas. Mr. Shaw is a graduate of Harvard College
(B.A.) and Stanford Graduate School of Business (M.B.A.).
Phyllis K. Wilson, R.PH., Executive Vice President and a Director of the
Company since November, 1993, is the founder of NCS's Columbus, Ohio operation
and heads the corporate and support functions of the Company. From 1989 to June
1995, she was responsible for corporate development and oversaw the Company's
Ohio and Michigan operations. She is past President of the Ohio State Board of
Pharmacy and served on the Board from 1977 to 1985. Ms. Wilson is a founding
member of the American Society of Consultant Pharmacists and is a graduate of
Ohio State University with a B.S. in Pharmacy.
Jeffrey R. Steinhilber, Senior Vice President and Chief Financial Officer
of the Company, joined NCS in August 1994. From 1988 to July 1994, Mr.
Steinhilber was the Chief Financial Officer of Austin Powder Company. He is a
graduate of Duke University (B.A.) and Northwestern Graduate School of Business
(M.B.A.)
Norman D. Leibow, Senior Vice President of the Company since 1986, was the
founder of Modern Pharmacy Consultants, which was acquired by the Company in
1986. He is past President of the Ohio State Board of Pharmacy and served on the
Board from 1984 to 1992. Mr. Leibow graduated from Ohio State University with a
B.S. in Pharmacy.
William B. Byrum, Vice President -- Corporate Development of the Company,
joined the Company in September 1995. From April 1993 to September 1995, Mr.
Byrum was President and Chief Executive Officer of Corinthian Healthcare
Systems, Inc., prior to its acquisition by the Company. From 1991 to April 1993,
he was Vice President of Development (Acquisitions) for Hook-SupeRx, Inc. Prior
to 1991, Mr. Byrum was Vice President, Store Operations at the Hook Drug
Division of Hook-SupeRx, Inc., serving in various management positions. Mr.
Byrum is a graduate of Purdue University with a B.S. in Pharmacy.
32
<PAGE> 34
A. Malachi Mixon III, a Director of the Company since December 1994, has
been President and Chief Executive Officer and a Director of Invacare
Corporation since 1979 and, since 1983, its Chairman of the Board. Invacare
Corporation is a leading world wide manufacturer and distributor of home health
care products. He serves as a Director of Lamson & Sessions Co., a supplier of
engineered thermoplastic products, and Sherwin-Williams Company, a producer and
distributor of coatings and related products, and as a Trustee of The Cleveland
Clinic Foundation, one of the world's leading health care institutions. Mr.
Mixon is a graduate of Harvard College (B.A.) and the Harvard Graduate School of
Business (M.B.A.).
James B. Naylor, a Director of the Company since 1986, has been the
President of Federal Process Corporation, a manufacturer and distributor of
industrial products, since July 1993. From August 1986 to October 1995, Mr.
Naylor was Executive Vice President of Aberdeen Group, Inc. and from November
1986 to July 1995, he was Vice President of Modern Pharmacy Consultants. He was
formerly with Booz, Allen & Hamilton, Inc. and with Invacare Corporation, a
leading worldwide manufacturer and distributor of home health care products. Mr.
Naylor is a graduate of Dartmouth College (B.A.) and of the Harvard Graduate
School of Business (M.B.A.).
Richard L. Osborne, a Director of the Company since 1986, has served as the
Executive Dean of the Weatherhead School of Management, Case Western Reserve
University, Cleveland, Ohio, since 1971. Mr. Osborne serves on the Board of
Directors of Capitol American Financial Corporation, a specialty insurance
provider, Myers Industries, Inc., a manufacturer of plastic and rubber parts for
the automotive and other industries, Handex Corporation, a provider of
environmental remediation and computer services, and Ohio Savings Financial
Corporation, a savings and loan holding company. He is a graduate of Bowling
Green State University (B.S.) and Case Western Reserve University (M.S.).
Boake A. Sells, a Director of the Company since November 1993, has been a
self-employed private investor since June 1992. He was Chairman of the Board,
President and Chief Executive Officer of Revco D.S., Inc. from September 1987 to
June 1992, and was formerly President and Chief Operating Officer of Dayton
Hudson Corporation and President and Chief Operating Officer of Cole National
Corporation. Mr. Sells is a Director of Harrah's Entertainment, Inc., a leading
casino gaming company. He is a graduate of the University of Iowa (B.A.) and the
Harvard Graduate School of Business (M.B.A.).
------------------
The number of Directors is currently fixed at seven. The Certificate (as
defined) divides the Board of Directors into three classes. The Directors serve
staggered terms of three years, with the members of one class being elected in
any year, as follows: (i) James B. Naylor, Phyllis K. Wilson and A. Malachi
Mixon III have been designated as Class I Directors and will serve until the
1996 annual meeting; (ii) Boake A. Sells and Kevin B. Shaw have been designated
as Class II Directors and will serve until the 1997 annual meeting; and (iii)
Richard L. Osborne and Jon H. Outcalt have been designated as Class III
Directors and will serve until the 1998 annual meeting; and in each case until
their respective successors are elected and qualified.
The Board of Directors has two standing committees: a Compensation
Committee and an Audit Committee. The Audit Committee has general responsibility
for supervision of financial controls as well as accounting and audit activities
of the Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to the
Board of Directors concerning the selection of the accountants and reviews the
planning, fees and results of the accountants' audit. The following non-employee
Directors, Messrs. Mixon, Naylor and Sells, serve as members of the Audit
Committee. Mr. Mixon is Chairman of this committee.
The Compensation Committee has the authority to (i) administer the
Company's stock option plans, including the selection of optionees and the
timing of option grants, and (ii) review and monitor key employee compensation
and benefits policies and administer the Company's management compensation
plans. The following non-employee Directors, Messrs. Mixon, Osborne and Sells,
serve as members of the Compensation Committee. Mr. Osborne is Chairman of this
committee.
33
<PAGE> 35
DIRECTOR COMPENSATION
The Company endeavors to maintain a mutuality of interest between its
Directors and the shareholders of the Company. Hence, it has required all of its
Directors to purchase Common Stock and has compensated its Directors, who are
not also key employees, solely by granting options to purchase shares of Class B
Common Stock. No Director fees have been paid and the Company does not
anticipate paying Director fees in the foreseeable future.
EXECUTIVE COMPENSATION
The table below sets forth certain information with respect to compensation
paid or accrued by the Company during the last two fiscal years to the Company's
Chief Executive Officer and to the other executive officers of the Company whose
annual salary and bonus exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ----------
OTHER ANNUAL SECURITIES
NAME AND FISCAL COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#) COMPENSATION($)
- ------------------------------ ------ -------- -------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kevin B. Shaw 1996 $140,000 $ 32,000 -- 10,000(2) $ 4,787(3)
President and Chief Executive 1995 129,000 136,000 -- -- 5,840(3)
Officer
Jon H. Outcalt 1996 100,000 -- -- 7,500(2) --
Chairman 1995 -- -- -- -- --
Phyllis K. Wilson 1996 138,200 20,000 -- 5,000(2) 49,849(4)
Executive Vice President 1995 138,200 60,000 -- -- 50,430(4)
Jeffrey R. Steinhilber 1996 130,000 28,000 -- 22,540(2) 1,322(5)
Senior Vice President 1995 125,000 40,000 -- 118,457(6) --
and Chief Financial Officer
William B. Byrum(7) 1996 112,500 64,250 -- 1,000(2) 467(5)
Vice President -- Corporate 1995 -- -- -- -- --
Development
</TABLE>
- ---------------
(1) No Named Executive Officer received perquisites or other personal benefits
in excess of the lesser of $50,000 or 10% of such individual's salary plus
annual bonus.
(2) Represents shares of Class A Common Stock.
(3) Includes, for fiscal year 1996 and fiscal year 1995, respectively, (i)
$2,938 and $3,992 paid by the Company for the payment of premiums on life
insurance policies and (ii) $1,849 and $1,848 contributed by NCS to its
401(k) Plan on behalf of Mr. Shaw. The Company currently matches each
participating employee's contributions to the 401(k) to the extent of 20% of
the first 10% of the participant's salary reduction, up to the maximum
allowable under the Internal Revenue Code.
(4) Includes, for fiscal year 1996 and fiscal year 1995, respectively, (i)
$48,000 and $48,582 in premiums used to fund deferred compensation to be
paid to Ms. Wilson pursuant to the terms of a Deferred Compensation
Agreement and (ii) $1,849 and $1,848 contributed by the Company to its
401(k) Plan on behalf of Ms. Wilson.
(5) Represents amounts contributed by NCS to its 401(k) Plan on behalf of the
employee.
(6) Represents shares of Class B Common Stock.
(7) Mr. Byrum joined the Company on September 1, 1995.
34
<PAGE> 36
OPTION GRANTS IN 1996
The following table sets forth certain information relating to grants of
stock options made during the year ended June 30, 1996 to the Named Executive
Officers. Such grants are reflected in the Summary Compensation Table above.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
--------------------------------------------------------- STOCK PRICE
NUMBER OF % OF TOTAL EXERCISE OR APPRECIATION FOR
SECURITIES OPTIONS GRANTED BASE OPTION TERM
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION -------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------------------------- --------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Kevin B. Shaw............. 10,000 11.9% $ 16.50 2/13/01 $ 45,586 $100,734
Jon H. Outcalt............ 7,500 8.9 $ 16.50 2/13/01 34,189 75,551
Phyllis K. Wilson......... 5,000 5.9 $ 16.50 2/13/01 22,793 50,367
Jeffrey R. Steinhilber.... 22,540 26.8 $ 16.50 2/13/02 126,485 286,951
William B. Byrum.......... 1,000 1.2 $ 16.50 2/13/01 4,559 10,073
</TABLE>
1996 LONG TERM INCENTIVE PLAN
In December 1995, the Board of Directors adopted the 1996 Long Term
Incentive Plan (the "1996 Long Term Incentive Plan" or the "Plan"). The
shareholders of the Company adopted the Plan in January 1996. The 1996 Long Term
Incentive Plan provides for awards of incentive and nonqualified stock options
to officers and key employees of the Company. An aggregate of 700,000 shares of
Class A Common Stock are subject to the 1996 Long Term Incentive Plan (subject
to adjustment in certain events).
The 1996 Long Term Incentive Plan is administered by the Compensation
Committee. Subject to the limitations set forth in the 1996 Long Term Incentive
Plan, the Compensation Committee has the authority to select the persons to whom
awards will be made, to designate the number of shares to be covered by each
award, to establish vesting schedules and, subject to certain restrictions, to
specify other terms of the awards, including the status of awards subsequent to
the termination of a participant's employment with the Company. In exercising
its authority under the Plan, the Compensation Committee intends to condition
the exercise of nonqualified options on the satisfaction of both specified
performance criteria (generally, a percentage increase in the Class A Common
Stock price from the date of grant) and specified service requirements. Options
are not transferable other than pursuant to the laws of descent and
distribution.
The exercise price of a stock option awarded under the 1996 Long Term
Incentive Plan may not be less than 100% of the fair market value of the Class A
Common Stock on the date of grant (110% in the case of an incentive stock option
awarded to any person who is the beneficial owner of securities representing 10%
or more of the total voting power of the Company). Subject to the discretion of
the Compensation Committee, options granted under the 1996 Long Term Incentive
Plan will generally expire upon the termination of an employee's employment
other than by reason of an employee's death, disability or retirement or the
termination of such employment by the Company other than for cause. The maximum
term of options awarded under the Plan will be ten years from the date of grant.
In January 1996, the Compensation Committee of the Board of Directors
granted nonqualified and incentive stock options to 26 employees of the Company
under the 1996 Long Term Incentive Plan for an aggregate of 84,040 shares of
Class A Common Stock, effective as of February 13, 1996.
FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information concerning the number of
securities underlying unexercised stock options held by each of the Named
Executive Officers as of June 30, 1996. This table
35
<PAGE> 37
assumes the conversion into Class A Common Stock of all shares of Class B Common
Stock issuable upon the exercise of certain options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT JUNE 30, 1996(#) JUNE 30, 1996(1)
ACQUIRED ON VALUE -------------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
- --------------------- ----------- ---------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin B. Shaw........ -- -- -- 10,000 -- $ 137,500
Jon H. Outcalt....... -- -- -- 7,500 -- 103,125
Phyllis K. Wilson.... 281,917 $1,866,291 -- 5,000 -- 68,750
Jeffrey R. -- -- 47,383 93,614 $1,140,035 2,019,965
Steinhilber........
William B. Byrum..... -- -- -- 1,000 -- 13,750
</TABLE>
- ---------------
(1) Represents the total gain which would be realized if all in-the-money
options beneficially held at June 30, 1996 were exercised, determined by
multiplying the number of shares underlying the options by the difference
between the per share option exercise price and $30.25, the closing price
for the Company's Class A Common Stock as reported by the Nasdaq National
Market at June 28, 1996.
EMPLOYMENT AGREEMENT
The Company is party to an employment agreement with William B. Byrum,
dated September 1, 1995, pursuant to which Mr. Byrum is employed by the Company
as Vice President -- Corporate Development. The agreement provides for a term of
five years and an annual salary subject to increase at the discretion of the
Company. The agreement provides for a bonus to be paid to Mr. Byrum. In
addition, the agreement contains certain non-compete, non-disclosure and
non-interference provisions applicable to Mr. Byrum.
CERTAIN TRANSACTIONS
The Company leases its Hilliard, Ohio facility from PR Realty, a
partnership of which Phyllis K. Wilson is Managing Partner. The lease is in the
fourth year of a five-year lease at an annual rate of $255,750. The lease
provides for one five-year renewal at the same rate. The Company believes that
this lease is on terms comparable to those which could be obtained from an
unrelated third party.
36
<PAGE> 38
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of August 15, 1996, and as adjusted
to reflect the sale of the Class A Common Stock offered hereby by (i) each
person known by the Company to be the beneficial owner of more than five percent
of any class of Common Stock, (ii) each Director, (iii) each Named Executive
Officer, (iv) all Directors and executive officers as a group and (v) each
Selling Stockholder.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK(1)
------------------------------------------------------- -----------------------
SHARES
SHARES BENEFICIALLY SHARES BENEFICIALLY SHARES
OWNED PRIOR TO TO BE OWNED AFTER BENEFICIALLY OWNED
THE OFFERING SOLD THE OFFERING AFTER THE OFFERING
------------------- IN THE ------------------ -----------------------
NAME(2) NUMBER PERCENT OFFERING NUMBER PERCENT NUMBER PERCENT
- -------------------------- ------- ------- -------- ------ ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Jon H. Outcalt............ 151,981(3) 2.6% 151,981 (3) -- -- 3,507,815(3)(4) 54.4%
Kevin B. Shaw............. 40,000(5) * 40,000 (5) -- -- 1,148,264(5)(6) 17.8
Phyllis K. Wilson......... 1,782 * -- 1,782 *% 182,899 2.8
Jeffrey R. Steinhilber.... 1,782 * -- 1,782 * 63,515(7) *
William B. Byrum.......... 2,000 * -- 2,000 * -- --
A. Malachi Mixon III...... 35,650 * -- 35,650 * 92,185 1.4
James B. Naylor........... 5,000(8) * 5,000 (8) -- -- 368,005(8) 5.7
Richard L. Osborne........ 3,565 * -- 3,565 * 132,146(9) 2.0
Boake A. Sells............ 14,260 * -- 14,260 * 92,185 1.4
Joseph Cippel............. 82,736 1.4 17,736 65,000 * -- --
Francis Cassidy........... 13,386 * 13,386 -- -- -- --
Michael Fecteau........... 19,829 * 15,000 4,829 * -- --
Jack M. Machbitz.......... 6,897(10) * 6,897 (10) -- -- -- --
All Directors and
executive officers as a
group (11).............. 251,770 4.2 59,039 * 5,587,014 85.6
</TABLE>
- ---------------
* Less than one percent.
(1) Each share of Class B Common Stock is convertible at any time into one
share of Class A Common Stock.
(2) The address of each beneficial owner is c/o NCS HealthCare, Inc., 3201
Enterprise Parkway, Suite 220, Beachwood, Ohio 44122.
(3) Gives effect to the conversion, in connection with this offering, of
120,252 shares of Class B Common Stock into shares of Class A Common Stock
by the Jon H. Outcalt Trust.
(4) Owned as of record by the Jon H. Outcalt Trust.
(5) Gives effect to the conversion, in connection with this offering, of 32,870
shares of Class B Common Stock into shares of Class A Common Stock.
(6) Includes 184,370 shares of Class B Common Stock held by a limited
partnership of which Mr. Shaw is the sole general partner.
(7) Includes currently exercisable options to purchase 47,383 shares of Class B
Common Stock.
(8) Gives effect to the conversion, in connection with this offering, of 4,287
shares of Class B Common Stock into shares of Class A Common Stock.
(9) Includes currently exercisable options to purchase 30,743 shares of Class B
Common Stock.
(10) Owned as of record by the Jack M. Machbitz Charitable Trust '96.
(11) Includes currently exercisable options to purchase 646 shares of Class A
Common Stock and 78,126 shares of Class B Common Stock.
37
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation (the "Certificate") authorizes
capital stock consisting of 50 million shares of Class A Common Stock, par value
$.01 per share, 20 million shares of Class B Common Stock, par value of $.01 per
share, and one million shares of Preferred Stock, par value $.01 per share
("Preferred Stock"). The Company is incorporated under the General Corporation
Law of the State of Delaware (the "Delaware GCL").
COMMON STOCK
At August 26, 1996, there were 5,941,281 shares of Class A Common Stock and
6,603,228 shares of Class B Common Stock issued and outstanding and options to
purchase 103,018 shares of Class A Common Stock and options to purchase 164,550
shares of Class B Common Stock. In addition, at such date, there were an
aggregate of 615,960 shares of Class A Common Stock reserved for issuance under
the 1996 Long Term Incentive Plan.
The Class A Common Stock and Class B Common Stock are identical in all
material respects except that (i) shares of the Class B Common Stock entitle the
holders thereof to ten votes per share on all matters and shares of the Class A
Common Stock entitle the holders thereof to one vote per share on all matters,
and (ii) the shares of Class B Common Stock are subject to certain restrictions
on transfer. The shares of Class B Common Stock are not transferable except in
certain very limited instances to family members, trusts, other holders of Class
B Common Stock, charitable organizations and entities controlled by such persons
(collectively, "Permitted Transferees"). These restrictions on transfer may be
removed by the Board of Directors if the Board determines that the restrictions
may have a material adverse effect on the liquidity, marketability or market
value of the outstanding shares of Class A Common Stock.
The Class B Common Stock is fully convertible at any time into shares of
Class A Common Stock on a share-for-share basis and will automatically be
converted into shares of Class A Common Stock upon any purported transfer to
non-Permitted Transferees. Once a share of Class B Common Stock has been
converted into a share of Class A Common Stock, such share of Class A Common
Stock cannot thereafter be re-converted into a share of Class B Common Stock.
Because the Class B Common Stock will at all times be convertible into Class A
Common Stock on a share-for-share basis, holders of Class B Common Stock will be
able to sell the equity interest represented by their Class B Common Stock to
persons who are not Permitted Transferees by converting such shares in Class A
Common Stock. As is the case with Preferred Stock and additional Class A Common
Stock, additional Class B Common Stock can be issued at the discretion of the
Board of Directors.
Except as set forth below (and as provided by law and in the Company's
Certificate now in effect), all matters submitted to a vote of stockholders will
be voted on by holders of Class A Common Stock and Class B Common Stock voting
together as a single class. Holders of outstanding shares of Class A Common
Stock and Class B Common Stock, respectively, vote separately as a class with
respect to amendments to the Certificate which would increase the authorized
number of shares of Class B Common Stock, or which would make other amendments
to the Certificate (other than increases in the number of authorized shares of
Class A Common Stock) that alter or change the designations or powers or the
preferences, qualifications, limitations, restrictions or the relative or
special rights of either the Class B Common Stock or the Class A Common Stock so
as to affect them adversely.
No cash dividend may be declared or paid on the Class B Common Stock unless
an equal or greater dividend is simultaneously declared or paid on the Class A
Common Stock. Otherwise, subject to the rights of holders of Preferred Stock, if
any, the Class A Common Stock and the Class B Common Stock rank equally and have
equal rights per share with respect to all dividends and distributions,
including distributions upon liquidation of the Company and consideration to be
received upon a merger or consolidation of the Company or a sale of all or
substantially all of the Company's assets. In the case of stock dividends or
stock splits, however, only shares of Class A Common Stock can be distributed in
respect of outstanding Class A Common Stock and only shares of Class B Common
Stock can be distributed in respect of outstanding Class B Common Stock.
38
<PAGE> 40
Neither shares of Class A Common Stock nor shares of Class B Common Stock
can be split, divided or combined unless all outstanding shares of the other
class are correspondingly split, divided or combined.
Because of the restrictions on transfer of the Class B Common Stock, over
time shares of Class B Common Stock having ten votes will (unless the Directors
determine to remove such restrictions) be converted into shares of Class A
Common Stock having one vote, as holders convert their Class B Common Stock into
Class A Common Stock in order to sell their shares. Accordingly, the holders of
Class B Common Stock who continue to hold their stock will realize over time an
increase in their relative voting power in the Company. Upon completion of this
offering, the Directors and executive officers of the Company and their
affiliates collectively will own approximately 75.9% of the total voting power
of the Company. A substantial portion of this group's share ownership consists
of Class B Common Stock. If those individuals continue to hold their Class B
Common Stock for the foreseeable future, the degree of control of the Company by
these Directors and executive officers and their affiliates, and their
percentage of the total voting power of the Company, will increase over time.
Holders of Common Stock do not have any preemptive rights or rights to
subscribe for additional securities of the Company and are not subject to any
further calls or assessments by the Company. There are no redemption or sinking
fund provisions applicable to the Common Stock. The shares of Class A Common
Stock are not convertible into any other series or class of the Company's
securities. Subject to the preferences applicable to Preferred Stock, if any,
outstanding at the time, holders of shares of Common Stock are entitled to
dividends, if, when and as declared by the Board of Directors from funds legally
available therefor and are entitled, in the event of liquidation, to share
ratably in all assets remaining after payment of liabilities and Preferred Stock
preferences, if any. See "Preferred Stock."
PREFERRED STOCK
The Company's Board of Directors is authorized, without further action by
the stockholders, to issue, from time to time, not in excess of one million
shares of Preferred Stock in one or more classes or series, and to fix or alter
the designations, powers and preferences, and relative, participating, optional
or other rights, if any, and qualifications, limitations or restrictions
thereof, including, without limitation, dividend rights (and whether dividends
are cumulative), conversion rights, if any, voting rights (including the number
of votes, if any, per share), rights and terms of redemption (including sinking
fund provisions, if any), redemption price and liquidation preferences of any
unissued shares or wholly unissued series of Preferred Stock, and the number of
shares constituting any such class or series and the designation thereof, and to
increase or decrease the number of shares of any such class or series subsequent
to the issuance of shares of such class or series, but not below the amount then
outstanding. The Company has no present intention to issue any Preferred Stock.
CERTAIN ANTI-TAKEOVER CONSIDERATION
Two-Tier Business Combination Provisions. The Certificate requires, in
addition to any required vote by the then outstanding Preferred Stock, the vote
of not less than 66 2/3% of the then outstanding shares of the Company's Class A
Common Stock and Class B Common Stock to approve any Business Combination of the
Company with any Related Person (as defined) unless certain conditions have been
met. In addition, the 66 2/3% vote must include the affirmative vote of 51% of
the outstanding shares of Class A Common Stock and Class B Common Stock held by
stockholders other than the Related Person. Accordingly, the actual vote
required to approve the Business Combination may be greater than 66 2/3%,
depending upon the number of shares controlled by the Related Person. A Related
Person is defined to include any person or entity which is, directly or
indirectly, the beneficial owner of shares of Common Stock representing 5% or
more of the total voting power of the Company, including any affiliate or
associate of such person or entity. The term Business Combination is defined to
include virtually any transaction between the Company and a Related Person,
including a merger, consolidation or sale of assets.
The 66 2/3% requirement and the 51% requirement are not applicable, however
(and, therefore, the proposed Business Combination could be approved by a simple
majority of the stockholders unless otherwise required by Delaware law), if the
Related Person pays a Fair Price to the Company's stockholders in the
39
<PAGE> 41
transaction or if a majority of the Board of Directors approves the transaction.
Under the terms of the Certificate, the Fair Price must be a least equal to the
greatest of (i) the highest price paid or agreed to be paid by the Related
Person to purchase any shares of the Company's Common Stock, (ii) the highest
market price of the Common Stock during the 24-month period prior to the taking
of such vote, and (iii) the per share book value of the Class A Common Stock at
the end of the calendar quarter immediately preceding the taking of such vote.
In addition, the Fair Price consideration to be received by the Company's
stockholders must be of the same form and kind as the most favorable form and
kind of consideration paid by the Related Person in acquiring any of its shares
of Common Stock of the Company.
The Certificate provides that the above provisions regarding two-tier
business combinations may not be amended, altered, changed or repealed except by
the affirmative vote of at least 66 2/3% of the shares of Common Stock entitled
to vote at a meeting of the stockholders called for the consideration of such
amendment, alteration, change or repeal, and at least 51% of the outstanding
shares of Common Stock entitled to vote thereon held by stockholders who are not
Related Persons, unless such proposal shall have been proposed by a majority of
the Board of Directors.
The Delaware Business Combination Act. Section 203 of the Delaware GCL
(the "Delaware Business Combination Act") imposes a three-year moratorium on
business combinations between a Delaware corporation whose stock generally is
publicly traded or held of record by more than 2,000 stockholders and an
"interested stockholder" (in general, a stockholder owning 15% or more of a
corporation's outstanding voting stock) or an affiliate or associate thereof
unless (a) prior to an interested stockholder becoming such, the board of
directors of the corporation approved either the business combination or the
transaction resulting in the interested stockholder becoming such, (b) upon
consummation of the transaction resulting in the interested stockholder becoming
such, the interested stockholder owns 85% of the voting stock outstanding at the
time the transaction commenced (excluding, from the calculation of outstanding
shares, shares beneficially owned by directors who are also officers and certain
employee stock plans) or (c) on or after an interested stockholder becomes such,
the business combination is approved by (i) the board of directors and (ii)
holders of at least 66 2/3% of the outstanding shares (other than those shares
beneficially owned by the interested stockholder) at a meeting of stockholders.
The term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an "interested stockholder's"
percentage ownership of stock.
The Delaware Business Combination Act applies to certain corporations
incorporated in the State of Delaware unless the corporation expressly elects
not to be governed by such legislation and sets forth such election in (a) the
corporation's original certificate of incorporation, (b) an amendment to the
corporation's by-laws as adopted by the corporation's board of directors within
90 days of the effective date of such legislation or (c) an amendment to the
corporation's certificate of incorporation or by-laws is approved by (in
addition to any other vote required by law) a majority of the shares entitled to
vote (however, such amendment would not be effective until 12 months after the
date of its adoption and would not apply to any business combination between the
corporation and any person who became an interested stockholder on or prior to
such adoption of such amendment). The Company has not made such an election and,
upon completion of the offering, will be subject to the Delaware Business
Combination Act.
Director Liability Provisions. A permitted by the Delaware GCL, the
Certificate contains a provision which eliminates under certain circumstances
the personal liability of Directors (only in their capacities as Directors of
the Company) to the Company or its stockholders for monetary damages for a
breach of fiduciary duty as Directors. The provision in the Certificate does not
change a Director's duty of care, but it does authorize the Company to eliminate
monetary liability for certain violations of the duty, including violations
based on grossly negligent business decisions which may include decisions
relating to attempts to change control of the Company. The provision does not
affect the availability of equitable remedies for a breach of duty of care, such
as an action to enjoin or rescind a transaction involving a breach of fiduciary
duty; however, in certain circumstances equitable remedies may not be available
as a practical matter. The provision in the Certificate in no way affects a
Director's liability under the federal securities laws. In addition, the
Company's By-Laws and indemnity agreements entered into with the Company's
Directors and officers indemnify its past
40
<PAGE> 42
and current Directors and officers for and provide for advancements in respect
of all expense, liability and loss reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding, either civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a Director or officer of the Company, including in certain
circumstances for settlements in derivative actions.
Classified Board. The Certificate divides the Board of Directors into
three classes. A classified Board of Directors may have the effect of making it
more difficult to remove incumbent Directors, providing such Directors with
enhanced ability to retain their positions. A classified Board of Directors may
also make the acquisition of control of the Company by a third party by means of
a proxy contest more difficult. In addition, the classification may make it more
difficult to change the majority of Directors for business reasons unrelated to
a change of control.
The Certificate provides that the above provisions regarding classification
of the Board of Directors may not be amended, altered, changed or repealed
except by the affirmative vote of at least 66% of the shares of Common Stock
entitled to vote at a meeting of the stockholders called for the consideration
of such amendment, alteration, change or repeal, unless such proposal shall have
been proposed by a majority of the Board of Directors.
General. It is possible that the existence of the ten vote per share Class
B Common Stock, the Company's ability to issue Preferred Stock, the increased
voting requirements with respect to a Business Combination provided for in the
Certificate, the provisions of the Delaware Business Combination Act and the
division of the Board of Directors of the Company into classes as provided in
the Certificate, may discourage other persons from making a tender offer for or
acquisitions of substantial amounts of the Company's Class A Common Stock. This
could have the incidental effect of inhibiting changes in a management and may
also prevent temporary fluctuations in the market price of the Company's Class A
Common Stock which often result from actual or rumored takeover attempts. In
addition, the limited liability provisions in the Certificate with respect to
Directors and officers may discourage stockholders from bringing a lawsuit
against Directors for breach of their fiduciary duty and may also have the
effect of reducing the likelihood of derivative litigation against Directors and
officers, even though such an action, if successful, might otherwise have
benefitted the Company and its stockholders. Furthermore, a stockholder's
investment in the Company may be adversely affected to the extent that cost of
settlement and damage awards against the Company's Directors and executive
officers are paid by the Company pursuant to the indemnification provisions
contained in the Company's By-Laws and indemnity agreements described above.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar for the Common Stock is National
City Bank, Cleveland, Ohio.
41
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 9,098,690 shares of
Class A Common Stock outstanding. Of these shares, the 3,250,000 shares sold in
this offering (3,737,500 shares if the Underwriters' exercise their
over-allotment option in full) and the 4,876,000 shares sold in the Company's
February 1996 initial public offering will be freely tradable without
restriction under Securities Act of 1933, as amended (the "Securities Act"),
except for any such shares which may be acquired by an "affiliate" of the
Company (as that term is defined in Rule 144 under the Securities Act ("Rule
144")). An aggregate of 97,661 shares of Class A Common Stock, 545,451 shares of
Class A Common Stock issued upon the conversion of convertible subordinated
debentures, the 6,445,819 shares of Class A Common Stock issuable upon
conversion of the outstanding Class B Common Stock and the 651,281 shares of
Class A Common Stock underlying outstanding convertible debentures constitute
"restricted securities" under Rule 144 and may be sold in the public market only
pursuant to an effective registration statement under the Securities Act or an
exemption therefrom, including the exemption made available by Rule 144. Upon
completion of this offering, an aggregate of 5,389,642 of these restricted
shares will be eligible for sale in the public market, subject to the volume,
manner of sale and other restrictions of Rule 144, and an additional 786,050 of
these restricted shares will be eligible for sale without such restrictions
pursuant to the provisions of Rule 144(k).
In general, under Rule 144, as currently in effect, if a period of at least
two years has elapsed since the later of the date on which restricted securities
were acquired from the Company and the date on which they were acquired from an
Affiliate, then the holder of such restricted securities (including an
Affiliate) is entitled to sell a number of shares within any three-month period
that does not exceed the greater of (i) 1% of the then outstanding shares of the
Common Stock or (ii) the average weekly reported volume of trading of the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing volume limitations and other
requirements but without regard to the two-year holding period. Under Rule
144(k), if a period of at least three years has elapsed since the later of the
date on which restricted securities were acquired from the Company and the date
on which they were acquired from an Affiliate, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described above.
The Securities and Exchange Commission (the "Commission") has proposed
amendments to Rule 144 and Rule 144(k) that would permit resales of restricted
securities under Rule 144 after a one-year, rather than a two-year holding
period, subject to compliance with the other provisions of Rule 144, and would
permit resales of restricted securities by non-Affiliates under Rule 144(k)
after a two-year, rather than a three-year holding period. Adoption of such
amendments could result in resales of restricted securities sooner than would be
the case under Rule 144 and Rule 144(k) as is currently in effect.
The Company, each Director and executive officer of the Company, and the
Selling Stockholders, holding in the aggregate 35.8% of the Company's
outstanding Common Stock, after giving effect to this offering, have agreed not
to offer, sell, contract to sell or otherwise dispose of any shares of Class A
Common Stock or securities convertible into or exchangeable or exercisable for
such shares, for a period of 90 days after the date of this Prospectus without
the prior written consent of Smith Barney Inc., except, in the case of the
Company, under certain limited circumstances. After this offering, sales of
substantial amounts of Class A Common Stock by existing stockholders could have
an adverse impact on the market price of the Class A Common Stock. No
predictions can be made as to the effect, if any, that market sales of shares of
existing stockholders or the availability of such shares for future sales will
have on the market price of shares of Class A Common Stock prevailing from time
to time.
42
<PAGE> 44
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, shares of Class A Common Stock which equal the number
of shares set forth opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc................................................................
William Blair & Company, L.L.C..................................................
Montgomery Securities...........................................................
McDonald & Company Securities, Inc..............................................
---------
Total......................................................................... 3,250,000
=========
</TABLE>
The Underwriters are obligated to take and pay for all shares of Class A
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., William Blair & Company,
L.L.C., Montgomery Securities and McDonald & Company Securities, Inc. are acting
as Representatives, propose initially to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other Underwriters or to certain other
dealers. After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 487,500
additional shares of Class A Common Stock at the public offering price set forth
on the cover page hereof less underwriting discounts and commissions. The
Underwriters may exercise such option to purchase additional shares solely for
the purpose of covering over-allotments, if any, incurred in connection with the
sale of the shares offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares in such table.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, its officers and Directors and the Selling Stockholders,
holding in the aggregate 35.8% of the Company's executive outstanding Common
Stock, after giving effect to this offering, have agreed that, for a period of
90 days after the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell or otherwise
dispose of any shares of Class A Common Stock or any securities convertible
into, or exercisable or exchangeable for, Class A Common Stock except, in the
case of the Company, in certain limited circumstances.
43
<PAGE> 45
The Underwriters and certain selling group members that currently act as
market makers for the Class A Common Stock may engage in "passive market making"
in the Class A Common Stock in accordance with Rule 10b-6A under the Exchange
Act. Rule 10b-6A permits, upon the satisfaction of certain conditions,
underwriters and selling group members participating in a distribution that are
also market makers in the security being distributed to engage in limited market
making transactions during the period when Rule 10b-6 under the Exchange Act
would otherwise prohibit such activity. In general, under Rule 10b-6A, any
Underwriter or selling group member engaged in passive market making in the
Class A Common Stock (i) may not effect transactions in, or display bids for,
the Class A Common Stock at a price that exceeds the highest bid for the Class A
Common Stock displayed by a market maker that is not participating in the
distribution of the Class A Common Stock, (ii) may not have net daily purchases
of the Class A Common Stock that exceed 30% of its average daily trading volume
in such stock for the two full consecutive calendar months immediately preceding
the filing date of the registration statement of which this Prospectus forms a
part and (iii) must identify its bid as bids made by a passive market maker.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Calfee, Halter & Griswold, Cleveland, Ohio.
Certain legal matters will be passed upon for the Underwriters by Dewey
Ballantine, New York, New York.
EXPERTS
The consolidated financial statements of NCS HealthCare, Inc. and
subsidiaries at June 30, 1995 and 1996, and for each of the three years in the
period ended June 30, 1996; the balance sheet of IPAC Pharmacy, Inc. as of July
31, 1996 and the statements of operations and cash flows for the period from
October 1, 1995 to July 31, 1996; the combined balance sheet of Thrifty Medical
Systems as of June 30, 1996 and the combined statements of income and cash flows
for the year then ended; appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The consolidated balance sheets of Americare Health Services, Inc. (d.b.a.
Uni-Care) at December 31, 1994 and 1995, and the consolidated statements of
operations and retained earnings and cash flows for the two years ended December
31, 1995, appearing in this Prospectus and Registration Statement have been
audited by R. E. Reed & Company, 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 has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Class A Common Stock
offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement and
the exhibits thereto for further information about the Company and the Class A
Common Stock offered hereby. Statements contained herein as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement. Each such statement is qualified in
its entirety by such reference. The Registration Statement (with exhibits
thereto) may be inspected without charge and copied at the public reference
facilities maintained by the Commission at its principal offices at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
44
<PAGE> 46
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Commission. Reports and other information filed by the
Company with the Commission may be inspected and copied at the offices of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048-1102 and Suite 1400, Citicorp Center, 500 West Madison St., Chicago,
Illinois 60661-2511. Copies of such materials may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site at http://www.sec.gov. which contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NCS HEALTHCARE, INC. AND SUBSIDIARIES
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets at June 30, 1995 and 1996................................. F-3
Consolidated Statements of Income for each of the three years in the period ended June
30, 1996............................................................................ F-5
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended June 30, 1996.......................................................... F-6
Consolidated Statements of Cash Flows for each of the three years in the period ended
June 30, 1996....................................................................... F-7
Notes to Consolidated Financial Statements............................................ F-8
AMERICARE HEALTH SERVICES, INC. (D.B.A. UNI-CARE)
Report of Independent Auditors........................................................ F-15
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... F-16
Consolidated Statements of Operations and Retained Earnings for the two years ended
December 31, 1995 and for the period from January 1, 1996 to March 31, 1996
(unaudited)......................................................................... F-18
Consolidated Statements of Cash Flows for the two years ended December 31, 1995 and
for the period from January 1, 1996 to March 31, 1996 (unaudited)................... F-19
Notes to Consolidated Financial Statements............................................ F-21
IPAC PHARMACY, INC.
Report of Independent Auditors........................................................ F-27
Balance Sheets at July 31, 1996....................................................... F-28
Statement of Operations for the period from October 1, 1995 to July 31, 1996.......... F-30
Statement of Cash Flows for the period from October 1, 1995 to July 31, 1996.......... F-31
Notes to Financial Statements......................................................... F-32
THRIFTY MEDICAL SYSTEMS
Report of Independent Auditors........................................................ F-35
Combined Balance Sheet at June 30, 1996............................................... F-36
Combined Statement of Income for the year ended June 30, 1996......................... F-38
Combined Statement of Cash Flows for the year ended June 30, 1996..................... F-39
Notes to Combined Financial Statements................................................ F-40
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NCS HealthCare, Inc.
We have audited the accompanying consolidated balance sheets of NCS
HealthCare, Inc. and subsidiaries as of June 30, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1996. 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 consolidated financial position of
NCS HealthCare, Inc. and subsidiaries at June 30, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
Cleveland, Ohio Ernst & Young LLP
August 2, 1996
F-2
<PAGE> 49
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996
------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................. $ 286 $ 21,460
Trade accounts receivable, less allowance for doubtful accounts of
$1,478 and $3,629 as of June 30, 1995 and 1996..................... 14,475 27,762
Inventories........................................................... 3,699 7,487
Deferred income taxes................................................. 1,530 1,644
Prepaid expenses...................................................... 454 840
------- --------
Total current assets.......................................... 20,444 59,193
PROPERTY, PLANT AND EQUIPMENT
Land.................................................................. -- 64
Building.............................................................. 820 1,334
Machinery, equipment and vehicles..................................... 5,061 8,632
Computer equipment.................................................... 2,540 4,759
Furniture, fixtures and leasehold improvements........................ 1,381 4,544
------- --------
9,802 19,333
Less accumulated depreciation and amortization........................ 4,253 9,050
------- --------
5,549 10,283
Goodwill, less accumulated amortization of $176 and $1,041 as of
June 30, 1995 and 1996................................................ 12,137 39,101
Other assets, less accumulated amortization of $183 and $367 as of
June 30, 1995 and 1996................................................ 465 2,091
------- --------
TOTAL ASSETS............................................................ $38,595 $110,668
======= ========
</TABLE>
See accompanying notes
F-3
<PAGE> 50
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996
------- --------
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable................................................ $ 3,801 $ 4,968
Accrued compensation and related expenses............................. 2,393 2,813
Other accrued expenses................................................ 2,277 2,275
Income taxes payable.................................................. 691 --
Current portion of long-term debt..................................... 666 801
------- --------
Total current liabilities..................................... 9,828 10,857
Long-term debt, excluding current portion............................... 18,505 1,961
Convertible subordinated debentures..................................... 1,900 6,549
Minority interests...................................................... 245 201
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share:
Class A -- 50,000,000 shares authorized; 7,467 and 5,560,492 shares
issued
and outstanding at June 30, 1995 and 1996, respectively.......... 1 56
Class B -- 20,000,000 shares authorized; 5,976,062 and 6,603,228
shares issued
and outstanding at 1995 and 1996, respectively................... 60 66
Paid-in capital....................................................... 4,341 84,907
Retained earnings..................................................... 3,715 6,071
------- --------
8,117 91,100
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $38,595 $110,668
======= ========
</TABLE>
See accompanying notes
F-4
<PAGE> 51
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Revenues..................................................... $48,205 $65,602 $113,281
Cost of revenues............................................. 34,288 46,570 82,415
------- ------- --------
Gross profit................................................. 13,917 19,032 30,866
Selling, general and administrative expenses................. 10,531 14,539 22,236
Special compensation......................................... -- -- 2,811
------- ------- --------
Operating income............................................. 3,386 4,493 5,819
Interest expense............................................. (525) (1,089) (2,282)
Interest income.............................................. -- -- 671
------- ------- --------
Income before income taxes................................... 2,861 3,404 4,208
Income tax expense........................................... 1,327 1,536 1,852
------- ------- --------
Net income................................................... $ 1,534 $ 1,868 $ 2,356
======= ======= ========
Net income per common share.................................. $0.24 $0.28 $0.26
Weighted average number of common shares outstanding......... 6,424 6,764 8,971
</TABLE>
See accompanying notes
F-5
<PAGE> 52
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS
A B
COMMON COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
------ ------ ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993................ $ -- $ 54 $ 1,059 $ 313 $ 1,426
Issuance of 296,375 shares of Class B
Common Stock......................... -- 3 1,210 -- 1,213
Net income............................. -- -- -- 1,534 1,534
------ ------ ------- -------- ----------
Balance at June 30, 1994............... -- 57 2,269 1,847 4,173
Issuance of 7,467 shares of Class A
Common Stock and 323,247 shares of
Class B Common Stock................. 1 3 2,072 -- 2,076
Net income............................. -- -- -- 1,868 1,868
------ ------ ------- -------- ----------
Balance at June 30, 1995............... 1 60 4,341 3,715 8,117
Issuance of 7,461 shares of Class A
Common Stock......................... -- -- 57 -- 57
Exercise of stock options (890,333
shares of Class B Common Stock)...... -- 9 3,366 -- 3,375
Conversion of 263,167 shares of Class B
Common Stock to 263,167 shares of
Class A Common Stock................. 3 (3) -- -- --
Issuance of 4,476,000 shares of Class A
Common Stock......................... 45 -- 67,039 -- 67,084
Issuance of 124,088 shares of Class A
Common Stock for purchases of
businesses........................... 1 -- 1,835 -- 1,836
Conversion of convertible subordinated
debentures (682,309 shares of Class A
Common Stock)........................ 6 -- 8,269 -- 8,275
Net income............................. -- -- -- 2,356 2,356
------ ------ ------- -------- ----------
Balance at June 30, 1996............... $ 56 $ 66 $84,907 $6,071 $ 91,100
====== ====== ======= ====== ==========
</TABLE>
See accompanying notes
F-6
<PAGE> 53
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,534 $ 1,868 $ 2,356
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Special compensation...................................... -- -- 2,811
Depreciation and amortization............................. 883 1,222 3,217
Provision for doubtful accounts........................... 443 530 841
Other..................................................... 104 57 --
Deferred income taxes..................................... (693) (557) 11
Changes in assets and liabilities, net of effects of
assets and liabilities acquired:
Trade accounts receivable............................ (2,915) (3,240) (8,834)
Inventories.......................................... (254) 262 109
Trade accounts payable............................... 1,035 293 (2,069)
Accrued expenses..................................... 1,355 1,283 (239)
Prepaid expenses and other........................... (42) (390) (260)
------- -------- --------
Net cash provided by (used in) operating activities......... 1,450 1,328 (2,057)
INVESTING ACTIVITIES
Capital expenditures for property and equipment............. (1,095) (2,832) (4,701)
Proceeds from sales of property and equipment............... 22 37 40
Purchases of businesses..................................... (2,100) (16,439) (27,908)
Other....................................................... 34 -- (2,172)
------- -------- --------
Net cash used in investing activities....................... (3,139) (19,234) (34,741)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................... 2,714 1,392 --
Repayment of long-term debt................................. (2,431) (5,060) (3,398)
Borrowings on line-of-credit................................ 26,500 31,400
Payments on line-of-credit.................................. -- (9,000) (48,900)
Proceeds from convertible subordinated debentures........... -- 1,900 12,925
Proceeds from issuance of common stock and exercise of
stock options............................................. 1,213 2,076 68,878
Other....................................................... -- -- (2,933)
------- -------- --------
Net cash provided by financing activities................... 1,496 17,808 57,972
------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (193) (98) 21,174
Cash and cash equivalents at beginning of period............ 577 384 286
------- -------- --------
Cash and cash equivalents at end of period.................. $ 384 $ 286 $ 21,460
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 525 $ 1,008 $ 2,282
======= ======== ========
Income taxes.............................................. $ 1,502 $ 2,192 $ 1,724
======= ======== ========
Noncash transactions during the year:
Conversion of convertible subordinated debentures......... $ -- $ -- $ 8,275
======= ======== ========
Issuance of common stock for purchases of businesses...... $ -- $ -- $ 1,836
======= ======== ========
</TABLE>
See accompanying notes
F-7
<PAGE> 54
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE INFORMATION)
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
NCS HealthCare, Inc. (the Company) operates in one business segment
providing a broad range of health care services primarily to long-term care,
assisted living facilities and other institutional settings. The Company
provides pharmacy, pharmacy consulting and management services, infusion
therapies, rehabilitation and dietary care plans.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the
customer. A significant portion of the Company's revenues from sales of
pharmaceutical and related products are reimbursable from Medicaid and Medicare
programs. The Company monitors its receivables from these reimbursement sources
and reports such revenues at the net realizable amount expected to be received
from these third-party payors.
CASH EQUIVALENTS
The Company considers all investments in highly liquid instruments with
original maturities of three months or less at the date purchased to be cash
equivalents. Investments in cash equivalents are carried at cost which
approximates market value.
INVENTORIES
Inventories for all business units consist primarily of purchased
pharmaceuticals and medical supplies and are stated at the lower of cost or
market. Cost is determined by using the last-in, first-out (LIFO) method for 26%
of the June 30, 1996 net inventory balance and by using the first-in, first-out
method for the remaining 74%. If the FIFO inventory valuation method had been
used, inventories would have been $507 and $585 higher at June 30, 1995 and
1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets which are as follows:
<TABLE>
<S> <C> <C>
Building........................................... 30 years
Machinery, equipment and vehicles.................. 5 -- 10 years
Computer equipment................................. 3 -- 5 years
Furniture, fixtures and leasehold improvements..... 3 -- 10 years
</TABLE>
STOCK BASED COMPENSATION
The Company accounts for stock based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
F-8
<PAGE> 55
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
the net assets acquired in purchase transactions. Goodwill is being amortized
over 30-year periods using the straight-line method.
The carrying value of goodwill is evaluated if circumstances indicate a
possible impairment in value. If undiscounted cash flows over the remaining
amortization period indicate that goodwill may not be recoverable, the carrying
value of goodwill will be reduced by the estimated shortfall of cash flows on a
discounted basis.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. This accounting standard requires that the
liability method be used in accounting for income taxes. Under this accounting
method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting basis and the tax basis of assets
and liabilities and are measured using the enacted tax rates and laws that apply
in the periods in which the deferred tax asset or liability is expected to be
realized or settled.
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
Class A and B shares outstanding, which gives retroactive effect to the stock
split as discussed below, the stock options outstanding as discussed below and
the convertible subordinated debentures discussed in Note 7, for all periods
presented. Stock options granted within a twelve-month period preceding the
Company's initial public offering in February, 1996 are included as if they were
outstanding for all periods presented.
On December 13, 1995, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to effect a corporate recapitalization,
including a 46-for-1 stock split of the Class A Common Stock and Class B Common
Stock. All share and per share information included in the accompanying
financial statements have been retroactively adjusted to give effect to the
stock split.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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 liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results can differ from these estimates.
F-9
<PAGE> 56
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1996
------- ------
<S> <C> <C>
Credit facilities up to $28,000; $15,000 at LIBOR plus 2.5%. The line of
credit was terminated by the Company in March 1996.................... $17,500 $ --
8% notes payable to former owners of an acquired company due in annual
installments through December, 1999................................... -- 1,000
2% note payable to Pennsylvania Industrial Development Authority due in
monthly installments through June, 2001, and secured through an
interest in a building of the Company................................. -- 612
Collateralized lease obligations with interest ranging from 6% to 13%
due monthly through October, 2000..................................... -- 405
5% note payable to a former owner of an acquired company maturing in
August, 2000.......................................................... -- 240
7% note payable to former owner of an acquired company due in quarterly
installments through October, 1998.................................... -- 170
Construction bridge loan at prime plus .5%.............................. 798 --
Other................................................................... 873 335
------- ------
Total long-term debt.................................................... 19,171 2,762
Less current portion.................................................... 666 801
------- ------
Long-term debt, excluding current portion............................... $18,505 $1,961
======= ======
</TABLE>
The aggregate maturities of the long-term debt for each of the five years
subsequent to June 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 AMOUNT
------
<S> <C>
1997............................... $ 801
1998............................... 563
1999............................... 370
2000............................... 552
2001............................... 50
Thereafter......................... 426
-------
---
$2,762
==========
</TABLE>
3. INCOME TAX EXPENSE
Income tax expense (benefit) for each of the three fiscal years ended June
30, 1996 consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------- ------------------------------- -------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal........... $1,538 $ (543) $ 995 $1,537 $ (466) $1,071 $1,439 $ 8 $1,447
State and local... 482 (150) 332 556 (91) 465 402 3 405
----- --- ----- ----- --- ----- ----- --- -----
$2,020 $ (693) $1,327 $2,093 $ (557) $1,536 $1,841 $ 11 $1,852
===== === ===== ===== === ===== ===== === =====
</TABLE>
F-10
<PAGE> 57
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
3. INCOME TAX EXPENSE (CONTINUED)
Reconciliations of income taxes at the United States Federal statutory rate
to the effective income tax rate for the three years ended June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income taxes at the United States statutory rate........ $ 973 1,157 1,473
State and local income taxes............................ 200 238 221
Goodwill amortization................................... 2 49 203
Tax exempt interest..................................... -- -- (81)
Other -- net............................................ 152 92 36
----- ----- -----
1,327 1,536 1,852
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30
-----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for doubtful accounts.................. $ 541 $ 780
Accrued expenses and other....................... 1,066 1,194
Depreciable assets and other..................... (77) (330)
----- -----
Net deferred tax assets............................ $1,530 $1,644
===== =====
</TABLE>
4. OPERATING LEASES
The Company is obligated under several operating leases primarily for
office facilities and equipment. Future minimum lease payments under
noncancelable operating leases as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 AMOUNT
------
<S> <C>
1997............................... $1,690
1998............................... 1,472
1999............................... 1,392
2000............................... 1,177
2001............................... 912
Thereafter......................... 1,810
-----
$8,453
=====
</TABLE>
Rent expense for the years ended June 30, 1994, 1995 and 1996, was $478,
$600 and $1,196, respectively.
5. PROFIT-SHARING PLAN
The Company maintains a profit sharing plan with an Internal Revenue Code
Section 401(k) feature covering substantially all of their employees. Under the
terms of the plan, the Company will match up to 20% of the first 10% of eligible
employee contributions.
The Company's aggregate contributions to the plan and related expense were
$73, $94 and $192 for the years ended June 30, 1994, 1995 and 1996,
respectively.
F-11
<PAGE> 58
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
6. RELATED PARTY TRANSACTIONS
The Company leases seven of its facilities from entities affiliated with
former owners of certain businesses acquired, who are employees of the Company.
The buildings are used for operations of the Company. Rent expense of $0, $32
and $559 was paid under these leasing arrangements in 1994, 1995 and 1996,
respectively.
7. STOCKHOLDER'S EQUITY
On February 14, 1996, the Company issued 4,476,000 shares of Class A Common
Stock at $16.50 per share in connection with an initial public offering. A
portion of the net proceeds from the stock issuance were used to repay
approximately $27,000 of outstanding indebtedness under long and short-term
borrowings.
During the period from 1987 through 1995, the Company granted stock options
to purchase shares of Class B Common Stock to certain directors and key
employees which provide for the purchase of 1,054,890 common shares in the
aggregate, at exercise prices ranging from $0.71 to $6.19 per share, which
prices represented fair market values on the dates the grants were made. For
options granted in 1987 with a tax-offset cash bonus feature, the Company has
recognized compensation expense of $224 in fiscal 1994, $320 in fiscal 1995 and
$175 for the year ended June 30, 1996. During the year ended June 30, 1996,
options were exercised for the purchase of 627,166 shares of Class B common
stock.
During fiscal 1995, the Company adopted an Employee Stock Purchase and
Option Plan. Under the terms and provision of this plan, the Company authorized
100,000 shares of Class A Common Stock and granted options to certain key
employees for the purchase of a total of 11,523 common shares at an exercise
price of $6.19 per share, which was determined to be the fair market value on
the grant date.
In January 1996, the Company adopted a Long Term Incentive Plan (the Plan)
to provide up to 700,000 shares of Class A common stock for awards of incentive
and nonqualified stock options to officers and key employees of the Company.
During the year the Company granted 61,500 nonqualified stock options and 22,540
incentive stock options, all at $16.50 per share, the price at the initial
public offering. The nonqualified stock options have a term of five years and
become exercisable in thirds on February 1, 1997, 1998 and 1999. In addition,
all the nonqualified stock options will not vest unless the trading price of the
Company's Class A Common Stock reaches certain targeted levels. The incentive
stock options have a term of six years and 20% become exercisable each year on
February 1, 1997, 1998, 1999, 2000 and 2001.
Holders of Class A common stock and holders of Class B common stock are
entitled to one and ten votes, respectively, in corporate matters requiring
approval of the shareholders of the Company. No dividend may be declared or paid
on the Class B common stock unless a dividend of equal or greater amount is
declared or paid on the Class A common stock.
The Company had issued and outstanding at June 30, 1995, $1,900 of 8%
convertible subordinated debentures, due in 1997, which are convertible into
188,952 shares of Class A common stock. During the year ended June 30, 1996, the
Company issued an additional: $7,000 of 8% convertible subordinated debentures,
due in 1998, which are convertible into 696,140 shares of Class A common stock,
$925 of 7% convertible subordinated debentures, due in 1998, which are
convertible into 91,990 shares of Class A common stock; and $5,000 of 10%
convertible subordinated debentures, due in 1996, which are convertible into
356,499 shares of Class A common stock. During fiscal 1996, $1,900 of 8%
convertible subordinated debentures due in 1997, $1,376 of 8% convertible
subordinated debentures due in 1998, and $5,000 of 10% convertible subordinated
debentures due in 1996 were converted into 682,300 shares of Class A common
stock.
F-12
<PAGE> 59
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
8. ACQUISITIONS
During fiscal 1994, the Company purchased an 85% interest in Klingensmith
Adult Care Pharmacy, Inc., in Ford City, Pennsylvania (remaining interest
purchased in fiscal 1996).
During fiscal 1995, the Company completed acquisitions including TeleRx,
Inc. in Detroit, Michigan in November, Hunsicker's Pharmacy, Long-Term Care
Division, Inc. and Hunsicker's HealthCare, Inc. in Souderton, Pennsylvania in
January, Laurel Extended Care Pharmacy, Inc. in Ebensburg, Pennsylvania in
April, and Quality HealthCare of Indiana in Indianapolis, Indiana in June.
During fiscal 1996, the Company acquired Corinthian Healthcare Systems,
Inc. located in Indiana in September, The Apothecary, Inc. in Scranton,
Pennsylvania in October, Demoss Rexall Drugs, Inc. in Evansville, Indiana, in
November, Valu Pharmacy, Inc. (d/b/a/ Care Plus Pharmacy) in Decatur, Illinois,
in April, Uni-Care Health Services, Inc. in Londonderry, New Hampshire and
Uni-Care Health Services of Maine, in Wells, Maine, in May, Family Care Nursing
Home Service, Inc. and Care Unlimited, Inc. in Herrin, Illinois, in June.
Each of the acquisitions has been accounted for under the purchase method.
The following table summarizes the aggregate purchase price for these
businesses:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
--------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Cash............................................ $2,100 $13,919 $19,983
Convertible debentures.......................... -- 1,900 7,925
Debt............................................ -- 545 --
Class A common stock............................ -- 75 1,836
------ ------- -------
Total........................................... $2,100 $16,439 $29,744
====== ======= =======
</TABLE>
The convertible subordinated debentures bear interest at 7%-8% and are
convertible into Class A Common Stock at $10.06 per share.
Purchase agreements for certain acquired companies include contingent
earnings arrangements with the former owners (who are now current Company
managers). These contingent payments, which are based on growth and earnings of
the acquired companies, are expensed as earned ($483 in fiscal 1994; $1,007 in
fiscal 1995 and $309 in fiscal 1996) and are included in selling, general and
administrative expenses. Effective September 30, 1995, the Company terminated
these arrangements with the former owners which resulted in special compensation
expense and a related increase in debt of $2,811.
The results of operations of the businesses acquired have been included in
the consolidated financial statements of the Company from the dates of the
respective acquisitions. All of the businesses acquired provide substantially
similar services as the existing company.
Subsequent to June 30, 1996 the Company completed acquisitions of Advanced
Rx Services, Inc., in Northfield, New Jersey, and IPAC Pharmacy Services, Inc.
in Portland, Oregon, Thrifty Medical Systems in Oklahoma City, Oklahoma, and
Tulsa, Oklahoma and Medical Arts in Grand Rapids, Michigan. These acquisitions
were accounted for under the purchase method, at an aggregate purchase price of
$36,705 comprised of $22,090 in cash, $10,600 in Class A Common Stock and $4,015
in assumed debt. In connection with an acquisition completed in August 1996 the
Company issued, in partial payment of the purchase price, approximately 273,245
shares of Class A Common Stock valued at $26.34 per share, or approximately
$7,200. The Company has granted the holder of such shares a one-time put option
exercisable in August 1998 to sell all but not less than all of such shares to
the Company for $7,200.
F-13
<PAGE> 60
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
8. ACQUISITIONS (CONTINUED)
The following unaudited pro forma data has been prepared as though the
Company had completed its initial public offering and used the net proceeds
therefrom to repay approximately $27,000 of outstanding indebtedness and
purchase all of the above businesses at the beginning of each of the fiscal
years ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
PRO FORMA
-------------------
1995 1996*
-------- --------
<S> <C> <C>
Revenues............................................................. $155,673 $177,536
Net income........................................................... 3,795 4,776
Net income per share................................................. $ 0.30 $ 0.38
Shares used in the computation....................................... 12,695 12,695
</TABLE>
* Includes a one-time nonrecurring charge of $2,811 in connection with
the termination of certain compensation arrangements with the former
owners of certain acquired businesses which had the effect of reducing
net income per share $0.18.
9. QUARTERLY DATA (UNAUDITED)
Selected quarterly data for the years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $14,037 $14,993 $17,186 $19,386 $65,602
Operating income............................. 799 1,047 1,251 1,396 4,493
Net income................................... 327 439 525 577 1,868
Net income per share......................... 0.05 0.07 0.08 0.08 0.28
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER* QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $22,428 $27,599 $30,209 $33,045 $113,281
Operating income (loss)..................... (1,294 ) 2,096 2,396 2,621 5,819
Net income (loss)........................... (1,049 ) 725 1,121 1,559 2,356
Net income (loss) per share................. (0.15 ) 0.10 0.12 0.13 0.26
</TABLE>
* Includes a one-time nonrecurring charge of $2,811 in connection with the
termination of certain compensation agreements with the former owners of
certain acquired businesses.
F-14
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Americare Health Services, Inc.
23 Perimeter Road, South
Londonderry, New Hampshire 03053
We have audited the accompanying consolidated balance sheets of Americare Health
Services, Inc. and Subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations and retained earnings, and cash
flows for the two years 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 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 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 consolidated financial position of
Americare Health Services, Inc. and Subsidiaries at December 31, 1994 and 1995,
and the consolidated results of their operations and their cash flows for the
two years ended December 31, 1995, in conformity with generally accepted
accounting principles.
R.E. Reed & Company
Laconia, New Hampshire
March 21, 1996
F-15
<PAGE> 62
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31
1996
DECEMBER 31 DECEMBER 31 -----------
1994 1995
----------- ----------- (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................. $ 0 $ 115,460 $ 0
Accounts Receivable, Net............................. 1,610,942 2,561,244 2,636,670
Other Receivables.................................... 46,477 56,245 64,936
Inventory............................................ 741,892 862,565 743,309
Prepaid Expenses..................................... 37,529 68,201 30,750
--------- --------- ---------
Total Current Assets....................... 2,436,840 3,663,715 3,475,665
--------- --------- ---------
PROPERTY AND EQUIPMENT
Computer Equipment................................... 436,392 516,827 572,956
Office Equipment..................................... 190,333 231,114 212,637
Medical Carts........................................ 540,957 574,465 663,220
Vehicles............................................. 161,450 152,219 161,450
Leasehold Improvements............................... 158,648 184,431 201,016
--------- --------- ---------
1,487,780 1,659,056 1,811,279
Accumulated Depreciation............................. (932,700) (1,084,080) (1,130,448)
--------- --------- ---------
Net Property and Equipment........................... 555,080 574,976 680,831
--------- --------- ---------
OTHER ASSETS
Note Receivable...................................... 213,234 204,109 201,726
Intangible Assets.................................... 99,022 63,094 61,612
Security Deposits.................................... 7,874 7,775 7,775
Deferred Tax Asset................................... 0 89,739 89,739
--------- --------- ---------
Total Other Assets......................... 320,130 364,717 360,852
--------- --------- ---------
TOTAL ASSETS......................................... $ 3,312,050 $ 4,603,408 $ 4,517,348
========= ========= =========
</TABLE>
See accompanying notes
F-16
<PAGE> 63
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31
1996
DECEMBER 31 DECEMBER 31 -----------
1994 1995
----------- ----------- (UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts Payable..................................... $ 646,482 $ 896,800 $ 762,801
Bank Overdraft....................................... 137,425 99,976 665,371
Advance Payment
-- State of N.H.................................... 425,000 60,000 60,000
Line of Credit
and Demand Note.................................... 76,000 1,120,000 165,000
Accrued Expenses..................................... 270,198 496,457 545,020
Current Portion of
Long-Term Debt..................................... 180,607 178,755 196,232
Current Portion of
Covenant Payable................................... 30,000 0 0
--------- --------- ---------
Total Current Liabilities............................ 1,765,712 2,851,988 2,394,424
--------- --------- ---------
LONG-TERM DEBT --
NET OF CURRENT PORTION............................. 552,357 373,923 515,435
--------- --------- ---------
TOTAL LIABILITIES.................................... 2,318,069 3,225,911 2,909,859
--------- --------- ---------
STOCKHOLDERS' EQUITY
Common Stock, No Par Value, 100
Shares Authorized, 100 Shares
Issued and Outstanding............................. 22,833 22,833 22,833
Additional Paid-In Capital........................... 200,853 200,853 200,853
Retained Earnings.................................... 770,295 1,153,811 1,383,803
--------- --------- ---------
Total Stockholders' Equity........................... 993,981 1,377,497 1,607,489
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY............................... $ 3,312,050 $ 4,603,408 $ 4,517,348
========= ========= =========
</TABLE>
See accompanying notes
F-17
<PAGE> 64
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1994 1995
----------- ----------- THREE MONTHS ENDED
--------------------
MARCH 31,
1996
--------------------
(UNAUDITED)
<S> <C> <C> <C>
SALES (NET)................................. $12,350,848 $15,012,358 $ 4,604,204
COST OF SALES............................... 6,922,847 8,329,333 2,566,441
----------- ----------- --------------------
GROSS PROFIT................................ 5,428,001 6,683,025 2,037,763
OPERATING EXPENSES.......................... 5,143,585 5,986,735 1,654,251
----------- ----------- --------------------
INCOME FROM OPERATIONS...................... 284,416 696,290 383,512
----------- ----------- --------------------
OTHER INCOME AND (EXPENSES)
Interest Income........................... 18,617 34,805 4,400
Interest Expense.......................... (76,715) (113,018) (19,517)
Sale of Equipment......................... 2,896 (55,443) 0
Miscellaneous Income...................... 7,690 6,323 14,820
----------- ----------- --------------------
Total Other Income and
(Expenses)...................... (47,512) (127,333) (297)
----------- ----------- --------------------
INCOME BEFORE TAXES......................... 236,904 568,957 383,215
PROVISION FOR INCOME TAXES.................. 106,511 185,441 153,223
----------- ----------- --------------------
NET INCOME.................................. 130,393 383,516 229,992
RETAINED EARNINGS
-- BEGINNING OF YEAR...................... 639,902 770,295 1,153,811
----------- ----------- --------------------
RETAINED EARNINGS
-- END OF YEAR............................ $ 770,295 $ 1,153,811 $ 1,383,803
========== ========== ====================
</TABLE>
See accompanying notes
F-18
<PAGE> 65
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1994 1995
----------- ----------- THREE MONTHS ENDED
--------------------
MARCH 31,
1996
--------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 130,393 $ 383,516 $ 229,992
----------- ----------- --------------------
Adjustments to reconcile net income to net
cash provided by operations:
Change in reserve for bad debt............ 34,938 117,118 20,576
Depreciation.............................. 216,989 247,065 46,368
Amortization.............................. 36,783 35,928 1,482
(Gain) loss on sale of assets............. (2,896) 55,443
Deferred taxes............................ (89,739)
(Increase) decrease in current assets:
Accounts receivable....................... (393,923) (1,067,420) (96,002)
Other receivables......................... 36,058 (9,768) (8,691)
Inventory................................. (37,802) (120,673) 119,256
Prepaid expenses.......................... 32,045 (30,671) 37,451
Increase (decrease) in current liabilities:
Accounts payable.......................... 73,249 250,318 (133,999)
Accrued expenses.......................... 7,208 226,259 48,563
Bank overdraft............................ 137,425 (37,449) 565,395
Advance payment
-- State of N.H....................... 425,000 (365,000) 0
----------- ----------- --------------------
Total adjustments................. 565,074 (788,589) 600,399
----------- ----------- --------------------
Net cash flows from operations.............. 695,467 (405,073) 830,391
----------- ----------- --------------------
</TABLE>
See accompanying notes
F-19
<PAGE> 66
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1994 1995
----------- ----------- THREE MONTHS ENDED
--------------------
MARCH 31,
1996
--------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment........... 5,896 7,930 0
Purchases of equipment.................... (342,333) (330,336) (152,223)
Increase in note receivable............... (27,062) 9,125 2,383
Change in deposits........................ (250) 99 0
Change in covenant payable................ (30,000) (30,000) 0
----------- ----------- --------------------
Net cash flows from investing activities.... (393,749) (343,182) (149,840)
----------- ----------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital stock............................. 2,000 0 0
Loan proceeds............................. 182,962 2,418,670 200,000
Loan principal reduction.................. (492,236) (1,554,955) (996,011)
----------- ----------- --------------------
Net cash flows from financing activities.... (307,274) 863,715 (796,011)
----------- ----------- --------------------
Net change in cash and cash equivalents..... (5,556) 115,460 (115,460)
CASH, BEGINNING OF YEAR..................... 5,556 0 115,460
----------- ----------- --------------------
CASH, END OF YEAR........................... $ 0 $ 115,460 $ 0
========== ========== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Income taxes.............................. $ 132,726 $ 151,347 $ 0
Interest.................................. 76,655 113,088 19,517
</TABLE>
See accompanying notes
F-20
<PAGE> 67
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND UNAUDITED FOR THE THREE MONTHS ENDED MARCH 31, 1996
Uni-Care Health Services, Inc. was incorporated on July 1, 1979. The
corporation provides for the pharmaceutical needs of nursing homes, jails and
group home residents in New Hampshire and Maine.
On January 1, 1994, AmeriCare Health Services, Inc., a holding company, was
formed. The shareholders of Uni-Care Health Services, Inc. exchanged their stock
for shares in the holding company. Uni-Care Health Services, Inc. is now a
wholly owned subsidiary of AmeriCare Health Services, Inc.
Also on January 1, 1994, Uni-Care Health Services of Maine, Inc. was formed
by the three existing shareholders of Uni-Care Health Services, Inc. Certain
assets of Uni-Care Health Services, Inc., pertaining to the Maine operations
were sold at fair market value to the new corporation.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the company's subsidiaries,
Uni-Care Health Services, Inc. and Uni-Care Health Services of Maine, Inc. All
significant inter-company transactions have been eliminated in consolidation.
Income and expenses are recognized on the accrual basis of accounting,
whereby income is recognized when earned rather than when received and expenses
are recognized when incurred rather than when paid.
Accounts receivable at December 31, 1995 and 1994 are shown net of an
allowance for doubtful accounts of $190,776 and $73,658, respectively.
Inventories are stated at cost, utilizing the first-in, first-out (FIFO)
method. Inventories are located at the Londonderry and Wells distribution
centers as well as at the various nursing facilities as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Londonderry................................ $564,839 $469,981
Wells...................................... 174,893 189,976
Off-site Facilities........................ 122,833 81,935
-------- --------
$862,565 $741,892
======== ========
</TABLE>
Property and equipment are recorded at cost and are being depreciated over
their estimated useful lives, shown below, using both straight-line and
accelerated methods.
<TABLE>
<CAPTION>
LIFE
------------------
<S> <C> <C>
Computer Equipment................................. 5 years
Office Equipment................................... 5 - 7 years
Medical Carts...................................... 5 - 8 years
Vehicles........................................... 5 years
Leasehold Improvements............................. 7 - 31.5 years
</TABLE>
Accrued vacation expense represents vacation, holiday and sick time
accumulated by employees. The corporation accrues on behalf of its employees,
based upon the following policy with a maximum of 40 days accumulation:
<TABLE>
<CAPTION>
YEARS OF SERVICE FULL-TIME PART-TIME
--------------------- ---------------------
<S> <C> <C>
1 - 5 years.......... 20 days/year 15 days/year
5 - 15 years......... 25 days/year 20 days/year
15 - 20 years........ 30 days/year 25 days/year
20 + years........... 35 days/year 30 days/year
</TABLE>
F-21
<PAGE> 68
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The corporation has a 401k profit sharing plan which is available to all
employees. Management elected to fund this plan and charge expense in the amount
of $14,090 and $41,430 for the years ended December 31, 1994 and 1995,
respectively. The plan has a December 31 year end and is administered by Benefit
Strategies, Inc.
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were used.
For purposes of the statement of cash flows, the company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
The company maintains its cash in bank deposit accounts, which, at times,
may exceed federally insured limits. The company has not experienced any losses
in such account. The company believes it is not exposed to any significant
credit risk on cash and cash equivalents.
Federal and state income taxes are recognized at the corporate level.
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Federal.................................. $231,380 $ 93,724
State Taxes.............................. 43,800 12,787
Deferred Taxes........................... (89,739) 0
-------- --------
$185,441 $106,511
======== ========
</TABLE>
The company's deferred tax asset results from temporary timing differences
between book and tax expenses. The corporation has expensed on its books, bad
debts and vacation expenses resulting from accrual and reserve allowances. These
expenses cannot be taken for tax purposes until paid or incurred. Under FASB 109
the company has recognized a deferred tax asset and reduced current period tax
expense by the amount of this asset.
NOTE 2: LIFE INSURANCE
The corporation is the owner and beneficiary of the following term life
insurance policies on the shareholder and key employee.
<TABLE>
<CAPTION>
FACE VALUE
----------
<S> <C>
Richard Fortier....................................... $516,600
Michael Fecteau....................................... 300,000
----------
$816,600
==========
</TABLE>
NOTE 3: INTANGIBLE ASSETS
Loan origination fees associated with the 1992 refinancing are being
amortized using the straight-line method over 7 years.
Organization costs, contract rights and goodwill related to the acquisition
of the Uni-Care Health Services of Maine, Inc. are being amortized using the
straight-line method over 15 years.
A covenant not to compete is being amortized using the straight-line method
over 15 years.
F-22
<PAGE> 69
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The 1995 amortization expense and net balances of the intangible assets at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
BEGINNING AMORTIZATION 12/31/95
BALANCE EXPENSE BALANCE
--------- ------------ --------
<S> <C> <C> <C>
Loan Fees....................................... $ 6,016 $ (1,331) $ 4,685
Organization Costs.............................. 8,333 (600) 7,733
Contract Rights................................. 13,672 (996) 12,676
Goodwill........................................ 4,552 (336) 4,216
Covenants....................................... 66,449 (32,665) 33,784
--------- ------------ --------
$99,022 $(35,928) $63,094
========= =========== ========
</TABLE>
NOTE 4: DEMAND NOTE
The corporation has a $2,000,000 working capital credit line with a bank.
Interest at .5% over the bank's base rate is payable monthly. The balance at
December 31, 1994 and 1995 was $76,000 and $1,120,000, respectively. This note
is secured by assets of the corporation.
NOTE 5: LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, 1996
1994 1995 --------------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
Bank Note -- SBA Guarantee is payable in monthly
installments of $10,215 including interest at 1.5%
above the bank's base rate. The rate and monthly
payment are adjusted on a quarterly basis in
January, April, July and October. This note is
being amortized over 7 years and is secured by the
assets of the corporation. This loan matures on May
27, 1999. $432,504 $351,276 $336,717
Bank Note is payable in monthly principal
installments of $2,778 plus interest at 1% over the
bank's base rate. This note is being amortized over
36 months and is secured by the assets of the
corporation. This loan matures on November 30,
1996. 61,111 27,778 22,222
Note Payable to bank in monthly installments of
$2,453 including principal and interest. Interest
is 1% over bank base rate and the note will mature
on September 1, 1998. 110,414 80,970 73,609
Note payable to bank for vehicle purchase. Monthly
payments of $571 including principal and interest.
This note matures on October 10, 1998. 21,961 16,763 15,394
Capital lease payable for computer requiring
monthly payments of $1,715 per month. There are 12
payments left on this lease. 29,364 22,132 16,229
Note Payable to bank in monthly installments of
$4,166 including principle and interest. Interest
is 3/4% over the bank base rate. This note matures
on March 21, 2000. 0 0 200,000
</TABLE>
F-23
<PAGE> 70
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1996
1994 1995 --------------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
Note Payable -- Paul Boisseau is payable in 20
quarterly installments of $7,339 through 1998. The
stated rate of interest is 8% and this note is
secured by the personal guarantee of a shareholder
and key employee. 77,610 53,760 47,496
-------- -------- --------------
Total Long-Term Debt 732,964 552,679 711,667
Less Current Portion (180,607) (178,755) (196,232)
-------- -------- --------------
Long-Term Debt Net of
Current Portion $552,357 $373,924 $515,435
======== ======== ==============
</TABLE>
Maturities of long-term debt for the next four years are as follows:
<TABLE>
<S> <C>
1996........................................... $178,755
1997........................................... 138,670
1998........................................... 140,077
1999........................................... 41,111
</TABLE>
The corporation is not in compliance with one of its loan covenants at
December 31, 1995. It meets all ratios except the total debt to tangible net
worth ratio. The bank requires a 2.5:1 and the actual is 3.0:1. Management has
obtained a waiver for this financial covenant.
NOTE 6: FINANCIAL INSTRUMENTS
All financial instruments are held for purposes other than trading. The
following methods and assumptions were used to estimate the fair value of each
financial instrument for which it is practicable to estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Notes Receivable
The fair market value of the companies notes receivable are based upon an
interest rate of 6% as compared to the actual rate of 7% and 10%.
Long-Term Debt
The fair value of the company's long-term debt is estimated based on
borrowing rates currently available to the company for bank loans with similar
terms and maturities. The company's current debt interest rate, floats with
prime. As a result its fair market value equals the carrying value.
F-24
<PAGE> 71
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Investments
None.
The estimated fair value of the company's financial instruments are as
follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents................... $115,460 $115,460
Notes Receivable............................ 206,109 292,000
LIABILITIES
Long-Term Debt.............................. $552,679 $552,679
</TABLE>
NOTE 7: PAYABLE -- STATE OF NEW HAMPSHIRE
During June and July of 1994, the state of New Hampshire had problems
processing medicaid claims for payment. As a result, the state processed blanket
advances amounting to $425,000 to the corporation. These advances were not
matched to claims. Subsequently, the actual claims, less the current balance
owed, were paid by the State.
The balance owed on these advances as of December 31, 1995 is $60,000.
NOTE 8: STOCK OWNERSHIP
<TABLE>
<S> <C>
Americare Health Services, Inc.
100 shares of issued and outstanding no par common stock:
Michael Fecteau................................................. 59.7
Francis Cassidy................................................. 40.3
Uni-Care Health Services, Inc.
250 shares of no par value:
Americare Health Services, Inc.................................. 250
Uni-Care Health Services of Maine, Inc.
375 shares 324 issued and outstanding no par value common stock:
Americare Health Services, Inc.................................. 300
Richard Legere.................................................. 24
</TABLE>
Fifty one shares of Uni-Care Health Services of Maine, Inc. are being held
in escrow for future stock bonuses to Richard Legere. Refer to Note 12 for the
1995 shares to be bonused in 1996.
NOTE 9: RELATED PARTY TRANSACTIONS
One of the shareholders owes the corporation monies for the original
acquisition of his shares. This note bears 10% interest and as of December 31,
1995, $54,355 has been accrued. The balance and principal reductions on these
notes are as follows:
<TABLE>
<CAPTION>
MICHAEL
FECTEAU
--------
<S> <C>
Balance as of December 31, 1994......................... $116,976
Payment................................................. 0
--------
Balance as of December 31, 1995......................... $116,476
========
</TABLE>
During 1995, the corporation leased its New Hampshire facility from Michael
Fecteau, a shareholder of the corporation. The total lease payments for the
facility for 1995 were $144,960.
F-25
<PAGE> 72
AMERICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: LEASES
The corporation has two long-term real estate leases. The first lease is
for the former location on Brown Avenue, Manchester, New Hampshire. This lease
expires on October 30, 1998 and requires monthly payments of $1,419. A portion
of this facility is being sublet for $450 per month. The second lease is with a
shareholder (Note 9) for 15 years at $12,079 per month. This lease is subject to
annual CPI (Consumer Price Index) increases.
The corporation is leasing its facility in Wells, Maine under a three year
lease through October 1996. Monthly lease payments of $1,500 began November 1,
1994. This lease has a renewal option of three years at which time the monthly
rent will be recalculated based on the CPI for the Northeast Region.
The corporation has 12 operating leases for vehicles and postage machines.
The total obligation under these leases amount to $116,335 which will be paid
over a four year period.
The total projected lease payments over the next five years are as follows:
<TABLE>
<S> <C>
1996........................................... $229,204
1997........................................... 192,963
1998........................................... 173,060
1999........................................... 141,147
2000........................................... 139,200
</TABLE>
NOTE 11: CONTINGENT LIABILITIES
Under the employment agreements referenced in Note 12 the corporation has
liabilities that would accelerate in the event of the sale of 50% or more of the
corporate ownership.
The accelerated liability would be as follows:
<TABLE>
<S> <C>
Severance Pay under Employment Agreements............... $336,511
Deferred Compensation Agreement......................... 372,000
--------
$708,511
========
</TABLE>
NOTE 12: EMPLOYMENT AGREEMENTS
The corporation has three employment agreements with key employees. These
agreements are in effect for a period of two to five years.
The annual obligation under these agreements amounts to $271,650 adjusted
annually for CPI.
One agreement contains a provision for a stock bonus equaling 1% ownership
interest in the Maine corporation for every 100 bed increase in Maine. At
December 31, 1995 sixteen additional shares have been earned under this
agreement. At December 31, 1995 these additional shares had not been issued.
Refer to Note 11 for obligations as to severance pay liabilities.
One agreement contains a deferred compensation package totaling $400,000 to
be paid on a five year period commencing March 31, 1998.
NOTE 13: SUBSEQUENT EVENT (UNAUDITED)
On May 15, 1996 all of the outstanding stock of Americare Health Care
Services, Inc. and Uni-Care Health Services of Maine were acquired by NCS
HealthCare, Inc.
F-26
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
NCS HealthCare, Inc.
We have audited the accompanying balance sheet of IPAC Pharmacy, Inc. (the
Company) as of July 31, 1996, and the related statements of operations and cash
flows for the period from October 1, 1995 to July 31, 1996 (date of acquisition
by NCS HealthCare, Inc.). 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.
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 IPAC Pharmacy, Inc. at July
31, 1996, and the results of its operations and its cash flows for the period
from October 1, 1995 to July 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
August 20, 1996
F-27
<PAGE> 74
IPAC PHARMACY, INC.
BALANCE SHEET
JULY 31, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents...................................................... $ 670
Accounts receivable, less allowance for doubtful accounts of $225,000.......... 1,869,076
Inventories.................................................................... 783,426
Deferred income taxes.......................................................... 95,719
----------
Total current assets................................................... 2,748,891
PROPERTY AND EQUIPMENT
Fixtures and equipment......................................................... 919,103
Building and improvements...................................................... 221,537
----------
1,140,640
Less accumulated depreciation.................................................. 577,053
----------
563,587
OTHER ASSETS
Lease deposits................................................................. 9,761
Organizational costs, less accumulated amortization of $21,660................. 42,744
Goodwill, less accumulated amortization of $612,782............................ 5,140,849
Noncompete covenant, less accumulated amortization of $61,254.................. 288,746
----------
5,482,100
----------
TOTAL ASSETS..................................................................... $8,794,578
=========
</TABLE>
See accompanying notes
F-28
<PAGE> 75
IPAC PHARMACY, INC.
BALANCE SHEET
JULY 31, 1996
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable............................................................... $ 301,053
Accrued payroll................................................................ 190,981
Income taxes payable........................................................... 238,600
Accrued expenses and other..................................................... 301,922
Current portion of long-term debt.............................................. 473,422
----------
Total current liabilities.............................................. 1,505,978
Long-term debt, excluding current portion........................................ 3,081,998
STOCKHOLDER'S EQUITY
Common stock................................................................... 100
Additional paid-in capital..................................................... 2,824,935
Retained earnings.............................................................. 1,381,567
----------
4,206,602
----------
Total liabilities and stockholder's equity....................................... $8,794,578
=========
</TABLE>
See accompanying notes
F-29
<PAGE> 76
IPAC PHARMACY, INC.
STATEMENT OF OPERATIONS
OCTOBER 1, 1995 TO JULY 31, 1996
<TABLE>
<S> <C>
Revenues........................................................................ $11,523,515
Cost of revenues................................................................ 6,362,342
-----------
Gross profit.................................................................... 5,161,173
Selling, general and administrative expenses.................................... 4,673,059
-----------
Operating income................................................................ 488,114
Interest income................................................................. 3,792
Interest expense................................................................ 346,965
-----------
Income before income taxes...................................................... 144,941
Income tax expense.............................................................. 170,300
-----------
NET LOSS........................................................................ $ (25,359)
==========
</TABLE>
See accompanying notes
F-30
<PAGE> 77
IPAC PHARMACY, INC.
STATEMENT OF CASH FLOWS
OCTOBER 1, 1995 TO JULY 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss......................................................................... $ (25,359)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization............................................. 499,063
Provision for doubtful accounts........................................... 256,669
Deferred income taxes..................................................... (68,300)
Changes in assets and liabilities:
Accounts receivable.................................................... (213,906)
Inventories............................................................ (27,888)
Accounts payable....................................................... (83,039)
Accrued payroll........................................................ (207,092)
Income taxes payable................................................... 238,600
Accrued expenses and other............................................. 32,761
---------
Net cash provided by operating activities........................................ 401,509
INVESTING ACTIVITIES
Capital expenditures for property and equipment.................................. (167,434)
---------
Net cash used in investing activities............................................ (167,434)
FINANCING ACTIVITIES
Proceeds from borrowings on line of credit....................................... 170,500
Payments on line of credit....................................................... (173,000)
Repayments of debt............................................................... (388,892)
---------
Net cash used in financing activities............................................ (391,392)
---------
Net decrease in cash and cash equivalents........................................ (157,317)
Cash and cash equivalents at beginning of year................................... 157,987
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................................... $ 670
=========
INTEREST PAID.................................................................... $ 352,387
=========
TAXES PAID....................................................................... $ 0
=========
</TABLE>
See accompanying notes
F-31
<PAGE> 78
IPAC PHARMACY, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 1, 1995 TO JULY 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
IPAC Pharmacy, Inc. (the Company) operates in one business segment
providing a broad range of healthcare services primarily to long-term care,
assisted living facilities and other institutional settings. The Company
provides pharmacy, pharmacy consulting, infusion therapies and respiratory
services.
On July 31, 1996 substantially all of the Company's assets were sold to NCS
HealthCare, Inc.
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the
customer. A significant portion of the Company's revenues from sales of
pharmaceutical and medical products are reimbursable from third-party payors
(principally Medicaid and Medicare). The Company monitors its receivables from
these reimbursement sources under policies established by management and reports
such revenues at the net realizable amount expected to be received from these
third-party payors.
CASH EQUIVALENTS
The Company considers all investments in highly liquid instruments with
original maturities of three months or less at the date purchased to be cash
equivalents. Investments in cash equivalents are carried at cost which
approximates market value.
ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is provided for the estimated losses
that will be incurred in the collection of outstanding accounts receivable
balances. Estimated losses are based on a review of the current status of
outstanding accounts receivable balances and historical collection experiences.
INVENTORIES
Inventories consist primarily of purchased pharmaceuticals and medical
supplies and are stated at the lower of cost, determined using the first-in,
first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method for all property and
equipment over the estimated useful lives of the assets (primarily 5 to 10
years).
GOODWILL AND OTHER INTANGIBLES
The Company has classified as goodwill the cost in excess of fair value of
the net assets acquired in purchase transactions. Goodwill is being amortized
over 15-year periods using the straight-line method.
The carrying value of goodwill is evaluated if circumstances indicate a
possible impairment in value. If undiscounted cash flows over the remaining
amortization period indicate that goodwill may not be recoverable, the carrying
value of goodwill will be reduced by the estimated shortfall of cash flows on a
discounted basis.
The Company's organizational costs and noncompete covenant costs are being
amortized over 5 years using the straight-line method.
F-32
<PAGE> 79
IPAC PHARMACY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 1, 1995 TO JULY 31, 1996
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. This accounting standard requires that the
liability method be used in accounting for income taxes. Under this accounting
method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting basis and the tax basis of assets
and liabilities and are measured using the enacted tax rates and laws that apply
in the periods in which the deferred tax asset or liability is expected to be
realized or settled.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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 liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results can differ from these estimates.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31, 1996
-------------
<S> <C>
Notes payable--7.5% to prime rate plus 2% or 10% if
greater................................................ $ 3,401,968
Notes payable--to related parties, non-interest
bearing................................................ 153,452
----------
3,555,420
Current maturities....................................... 473,422
----------
$ 3,081,998
==========
</TABLE>
The future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Fiscal Years Ending July 31:
1997................................................... $ 473,422
1998................................................... 305,336
1999................................................... 339,330
2000................................................... 367,609
2001................................................... 402,905
----------
$1,888,602
==========
</TABLE>
3. LINE OF CREDIT
The Company had a $150,000 line-of-credit (collateralized by certain
Company assets) which was terminated on July 31, 1996. Interest was charged on
borrowings at prime plus 2% (10.75% at July 31, 1996) and was payable monthly.
F-33
<PAGE> 80
IPAC PHARMACY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 1, 1995 TO JULY 31, 1996
4. INCOME TAX EXPENSE
Income tax expense for the period from October 1, 1995 to July 31, 1996
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Federal........................................... $217,100 $(54,600) $162,500
State............................................. 21,500 (13,700) 7,800
-------- -------- --------
$238,600 $(68,300) $170,300
======== ======== ========
</TABLE>
The Company's deferred income tax asset is primarily due to the temporary
effect of the allowance for doubtful accounts and accrued vacation.
The differences between the statutory federal income tax rate of 34% and
the effective income tax rate of 117% is due primarily to goodwill amortization.
5. OPERATING LEASES
The Company is obligated under several operating leases primarily for real
estate, machinery and office equipment. Future minimum lease payments under
noncancelable operating leases as of July 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30 AMOUNT
- ------------------------- ----------
<S> <C>
1996 $ 37,980
1997 227,882
1998 197,010
1999 159,752
2000 146,198
Thereafter 1,193,250
$1,962,072
</TABLE>
Rent expense for the period from October 1, 1995 to July 31, 1996 was
$177,027, which includes amounts with a related party (see Note 6).
6. RELATED PARTY TRANSACTIONS
The Company has a note payable due December 31, 2004 that accrues interest
at the greater of prime rate plus 2% or 10%, if to a limited partnership, of
which an officer of the Company is a partner. Interest expense relating to this
note approximated $181,691 for the period from October 1, 1995 to July 31, 1996.
The Company's accounts receivable at July 31, 1996 include $225,889 of
customer balances due from the sole shareholder of the company, Prestige Care,
Inc.
F-34
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
NCS HealthCare, Inc.
We have audited the accompanying combined balance sheet of Thrifty Medical
Systems (Systems) as of June 30, 1996, and the related combined statements of
income and cash flows for the year then ended. These financial statements are
the responsibility of Systems' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
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 combined financial position of Thrifty Medical
Systems at June 30, 1996, and the combined results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
August 26, 1996
F-35
<PAGE> 82
THRIFTY MEDICAL SYSTEMS
COMBINED BALANCE SHEET
JUNE 30, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 1,560
Accounts receivable, less allowance for doubtful accounts of $327,300........ 2,529,786
Inventories, less obsolescence reserve of $125,000........................... 967,536
Deferred income taxes........................................................ 135,500
Other........................................................................ 5,753
----------
Total current assets........................................................... 3,640,135
PROPERTY AND EQUIPMENT
Fixtures and equipment....................................................... 1,275,222
Land, building and improvements.............................................. 363,545
Vehicles..................................................................... 440,684
----------
2,079,451
Less accumulated depreciation................................................ 916,449
----------
1,163,002
----------
TOTAL ASSETS................................................................... $4,803,137
==========
</TABLE>
See accompanying notes.
F-36
<PAGE> 83
THRIFTY MEDICAL SYSTEMS
COMBINED BALANCE SHEET
JUNE 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable............................................................. $ 658,323
Accrued payroll.............................................................. 63,736
Income taxes payable......................................................... 356,100
Accrued expenses and other................................................... 36,004
Notes payable to principal shareholders...................................... 352,236
Current portion of long-term debt............................................ 1,567,935
----------
Total current liabilities............................................ 3,034,334
Long-term debt, excluding current portion...................................... 406,649
STOCKHOLDERS' EQUITY
Common stock, no par value; 500 shares authorized, issued and outstanding.... 500
Retained earnings............................................................ 1,361,654
----------
1,362,154
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $4,803,137
==========
</TABLE>
See accompanying notes.
F-37
<PAGE> 84
THRIFTY MEDICAL SYSTEMS
COMBINED STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Revenues...................................................................... $10,985,666
Cost of revenues.............................................................. 5,800,923
-----------
Gross profit.................................................................. 5,184,743
Selling, general and administrative expenses.................................. 4,475,562
-----------
Operating income.............................................................. 709,181
Interest expense.............................................................. 159,265
-----------
Income before income taxes.................................................... 549,916
Income tax expense............................................................ 220,600
-----------
Net income.................................................................... $ 329,316
===========
</TABLE>
See accompanying notes.
F-38
<PAGE> 85
THRIFTY MEDICAL SYSTEMS
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................................... $ 329,316
Depreciation................................................................ 278,256
Provision for doubtful accounts............................................. 356,793
Provision for inventory obsolescence reserve................................ 43,000
Deferred income taxes....................................................... (23,200)
Changes in operating assets and liabilities:
Accounts receivable...................................................... (868,867)
Inventories.............................................................. (344,099)
Other assets............................................................. 565
Accounts payable......................................................... 27,461
Accrued payroll and income taxes payable................................. 18,245
Income taxes payable..................................................... 243,800
Accrued expenses and other............................................... 34,243
-----------
Net cash provided by operating activities..................................... 95,513
INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment........................ (358,562)
-----------
Net cash used in investing activities......................................... (358,562)
FINANCING ACTIVITIES
Proceeds from additional debt................................................. 651,030
Repayments of debt............................................................ (390,404)
-----------
Net cash provided by financing activities..................................... 260,626
-----------
Net decrease in cash and cash equivalents..................................... (2,423)
Cash and cash equivalents at beginning of year................................ 3,983
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR...................................... $ 1,560
===========
INTEREST PAID................................................................. $ 159,265
===========
TAXES PAID.................................................................... $ 0
===========
</TABLE>
See accompanying notes.
F-39
<PAGE> 86
THRIFTY MEDICAL SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Thrifty Medical of Tulsa, LLC which is a limited liability company,
Northside Pharmacy, Inc., a C Corporation, and Thrifty Medical Supply, Inc., a C
Corporation are under common control and are combined as Thrifty Medical Systems
(Systems). All entities operate in one business segment providing a broad range
of health care services primarily to long-term care, assisted living facilities
and other institutional settings. These services include pharmacy, pharmacy
consulting, infusion therapy and home care services.
On August 13, 1996 NCS Healthcare, Inc. purchased substantially all of the
assets of Thrifty Medical Supply of Tulsa, LLC and all of the outstanding stock
of Northside Pharmacy, Inc. and Thrifty Supply, Inc.
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the
customer. A significant portion of Systems' revenues from sales of
pharmaceutical and medical products are reimbursable from third-party payors
(principally Medicaid and Medicare). Systems monitors its receivables from these
reimbursement sources under policies established by management and reports such
revenues at the net realizable amount expected to be received from these
third-party payors. In addition, an allowance for doubtful accounts is provided
for the estimated losses that will be incurred in the collection of outstanding
accounts receivable balances. Estimated losses are based on a review of the
current status of outstanding accounts receivable balances.
CASH EQUIVALENTS
Systems considers all investments in highly liquid instruments with
original maturities of three months or less at the date purchased to be cash
equivalents. Investments in cash equivalents are carried at cost which
approximates market value.
INVENTORIES
Inventories consist primarily of purchased pharmaceuticals and medical
supplies and are stated at the lower of cost or market, determined using
primarily the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are on the basis of cost. Depreciation (including
amortization of capital leased assets) on property and equipment is computed
using an accelerated method for all property and equipment over the estimated
useful lives of the assets or lease period, whichever is less.
INCOME TAXES
Systems follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. This accounting standard requires that the
liability method be used in accounting for income taxes. Under this accounting
method, deferred income taxes are determined based on the differences between
the financial reporting basis and the tax basis of assets and liabilities and
are measured using the enacted tax rates and laws that apply in the periods in
which the deferred income tax asset or liability is expected to be realized or
settled.
F-40
<PAGE> 87
THRIFTY MEDICAL SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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 liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results can differ from these estimates.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Notes payable due in monthly installments through October,
1998 at interest rates ranging from 8.49% to 10.25%.................. $ 828,199
9.5% notes payable due in monthly installments through
January, 2000........................................................ 681,238
Credit facility up to $100,000 at 9.5% due July, 1996.................. 96,000
8.0% notes payable due in October, 1996................................ 22,442
Various capital lease agreements due in monthly installments
through October, 1996 at interest rates ranging from 9.25% to
10.25%............................................................... 331,354
Other.................................................................. 15,351
----------
Total long-term debt................................................... 1,974,584
Less: current portion.................................................. 1,567,935
----------
LONG-TERM PORTION...................................................... $ 406,649
==========
</TABLE>
The future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Fiscal Years Ending June 30:
1997............................................. $1,567,935
1998............................................. 247,220
1999............................................. 101,303
2000............................................. 58,126
----------
$1,974,584
==========
</TABLE>
3. INCOME TAX EXPENSE
Income tax expense for the year ended June 30, 1996 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Federal $204,800 $(18,600) $186,200
State 39,000 (4,600) 34,400
-------- -------- --------
$243,800 $(23,200) $220,600
======== ======== ========
</TABLE>
Systems' deferred income tax asset is due to the temporary effects of the
allowance for doubtful accounts and accrued expenses.
The differences between the statutory federal income tax rate of 34% and
the effective income tax rate of 40% is due primarily to state income taxes, net
of federal benefit.
F-41
<PAGE> 88
THRIFTY MEDICAL SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. OPERATING LEASES
Systems is obligated under several operating leases primarily for real
estate and machinery. Future minimum lease payments under noncancelable
operating leases as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
Year Ending June 30:
1997............................................. $ 66,683
1998............................................. 45,472
1999............................................. 26,202
2000............................................. 660
2001............................................. 660
--------
$139,677
========
</TABLE>
Rent expense for Systems was $198,123 for the year ended June 30, 1996.
5. RELATED PARTY TRANSACTIONS
Systems leases certain primary operating facilities from its principal
shareholder under a month-to-month operating lease agreement. Systems paid the
principal shareholder $59,300 of rent expense for the year ended June 30, 1996.
Systems has non-interest bearing demand notes payable to its principal
shareholders amounting to $352,236 at June 30, 1996.
6. 401(K) PLAN
Systems maintains a 401(k) plan covering all eligible employees which
allows for both employer and employee contributions. Systems' contributions to
the plan and related expense recorded approximated $6,000 for the year ended
June 30, 1996.
F-42
<PAGE> 89
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
The Company............................ 9
Use of Proceeds........................ 10
Price Range of Class A Common Stock.... 10
Dividend Policy........................ 10
Capitalization......................... 11
Selected Consolidated Financial Data... 12
Pro Forma Consolidated Financial
Data................................. 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 20
Management............................. 32
Certain Transactions................... 36
Principal and Selling Stockholders..... 37
Description of Capital Stock........... 38
Shares Eligible for Future Sale........ 42
Underwriting........................... 43
Legal Matters.......................... 44
Experts................................ 44
Available Information.................. 44
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,250,000 SHARES
[NCS LOGO]
NCS HEALTHCARE, INC.
CLASS A COMMON STOCK
------------------
PROSPECTUS
, 1996
------------------
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
MONTGOMERY SECURITIES
MCDONALD & COMPANY
SECURITIES, INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Company in connection with the distribution of the shares of Class A Common
Stock being registered hereby. Except for the Securities and Exchange Commission
Registration Fee, the National Association of Securities Dealers, Inc. Filing
Fee and the Nasdaq National Market Listing Fee, all amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee..................... $ 41,866
National Association of Securities Dealers, Inc. Filing Fee............. 12,647
Nasdaq National Market Listing Fee...................................... 17,500
Printing and Engraving Costs............................................ 180,000
Accounting Fees and Expenses............................................ 197,000
Legal Fees and Expenses (excluding Blue Sky)............................ 125,000
Blue Sky Fees and Expenses.............................................. 20,000
Transfer Agent and Registrar Fees....................................... 5,000
Miscellaneous........................................................... 987
--------
Total................................................................. $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth the
conditions and limitations governing the indemnification of officers, directors
and other persons. Section 145 provides that a corporation shall have the power
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or contemplated action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation in a similar capacity with another corporation or
other entity, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement incurred in connection therewith if he acted in good
faith and in a manner that he reasonably believed to be in the best interests of
the corporation. With respect to a suit by or in the right of the corporation,
indemnity may be provided to the foregoing persons under Section 145 on a basis
similar to that set forth above, except that no indemnity may be provided in
respect of any claim, issue or matter as to which such person has been adjudged
to be liable to the corporation unless and to the extent that the Delaware Court
of Chancery or the court in which such action, suit or proceeding was brought
determines that despite the adjudication of liability but in view of all the
circumstances of the case such person is entitled to indemnity for such expenses
as the court deems proper. Moreover, Section 145 provides for mandatory
indemnification of a director, officer, employee or agent of the corporation to
the extent that such person has been successful in defense of any such action,
suit or proceeding and provides that a corporation may pay the expenses of an
officer or director in defending an action, suit or proceeding upon receipt of
an undertaking to repay such amounts if it is ultimately determined that such
person is not entitled to be indemnified. Section 145 establishes provisions for
determining that a given person is entitled to indemnification, and also
provides that the indemnification provided by or granted under Section 145 is
not exclusive of any rights to indemnity or advancement of expenses to which
such person may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
The Registrant's By-laws provides that the Registrant shall indemnify, to
the fullest extent permitted by Delaware law, any Director or officer who was or
is a party or is threatened to be made a party to any action, suit or proceeding
by reason of the fact that he or she, or a person of he or she is the legal
representative, is or was a Director or officer of the Registrant, or is or was
serving at the request of the Registrant as a Director, officer, partner,
trustee, employee or agent of another entity, against all expenses, liabilities
and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties or amounts paid in settlement)
II-1
<PAGE> 91
reasonably incurred by such person in connection therewith. In addition,
provisions of The Registrant's By-laws provide for the advancement of expenses,
including attorneys' fees, incurred by a Director or officer of the Registrant
in defending any proceeding for which indemnification is provided under the
By-laws upon receipt of an undertaking to repay such amounts if it is ultimately
determined that he or she is not entitled to be indemnified by the Registrant as
authorized in the By-laws. In addition, the By-laws permit the Registrant to
maintain insurance, at its expense, to protect itself and any of its Directors
or officers or individuals serving at the request of the registrant as a
director, officer, partner, trustee, employee or agent of another entity,
against any expense, liability or loss, whether or not the Registrant would have
the power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
Section 102 (b) of the Delaware General Corporation Law permits
corporations to eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of the
director's duty of care. Accordingly, the Registrant's Amended Certificate of
Incorporation provides that a Director of the Registrant shall not be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the Director derived an improper
personal benefit. The Registrant's Amended Certificate of Incorporation further
provides that any repeal, amendment or other modification of the foregoing
provisions will not affect the liability or alleged liability of any Director of
the corporation then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon any such state of facts.
In addition to the foregoing, the Registrant has entered into indemnity
agreements with its executive officers and Directors. The indemnity agreements
provide that such persons will be indemnified to the fullest extent permitted by
law against all expenses (including attorneys' fees), judgments, fines, amounts
paid or incurred by them for settlement in any action or proceeding on account
of their service as a Director or officer of the Registrant or of any subsidiary
of the Registrant or of any other entity in which they are serving at the
request of the Registrant.
The agreements bind the registrant to provide indemnification to Directors
and officers whether or not the Registrant maintains Directors and officers
liability insurance coverage and regardless of any future changes in the
By-laws. The protection to be afforded Directors and officers by the agreements
is broader than that provided under the indemnification provisions contained in
the By-laws, in that the agreements expressly provide for the advancement of
expenses and for indemnification with respect to amounts paid in settlements of
derivative actions.
Reference is made to the Form of Underwriting Agreement filed as Exhibit
1.1 hereto with respect to the indemnification provisions contained therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information is furnished as to securities of the Registrant
sold within the past three years that were not registered under the Securities
Act of 1933 (the "Act"). All of the information is adjusted for the 46-for-1
stock split.
(a) On February 26, 1994, the Registrant sold 124,450 shares of Class
B Common Stock at a price of $4.09 per share. Exemption from registration
is claimed under Section 4(2) of the Act.
(b) On May 1, 1994, the Registrant granted an option to purchase
46,092 shares of Class B Common Stock at a price of $4.09 per share.
Exemption from registration is claimed under Section 2(3) of the Act.
(c) On May 1, 1994, the Registrant sold 46,092 shares of Class B
Common Stock at a price of $4.09 per share. Exemption from registration is
claimed under Section 4(2) of the Act.
II-2
<PAGE> 92
(d) On December 28, 1994, the Registrant sold 323,247 shares of Class
B Common Stock at a price of $6.19 per share. Exemption from registration
is claimed under Section 4(2) of the Act.
(e) On December 28, 1994, the Registrant granted an option to purchase
118,458 shares of Class B Common Stock at $6.19 per share. Exemption from
registration is claimed under Section 2(3) of the Act.
(f) On January 17, 1995, the Registrant issued 7,467 shares of Class A
Common Stock in connection with the acquisition of Hunsicker's. Exemption
from registration is claimed under Section 4(2) of the Act.
(g) On May 1, 1995, the Registrant granted options to purchase 11,523
shares of Class A Common Stock at a price of $6.19 per share. Exemption
from registration is claimed under Section 2(3) of the Act.
(h) On August 24, 1995, the Registrant sold 3,188 shares of Class A
Common Stock at a price of $7.33 per share. Exemption from registration is
claimed under Section 4(2) of the Act.
(i) On August 24, 1995, the Registrant granted options to purchase
3,188 shares of Class A Common Stock at a price of $7.33 per share.
Exemption from registration is claimed under Section 2(3) of the Act.
(j) On September 1, 1995, the Registrant granted options to purchase
1,228 shares of Class A Common Stock at a price of $7.33 per share.
Exemption from registration is claimed under Section 2(3) of the Act.
(k) On September 1, 1995, the Registrant sold 1,228 shares of Class A
Common Stock at a price of $7.33 per share. Exemption from registration is
claimed under Section 4(2) of the Act.
(l) On November 3, 1995, the Registrant sold 2,592 shares of Class A
Common Stock at a price of $7.33 per share. Exemption from registration is
claimed under Section 4(2) of the Act.
(m) On November 3, 1995, the Registrant granted an option to purchase
2,592 shares of Class A Common Stock at a price of $7.33 per share.
Exemption from registration is claimed under Section 2(3) of the Act.
(n) On November 30, 1995, the Registrant issued $5.0 million aggregate
principal amount of its 10% convertible subordinated debentures due
September 30, 1996. The holders of these debentures had the right to
convert all or any portion of their debentures into shares of Class A
Common Stock at a conversion price equal to 85% of the initial public
offering price of the Class A Common Stock. These debentures were issued at
100% of par. Exemption from registration is claimed under Section 4(2) of
the Act and Regulation D promulgated thereunder.
(o) On December 1, 1995, the Registrant sold 452 shares of Class A
Common Stock for $7.33 per share and granted options to purchase 452 shares
of Class A Common Stock at a price of $7.33 per share. Exemption from
registration is claimed under Sections 4(2) and 2(3) of the Act,
respectively.
(p) On December 12, 1995, the Registrant issued 46,092 shares of Class
B Common Stock pursuant to the exercise of an option to purchase 46,092
shares of Class B Common Stock granted on December 28, 1994 for $6.19 per
share. Exemption from registration is claimed under Section 4(2) of the
Act.
(q) On December 13, 1995, the Registrant issued 46,092 shares of Class
B Common Stock pursuant to the exercise of an option to purchase 46,092
shares of Class B Common Stock granted on May 1, 1994 for $4.09 per share.
Exemption from registration is claimed under Section 4(2) of the Act.
(r) On December 28, 1995, the Registrant issued 281,917 shares of
Class B Common Stock pursuant to the exercise of an option to purchase
281,917 shares of Class B Common Stock granted in 1988 for $1.41 per share.
Exemption from registration is claimed under Section 4(2) of the Act.
II-3
<PAGE> 93
(s) On December 14, 1995, the Registrant issued 516,237 shares of
Class B Common Stock pursuant to the exercise of an option to purchase
516,237 shares of Class B Common Stock granted in 1987 for $1.38 per share.
Exemption from registration is claimed under Section 4(2) of the Act.
(t) On January 29, 1996 the Registrant granted options to purchase
84,040 shares of Class A Common Stock, effective as of February 13, 1996,
to an aggregate of 26 employees at an exercise price of $16.50 per share.
Exemption from registration is claimed under Section 2(3) of the Act.
(u) On February 14, 1996 the Registrant issued 356,499 shares of its
Class A Common Stock upon the conversion of its 10% convertible
subordinated debentures due September 30, 1996. Exemption from registration
is claimed under Section 3(a)(9) of the Act.
(v) On May 15, 1996 the Registrant issued 41,380 shares of Class A
Common Stock in connection with the acquisition of UniCare. Exemption from
registration is claimed under Section 4(2) of the Act.
(w) On July 11, 1996 the Registrant issued 21,668 shares of Class A
Common Stock in connection with the acquisition of Advanced Rx. Exemption
from registration is claimed under Section 4(2) of the Act.
(x) On August 1, 1996 the Registrant issued 273,245 shares of Class A
Common Stock in connection with the acquisition of IPAC. Exemption from
registration is claimed under Section 4(2) of the Act.
(y) On August 13, 1996 the Registrant issued 84,876 shares of Class A
Common Stock in connection with the acquisition of Thrifty. Exemption from
registration is claimed under Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
See Exhibit Index at page E-1 of this Registration Statement.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the 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.
The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Act, 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 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, 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 public offering thereof.
II-4
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on August 29, 1996.
NCS HealthCare, Inc.
By: /s/ JON H. OUTCALT
Jon H. Outcalt
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
Director and/or officer of NCS HealthCare, Inc., a Delaware corporation, hereby
constitutes and appoints Jon H. Outcalt, Kevin B. Shaw, Jeffrey R. Steinhilber,
Thomas F. McKee, Edward W. Moore and David A. Basinski, Jr., and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite, necessary or advisable to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 29, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<S> <C>
/s/ JON H. OUTCALT Chairman of the Board of Directors
Jon H. Outcalt
/s/ KEVIN B. SHAW President, Chief Executive Officer and Director
Kevin B. Shaw (Principal Executive Officer)
/s/ JEFFREY R. STEINHILBER Chief Financial Officer (Principal Financial and
Jeffrey R. Steinhilber Accounting Officer)
/s/ A. MALACHI MIXON III Director
A. Malachi Mixon III
/s/ BOAKE A. SELLS Director
Boake A. Sells
/s/ JAMES B. NAYLOR Director
James B. Naylor
/s/ RICHARD L. OSBORNE Director
Richard L. Osborne
/s/ PHYLLIS K. WILSON Director
Phyllis K. Wilson
</TABLE>
II-5
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ----------- ------------------------------------------------------------------ ---------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
2.1 Stock Purchase Agreement, dated December 1994, by and among
Aberdeen Group, Inc. and Calvin Hunsicker......................... A
2.2 Asset Purchase Agreement, dated May 10, 1995, by and among Quality
Health Care NCS, Inc., Low Cost Health Care of Indiana, Inc.,
Marvin R. Richardson, Melanie A. Richardson, and Richard A.
Freese............................................................ A
2.3 Stock Purchase Agreement, dated September 1, 1995, by and among
Aberdeen Group, Inc. and each of the owners of shares of capital
stock of Corinthian Healthcare Systems, Inc....................... A
2.4 Stock Purchase Agreement dated as of October 1, 1995 by and
between James F.J. Kane and Aberdeen Group, Inc................... A
2.5 Certificate of Ownership and Merger of Aberdeen Group, Inc. with
and into the Registrant........................................... A
2.6 Stock Purchase Agreement, dated May 15, 1996, by and among the
Registrant and the owners of capital stock of Uni-Care Health
Services, Inc., a New Hampshire corporation and Uni-Care Health
Services of Maine, Inc., a New Hampshire corporation.............. B
2.7 Asset Purchase Agreement, dated as of July 31, 1996, by and among
the Registrant, NCS HealthCare of Oregon, Inc., an Ohio
corporation, IPAC Pharmacy, Inc., an Oregon corporation and
Prestige Care, Inc., a Washington corporation..................... C
2.8 Asset Purchase Agreement, dated August 13, 1996, by and among NCS
HealthCare of Oklahoma, Inc., an Oklahoma corporation, Med-Equip
Homecare Equipment Service, Inc., an Oklahoma corporation, Gail
Benjamin, Willis V. Smith and John Tarr........................... D
2.9 Asset Purchase Agreement, dated August 13, 1996, by and among
Thrifty Medical of Tulsa, L.L.C., an Oklahoma limited liability
company, Willis V. Smith, Charles Oliver and NCS HealthCare of
Oklahoma, Inc., an Oklahoma corporation........................... D
2.10 Agreement of Merger, dated August 13, 1996, by and among Northside
Pharmacy, Inc., an Oklahoma corporation, Willis V. Smith, Charles
Oliver, the Willis Vernon Smith Unitrust Dated August 8, 1996, NCS
HealthCare of Oklahoma, Inc., an Oklahoma corporation, and the
Registrant........................................................ D
2.11 Stock Purchase Agreement, dated August 13, 1996, by and among the
Willis Vernon Smith Unitrust Dated August 8, 1996, Charles Oliver,
Willis V. Smith and the Registrant................................ D
3.1 Certificate of Incorporation of the Registrant.................... A
3.2 By-Laws of the Registrant......................................... A
3.3 Amended and Restated Certificate of Incorporation of the
Registrant........................................................ A
3.4 Amended By-Laws of the Registrant................................. A
4.1 Specimen certificate of the Company's Class A Common Stock........ A
4.2 Specimen certificate of the Company's Class B Common Stock........ A
4.3 Commercial Demand Note dated August 5, 1996.......................
5.1 Opinion of Calfee, Halter & Griswold as to the validity of the
shares of Class A Common Stock....................................
10.1 Deferred Compensation Agreement, dated as of January 1, 1994, by
and between Modern Pharmacy Consultants, Inc. and Phyllis K.
Wilson............................................................ A
10.2 1996 Long Term Incentive Plan..................................... A
</TABLE>
E-1
<PAGE> 96
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ----------- ------------------------------------------------------------------ ---------------
<C> <S> <C>
10.3 Aberdeen Group, Inc. 1995 Amended and Restated Employee Stock
Purchase and Option Plan.......................................... A
10.4 Amended and Restated Stock Option Agreement, dated as of December
3, 1993, by and between Aberdeen Group, Inc. and Richard L.
Osborne........................................................... A
10.5 Amended and Restated Stock Option Agreement, dated as of December
28, 1994, by and between Aberdeen Group, Inc. and Jeffrey R.
Steinhilber....................................................... A
10.6 Lease Agreement dated as July 16, 1990 by and among Crow-O'Brien-
Woodhouse I Limited Partnership and Aberdeen Group, Inc. and Van
Cleef Properties, Inc............................................. A
10.7 Lease Agreement dated as of January 1, 1992 by and between PR
Realty and Nursing Center Services, Inc........................... A
10.8 Industrial Lease Agreement dated as of May 28, 1993 by and between
Industrial Developments International, Inc. and Corinthian
Pharmaceutical Systems, Inc....................................... A
10.9 Lease dated as of January 17, 1995 by and between Calvin Hunsicker
and Brenda Hunsicker and Aberdeen Group, Inc...................... A
10.10 Form of Indemnity Agreement by and between the Registrant and each
of its Directors and Executive Officers........................... A
10.11 Employment and Noncompetition Agreement, dated as of September 1,
1995, by and between Aberdeen Group, Inc. and William B. Byrum,...
11.1 Statement regarding computation of net income (loss) per common
share.............................................................
21.1 Subsidiaries of the Registrant....................................
23.1 Consent of Calfee, Halter & Griswold (included in Exhibit 5.1 of
this Registration Statement)......................................
23.2 Consent of Ernst & Young LLP......................................
23.3 Consent of R.E. Reed & Company....................................
24.1 Power of Attorney and related certified resolution................
</TABLE>
- ---------------
(A) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Registration Statement on Form S-1 (Reg. No. 33-80455).
(B) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Current Report on Form 8-K, dated May 15, 1996 (File No.
0-027602).
(C) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Current Report on Form 8-K, dated August 1, 1996 (File No.
0-027602).
(D) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Current Report on Form 8-K, dated August 13, 1996 (File No.
0-027602).
E-2
<PAGE> 1
Exhibit 1.1
DRAFT OF AUGUST 27, 1996
3,250,000 SHARES
NCS HEALTHCARE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
, 1996
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C
MONTGOMERY SECURITIES
MCDONALD & COMPANY SECURITIES, INC.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
NCS HealthCare, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 3,000,000 shares of its Class A
common stock, par value $0.01 per share (the "Common Stock"), to the several
Underwriters named in Schedule II hereto (the "Underwriters"), and the persons
named in Schedule I hereto as selling stockholders (the "Selling Stockholders")
propose to sell to the several Underwriters an aggregate of 250,000 shares of
Common Stock. The 3,000,000 shares of Common Stock to be issued and sold to the
Underwriters by the Company and the 250,000 shares of Common Stock to be sold to
the Underwriters by the Selling Stockholders are hereinafter referred to as the
"Firm Shares." In addition, solely for the purpose of covering over-allotments,
the Company proposes to sell to the Underwriters, upon the terms and conditions
set forth in Section 2 hereof, up to an additional 487,500 shares (the
"Additional Shares") of Common Stock. The Firm Shares and the Additional Shares
are hereinafter collectively referred to as the "Shares." The Company and the
Selling Stockholders are hereinafter sometimes referred to as the "Sellers."
The Sellers wish to confirm as follows their agreement with
you (the "Representatives") and the other several Underwriters on whose behalf
you are acting, in connection with the several purchases of the Shares by the
Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder
<PAGE> 2
(collectively, the "Act"), a registration statement on Form S-1 under the Act
(the "registration statement"), including a prospectus subject to completion,
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits) as amended at the time it becomes effective or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an additional
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Additional Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the Additional
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. Subject to such adjustments as you
may determine in order to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Sellers herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $ per share (the
"purchase price per share"), that number of Firm Shares which bears the same
proportion to the aggregate number of Firm Shares to be issued and sold by the
Company as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule II hereto (or such number of Firm Shares increased as
set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to
be sold by the Sellers.
Subject to such adjustments as you may determine in order to
avoid fractional shares, the Selling Stockholders agree, subject to all the
terms and conditions set forth herein, to sell to each Underwriter and, upon the
basis of the representations, warranties and agreements of the Sellers herein
contained and subject to all the terms and conditions set forth herein, each
Underwriter agrees to purchase from the Selling Stockholders at the purchase
price per share that number of Firm Shares which bears the same proportion to
the number of Firm Shares set forth opposite the names of the Selling
Stockholders in Schedule I hereto as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Sellers.
The Company also agrees, subject to all the terms and
conditions set forth herein, to sell to the Underwriters, and, upon the basis of
the representations, warranties and agreements of the Sellers herein contained
and subject to all the terms and conditions set forth herein, the Underwriters
shall have the right to purchase from the Company, at the purchase price per
share, pursuant to an option (the "over-allotment option") which may be
exercised at any time and from time to time prior to 9:00 P.M., New York City
time, on the 30th day after the date of the Prospectus (or, if such 30th day
shall be a
2
<PAGE> 3
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of 487,500
Additional Shares. Upon any exercise of the over-allotment option, each
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Shares (subject to such adjustments as you may determine in
order to avoid fractional shares) which bears the same proportion to the number
of Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule II hereto (or
such number of Firm Shares increased as set forth in Section 12 hereof) bears to
the aggregate number of Firm Shares.
Certificates in transferable form for the Shares, or
agreements evidencing options (the "Options") exercisable for such Shares
together with duly executed irrevocable exercise notices and certified or
official bank checks in payment of the exercise price, or certificates
evidencing convertible debentures (the "Debentures") convertible for such Shares
together with duly executed irrevocable conversion notices, that each of the
Selling Stockholders agrees to sell pursuant to this Agreement have been placed
in custody with National City Bank (the "Custodian") for delivery under this
Agreement pursuant to a Custody Agreement and Power of Attorney (the "Custody
Agreement") executed by each of the Selling Stockholders appointing Jon H.
Outcalt and Kevin B. Shaw as agents and attorneys-in-fact (the
"Attorneys-in-Fact"). Each Selling Stockholder agrees that (i) the Shares
represented by the certificates, or the Options exercisable for or Debentures
convertible for such Shares, held in custody pursuant to the Custody Agreement
are subject to the interests of the Underwriters, the Company and each other
Selling Stockholder, (ii) the arrangements made by the Selling Stockholders for
such custody are, except as specifically provided in the Custody Agreement,
irrevocable and (iii) the obligations of the Selling Stockholders hereunder and
under the Custody Agreement shall not be terminated by any act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of any
Selling Stockholder or the occurrence of any other event. If any Selling
Stockholder shall die or be incapacitated or if any other event shall occur
before the delivery of the Shares hereunder, certificates for the Shares to be
sold by such Selling Stockholder shall be delivered to the Underwriters by the
Attorneys-in-Fact in accordance with the terms and conditions of this Agreement
and the Custody Agreement as if such death or incapacity or other event had not
occurred, regardless of whether or not the Attorneys-in-Fact or any Underwriter
shall have received notice of such death, incapacity or other event. Each
Attorney-in-Fact represents that he is authorized, on behalf of each of the
Selling Stockholders, to execute this Agreement and any other documents
necessary or desirable in connection with the exercise of the Options or
conversion of the Debentures deposited under the Custody Agreement and the sale
of the Shares to be sold hereunder by such Selling Stockholder, to provide for
the payment to the Company of the exercise price in respect of any Shares issued
upon the exercise of the Options deposited under the Custody Agreement, to make
delivery of the certificates for such Shares, to receive the proceeds of the
sale of such Shares, to give receipts for such proceeds, to pay therefrom any
expenses to be borne by such Selling Stockholder in connection with the sale and
public offering of such Shares, to distribute the balance thereof to such
Selling Stockholder, and to take such other actions as may be necessary or
desirable in connection with the transactions contemplated by this Agreement.
Each Attorney-in-Fact agrees to perform his duties under the Custody Agreement.
3. TERMS OF PUBLIC OFFERING. The Sellers have been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street,
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New York, New York 10013, at 10:00 A.M., New York City time, on ,
1996 (the "Closing Date"). The place of closing for the Firm Shares and the
Closing Date may be varied by agreement between you, the Company and the
Attorneys-in-Fact.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the aforementioned
office of Smith Barney Inc. at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
between you and the Company.
Certificates for the Firm Shares and for any Additional Shares
to be purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice, it being understood that a
facsimile transmission shall be deemed written notice, prior to 9:30 A.M., New
York City time, on the second business day preceding the Closing Date or any
Option Closing Date, as the case may be. Such certificates shall be made
available to you in New York City for inspection and packaging not later than
9:30 A.M., New York City time, on the business day next preceding the Closing
Date or the Option Closing Date, as the case may be. The certificates evidencing
the Firm Shares and any Additional Shares to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the case may
be, against payment of the purchase price therefor in immediately available
funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto or any Additional Registration Statement to be declared effective before
the offering of the Shares may commence, the Company will endeavor to cause the
Registration Statement or such post-effective amendment to become effective as
soon as possible and will advise you promptly and, if requested by you, will
confirm such advice in writing, when the Registration Statement or such
post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented) to comply with the Act or any other law. If at any time
the Commission shall issue any stop order
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<PAGE> 5
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Company will furnish to you, without charge, three
signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement and will also furnish to you, without
charge, such number of conformed copies of the registration statement as
originally filed and of each amendment thereto, but without exhibits, as you may
request.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, as Representatives of the Underwriters, prior to or concurrently with such
filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have requested or may hereafter request, copies of each form of the
Prepricing Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto and will
expeditiously furnish copies thereof to the Underwriters and dealers in such
quantities as you shall request. In the event that the Company and you, as
Representatives of the several Underwriters, agree that the Prospectus should be
amended or supplemented, the Company, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for
the Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such jurisdictions as you may
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<PAGE> 6
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission, and (ii) from time
to time such other information concerning the Company as you may reasonably
request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 12 hereof or by notice given by you terminating
this Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all
out-of-pocket expenses (including reasonable fees and expenses of counsel for
the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of
the Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise
you of the time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not
sell, offer to sell, contract to sell or otherwise transfer or dispose of any
Common Stock (or any securities convertible into or exercisable or exchangeable
for Common Stock), or grant any options or warrants to purchase Common Stock,
for a period of 90 days after the date of the Prospectus, without the prior
written consent of Smith Barney Inc., other than (i) the issuance by the Company
in the manner and to the extent disclosed in the Prospectus of shares of Common
Stock and Class B Common Stock issuable upon the exercise of outstanding options
under the 1995 Amended and Restated Employee Stock Purchase and Option Plan and
the 1996 Long Term Incentive Plan, (ii) the grant to employees in the ordinary
course of business of options to purchase Common Stock pursuant to the Company's
existing option plans, provided that such options are not exercisable during the
90-day period after the date of the Prospectus, and (iii) the issuance by the
Company of Common Stock or Class B Common Stock as consideration for acquired
businesses under circumstances that would prohibit resale of such securities
during the 90 day period provided for in the "lock-up" letters furnished
pursuant to paragraph (n) below.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
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(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the Shares
approved for quotation, subject to notice of issuance, on the Nasdaq National
Market prior to or concurrently with the effectiveness of the registration
statement.
6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each of the Selling
Stockholders agrees (severally and not jointly with the other Selling
Stockholders) with the several Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent
necessary to cause the registration statement, any Additional Registration
Statement and any post-effective amendment thereto to become effective at the
earliest possible time.
(b) Such Selling Stockholder will pay all federal and other
taxes, if any, on the transfer or sale of any Shares that are sold by the
Selling Stockholder to the Underwriters.
(c) Such Selling Stockholder will do or perform all things
required to be done or performed by such Selling Stockholder prior to the
Closing Date to satisfy all conditions precedent to the delivery of the Shares
by such Selling Stockholder pursuant to this Agreement.
(d) Such Selling Stockholder will not offer, sell, contract to
sell or otherwise dispose of, or grant any option to purchase, any shares of
Common Stock (or any securities convertible into or exercisable or exchangeable
for Common Stock) owned by such Selling Stockholder, except for the sale of
Shares to the Underwriters pursuant to this Agreement, or exercise any
registration rights with respect to the sale of Common Stock, without the prior
written consent of Smith Barney Inc. for a period of 90 days after the date of
the Prospectus.
(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in information relating to
such Selling Stockholder and of any change in the Company's condition (financial
or other), business, prospects, properties, net worth or results of operations
or any other information relating to the Company or relating to any matter
stated in the Prospectus or any amendment or supplement thereto that comes to
the attention of such Selling Stockholder that suggests that any statement made
in the Registration Statement or the Prospectus (as then amended or
supplemented, if amended or supplemented) is or may be untrue in any material
respect or that the Registration Statement or Prospectus (as then amended or
supplemented, if amended or supplemented) omits or may omit to state a material
fact or a fact necessary to be stated therein in order to make the statements
therein not misleading in any material respect.
(g) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982, as amended, with respect
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to the transactions herein contemplated, such Selling Stockholder agrees to
deliver to you prior to or on the Closing Date a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The registration statement in the form in which it became
or becomes effective and also in such form as it may be when any post-effective
amendment thereto or any Additional Registration Statement shall become
effective, and the Prospectus and any supplement or amendment thereto when filed
with the Commission under Rule 424(b) under the Act, complied or will comply in
all material respects with the provisions of the Act and did not or will not at
any such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except that this representation and warranty does not
apply to statements in or omissions from the registration statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable,
are free of any preemptive or similar rights and have been issued and sold in
compliance with all federal and state securities laws; the Shares to be issued
and sold by the Company have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of any
preemptive or similar rights; and the capital stock of the Company conforms to
the description thereof in the Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
(e) All the Company's subsidiaries (as defined in the Act),
are listed in an exhibit to the Registration Statement and are referred to
herein individually as a "Subsidiary" and collectively as the "Subsidiaries."
Each Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify would not have a Material Adverse Effect.
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All the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable, and
are wholly owned by the Company directly or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance, except as disclosed in the Registration Statement
and the Prospectus (or any amendment or supplement thereto).
(f) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries or any of their
respective properties is subject, that are required to be described in the
Registration Statement or the Prospectus but are not described as required.
There are no agreements, contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement that are not described
or filed as required by the Act. Neither the Company nor any of the Subsidiaries
is involved in any strike, job action or labor dispute, and to the Company's
best knowledge no such action or dispute is threatened.
(g) Except as to violations or defaults which would not
singularly or in the aggregate have a Material Adverse Effect, neither the
Company nor any of the Subsidiaries is (i) in violation of its certificate of
incorporation or by-laws or other organizational documents, or of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Company or any of the Subsidiaries or of any decree of any court or governmental
agency or body having jurisdiction over the Company or any of the Subsidiaries,
or (ii) in default in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any agreement, indenture, lease or other instrument to which the Company or
any of the Subsidiaries is a party or by which any of them or any of their
respective properties is bound.
(h) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i) requires
any consent, approval, authorization or other order of, or registration or
filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except (x) such as may be required for
the registration of the Shares under the Act and the Exchange Act, all of which
have been or will be effected in accordance with this Agreement, (y) as are
required by the by-laws and rules of the National Association of Securities
Dealers, Inc. (the "NASD") other than those relating to the inclusion of the
Common Stock on the Nasdaq National Market, or (z) such as are required under
the securities or Blue Sky laws of various jurisdictions) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the certificate of incorporation or bylaws or other organizational documents of
the Company or any of the Subsidiaries or (ii) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which the Company or any of the Subsidiaries
or any of their respective properties is bound which is material to the Company
and its Subsidiaries taken as a whole, except for any such conflict, breach or
default that has been waived, or violates or will violate any statute, law,
regulation or filing or judgment, injunction, order or decree applicable to the
Company or any of the Subsidiaries or any of their respective properties, or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries pursuant
to the terms of any agreement or instrument to which any of them is a party or
by which any of them may be bound or to which any of their respective properties
or assets is subject.
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(i) The accountants, Ernst & Young LLP and R.E. Reed &
Company, who have certified or shall certify the financial statements filed or
to be filed as part of the Registration Statement or the Prospectus (or any
amendment or supplement thereto), are independent public accountants as required
by the Act.
(j) The historical financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), comply in all material
respects with the requirements of the Act and present fairly the consolidated
financial position, results of operations and changes in stockholders' equity
and cash flows of the Company and the Subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented in all material respects and
prepared on a basis consistent with such financial statements and the books and
records of the Company. The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the Registration
Statement and the Prospectus (or any amendment or supplement thereto) present
fairly the information shown therein, have been prepared in accordance with the
applicable requirements of the Act and the Commission's rules and guidelines
with respect to pro forma financial statements (including Article 11 of
Regulation S-X) and have been properly computed on the basis described therein.
The assumptions used in preparation of the pro forma financial statements and
other pro forma financial information included in the Registration Statement and
the Prospectus (or any amendment or supplement thereto) are reasonable, and the
adjustments used therein are reasonably appropriate to give effect to the
transactions or circumstances referred to therein.
(k) The Company has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement; the execution
and delivery of, and the performance by the Company of its obligations under
this Agreement have been duly and validly authorized by the Company, and this
Agreement has been duly executed and delivered by the Company and constitutes
the valid and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws or
principles of public policy and subject to the qualification that the
enforceability of the Company's obligations hereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and by general
equitable principles.
(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, that is
material to the Company and the Subsidiaries taken as a whole, and there has not
been any material change in the capital stock, or material increase in the
short-term or long-term debt, of the Company or any of the Subsidiaries, or any
material adverse change, or any development involving or which may reasonably be
expected to involve a prospective material adverse change, in the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole.
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(m) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the Prospectus
as being owned by it, free and clear of all liens, claims, security interests or
other encumbrances except such as are described in the Registration Statement
and the Prospectus or in a document filed as an exhibit to the Registration
Statement, subject to such exceptions as are not material to its respective
business or do not or could not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries taken
as whole, and all the property described in the Prospectus as being held under
lease by the Company or any of the Subsidiaries is held by it under valid,
subsisting and enforceable leases.
(n) The Company has not distributed and, prior to the later to
occur of the Closing Date and completion of the distribution of the Shares, will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Act.
(o) Each of the Company and the Subsidiaries has such permits,
licenses, franchises, authorizations and clearances ("Permits") of governmental
or regulatory authorities as are necessary to own, lease and operate its
properties and to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the Prospectus
and except where the failure to have such Permits would not materially interfere
with the ownership, lease or operation of such properties or the conduct of such
business; subject to such qualifications as may be set forth in the Prospectus,
each of the Company and the Subsidiaries has fulfilled and performed all its
material obligations with respect to the Permits, and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the rights of
the holder of any Permit, subject in each case to such qualification as may be
set forth in the Prospectus. Except as described in the Prospectus, none of the
Permits contains any restriction that is materially burdensome to the Company or
the Subsidiaries. Each of the Company and the Subsidiaries has the requisite
provider number or other authorization to bill the Medicare program and the
respective Medicaid program in the state or states in which such entity
operates. There is no action pending or, to the Company's knowledge, threatened
which could result in a revocation of any such provider number or authorization
or result in the Company's or any Subsidiary's exclusion from the Medicare or
any state Medicaid programs. The Company's and each Subsidiary's business
practices do not violate any applicable provisions of federal or state laws
governing Medicare or any state Medicaid programs, including, without
limitation, Sections 1320a-7a and 1320a-7b of Title 42 of the United States
Code. No individual with an ownership or control interest, as defined in 42
U.S.C. section 1320a-3(a)(3), in the Company or any Subsidiary, or who is an
officer, director or managing employee as defined in 42 U.S.C. section
1320a-5(b), of the Company or any Subsidiary is a person described in 42 U.S.C.
section 1320a-7(b)(8)(B). The Company's and each Subsidiary's business
practices do not violate any federal or state laws regarding physician ownership
of (or financial relationship with) and referral to entities providing
healthcare related goods or services, or laws requiring disclosure of financial
interests held by physicians in entities to which they may refer patients for
the provisions of health care related goods or services.
(p) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company and the Subsidiaries with respect to the foregoing.
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(q) The property, assets and operations of the Company and the
Subsidiaries comply in all material respects with all applicable federal, state
and local laws, rules, orders, decrees, judgments, injunctions, licenses,
permits or regulations relating to environmental matters (the "Environmental
Laws"), except to the extent that the lack of compliance with such Environmental
Laws would not, singularly or in the aggregate, have a Material Adverse Effect.
To the Company's best knowledge, none of the Company's or any Subsidiary's
property, assets or operations is the subject of any federal, state or local
investigation evaluating whether any remedial action is needed to respond to a
release of any substance into the environment regulated by or forming the basis
of liability under any Environmental Laws (a "Hazardous Material"). Neither the
Company nor any Subsidiary has received any notice or claim, nor are there any
pending or, to the Company's best knowledge, threatened or reasonably
anticipated lawsuits against it with respect to violations of an Environmental
Law or in connection with the release of any Hazardous Material into the
environment. Neither the Company nor any Subsidiary has any material contingent
liability in connection with any release of Hazardous Material into the
environment.
(r) The Company and the Subsidiaries maintain insurance of the
types and in amounts generally deemed adequate for its business and consistent
with insurance coverage maintained by similar companies and businesses, all of
which insurance is in full force and effect.
(s) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) Neither the Company nor any Subsidiary nor, to the
Company's best knowledge, any employee or agent of the Company or any Subsidiary
has made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(u) The Company and the Subsidiaries have filed all federal,
state, local and foreign tax returns and tax forms required to be filed; such
returns and forms are complete and correct in all material respects; and all
taxes shown by such returns or otherwise assessed that are due or payable have
been paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided.
(v) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of the
Company because of the filing of the registration statement or the consummation
of the transactions contemplated by this Agreement, except for any such rights
as have been waived or complied with, and, except as disclosed in the Prospectus
under the caption "Shares Eligible for Future Sale," no person has the right to
require registration under the Act of any shares of Common Stock or other
securities of the Company. No person has the right, contractual or otherwise, to
cause the Company to permit such person to underwrite the sale of any of the
Shares. Except as described in or contemplated by the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
there are no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any Subsidiary or any security convertible into or
exchangeable or exercisable for capital stock of the Company or any Subsidiary.
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(w) The Company has filed in a timely manner with the
Commission each document required to be filed by it pursuant to the Exchange
Act, each such document at the time it was filed conformed in all material
respects to the requirements of the Exchange Act and none of such documents
contained an untrue statement of a material effect or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(x) Neither the Company nor any of the Subsidiaries is, and,
upon the sale of the Shares to be issued and sold by it hereunder and
application of the net proceeds from such sale as described in the Prospectus
under the caption "Use of Proceeds," will not be, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(y) The Company is in compliance with all provisions of
Florida Statutes section 517.075 and the regulations thereunder relating to
issuers doing business with Cuba.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder represents and warrants (severally and not jointly with the
other Selling Stockholders) to each Underwriter that:
(a) Such Selling Stockholder now has or has the right to
acquire, and on the Closing Date will have, valid and marketable title to the
Shares to be sold by such Selling Stockholder, free and clear of any lien,
claim, security interest or other encumbrance, including, without limitation,
any restriction on transfer or other defect in title.
(b) Such Selling Stockholder now has, and on the Closing Date
will have, full legal right, power and authorization, and any approval required
by law (except such as may be required under the Act or state securities or Blue
Sky laws governing the purchase and distribution of the Shares), to sell,
assign, transfer and deliver such Shares in the manner provided in this
Agreement, and upon delivery of and payment for such Shares hereunder, the
several Underwriters will acquire valid and marketable title to such Shares,
free and clear of any lien, claim, security interest, or other encumbrance,
restriction on transfer or other defect in title.
(c) This Agreement and the Custody Agreement have been duly
authorized, and in the case of this Agreement, when executed and delivered on
behalf of such Selling Stockholder in accordance with the Custody Agreement,
have been duly executed and delivered by or on behalf of such Selling
Stockholder and are the valid and binding agreements of such Selling Stockholder
enforceable against such Selling Stockholder in accordance with their respective
terms, except as rights to indemnity and contribution hereunder may be limited
by federal or state securities laws or principles of public policy and except as
enforcement hereof and thereof may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equitable principles.
(d) Neither the execution and delivery of this Agreement or
the Custody Agreement by or on behalf of such Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Act or state securities or Blue Sky laws
governing the purchase and distribution of the Shares) or conflicts or will
conflict with or constitutes or will constitute a breach of, or default under,
or violates or will violate, any agreement, indenture or other instrument to
which such Selling Stockholder is a party or by which such Selling
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<PAGE> 14
Stockholder is or may be bound or to which any of such Selling Stockholder's
property or assets is subject, or any statute, law, rule, regulation, ruling,
judgement, injunction, order or decree applicable to such Selling Stockholder or
to any property or assets of such Selling Stockholder.
(e) Such Selling Stockholder has reviewed the Registration
Statement and the Prospectus. The Registration Statement and the Prospectus and
any amendment or supplement thereto do not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(f) The representation and warranties of such Selling
Stockholder in the Custody Agreement are, and on the Closing Date will be, true
and correct.
(g) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares, except for the lock-up arrangements
described in the Prospectus.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of Shares by such Underwriter to any person if (i) a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the Act and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus and (ii) the Company has
delivered the Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses, (ii)
the Company has failed to assume the defense and employ counsel or (iii) the
named parties to any such action, suit or proceeding (including any
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<PAGE> 15
impleaded parties) include both such Underwriter or such controlling person and
the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless any Underwriter
and any such controlling person, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
(c) Each Selling Stockholder agrees, severally and not
jointly, to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act to the same extent as the indemnity from the
Company to each Underwriter set forth in Section 9(a) hereof (but subject to
Section 9(g) hereof). In case any action or claim shall be brought or asserted
against any Underwriter or any such controlling person in respect of which
indemnity may be sought against such Selling Stockholder pursuant to this
paragraph (c), such Selling Stockholder shall have the rights and duties given
to the Company, and each Underwriter and any such controlling person shall have
the rights and duties given to the Underwriters, under paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which each
of the Selling Stockholders may otherwise have.
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, the Selling Stockholders and any person who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent as the indemnity from the Company to each
Underwriter set forth in Section 9(a) hereof, but only with respect to
information relating to such Underwriter furnished in writing to the Company by
or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, the Selling
Stockholders or any such controlling person based on the Registration Statement,
the Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto, and in respect of which indemnity may be sought against any Underwriter
pursuant to this paragraph (d), such Underwriter shall have the rights and
duties given to the Company by paragraph (b) above (except that if the Company
shall have assumed the defense thereof such Underwriter shall not be required to
do so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Company, its directors, any such officer, the
Selling Stockholders and any such controlling person shall have the rights and
duties given to the Underwriters by paragraph (b) above. The foregoing indemnity
agreement shall be in addition to any liability which the Underwriters may
otherwise have.
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(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Sellers on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Sellers bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company and the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, and the underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Sellers on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Sellers
on the one hand or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(f) The Sellers and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 9 were determined
by a pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (e) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (e) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 9 are several
in proportion to the respective numbers of Firm Shares set forth opposite their
names in Schedule II hereto (or such numbers of Firm Shares increased as set
forth in Section 12 hereof) and not joint.
(g) Notwithstanding any other provision of this Section 9, the
liability of any Selling Stockholder for indemnification or contribution under
this Section 9 shall not exceed an amount equal to the number of Shares sold by
such Selling Stockholder hereunder multiplied by the purchase price per share
set forth in Section 2 hereof.
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(h) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(i) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Sellers set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, the Selling
Stockholders or any person controlling the Company, (ii) acceptance of any
Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person controlling any
Underwriter, or to the Company, its directors or officers, the Selling
Stockholders or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 9.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto or an Additional Registration Statement to be declared effective before
the offering of the Shares may commence, the registration statement or such
post-effective amendment or Additional Registration Statement shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth, or results of operations of the
Company not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company, any officer or director of the Company or any Selling
Stockholder, which makes any statement made in the Prospectus untrue or which,
in the opinion of the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to be stated
therein or necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectus to reflect such event or development
would, in your opinion, as Representatives of the several Underwriters,
materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date an opinion of
Calfee, Halter & Griswold, counsel for the Company and the Selling Stockholders,
dated the Closing Date and addressed to you, as Representatives of the several
Underwriters, that:
(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of
Delaware with full corporate power and authority
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to own, lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or
place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure
so to register or qualify does not have a Material Adverse Effect;
(ii) Each Subsidiary is a corporation duly incorporated
and validly existing and in good standing under the laws of the
jurisdiction of its organization, with full corporate power and
authority to own, lease, and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus
(and any amendment or supplement thereto); each Subsidiary is duly
registered and qualified to conduct its business and is in good
standing as a foreign corporation in each jurisdiction or place where
the nature of its properties or the conduct of its business requires
such registration or qualification, except where the failure so to
register or qualify or to be in good standing would not have a Material
Adverse Effect; and all the outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned of record by the Company
directly, or indirectly through one of the other Subsidiaries, free and
clear of any perfected security interest or, to such counsel's
knowledge, any other lien, adverse claim, equity or other encumbrance,
except as disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto);
(iii) The authorized capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus, and the
authorized capital stock of the Company conforms in all material
respects as to legal matters to the description contained in the
Prospectus under the caption "Description of Capital Stock";
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares have been duly
authorized and validly issued, are fully paid and nonassessable and
were issued and sold in compliance with all applicable federal and
state securities laws;
(v) The Shares to be issued and sold to the
Underwriters by the Company have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid
and nonassessable and free of (A) any preemptive rights arising under
the Company's certificate of incorporation or the Delaware General
Corporation Law or (B) to the knowledge of such counsel, similar rights
that entitle or will entitle any person to acquire any shares of
capital stock of the Company upon the issuance and sale of the Shares
by the Company;
(vi) The form of certificate for the Shares conforms to
the requirements of the Delaware General Corporation Law;
(vii) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose are pending before or contemplated by the Commission; and
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in accordance with Rule 424(b);
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(viii) The Company has the corporate power and authority
to enter into this Agreement and to issue, sell and deliver the Shares
to be sold by it to the Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by the
Company and is a valid, legal and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement of rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or principles of public
policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally and by
general equitable principles;
(ix) To the knowledge of such counsel, neither the
Company nor any of the Subsidiaries is in violation of its certificate
of incorporation or bylaws or other organizational documents or in
default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note or other evidence of
indebtedness made an exhibit to the Registration Statement;
(x) Neither the offer, sale or delivery of the Shares,
the execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof nor consummation by the Company
of the transactions contemplated hereby conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, the
certificate of incorporation or bylaws or other organizational
documents of the Company or any of the Subsidiaries or any agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties is bound which is
material to the Company and its Subsidiaries taken as a whole and that
is an exhibit to the Registration Statement or is known to such counsel
or to the knowledge of such counsel will result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries, nor will any such
action result in any violation of any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue Sky
laws and the by-laws and rules of the NASD other than those relating to
the inclusion of the Common Stock on the Nasdaq National Market),
judgment, injunction, order or decree known to such counsel and
applicable to the Company or any of the Subsidiaries or any of their
respective properties;
(xi) No consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official
is required on the part of the Company (except (x) as have been
obtained under the Act and the Exchange Act, (y) as may be required by
the by-laws and rules of the NASD other than those relating to the
inclusion of the Common Stock on the Nasdaq National Market or (z) such
as may be required under state securities or Blue Sky laws governing
the purchase and distribution of the Shares) for the valid issuance and
sale of the Shares to the Underwriters as contemplated by this
Agreement;
(xii) The Registration Statement and the Prospectus and
any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other financial
and statistical data included therein, as to which such counsel need
not express any opinion) comply as to form in all material respects
with the requirements of the Act;
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(xiii) To the knowledge of such counsel, (A) there are no
legal or governmental proceedings pending or threatened against the
Company or any of the Subsidiaries or to which the Company or any of
the Subsidiaries or any of their respective properties is subject,
which are required to be described in the Registration Statement or
Prospectus (or any amendment or supplement thereto) that are not
described as required and (B) there are no agreements, contracts,
indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus (or any
amendment or supplement thereto) or to be filed as an exhibit to the
Registration Statement that are not described or filed as required, as
the case may be;
(xiv) To the knowledge of such counsel, neither the
Company nor any of the Subsidiaries is in violation of any law,
ordinance, administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries the violation of which would
have a Material Adverse Effect or of any decree of any court or
governmental agency or body having jurisdiction over the Company or any
of the Subsidiaries;
(xv) Each of the Company and the Subsidiaries has full
corporate power and authority and all necessary Permits (except where
the failure to so have any such Permits, individually or in the
aggregate, would not have a Material Adverse Effect) to own its
properties and to conduct its business as now being conducted as
described in the Prospectus;
(xvi) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of contracts, agreements
or other legal documents, or refer to statements of law or legal
conclusions, are accurate in all material respects and present fairly
the information required to be shown;
(xvii) Except as described in the Prospectus, such counsel
does not know of any holder of any securities of the Company or any
other person who has the right, contractual or otherwise, to cause the
Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right, as a result of
the filing of the Registration Statement, to require the Company to
register under the Act any shares of Common Stock or other securities
of the Company or, except for any such right as has been complied with
or waived, the right to have any Common Stock or other securities of
the Company included in the Registration Statement;
(xviii) Neither the Company nor any of the Subsidiaries is
an "investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended;
(xix) This Agreement and the Custody Agreement have each
been duly executed and delivered by or on behalf of each of the Selling
Stockholders and are valid and binding agreements of each Selling
Stockholder enforceable against each Selling Stockholder in accordance
with their respective terms, except (A) as enforcement of rights to
indemnity and contribution hereunder and thereunder may be limited by
federal or state securities laws or principles of public policy and (B)
subject to the qualification that the enforceability of each of their
obligations hereunder and thereunder may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally and by
general equitable principles;
20
<PAGE> 21
(xx) To the knowledge of such counsel, each Selling
Stockholder has full legal right, power and authorization and any
approval required by law to sell, assign, transfer and deliver good and
marketable title to the Shares such Selling Stockholder has agreed to
sell pursuant to this Agreement; and upon delivery of such Shares
pursuant to this Agreement and payment therefor as contemplated herein
and assuming that the several Underwriters are bona fide purchasers
within the meaning of the Uniform Commercial Code as in effect in the
State of New York (the "UCC"), the Underwriters will acquire good and
marketable title to such Shares free and clear of any adverse claim
(within the meaning of Section 8-302 of the U.C.C.); and
(xxi) To the knowledge of such counsel, the execution and
delivery of this Agreement and the Custody Agreement by the Selling
Stockholders and the consummation of the transactions contemplated
hereby and thereby will not conflict with, violate, result in a breach
of or constitute a default under the terms or provisions of any
material agreement, indenture, mortgage or other instrument to which
any Selling Stockholder is a party or by which any of them or any of
their respective assets or property is bound, or any court order or
decree or any law, rule, or regulation known to such counsel applicable
to any Selling Stockholder or to any of the respective property or
assets of any Selling Stockholder.
In addition, such counsel shall state that although such
counsel has not undertaken, except as otherwise indicated in their opinion, to
determine independently, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the Registration
Statement, such counsel has participated in the preparation of the Registration
Statement and the Prospectus, including review and discussion of the contents
thereof, and nothing has come to the attention of such counsel that has caused
it to believe that the Registration Statement, at the time the Registration
Statement became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as of its
date and as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or that any
amendment or supplement to the Prospectus, as of its date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and the
notes thereto and the schedules and other financial and statistical data
included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by them or the Company as to laws of any jurisdiction other than the federal
laws of the United States or the State of Ohio or the corporation law of the
State of Delaware, provided that (1) each such local counsel is acceptable to
the Representatives, (2) such reliance is expressly authorized by each opinion
so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance, satisfactory to them and counsel
for the Underwriters and (3) counsel shall state in their opinion that they
believe that they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of
Dewey Ballantine, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (v) (other than subclause (B) thereof),
21
<PAGE> 22
(vii), (viii), (xii) and the penultimate paragraph of Section 10(c) hereof and
such other related matters as you may request.
(e) You shall have received letters addressed to you and dated
the date hereof from Ernst & Young LLP and R.E. Reed & Company, independent
certified public accountants, substantially in the forms heretofore approved by
you, and you shall have received a letter addressed to you and dated the Closing
Date from Ernst & Young LLP, independent certified public accountants,
substantially in the form heretofore approved by you.
(f)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company,
contemplated by the Commission at or prior to the Closing Date and any request
of the Commission for additional information (to be included in the registration
statement or the prospectus or otherwise) shall have been complied with; (ii)
there shall not have been any material change in the capital stock of the
Company nor any material increase in the short-term or long-term debt of the
Company from that set forth or contemplated in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); (iii) there shall not have
been, since the respective dates as of which information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company; (iv) the Company shall not have
any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company, other than those
reflected in or contemplated by the Registration Statement or the Prospectus (or
any amendment or supplement thereto); and (v) all the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company (or such other officers
as are acceptable to you), as to the matters set forth in this Section 10(f) and
in Section 10(g) hereof.
(g) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(h) You shall have received a certificate dated the Closing Date
signed by the chief accounting officer of the Company substantially in the form
heretofore approved by you, respecting the Company's compliance with the
financial covenants contained in credit agreements to which the Company is a
party.
(i) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of the Selling Stockholders as to the matters set
forth in this Section 10(i) and in Section 10(j) hereof.
(j) The Selling Stockholders shall not have failed at or prior to
the Closing Date to have performed or complied with any of their agreements
herein contained and required to be performed or complied with by them hereunder
at or prior to the Closing Date.
22
<PAGE> 23
(k) The Shares shall have been approved for quotation subject to
notice of issuance on the Nasdaq National Market.
(l) The Sellers shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have reasonably
requested.
All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to you, as Representatives of the Underwriters, and counsel
for the Underwriters.
Any certificate or document signed by any officer of the Company
or by or on behalf of any Selling Stockholder and delivered to you, as
Representatives of the several Underwriters, or to counsel for the Underwriters,
shall be deemed a representation or warranty by the Company or such Selling
Stockholder, as the case may be, to each Underwriter as to the statements made
therein.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 10, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (f) and paragraphs
(h), (i) and (l) shall be dated the Option Closing Date in question and the
opinions called for by paragraphs (c) and (d) shall be revised to reflect the
sale of Additional Shares.
11. EXPENSES. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the offering of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and supplemental
Blue Sky Memoranda and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Shares; (v) the
registration of the Common Stock under the Exchange Act and the listing of the
Shares on the Nasdaq National Market; (vi) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification); (vii)
the filing fees and the reasonable fees and expenses of counsel for the
Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. in connection with the
offering; (viii) the transportation and other expenses incurred by or on behalf
of representatives of the Company in connection with presentations to
prospective purchasers of the Shares; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company; and (x) the performance by the Company of its
other obligations under this Agreement.
12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and
23
<PAGE> 24
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or an Additional Registration Statement to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
or Additional Registration Statement has been released by the Commission. Until
such time as this Agreement shall have become effective, it may be terminated by
the Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Firm Shares which the Underwriters are obligated to
purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney, Harris Upham & Co.
Incorporated (predecessor of Smith Barney Inc.), to purchase the Firm Shares
which such defaulting Underwriter or Underwriters agreed, but failed or refused,
to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares which it or they are obligated to purchase on the Closing Date and
the aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Firm Shares by one
or more non-defaulting Underwriters or other party or parties approved by you
and the Company are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
or the Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Company, purchases Firm Shares which a defaulting
Underwriter agreed, but failed or refused, to purchase.
Any notice under this Section 12 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Sellers, by notice to the Company and the Attorneys-in-Fact,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York shall have been declared by either federal or state authorities, or
(iii) there shall have occurred any outbreak or escalation of hostilities or
other international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial markets
of the United States is such as to make it, in your judgment, impracticable or
inadvisable to commence or continue the offering of the Shares at the offering
price to the public set forth on the cover page of the Prospectus or to enforce
contracts for the resale of the Shares by the Underwriters. Notice of such
24
<PAGE> 25
termination may be given by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
14. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth
in the last paragraph on the cover page, the stabilization legend on the inside
front cover page and the statements in the first and third paragraphs under the
caption "Underwriting" in any Prepricing Prospectus and in the Prospectus
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.
15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12 and
13 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122, Attention:
Jon H. Outcalt, Chairman of the Board, with a copy to Calfee, Halter & Griswold,
1400 McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114,
Attention: Thomas F. McKee, Esq.; or (ii) if to you, as Representatives of the
several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013, Attention: Manager, Investment Banking Division, with a copy to
Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019,
Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors, its officers who sign the
Registration Statement, the Selling Stockholders and the controlling persons
referred to in Section 9 hereof and, to the extent provided herein, their
respective successors and assigns and no other person shall acquire or have any
right under or by virtue of this Agreement. Neither the term "successor" nor the
term "successors and assigns" as used in this Agreement shall include a
purchaser from any Underwriter of any of the Shares in his status as such
purchaser.
16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
25
<PAGE> 26
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Underwriters.
Very truly yours,
NCS HEALTHCARE, INC.
By:____________________________________
Jon H. Outcalt
Chairman of the Board
EACH OF THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE I HERETO
By:____________________________________
As Attorney-in-Fact
Confirmed as of the date first above mentioned on behalf of themselves and the
other several Underwriters named in Schedule II
hereto.
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
MONTGOMERY SECURITIES
MCDONALD & COMPANY SECURITIES, INC.
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:__________________________________
Managing Director
26
<PAGE> 27
SCHEDULE I
NCS HEALTHCARE, INC.
Number of
Selling Stockholders Shares
- -------------------- ---------
-------
Total......................... 250,000
=======
<PAGE> 28
SCHEDULE II
NCS HEALTHCARE, INC.
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
Smith Barney Inc.............................................
William Blair & Company, L.L.C...............................
Montgomery Securities........................................
McDonald & Company Securities, Inc...........................
---------
Total.................... 3,250,000
=========
</TABLE>
<PAGE> 1
<TABLE>
<S> <C>
COMMERCIAL DEMAND NOTE (Simple/Grid) FOR BANK USE ONLY
(Ohio version) 00728-6(3/93) INV. 803279 (03/93)
=================================================================== Debtor Name ______________________
Amount City, State Date Debtor # _________________________
Obligation # _____________________
$ 20,000,000.00 Cleveland, Ohio August 5, 1996 Office ___________________________
- --------------- --------------- --------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
ON DEMAND, for value received, the undersigned ("Debtor") promises to pay to the
order of National City ("Bank"), which has its principal place of business in
Cleveland, Ohio, at any office of Bank, Twenty Million and 00/100 DOLLARS (or,
if less, the unpaid principal balance shown on an attachment to this note or on
Bank's loan account records) in lawful money of the United States, together with
interest payable commencing on September 1, 1996, and monthly thereafter and on
demand. Prior to demand, principal and any overdue interest shall bear interest
computed daily (on the basis of a 360-day year and actual days elapsed) at a
fluctuating rate which is zero percent (0%) per annum above the Prime Rate.
________ Debtor is not permitted to obtain advances other than the
Initials initial amount borrowed hereunder.
OR
This note represents an arrangement that allows Debtor to obtain
advances without giving Bank a separate note for each advance.
However, THIS NOTE DOES NOT OF ITSELF CONSTITUTE A COMMITMENT BY
BANK TO MAKE ANY ADVANCES TO DEBTOR. Bank will record the date and
/s/ amount of each advance on an attachment to this note or on Bank's
________ loan account records. Debtor agrees that each advance so recorded
initials shall be prima facie evidence that an advance was made on the date
and in the amount indicated. The number of advances and the amount
of each advance are not limited; provided, however, that the maximum
unpaid principal balance outstanding at any time shall not exceed
the face amount of this note.
If Debtor fails to pay any amount due hereunder, or any fee in connection
herewith, in full within ten (10) days after its due date or the date of demand
therefor, whichever is applicable, Debtor, in each case, will incur and shall
pay a late fee equal to the greater of twenty dollars ($20.00) or five percent
(5%) of the unpaid amount. The payment of a late charge will not impair any
holder's right to demand repayment of this note.
Except as otherwise agreed in writing, payments will be applied first to
accrued but unpaid interest and fees, in that order, on an invoice by invoice
basis in the order of their respective due dates, until paid in full, then to
late charges and then to principal.
In its discretion, Bank may, from time to time, unilaterally change any
provision for the application of payments by mailing a written notice to Debtor
of the change. The notice shall be mailed to the address indicated herein or
such other address that Debtor may furnish in writing to an appropriate officer
of Bank and shall be mailed not less than fifteen (15) days prior to the
effective date of such change.
If this note is not paid in full on demand, the interest rate otherwise in
effect hereunder shall be increased by three percent (3%) per annum, provided
that in no event shall the principal of and interest on this note bear interest
after demand at a rate less than the interest rate actually in effect hereunder
immediately after demand.
In this note, (a) DEBT means, collectively, all monetary liabilities, and any
charges or expenses incurred in connection therewith, now or hereafter owing by
the Person or Persons in question, including, without limitation, every such
liability whether owing by such Person or one (1) of such Persons alone or
jointly, severally or jointly and severally, whether owing absolutely or
contingently, or directly or indirectly, and whether created by loan, overdraft,
guaranty or other contract or by quasi-contract, tort, statute or other
operation of law; (b) BANK DEBT means Debt payable to Bank, whether initially
payable to Bank or acquired by Bank by purchase, pledge or otherwise and
whether assigned to or participated to or from Bank in whole or in part; (c)
PRIME RATE means the fluctuating rate of interest which is publicly announced
from time to time by Bank at its principal place of business as being its
"prime rate" or "base rate" thereafter in effect, with each change in the Prime
Rate automatically, immediately and without notice changing the fluctuating
interest rate thereafter applicable hereunder, it being agreed that the Prime
Rate is not necessarily the lowest rate of interest then available from Bank on
fluctuating rate loans; (d) OBLIGOR means any Person who is or shall become
obligated or whose property is or shall serve as collateral for the payment of
Debtor's Bank Debt or any part thereof in any manner and, in addition to
Debtor, includes, without limitation, any maker, endorser, guarantor,
subordinating creditor, assignor, pledgor, mortgagor or hypothecator of
property; (e) RELATED WRITING means a writing of any form or substance signed
by any Obligor (whether as principal or agent) or by any attorney, accountant
or other representative of any Obligor and received by Bank in respect of
Debtor's Bank Debt or any part thereof, including, without limitation, any
credit application, credit agreement, reimbursement agreement, financial
statement, promissory note, guaranty, indenture, mortgage, security agreement,
authorization, subordination agreement, certificate, opinion or any similar
writing, but shall not include any commitment letter issued by Bank, without
regard to whether Debtor or any other Person signed or acknowledged receipt
thereof; and (f) PERSON means a natural person or entity of any kind,
including, without limitation, any corporation, partnership, trust,
governmental body or any other form or kind of entity.
Debtor certifies to Bank that all funds disbursed under this note will be used
for business or commercial purposes.
Debtor and the undersigned guarantors, if any, hereby authorize Bank to share
all credit and financial information relating to Debtor and the undersigned
guarantors, if any, with Bank's parent company, and with any subsidiary or
affiliate company of Bank or of Bank's parent company.
In no event shall the interest rate in effect on this note exceed the maximum
rate permissible under the law governing this note.
If Debtor consists of more than one Person, Debtor shall be jointly and
severally liable on this note.
Any holder's delay or omission in the exercise of any right under this note
shall not operate as a waiver of that right or of any other right under this
note.
If any provision of this note is determined by a court of competent jurisdiction
to be invalid, illegal or unenforceable, that determination shall not affect
any other provision of this note, and each such other provision shall be
construed and enforced as if the invalid, illegal or unenforceable provision
were not contained herein.
This note and the Related Writings set forth the entire agreement between the
parties regarding the transactions contemplated herby, and supercede all prior
agreements, commitments, discussions, representations and understandings,
whether written or oral, and any and all contemporaneous oral agreements,
commitments, discussions, representations and understandings between the
parties relating to the subject matter hereof.
No amendment, modification or supplement to this note or any Related Writing
shall be binding unless executed in writing by all parties thereto, and this
provision shall not be subject to waiver by any party and shall be strictly
enforced.
<PAGE> 2
This note shall be governed by the law of the state in which Bank has its
principal place of business.
Debtor and the undersigned guarantors, if any, jointly and severally authorize
any attorney-of-law to appear in any state or federal court of record in the
United States after demand; to waive the issuance and service of process; to
confess judgment against Debtor and/or any undersigned guarantor in favor of
the holder of this note for the amount then appearing due, together with
interest and costs of suit; and to release all errors and waive all rights of
appeal and stay of execution. If any judgment against Debtor and/or any
undersigned guarantor is vacated for any reason, this warrant of attorney may
be used to obtain additional judgments.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
Address and Telephone:
<TABLE>
<S> <C>
3201 Enterprise Parkway, Suite 220 Ncs Health Care, Inc.
- --------------------------------------- --------------------------------------------------
Beachwood, Ohio 44122 By /s/ Jeffrey R. Steinhilber, Sr. Vice President
- --------------------------------------- -----------------------------------------------
- --------------------------------------- -----------------------------------------------
Debtor
By
- --------------------------------------- -----------------------------------------------
</TABLE>
FOR VALUE RECEIVED, each undersigned guarantor (a) consents to the provisions
of the note, including, without limitation, the warrant of attorney; (b)
guarantees, absolutely and unconditionally, and jointly and severally with the
other undersigned guarantors, if any, the prompt payment in full of the note
(and any extensions thereof in whole or in part) when due and whether or not
the holder of the note shall resort or shall have resorted to any other
Obligor or to security, if any; (c) waives presentment, demand for payment,
notice of dishonor and every other kind of notice to which the undersigned
guarantor might be entitled but for this waiver; and (d) waives any and all
claims, rights or remedies the undersigned guarantor may now have or hereafter
acquire against Debtor that arises from the undersigned guarantor's performance
hereunder or is in any way related hereto, including, without limitation,
subrogation, reimbursement, contribution or indemnification, whether direct or
indirect or arising by contract, law, equity or otherwise; and (e) agrees that
the liability of the undersigned guarantor(s) shall not be affected by any act,
omission or course of dealing on the part of the holder including, without
limitation, any extension of time, any release or exchange of security
(irrespective of the consideration, if any, received therefor) or any other
indulgence granted to any Obligor, in each case whether with or without notice
to the undersigned guarantor(s).
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
<TABLE>
<S> <C>
- --------------------------------------- -------------------------------------
Guarantor
By
- --------------------------------------- -----------------------------------
- --------------------------------------- -------------------------------------
Guarantor
By
- --------------------------------------- -----------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 5.1
CALFEE, HALTER & GRISWOLD
ATTORNEYS AT LAW
________________________________
1400 McDonald Investment Center
800 Superior Avenue Cleveland, Ohio 44114-2688
216/622-8200 Fax 216/241-0816
August 30, 1996
NCS HealthCare, Inc.
3201 Enterprise Parkway, Suite 220
Beachwood, Ohio 44122
Re: Shares of Class A Common Stock, par value $.01 per share,
of NCS HealthCare, Inc. (the "Shares") to be Offered
Through Underwriters
---------------------------------------------------------
We are acting as counsel for NCS HealthCare, Inc., a Delaware
corporation (the "Company"), in connection with (i) the issuance and sale of
Shares (including Shares which may be sold pursuant to an over-allotment option
granted by the Company to the Underwriters) by the Company (the "Primary
Shares") in accordance with the proposed Underwriting Agreement among the
Company, certain selling stockholders named therein (the "Selling
Stockholders"), and Smith Barney Inc., William Blair & Company, L.L.C.,
Montgomery Securities and McDonald & Company Securities, Inc., as
Representatives of the several Underwriters, and (ii) the sale by the Selling
Stockholders of Shares (the "Secondary Shares") in accordance with the
Underwriting Agreement.
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereon we are
of the opinion that, subject to the due authorization of the specified terms of
sale of the Primary Shares by the Pricing Committee of the Board of Directors of
the Company:
1. The Primary Shares are duly authorized and, when issued
and delivered to the Underwriters pursuant to the
Underwriting Agreement against payment of the
consideration therefor as provided therein and in
accordance with the resolutions duly adopted by the Board
of Directors of the Company, will be validly issued,
fully paid and nonassessable; and
2. The Secondary Shares are duly authorized and validly
issued, and are fully paid and nonassessable.
We are attorneys licensed to practice law in the State of
Ohio. The opinions expressed herein are limited solely to the laws of the State
of Ohio and the General Corporation Law of the State of Delaware and we express
no opinion under the laws of any other jurisdiction.
<PAGE> 2
CALFEE, HALTER & GRISWOLD
NCS HealthCare, Inc.
August 30, 1996
Page 2
This opinion is delivered to you solely in connection with the
filing by the Company of a Registration Statement on Form S-1 to effect the
registration of the Shares under the Securities Act of 1933 (the "Registration
Statement"), and this letter and the opinions stated herein may not be relied
upon for any other purpose or by any persons other than the Directors and
executive officers of the Company.
We consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus comprising a part of the Registration Statement.
Respectfully submitted,
CALFEE, HALTER & GRISWOLD
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AND NONCOMPETITION AGREEMENT
---------------------------------------
THIS AGREEMENT is made as of the 1st day of September, 1995,
by and between ABERDEEN GROUP, INC., an Ohio corporation (which for purposes of
this Agreement, together with all of its affiliates and subsidiaries, will be
referred to as "Aberdeen") and WILLIAM B. BYRUM, an individual ("Employee").
RECITALS:
---------
A. Employee is a principal officer and a shareholder of Corinthian
Healthcare Systems, Inc., an Indiana corporation (the "Company").
B. Employee has obtained valuable knowledge and experience pertaining
to the Company's business (the "Business") of providing pharmaceuticals, drugs,
biologicals, medical devices, durable medical equipment and other health or
medical supplies and related services to nursing homes, other institutional care
facilities and individuals residing in such facilities.
C. Aberdeen is acquiring all of the stock of the Company pursuant to a
Stock Purchase Agreement, dated as of September 1, 1995 (the "Stock Purchase
Agreement"), by and among Aberdeen and the shareholders of the Company.
D. As a condition to such acquisition, Employee and Aberdeen desire to
enter into an agreement to provide for the employment of Employee by Aberdeen to
perform services as Vice President of Development of Aberdeen and for a
prohibition on his disclosing confidential information, competing or otherwise
interfering with Aberdeen.
In consideration of and in reliance upon the covenants, obligations and
agreements herein contained, Aberdeen and Employee hereby agree as follows:
1. EMPLOYMENT SERVICES. For the five (5) year period commencing on the
date hereof (the "Employment Period"), Aberdeen hereby agrees to employ Employee
as its Vice President of Development. As such, Employee shall perform such
reasonable and appropriate executive duties for Aberdeen as may be assigned to
him by the President or the Board of Directors (the "Board") of Aberdeen.
Throughout the Employment Period, Employee shall devote his efforts diligently
and faithfully on a full-time basis to the business and welfare of Aberdeen in
accordance with and in furtherance of the policies and directives of the Board.
Employee will not engage in any activity which interferes with the performance
of his duties hereunder and in any case will not hold any part-time job or
perform any consulting services. Unless otherwise agreed by Employee and
Aberdeen, Employee shall not be required to be based in any place located more
than 30 miles from Zionsville, Indiana.
2. COMPENSATION AND BENEFITS.
2. 1 SALARY. Aberdeen shall pay Employee a salary during his
employment at the rate of $135,000.00 per year, payable in accordance with
Aberdeen's standard payroll
<PAGE> 2
practices. The amount of the base salary will be reviewed by Aberdeen annually
during the Employment Period and wilt not be decreased for any reason and is
subject to such increases as Aberdeen may determine to grant in its sole
discretion.
2.2 BONUS. Aberdeen will pay Employee a bonus equal to $10.00
per Nursing Home Bed (as defined below) upon each acquisition by Aberdeen, which
is made during the first year of the Employment Period through Employee's
efforts, of an institutional pharmacy business for a total acquisition cost,
including accounts receivable, inventory and equipment, of $1,000.00 or less per
Nursing Home Bed. Aberdeen will pay Employee a bonus equal to $5.00 per Nursing
Home Bed upon any such acquisition during the first year of the Employment
Period having such a total cost of more than $1,000.00 per Nursing Home Bed. For
purposes of this Section 2.2, "Nursing Home Bed" means a bed served by the
acquired business whose patient averages six or more prescriptions per month.
Additional incentives will be established for the second and subsequent
years during the Employment Period at the sole discretion of Aberdeen as
Employee's assigned responsibilities require them.
2.3 BENEFITS. Aberdeen shall provide Employee with
substantially the same benefits as are generally provided other executive
employees of Aberdeen.
2.4 VACATION. During the Employment Period Employee shall be
entitled to four (4) weeks of paid vacation per year. Alt vacations shall be
taken at such time or times as are mutually convenient for Employee and
Aberdeen.
2.5 AUTOMOBILE. Aberdeen shall provide Employee with the use
of an Aberdeen-owned automobile during his employment.
2.6 EXPENSES. Aberdeen shalt reimburse Employee for reasonable
expenses incurred by him on behalf of Aberdeen in the performance of his
services during his employment. Employee shall furnish Aberdeen with the
documentation in connection with such expenses required by the Internal Revenue
Code and the regulations promulgated thereunder.
3. NON-DISCLOSURE, NON-COMPETITION AND NON-INTERFERENCE.
3.1 NON-COMPETITION. Employee agrees that until the seventh
anniversary of the date of this Agreement, he shall not directly or indirectly,
without the prior written approval of the Board, enter into the employ of,
render any services or assistance to, acquire any financial interest in, or
otherwise become associated in any way with any person or entity ("Competitor"),
whether in the capacity of principal, agent, partner, officer, director,
employee, consultant, shareholder, or otherwise, which provides pharmaceuticals,
drugs, biologicals, medical devices, durable medical equipment or other health
or medical supplies to nursing homes or other institutional care facilities in
the states of Indiana, Ohio, Pennsylvania, Kentucky, Illinois, Wisconsin,
Minnesota or Michigan, or to individuals residing in any such home or facility
in such geographic region. Nothing in this Section 3 shall prevent Employee from
engaging in retail
-2-
<PAGE> 3
pharmacy activities after termination of his employment with Aberdeen, or from
being a member or officer of or participating in the activities of any trade or
professional association, or from acquiring an investment in Aberdeen or an
equity interest of less than one percent (1%) in a Competitor whose shares are
traded on a national securities exchange or over-the-counter.
3.2 NON-DISCLOSURE. Employee agrees that he shall not directly
or indirectly disseminate verbally or in writing or use for his personal benefit
any Confidential Iniormation, regardless of how it may have been acquired,
except for the disclosure of such information as may be required by law, or
authorized in writing by an officer of Aberdeen. Employee further agrees that
upon termination of his employment he will return promptly to Aberdeen all
memoranda, notes, records, reports, manuals, and other documents (and all copies
thereof) relating to Aberdeen's business which he may then possess or have under
his control. For purposes of this Agreement, "Confidential Information" means
all information relating to the terms and conditions of this Agreement, the
Stock Purchase Agreement or the transactions contemplated thereby, and all
information belonging to, used by, or which is in the possession of Aberdeen
relating to Aberdeen's business, products, services, strategies, pricing,
customers, representatives, suppliers, distributors, technology, programs,
finances, costs, employee compensation, marketing plans, developmental plans,
computer software (including all operating system and systems application
software), inventions, developments, or trade secrets, all to the extent such
information is not intended by Aberdeen to be disseminated to the public or to
other participants in Aberdeen's trade or business or is otherwise not generally
known to Competitors of Aberdeen. Employee acknowledges that all of the
Confidential Information is and shall continue to be the exclusive proprietary
property of Aberdeen, whether or not prepared in whole or in part by Employee
and whether or not disclosed to or entrusted to the custody of Employee.
3.3 NON-INTERFERENCE. Employee agrees that he shall not at any
time during the term of this Agreement and for two (2) years thereafter induce,
attempt to induce, or assist others in inducing or attempting to induce any
employee, agent, customer, or supplier of Aberdeen or any other person or entity
associated or doing business with Aberdeen (or proposing to become associated or
to do business with Aberdeen) to terminate his or its relationship with Aberdeen
(or to refrain from becoming associated or doing business with Aberdeen) or in
any other manner to interfere with the relationship between Aberdeen and any
such person or entity.
3.4 NEW DEVELOPMENTS. Employee agrees that he will disclose
promptly to Aberdeen any and all improvements, inventions, developments,
discoveries, innovations, systems, techniques, ideas, processes, programs, and
other things, whether patentable or unpatentable, that are made or conceived by
him alone or with others, in whole or in part, during his employment and which
were made or conceived in whole or in part with Aberdeen's resources or during
Aberdeen time (collectively referred to as the "New Developments"). Employee
further agrees that all New Developments shall be and remain the sole and
exclusive property of Aberdeen and that Employee shall, upon the request of
Aberdeen, and without further compensation, do all lawful things reasonably
necessary to ensure Aberdeen's ownership of any New Development, including the
execution of any necessary documents assigning and transferring to Aberdeen all
of Employee's right, title and interest in and to any New Development, and the
execution of all necessary
-3-
<PAGE> 4
documents required to enable Aberdeen to file and obtain patents in the United
States and foreign countries on any New Development.
3.5 REMEDIES. If Employee commits or threatens to commit a
breach of any of the provisions of this Section 3, Aberdeen shall have the right
to have the provisions of this Agreement specifically enforced by any court
having jurisdiction, it being acknowledged by Employee and agreed by the parties
that any such breach or threatened breach will cause injury to Aberdeen for
which money damages along will not provide an adequate remedy. The rights and
remedies enumerated above shall be in addition to, and not in lieu of, any other
rights and remedies available to Aberdeen at law or in equity.
3.6 REFORMATION OF AGREEMENT. In the event that any of the
covenants contained in this Section 3, or any portion thereof, shall be found by
a court of competent jurisdiction to be invalid or unenforceable as against
public policy or for any other reason, such court shall exercise its discretion
to reform such covenant to the end that Employee shall be subject to
non-disclosure, non-interference and non-competition covenants that are
reasonable under the circumstances and are enforceable by Aberdeen. In any
event, if any provision of this Agreement is found unenforceable for any reason,
such provision shall remain in force and effect to the maximum extent allowable
and all non-affected provisions shall remain fully valid and enforceable.
4. TERM.
4.1 MANNER OF TERMINATION. This Agreement may be terminated
prior to the fifth anniversary of the date hereof, as follows:
(a) BY ABERDEEN FOR DISABILITY. At the option of and upon 30
days' advance written notice from Aberdeen if Employee shall become disabled,
which, for purposes of this Agreement, shall be deemed to have occurred if
Employee suffers from any disability or impairment of health which continues for
at least 120 days and which in the good faith opinion of Aberdeen's management
renders the Employee unable to perform his duties on an active, full-time basis.
(b) BY ABERDEEN FOR GOOD CAUSE. At the option of and by
written notice from Aberdeen if the Board shall in good faith find "good cause"
for termination, which, for purposes of this Agreement, shall mean (i) a
material breach by Employee of his obligations under this Agreement or his
fiduciary duties to Aberdeen, (ii) public conduct which in any manner offends
against decency or morality, (iii) repeated absenteeism, (iv) drug use or
excessive alcohol consumption on the part of Employee, or (v) failure to observe
the directives of the Board or its designee to whom Employee reports; provided,
that with respect to each of the foregoing items (i) through (iv), the Board may
terminate this Agreement only if it has first given written notice to Employee
that such breach, threatened breach or inappropriate conduct could mean
termination for "good cause" and Employee fails to cure such breach, stop the
activity threatening a breach, or discontinue the inappropriate conduct within
30 days after such notice is given.
-4-
<PAGE> 5
(c) BY EMPLOYEE. By Employee upon not less than 120 days
advance written notice.
(d) BY EMPLOYEE FOR GOOD REASON. At the option of and upon not
less than 30 days' advance written notice from Employee for "good reason,"
which, for purposes of this Agreement, shall mean (i) any material breach by
Aberdeen of this Agreement, or (ii) a failure or refusal by a successor of
Aberdeen to assume the obligations of Aberdeen under this Agreement; provided,
that with respect to the foregoing item (i), Employee may terminate this
Agreement only if he has first given written notice to Aberdeen of such breach
and Aberdeen has failed to cure the same within 30 days after such notice is
given.
(e) DEATH. As of the end of the month in which Employee dies.
4.2 CONSEQUENCES OF TERMINATION.
(a) IN GENERAL. All rights of the parties to seek damages and
other relief for breaches of this Agreement occurring prior to or on account of
the termination of this Agreement by the other will survive termination.
Otherwise, all rights and obligations of the parties hereunder will expire upon
termination of this Agreement.
(b) SEVERANCE COMPENSATION. If this Agreement is terminated
prior to the fifth anniversary hereof by Aberdeen other than pursuant to Section
4.1(a), 4.1 (b) or 4.1(e), or if this Agreement is terminated by Employee
pursuant to Section 4.1(d), the severance compensation set forth on Schedule
4.2(b) attached hereto shall be payable by Aberdeen to Employee. Such severance
compensation shall constitute liquidated damages (it being agreed that no exact
measure of damages can be determined) to Employee in lieu of any and all other
compensation or remedies owing to Employee on account of any such termination,
and Employee shall not be entitled to receive any other compensation or remedy
in respect thereof.
5. MISCELLANEOUS.
5.1 WAIVER. Failure of Aberdeen at any time to enforce any
provision of this Agreement or to require performance by Employee of any
provision hereof shall in no way affect the validity of this Agreement or any
part hereof or the right of Aberdeen thereafter to enforce its rights hereunder;
nor shall it be taken to constitute a condonation or waiver by Aberdeen of that
default or any other or subsequent default or breach.
5.2 EXPENSES OF ENFORCEMENT OF COVENANTS. In the event that
any action, suit, or other proceeding (including arbitration) at law or in
equity is brought to enforce any of the provisions contained in this Agreement,
or to obtain money damages for the breach thereof, the party prevailing in any
such action, suit or other proceeding shall be entitled upon demand to
reimbursement from the other party for all expenses (including, without
limitation, reasonable attorneys' fees and disbursements) incurred in connection
therewith.
-5-
<PAGE> 6
5.3 NOTICE. Any notice required to be given under the terms of
this Agreement shall be in writing and mailed to the recipient's last known
address or delivered in person. If sent by registered or certified mail such
notice shall be effective when mailed, otherwise, it shall be effective upon
delivery.
5.4 ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement shall be settled by arbitration, conducted
before a panel of three arbitrators in accordance with the commercial rules of
the American Arbitration Association then in effect. However, the arbitration
will be held in Chicago, Illinois. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction. Any determination by such panel of
arbitrators shall be consistent with the provisions of this Agreement as set
forth herein, it being agreed that the arbitrators will not have the power to
amend this Agreement.
5.5 ASSIGNMENT. Except as set forth herein, no rights of any
kind under this Agreement shall, without prior written consent of Aberdeen, be
transferable to or assignable by Employee or any other person, or be subject to
alienation, encumbrance, garnishment, attachment, execution or levy of any kind,
voluntary or involuntary. This Agreement shall be binding upon and shall inure
to the benefit of Aberdeen, its successors and assigns.
5.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without giving
effect to the conflict of law provisions thereof.
5.7 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
5.8 HEADINGS. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
5.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement among the parties hereto concerning the subject
matter hereof. All negotiations among the parties hereto concerning the subject
matter hereof are merged into this Agreement, and there are no representations,
warranties, covenants, understandings or agreements, verbal or otherwise, in
relation thereto among the parties hereto other than those incorporated herein.
The parties hereto acknowledge that Aberdeen is a party to, and this Agreement
is made in conjunction with, the Stock Purchase Agreement; and it is understood
that nothing in this Agreement is intended to modify the provisions of the Stock
Purchase Agreement or any other agreement or instrument contemplated therein.
Nothing expressed or implied in this Agreement is intended or shall be construed
so as to grant or confer on any person, firm or corporation other than the
parties hereto any rights or privileges hereunder. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
the parties hereto.
-6-
<PAGE> 7
INTENDING TO BE LEGALLY BOUND, the parties or their duly
authorized representatives have signed this Agreement on the date first above
written.
ABERDEEN GROUP, INC.
By: /s/ KEVIN B. SHAW
-------------------------------------
Title: PRESIDENT
----------------------------------
/s/ WILLIAM B. BYRUM
-------------------------------------
WILLIAM B. BYRUM
-7-
<PAGE> 8
SCHEDULE 4.2(b)
SEVERANCE COMPENSATION
- --------------------------------------------------------------------------------
1. Severance Compensation shall be limited to the following:
(a) SALARY CONTINUATION. For the remainder of the Employment
Period 100% of the annual base salary then in effect.
(b) BONUS. As a bonus payable in respect to the then current year,
twenty percent (20)% of the annual base salary then in effect.
(c) BENEFITS. For a period of eighteen (18) months, (i) if
permitted by the carrier(s), health, medical, dental and life
insurance coverage at Aberdeen's expense to the same extent
then covered under Aberdeen's group plans, policies and
programs (and any supplemental plans), or (ii) reimbursement
of Employee for his COBRA payments to Aberdeen.
(d) VACATION. All untaken vacation days for the current year.
(e) AUTOMOBILE. The right to purchase any employer-provided
automobile for $1.00.
(f) OUTPLACEMENT SERVICES. If requested, the cost of outplacement
services not to exceed $2,000.00.
(g) STOCK OPTIONS. Immediate and automatic vesting of any and alt
stock options previously granted to Employee.
2. Although employee shall not be required to mitigate the amount of
salary continuation under Section 1(a) above by seeking employment or otherwise,
such salary continuation payments shall nevertheless be offset or reduced by the
amount of any W-2 compensation provided to Employee in any subsequent
employment.
<PAGE> 1
EXHIBIT 11.1
NCS HEALTHCARE, INC.
STATEMENT REGARDING COMPUTATION
OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net income used in calculation of
primary earnings per share............ $ 717 $ 813 $1,534 $1,868 $2,356
Add impact of assumed conversion of
subordinated debentures............... -- -- -- 31 364
------ ------ ------ ------ ------
Net income used in calculation of fully
diluted earnings per share............ $ 717 $ 813 $1,534 $1,899 $2,720
====== ====== ====== ====== ======
Weighted average common shares
outstanding........................... 5,357 5,357 5,478 5,818 8,462
Net effect of dilutive stock options --
Note A................................ 946 946 946 946 509
------ ------ ------ ------ ------
Shares used in calculation of primary
earnings per share.................... 6,303 6,303 6,424 6,764 8,971
Add impact of assumed conversion of
subordinated debentures............... -- -- -- 68 775
Additional effect of dilutive Stock
options using end of period stock
price................................. -- -- -- -- 24
------ ------ ------ ------ ------
Shares used in calculation of fully
diluted earnings per share............ 6,303 6,303 6,424 6,832 9,770
====== ====== ====== ====== ======
Primary net income per share............ $ .11 $ .13 $ .24 $ .28 $ .26
====== ====== ====== ====== ======
Fully diluted net income per share --
Note B................................ $ .11 $ .13 $ .24 $ .28 $ .28
====== ====== ====== ====== ======
</TABLE>
NOTE A -- Stock options granted within a twelve-month period preceding the
filing date of the Company's initial public offering on February 14,
1996 are included as if they were outstanding for all periods
presented. The dilutive effect of all options outstanding was
calculated using the treasury stock method.
NOTE B -- Fully dilutive net income per share has not been presented in the
Consolidated Statements of Income because the effect is either
immaterial or anti-dilutive.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Advanced Rx, Inc.
The Apothecary NCS, Inc.
Klingensmith Adult Care Pharmacy Inc.
Marlowe Nursing Center Services L.P.
NCS HealthCare of Illinois, Inc.
NCS HealthCare of Indiana, Inc.
NCS HealthCare of Michigan, Inc.
NCS HealthCare of Ohio, Inc.
NCS HealthCare of Oklahoma, Inc.
NCS HealthCare of Oregon, Inc.
NCS HealthCare of Pennsylvania, Inc.
Uni-Care Health Services of Maine, Inc.
Uni-Care Health Services, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF COUNSEL
The consent of Calfee, Halter & Griswold is contained in their opinion
filed as Exhibit 5.1 to this Registration Statement.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated August
2, 1996 on the consolidated financial statements of NCS HealthCare, Inc. and
subsidiaries; our report dated August 20, 1996 on the balance sheet and related
statements of operations and cash flows of IPAC Pharmacy, Inc.; and our report
dated August 26, 1996 on the combined balance sheet and related combined
statements of income and cash flows of Thrifty Medical Systems, in the Form S-1
Registration Statement and related Prospectus of NCS HealthCare, Inc. for the
registration of 3,737,500 shares of its Class A Common Stock.
Ernst & Young LLP
Cleveland, Ohio
August 29, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 21, 1996 on the balance sheet of Americare
Health Services, Inc. (d.b.a. Uni-Care) at December 31, 1994 and 1995, and on
the consolidated statements of operations and retained earnings and cash flows
for the two years ended December 31, 1995, in the Form S-1 Registration
Statement and related Prospectus of NCS HealthCare, Inc. for the registration of
shares of its Class A Common Stock.
R.E. Reed & Company
Laconia, New Hampshire
August 29, 1996
<PAGE> 1
EXHIBIT 24.1
NCS HEALTHCARE, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that NCS HealthCare, Inc. hereby
constitutes and appoints Jon H. Outcalt, Kevin B. Shaw, Jeffrey R. Steinhilber,
Thomas F. McKee, Edward W. Moore and David A. Basinski, Jr., or any one or more
of them, its attorneys-in-fact and agents, each with full power of substitution
and resubstitution for it in any and all capacities, to sign any or all
amendments or post-effective amendments to this Registration Statement, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such attorneys-
in-fact and agents or his substitute or substitutes may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed at Cleveland,
Ohio this 29th day of August, 1996.
NCS HEALTHCARE, INC.
By: /s/ JON H. OUTCALT
-----------------------------
Jon H. Outcalt, Chairman
<PAGE> 2
EXHIBIT 24.1
(CONTINUED)
NCS HEALTHCARE, INC.
CERTIFIED RESOLUTION
I, Kevin B. Shaw, Secretary of NCS HealthCare, Inc., a Delaware corporation
(the "Company"), do hereby certify that the following is a true copy of a
resolution adopted by the Board of Directors on August 20, 1996, and that the
same has not been changed and remains in full force and effect.
RESOLVED, that each of Jon H. Outcalt, Kevin B. Shaw, Jeffrey D.
Steinhilber, Thomas F. McKee, Edward W. Moore and David A. Basinski, Jr. is
hereby appointed as attorney of the Company with full power of substitution and
resubstitution for and in the name, place and stead of the Company to sign,
attest and file a Registration Statement on Form S-1, or any other appropriate
form that may be used from time to time, with respect to the issue and sale of
the Securities, and any and all amendments and exhibits to such Registration
Statement and any and all applications or other documents to be filed with the
Commission and any and all applicable applications or other documents in
connection with the inclusion in any automated interdealer quotation system of
the Securities covered by such Registration Statement or any and all
applications or other documents to be filed with any governmental or private
agency or official relative to the issuance of said Securities, with full power
and authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorneys or any such substitute or substitutes and, without
implied limitation, including in the above the authority to do the foregoing
things on behalf of the Company in the name of the person so acting or on behalf
and in the name of any duly authorized officer of the Company; and that each of
the Chairman, the President and Secretary and the Chief Financial Officer of the
Company is hereby authorized, for and on behalf of the Company, to execute a
Power of Attorney evidencing the foregoing appointment.
By: /s/ KEVIN B. SHAW
-----------------------------
Kevin B. Shaw, Secretary
Dated: August 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 21,460
<SECURITIES> 0
<RECEIVABLES> 27,762
<ALLOWANCES> 3,629
<INVENTORY> 7,487
<CURRENT-ASSETS> 59,193
<PP&E> 19,333
<DEPRECIATION> 9,050
<TOTAL-ASSETS> 110,668
<CURRENT-LIABILITIES> 10,857
<BONDS> 8,510
<COMMON> 122
0
0
<OTHER-SE> 90,978
<TOTAL-LIABILITY-AND-EQUITY> 110,668
<SALES> 113,281
<TOTAL-REVENUES> 113,281
<CGS> 82,415
<TOTAL-COSTS> 82,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 841
<INTEREST-EXPENSE> 2,282
<INCOME-PRETAX> 4,208
<INCOME-TAX> 1,852
<INCOME-CONTINUING> 2,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,356
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
