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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
(Fee Required)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required)
For the Transition period from to .
Commission file number: 000-21515
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AMERICAN MEDSERVE CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 36-3925637
(State of Incorporation) (I.R.S. Employer
Identification
Number)
184 SHUMAN BLVD., SUITE 200 60563
NAPERVILLE, ILLINOIS (Zip Code)
(Address of principal
executive offices)
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Registrant's telephone number, including area code: 630-717-2904
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($.01 PAR VALUE)
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes / /
As of March 21, 1997, the Registrant had 12,000,464 shares of Common Stock
($.01 par value) issued and outstanding. As of that date, the aggregate market
value of the Registrant's voting shares which were held by non-affiliates (based
on the closing price of $12.25 per share of Common Stock on the NASDAQ National
Market on March 21, 1997) was $85,684,842. For purposes of this calculation, the
Registrant deems the 790,256 shares held by its directors and executive officers
and 4,215,527 shares of Common Stock held by Golder, Thoma, Cressey, Rauner Fund
IV, L.P. to be shares held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS 1997 ANNUAL
MEETING OF STOCKHOLDERS, SCHEDULED TO BE HELD JUNE 12, 1997, ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS REPORT. DEFINITIVE COPIES OF ITS 1997 PROXY
STATEMENT WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120
DAYS OF THE END OF THE COMPANY'S FISCAL YEAR.
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AMERICAN MEDSERVE CORPORATION
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. Business......................................................................................... 3
ITEM 2. Properties....................................................................................... 11
ITEM 3. Legal Proceedings................................................................................ 11
ITEM 4. Submission of Matters to a Vote of Security Holders.............................................. 11
Executive Officers of the Company................................................................. 12
PART II
ITEM 5. Market for the Company's Common Equity and Related Stockholder Matters........................... 13
ITEM 6. Selected Financial Data.......................................................................... 14
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 16
ITEM 8. Financial Statements and Supplementary Data...................................................... 20
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial........................ 20
PART III
ITEM 10. Directors and Executive Officers of the Registrant............................................... 20
ITEM 11. Executive Compensation........................................................................... 20
ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................... 20
ITEM 13. Certain Relationships and Related Transactions................................................... 21
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................. 21
Signatures........................................................................................ 22
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PART I
ITEM 1. BUSINESS
GENERAL
American Medserve Corporation ("AMC" 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
long-term health care settings. The Company purchases, repackages and dispenses
in patient-ready packaging pharmaceuticals to patients or residents in its
client facilities and provides such facilities with related consultant
pharmacist and information services, including formulary management, automated
medical record-keeping, drug therapy evaluation and assistance with regulatory
compliance. To complement its core pharmacy services, the Company also provides
infusion therapy, specialized nutrition therapy, inhalation and respiratory
therapy and wound care management services, as well as medical supplies and
devices. At December 31, 1996, AMC provided pharmacy services to approximately
42,700 residents at over 560 facilities located in Colorado, Illinois,
Louisiana, Minnesota, Nebraska, New York, Pennsylvania, South Dakota and
Virginia.
The Company was formed in November 1993 to participate in the consolidation
of the long-term care pharmacy industry. To meet this objective, the Company has
pursued an acquisition program designed to expand its presence in selected
geographic markets. From commencing operations in August 1994 through December
31, 1996, the Company has completed 18 acquisitions. In 1996, the Company
acquired a 50.1% equity interest in Good Samaritan Supply Services, Inc. ("Good
Samaritan Supply"), in which the Company's co-investor is The Evangelical
Lutheran Good Samaritan Foundation, an affiliate of The Evangelical Lutheran
Good Samaritan Society.
In November and December 1996, the Company issued 6,160,550 shares of Common
Stock at $15.00 per share in its initial public offering, generating net
proceeds of approximately $83,159,000 (after underwriting discount and offering
expenses). The proceeds were used to (a) make a one-time preferential
distribution of $20,772,419 to the Company's principal shareholder, (b) to repay
long-term debt, and accrued interest thereon, of $46,073,750, (c) to make an
additional investment of $2,000,000 in Good Samaritan Supply, which was then
used to repay a portion of its long-term debt, and (d) to make a payment of
$450,000 to an affiliate of the Company's principal shareholder for accrued
management fees and the termination of a management agreement. The remaining
proceeds will be used to fund business acquisitions and for other general
corporate purposes.
ACQUISITION PROGRAM
The Company's acquisition program is designed to capitalize on the
consolidation opportunities in the long-term care pharmacy market. Since
commencing operations in August 1994 with its initial acquisition of a long-term
care pharmacy provider, the Company has completed 18 acquisitions through
December 31, 1996, including 12 acquisitions in 1996. The Company believes that
through the successful integration of acquired businesses it can continue to
grow through geographic expansion and by providing a broader array of pharmacy
products and ancillary services to its client facilities in a cost-effective
manner.
The Company's acquisition program identifies states (or markets within
states) characterized by substantial growth opportunities and an acceptable
reimbursement climate. Within markets that are so identified, the Company
targets acquisition candidates with highly competent management and a
demonstrated capacity for growth. The Company encourages local management to
continue to retain primary operating responsibility for the profitability and
growth of the acquired business. Seeking to align the interests of local
management with those of the Company, the Company often encourages management of
its acquired businesses to maintain an equity interest in the Company. This
aspect of the Company's acquisition program, along with the benefits of being
affiliated with a larger organization, has enhanced the Company's ability to
consummate and integrate new acquisitions. In addition, the retention of local
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management enables the Company to capitalize on management's keen understanding
of their respective markets, as well as their strong customer relationships.
The Company employs a three-tiered acquisition program for long-term care
pharmacy providers, which focuses on businesses that can be characterized as
"platform," "add-on" and "fold-in" acquisition candidates. The Company seeks to
enter selected states with "platform" acquisitions of long-term care pharmacy
providers with strong market positions. The second tier of the Company's
acquisition program involves the acquisition of "add-on" long-term care pharmacy
companies that expand the Company's presence in a particular state, thereby
enabling the Company to achieve the critical mass required to service clients,
including multi-facility clients, in a cost-effective manner throughout the
selected state. In order to increase its market share and realize economies of
scale, the Company seeks to acquire smaller "fold-in" businesses that can be
easily assimilated into the Company's existing operations, including
acquisitions of the long-term pharmacy businesses of retail pharmacies. Such
fold-in businesses are intended to enable the Company to benefit from the
operating leverage of its existing businesses by acquiring additional market
share and revenues while eliminating or reducing certain general, administrative
and operating costs previously associated with such revenues.
In addition to pursuing rapid growth through acquisitions of long-term care
pharmacies, the Company has expanded, and expects to continue to expand, the
range of products and services that it offers through the acquisition of
businesses that provide ancillary services complementary to the Company's core
pharmacy services and products.
SERVICES
The Company purchases, repackages and dispenses in patient-ready packaging
pharmaceuticals to patients or residents in its client facilities and provides
such facilities with related consultant pharmacist and information services,
including formulary management, automated medical record keeping, drug therapy
evaluation and regulatory assistance. To complement its core pharmacy services,
the Company provides an array of health care services, such as infusion therapy,
specialized nutritional therapy, inhalation and respiratory therapy and wound
care management services, as well as prescription medical supplies and devices.
PHARMACY SERVICES. The Company's core business is providing pharmaceutical
dispensing services to residents of long-term care facilities. The Company
purchases, repackages and dispenses in patient-ready packaging prescription
pharmaceuticals in accordance with physician orders and delivers such
prescriptions at least daily to long-term care facilities for administration to
residents by the nursing staff of these facilities. The Company provides 24 hour
coverage 365 days per year from sites in eight states. In addition, the Company,
through its operating subsidiaries in Illinois and Pennsylvania, offers retail
pharmacy services.
Upon receipt of a doctor's order, the information is entered into one of the
Company's management information systems, 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 generic or therapeutic substitutions based on the Company's formulary
guidelines.
The Company provides pharmaceuticals to its clients through a patient-ready
unit dose distribution system. The Company divides the pharmaceuticals received
in bulk form from its suppliers into patient-ready unit dose packages. The
patient-ready, unit dose format is designed to reduce errors, encourage
compliance by patients, increase convenience for nursing staffs, improve control
over the distribution of pharmaceuticals and save nursing administration time
relative to the bulk systems traditionally used by retail pharmacies.
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As an additional service, the Company 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 PHARMACIST SERVICES. Federal and state regulations mandate that
long-term care facilities improve the quality of patient care by offering
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.
The Company provides consultant pharmacist 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 and
monitoring lab results; (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 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.
The Company, through certain of its operating subsidiaries, also offers on a
limited basis a specialized line of consulting services that 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; and (v)
nurse consultant services and consulting for dietary, social services and
medical records.
THERAPY SERVICES. The Company also provides its client facilities with
infusion therapy services, inhalation and respiratory therapy services and wound
care management supplies and services. Infusion therapy is the intravenous
delivery of medication or introduction of parenteral and enteral nutritional
formulas. The Company's infusion therapy services include pain management,
antibiotic therapy services, chemotherapy and parenteral and enteral nutritional
therapy services for long-term care residents and home care patients. The
Company 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 services 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. The Company believes that by enhancing the ability of client
facilities to administer infusion therapy services, these programs have led to
greater use of infusion therapy services throughout the Company's long-term care
facility customer base.
OTHER. The Company also offers non-prescription medical devices and
equipment and, primarily through Good Samaritan Supply, long-term care facility
medical supplies, prescription medical supplies and home care medical supplies.
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FORMULARY MANAGEMENT
The Company employs formulary management techniques that are tailored to the
needs of each of the markets in which it operates. These techniques are designed
to assist physicians in making the best choice of drug therapy for patients at
the lowest cost. Under the Company's various formulary programs, AMC clinical
and dispensing 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.
Successful implementation of formulary guidelines is dependent upon close
interaction between the clinical and dispensing pharmacists and the prescribing
physician. The Company seeks to attract and retain highly trained clinical and
dispensing 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 believes that adherence to its formulary guidelines
improves drug therapy results, lowers costs for residents and strengthens the
Company's purchasing power with pharmaceutical manufacturers.
SALES AND MARKETING
The Company's marketing efforts are directed towards long-term care
facilities, third-party payors, physicians, nurses and patients. Because
customer relationships are such a strong factor in the long-term care pharmacy
industry, AMC's marketing activities are primarily the responsibility of local
management and are coordinated and supplemented by the Company's Vice
President-National Sales. The Company's consultant pharmacists, dispensing
pharmacists and nursing consultants, because of their direct and ongoing
personal contact with client facility staff, physicians and patients, also play
a significant role in developing new business and maintaining relationships with
existing clients. The Company's Vice President-National Sales coordinates
marketing efforts to nursing home chains, multi-state customers and potential
customers in states in which the Company has no presence. The Vice
President-National Sales also works with local management on cross-marketing
services and broadening their product offerings to existing clients.
The Company also markets its products and services by encouraging its
professionals to build and maintain high visibility in the long-term care
pharmacy industry. The Company participates in trade associations, industry
trade shows and "in-house" seminars on specialized topics in its regional
services areas. The Company believes that these seminars enhance its
professional image and credibility, and accordingly, serve as an indirect source
of additional business.
In marketing its services and products, the Company also emphasizes its
ability to control the pharmacy costs related to patient care, which allows it
to tailor the services and products it provides to the needs of particular
clients. The Company also seeks to serve its customers most effectively through
a willingness to utilize creative contracting arrangements, such as alternative
billing and risk-sharing arrangements.
MANAGEMENT INFORMATION SYSTEMS
The Company licenses its various pharmacy, financial and information
management systems from third parties. Unlike many of the Company's competitors,
which develop information systems internally, the Company believes that it is
more cost-effective to outsource its information management system requirements
to qualified third parties. Due in part to differences in state licensing and
reporting requirements, each of the Company's operating subsidiaries licenses
its own information system that
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provides detailed information to clients and third-party payors while providing
the Company's pharmacists with computerized access to medication and treatment
records for long-term care facility residents as well as data regarding drug
interactions and contraindications, patient medication profiles and information
on patient allergies.
PURCHASING
The Company purchases pharmaceuticals primarily from a national wholesale
distributor, with which it has negotiated a prime vendor contract, and directly
from certain pharmaceutical manufacturers. The Company is also a member of a
pharmaceutical group purchasing organization, as well as other industry buying
groups that contract with manufacturers for volume-based discounted prices that
are passed through to the Company by its wholesale distributor. The Company's
agreement with the group purchasing organization provides that such organization
will negotiate special pricing discounts and rebates with various pharmaceutical
suppliers and implement contract purchasing compliance programs, will institute
a "preferred rebate" processing program in cooperation with certain wholesale
distributors and manufacturers and will provide the Company with formulary
information. 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 December 31, 1996, the Company had contracts to provide services to
approximately 42,700 residents in over 560 long-term care 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. For the year ended December 31, 1996, no single customer or customer
group accounted for more than 5% of the Company's total revenues (for the year
ended December 31, 1996, on a pro forma basis as if Good Samaritan Supply had
been consolidated beginning January 1, 1996, the facilities operated by The
Evangelical Lutheran Good Samaritan Society, an affiliate of the Company's
co-investor in Good Samaritan Supply, in the aggregate accounted for
approximately 12% of pro forma revenues). Nevertheless, the loss by the Company
of a significant customer in a particular market might have a material adverse
effect on the Company's results of operations.
COMPETITION
The business of providing pharmacy services to long-term care facilities is
highly competitive. On the national level and with respect to its program of
acquiring long-term care pharmacy providers, the Company's principal competitors
include Omnicare, Inc., NCS HealthCare, Inc., Capstone Pharmacy Services, Inc.
and "captive" long-term care pharmacy companies such as Vitalink Pharmacy
Services, Inc. (an affiliate of Manor Care, Inc.) and Pharmacy Corporation of
America (a subsidiary of Beverly Enterprises, Inc.), as well as several other
companies with similar acquisition strategies, many of which may have greater
resources than those of the Company. Regionally, the Company believes that
competition within a particular market is based principally on customer
relationships, operations, marketing abilities, professional support and
customer service.
REIMBURSEMENT AND BILLING
As is generally the case for long-term care facility services, the Company
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 year ended December 31, 1996, the
Company's payor mix was approximately 36% Medicaid, 6% Medicare, 21% long-term
care facilities (including amounts for which the long-term care facility
receives reimbursement under Medicare part A), 23% private pay, 10% third-party
insurance and 4% commercial accounts. Medicare and Medicaid are
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highly regulated. The failure of the Company and/or its client institutions to
comply with applicable reimbursement regulations could adversely affect the
Company's business.
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 Health and Human Services 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 many states establish "upper limits" for reimbursement for
prescription pharmaceuticals under Medicaid. In most states pharmacy services
are priced at the lower of "usual and customary" charges, cost (which generally
is defined as a function of average wholesale price less a discount) plus a
dispensing fee or the preestablished upper limits. In some states, such as New
York, Medicaid reimbursement for pharmacy products and services is paid to the
nursing facility operator as part of its comprehensive per diem rates. The
nursing facility operator, in turn, is responsible for paying the pharmacy
provider.
State Medicaid programs generally have long-established programs for
reimbursement which have been revised and refined over time. To date, such
programs have determined the pricing policies and receivables collection for
long-term care pharmacy providers. Any future changes in such reimbursement
programs 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 U.S. Congress passed a fiscal year 1996
budget reconciliation bill that provided for substantial reductions in the rate
of spending increases in the Medicare program and in the federal share of the
Medicaid program. While such bill was vetoed by President Clinton, such
provisions or any similar 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 and 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 and Medicaid rates. Medicare Part A has a cost sharing
arrangement under which beneficiaries must pay a portion of their costs. These
co-payments are billed by the facility directly to residents or to 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 established coverage
guidelines, allowable utilization frequencies and billing procedures for DMEPOS.
Payment is based on a fee schedule, which varies
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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 the Company, 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. The Company, as an eligible supplier, either bills Medicare
directly for Part B-covered products for each patient or, alternatively, assists
the long-term care facility in meeting Medicare Part B eligibility requirements
and prepares bills on behalf of the facility. 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.
LONG-TERM CARE FACILITIES. In addition to occasional private patient
billings and those related to pharmaceuticals for Medicare-eligible residents,
long-term care facilities are billed directly for consulting services, certain
over-the-counter medications and bulk house supplies. In some states, such as
New York, Medicaid reimbursement for pharmacy products and services is paid to
the nursing facility operator as part of its comprehensive per diem rates. The
nursing facility operator, in turn, is responsible for paying the pharmacy
provider.
PRIVATE PAY. For those customers who are not covered by
government-sponsored programs, the Company generally collects cash or bills the
customer or other responsible party on a monthly basis. Depending upon local
market practices, the Company may alternatively bill private residents through
the long-term care facility. Pricing for private pay customers is based on
prevailing regional market rates or "usual and customary" charges.
THIRD-PARTY INSURANCE. Third-party insurance includes funding for customers
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.
COMMERCIAL ACCOUNTS. Commercial accounts include businesses that purchase
medical supplies, products or pharmaceuticals on a non-prescription basis,
generally for use within their operations or for resale.
GOVERNMENT REGULATION
Long-term care pharmacies, as well as the long-term care facilities they
serve, 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. The Company 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 ten
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 Medicare 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 care 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.
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FEDERAL AND STATE LAWS AFFECTING THE REPACKAGING, LABELING AND INTERSTATE
SHIPPING OF PHARMACEUTICALS. Federal and state laws impose certain repackaging,
labeling and package insert requirements on pharmacies that repackage
pharmaceuticals for distribution beyond the regular practice of dispensing or
selling drugs directly to patients at retail. A pharmaceutical 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. The long-term care facility pharmacy business
operates 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.
Federal law and regulations contain a variety of requirements relating to
the furnishing of prescription pharmaceuticals 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 pharmaceuticals dispensed to long-term care facility residents if
the long-term care facility complies with the drug regimen review requirements.
However, the regulations indicated 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 requirements, 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 pharmaceuticals 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 or
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 referral or
other conduct within the statute.
Federal regulations establish "Safe Harbors," which grant 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
10
<PAGE>
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. 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.
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
pharmaceutical 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 pharmaceutical marketing
programs, including programs containing incentives to pharmacists to dispense
one particular product rather than another. These enforcement actions have
requested that the Food and Drug Administration ("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.
EMPLOYEES
As of December 31, 1996, the Company had approximately 525 full-time and 150
part-time employees. None of the Company's employees is represented by a union.
The Company considers relations with its employees to be good. In addition, the
Company employs approximately 175 people through staff leasing companies.
ITEM 2. PROPERTIES
As of December 31, 1996, the Company leased 36 pharmacy locations
aggregating approximately 174,000 square feet and 11 warehouse and office
locations aggregating approximately 37,000 square feet. The remaining terms of
the leases relating to these properties vary in length from one to ten years,
and such leases, in some cases include options to extend. The Company presently
maintains its executive offices in Naperville, Illinois pursuant to a lease
expiring in June 1997. The Company considers all of these facilities to be in
good operating condition and generally to be adequate to meet current and
anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
While the Company is not currently involved in any legal proceedings, the
Company is from time to time involved in various legal proceedings incidental to
the conduct of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On October 15, 1996, the Company's stockholders, by unanimous written
consent, (i) approved and adopted the Company's Amended and Restated Certificate
of Incorporation, (ii) adopted the Company's 1996 Stock Incentive Plan, and
(iii) elected Messrs. Timothy L. Burfield and Charles C. Halberg as Class I
11
<PAGE>
directors; Messrs. James H.S. Cooper and Mark A. Jerstad as Class II directors;
and Messrs. Bryan C. Cressey and Lee M. Mitchell as Class III directors.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of March 21, 1997
concerning each of the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------------- --- ------------------------------------------
<S> <C> <C>
Bryan C. Cressey......................................... 47 Chairman of the Board of Directors
Timothy L. Burfield...................................... 48 President and Chief Executive Officer
Charles R. Wallace....................................... 48 Vice President--Finance, Chief Financial
Officer, Treasurer and Secretary
Michael B. Freedman...................................... 30 Vice President--Business Development
J. Jeffrey Gephart....................................... 45 Vice President--National Sales
</TABLE>
BRYAN C. CRESSEY has been Chairman of the Board of the Company since
December 1993. In 1993, Mr. Cressey co-founded and became a principal of Golder,
Thoma, Cressey, Rauner, Inc. and for the past fifteen years he has been a
general partner of Golder, Thoma, Cressey, Rauner L.P. Golder, Thoma, Cressey,
Rauner, Inc. and Golder, Thoma, Cressey, Rauner L.P. are private equity
investing firms. Golder, Thoma, Cressey, Rauner, Inc. is the general partner of
GTCR IV, L.P., which is the general partner of Golder, Thoma, Cressey, Rauner
Fund IV, L.P. Mr. Cressey serves on various boards of directors, including Cable
Design Technologies Corporation and Paging Network Inc. Mr. Cressey is a
graduate of the University of Washington (B.A.), Harvard Law School (J.D.) and
Harvard Business School (M.B.A.).
TIMOTHY L. BURFIELD is a founder of the Company and has served as the
President and Chief Executive Officer and as a director of the Company since
December 1993. Mr. Burfield was the Secretary of the Company from December 1993
to September 1996. From February 1988 to July 1993, Mr. Burfield was Chairman,
President and Chief Executive Officer of Abbey Pharmaceutical Services, Inc., a
leading provider of long-term care pharmacy services and medical equipment.
Prior to that time, Mr. Burfield held a variety of executive positions with
Abbey Healthcare Group, Inc., Medical Services Company of ARA Services and
American Hospital Supply Corporation. Mr. Burfield had more than 19 years of
experience in the health care field prior to forming the Company. Mr. Burfield
is a graduate of Villanova University (B.A.).
CHARLES R. WALLACE has served as the Vice President--Finance, Chief
Financial Officer and Treasurer of the Company since September 1995 and has
served as the Secretary since September 1996. From December 1993 to February
1995, Mr. Wallace was the Corporate Controller of Household International, Inc.,
a consumer finance and banking organization, and from 1989 to 1993, he was
Executive Vice President and Chief Operating Officer of Hamilton Investments,
Inc., a securities and investment firm. Mr. Wallace is a certified public
accountant and is a graduate of the University of Illinois (B.S.).
MICHAEL B. FREEDMAN is the Vice President--Business Development of the
Company and has served in that capacity since August 1994. From August 1994 to
September 1995, Mr. Freedman also served as the Company's acting Chief Financial
Officer. From April 1993 to August 1994, Mr. Freedman was an associate at
Golder, Thoma, Cressey, Rauner, Inc. From April 1992 to April 1993, Mr. Freedman
was the President of Stadium Promotions, Inc., a sports marketing company and
from February 1991 to April 1992, Mr. Freedman was the Controller of Power
Conversion, Inc., a battery manufacturer. Mr. Freedman is a certified public
accountant and is a graduate of Dartmouth College (B.A.) and the Stern School of
Business, New York University (M.B.A.).
12
<PAGE>
J. JEFFREY GEPHART is the Vice President--National Sales of the Company and
has served in that capacity since January 1995. From May 1990 until January
1995, Mr. Gephart held various positions at Abbey Pharmaceuticals, Inc.,
including most recently Vice President--Sales. Mr. Gephart had over 17 years of
sales and marketing experience in the long-term care industry when he joined the
Company, including sales management positions with General Medical Corporation,
Continental Health Affiliates, Nutrition Technology Corporation and Kimberly
Clark Corporation. Mr. Gephart is a licensed nursing home administrator and is a
graduate of Purdue University (B.S.).
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was initially offered to the public on November
13, 1996 at a price of $15.00 per share and commenced trading on the Nasdaq
National Market on that date under the symbol AMCI. Prior to November 13, 1996,
the Company's Common Stock was not listed or traded in any organized market
system. The following table sets forth, for the year ended December 31, 1996,
the high and low sale prices per share for the 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>
Fourth Quarter (from November 13, 1996).................................... $ 18.25 $ 15.25
</TABLE>
On March 21, 1997, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $12.25 per share. As of March 21, 1997, there
were approximately 40 holders of record of the Company's Common Stock. This
figure does not include stockholders with shares held under beneficial ownership
in nominee name or within clearinghouse positions of brokerage houses and banks.
Other than the one-time mandatory preferential distribution of $20.8 million
paid to the Company's principal stockholder out of the net proceeds of the
Company's initial public offering, the Company has not declared or paid any cash
dividends on, or made any other distribution with respect to, its Common Stock
since its formation and does not currently intend to declare or pay any cash
dividends on its Common Stock, but intends to retain future earnings for
reinvestment in its business. Any future determination by the Company to pay
cash dividends on its Common Stock will be at the discretion of the Board of
Directors of the Company and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors. Under the terms of the Company's
Credit Agreement, AMC Regional Holdings, Inc. (a wholly-owned subsidiary of the
Company and the direct or indirect parent of all of the Company's operating
subsidiaries other than Good Samaritan Supply) may not pay dividends to the
Company prior to June 30, 1997 in an aggregate amount in excess of $700,000.
Consequently, the Company's ability to pay dividends is restricted.
During 1996, the Company sold the following securities that were not
registered under the Securities Act of 1933, as amended (excluding such sales
previously reported by the Company in its Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996):
On October 15, 1996, the Company issued 482.7 shares of Class B Common Stock
(33,620 shares of Common Stock as reclassified) to Joseph F. Dellantonio as
partial payment for the acquisition of certain assets of Joseph F. Dellantonio,
Inc. Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act of 1933, no public sale having been involved. No underwriters
were involved in the foregoing sale of securities.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data of the Company for the years ended
December 31, 1992 and 1993 and the period from January 1, 1994 to August 2,
1994, have been derived from the financial statements of Gatti LTC Services,
Inc. (the Company's predecessor company, which includes the combined results of
operations of G.S.H.C., Inc. and the Contract Services Division of Louis F.
Gatti, Inc.). The selected consolidated financial data of the Company for the
year ended June 30, 1995, the six months ended December 31, 1995, and the year
ended December 31, 1996 have been derived from the Company's audited financial
statements.
<TABLE>
<CAPTION>
PREDECESSOR(1)
--------------------------------- THE COMPANY(2)
PERIOD FROM -----------------------------------------
JANUARY 1, SIX MONTHS
1994 TO YEAR ENDED ENDED YEAR ENDED
AUGUST 2, JUNE 30, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1995(3) 1996
--------- --------- ----------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $ 6,515 $ 9,099 $ 6,917 $ 24,793 $ 27,347 $ 82,027
Cost of revenues........................... 4,700 6,824 4,963 17,896 19,559 58,807
--------- --------- ----------- ----------- ------------- -------------
Gross profit............................... 1,815 2,275 1,954 6,897 7,788 23,220
Selling, general and administrative
expenses................................. 1,301 1,760 1,315 5,663 6,275 19,605
Nonrecurring charges(4).................... -- -- -- -- -- 3,019
--------- --------- ----------- ----------- ------------- -------------
Operating income........................... 514 515 639 1,234 1,513 596
Interest expense........................... 135 162 78 1,001 1,053 2,741
Other (income) expense..................... -- 4 -- (171) (210) (84)
Minority interest.......................... -- -- -- 43 (5) (89)
--------- --------- ----------- ----------- ------------- -------------
Income (loss) before income taxes and
extraordinary item....................... 379 349 561 361 675 (1,972)
Provision for income taxes................. 97 143 24 269 379 162
--------- --------- ----------- ----------- ------------- -------------
Income (loss) before extraordinary item.... 282 206 537 92 296 (2,134)
Write off of deferred financing costs, net
of income tax benefit of $404............ -- -- -- -- -- 437
--------- --------- ----------- ----------- ------------- -------------
Net income (loss).......................... $ 282 $ 206 $ 537 $ 92 $ 296 $ (2,571)
--------- --------- ----------- ----------- ------------- -------------
--------- --------- ----------- ----------- ------------- -------------
Income (loss) per share before
extraordinary item....................... $ 0.02 $ 0.05 $ (0.29)
Extraordinary item per share............... -- -- .06
----------- ------------- -------------
Net income (loss) per share................ $ 0.02 $ 0.05 $ (0.35)
----------- ------------- -------------
----------- ------------- -------------
Weighted average shares outstanding........ 6,098 6,467 7,311
</TABLE>
- ------------------------------
(1) Represents results of operations of Gatti LTC Services Inc., which was
acquired by the Company on August 2, 1994.
(2) The Company was formed in November 1993 by management and an investment fund
affiliated with Golder, Thoma, Cressey, Rauner, Inc. and commenced
operations with the acquisition of Gatti LTC Services, Inc. on August 2,
1994.
(3) Effective December 14, 1995, the Board of Directors of the Company elected
to change the year-end of the Company for financial reporting and tax
purposes from June 30 to December 31.
(4) Represents (a) a noncash, nonrecurring charge of $2.5 million (with no tax
benefit) related to (i) the sale of 310,208 shares of Common Stock of the
Company to certain directors and officers at a price less than the initial
public offering price of the Common Stock on November 13, 1996, and (ii) the
conversion of options to purchase shares of common stock of certain
subsidiaries into options to purchase 146,635 shares of Common Stock of the
Company at a weighted average exercise price less than the initial public
offering price of the Common Stock on November 13, 1996, (b) a charge of
$0.3 million ($0.2 million net of tax) related to the termination of a
professional services agreement with an affiliate of the Company's principal
stockholder and (c) a charge of $0.2 million ($0.1 million net of tax)
related to special bonuses paid to management in connection with the
Company's initial public offering.
14
<PAGE>
The selected consolidated financial data presented below at December 31,
1992, 1993, 1994, 1995 and 1996 and for each of the years then ended have been
derived from the financial data presented in the preceding table. The financial
data have been reformatted in order to facilitate a better analytical review and
to correspond to future reporting periods.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
--------------------------------- -----------------------------------
PERIOD FROM PERIOD FROM
YEARS ENDED DECEMBER JANUARY 1, AUGUST 3, YEARS ENDED DECEMBER
31, 1994 TO 1994 TO 31,
-------------------- AUGUST 2, DECEMBER 31, --------------------
1992 1993 1994 1994 1995 1996
--------- --------- ----------- ------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 6,515 $ 9,099 $ 6,917 $ 8,091 $ 44,049 $ 82,027
Cost of revenues................................ 4,700 6,824 4,963 5,991 31,464 58,807
--------- --------- ----------- ------------- --------- ---------
Gross profit.................................... 1,815 2,275 1,954 2,100 12,585 23,220
Selling, general and administrative expenses.... 1,301 1,760 1,315 1,909 10,029 19,605
Nonrecurring charges(1)......................... -- -- -- -- -- 3,019
--------- --------- ----------- ------------- --------- ---------
Operating income................................ 514 515 639 191 2,556 596
Interest expense................................ 135 162 78 292 1,762 2,741
Other (income) expense.......................... -- 4 -- (69) (312) (84)
Minority interest............................... -- -- -- 6 32 (89)
--------- --------- ----------- ------------- --------- ---------
Income (loss) before income taxes and
extraordinary item............................ 379 349 561 (38) 1,074 (1,972)
Provision (benefit) for income taxes............ 97 143 24 (21) 669 162
--------- --------- ----------- ------------- --------- ---------
Income (loss) before extraordinary item......... 282 206 537 (17) 405 (2,134)
Write off of deferred financing costs, net of
income tax benefit of $404.................... -- -- -- -- -- 437
--------- --------- ----------- ------------- --------- ---------
Net income (loss)............................... $ 282 $ 206 $ 537 $ (17) $ 405 $ (2,571)
--------- --------- ----------- ------------- --------- ---------
--------- --------- ----------- ------------- --------- ---------
Income (loss) per share before extraordinary
item.......................................... $ 0.06 $ (0.29)
Extraordinary item per share.................... -- .06
--------- ---------
Net income (loss) per share..................... $ 0.06 $ (0.35)
--------- ---------
--------- ---------
Weighted average shares outstanding............. 6,467 7,311
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)....................... $ (149) $ 221 $ 216 $ 3,517 $ 9,540 $ 38,494
Total assets.................................... 3,369 3,955 5,240 16,965 44,997 113,298
Long-term debt, excluding current portion....... 435 530 264 8,071 23,505 6,087
Stockholders' equity............................ 462 668 1,205 5,596 14,573 92,999
</TABLE>
- ------------------------
(1) Represents (a) a noncash, nonrecurring charge of $2.5 million(with no tax
benefit) related to (i) the sale of 310,208 shares of Common Stock of the
Company to certain directors and officers at a price less than the initial
public offering price of the Common Stock on November 13, 1996, and (ii) the
conversion of options to purchase shares of common stock of certain
subsidiaries into options to purchase 146,635 shares of Common Stock of the
Company at a weighted average exercise price less than the initial public
offering price of the Common Stock on November 13, 1996, (b) a charge of
$0.3 million ($0.2 million net of tax) related to the termination of a
professional services agreement with an affiliate of the Company's principal
stockholder and (c) a charge of $0.2 million ($0.1 million net of tax)
related to special bonuses paid to management in connection with the
Company's initial public offering.
15
<PAGE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As the Company and its predecessor, which was acquired on August 2, 1994,
have had various fiscal year-ends during the past three years the Company has
reformatted the selected consolidated financial data of the Company and its
predecessor to years ended December 31 in order to facilitate a better
analytical review and to correspond to future reporting periods.
The following table sets forth for the periods indicated certain information
derived from the Company's reformatted results of operations expressed as a
percentage of revenues for such periods:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................................................. 100.0% 100.0% 100.0%
Cost of revenues..................................................... 73.0 71.4 71.7
--------- --------- ---------
Gross profit......................................................... 27.0 28.6 28.3
Selling, general and administrative expenses......................... 21.5 22.8 23.9
Nonrecurring charges................................................. -- -- 3.7
--------- --------- ---------
Operating income..................................................... 5.5 5.8 0.7
Interest expense..................................................... 2.5 4.0 3.3
Other (income) expense............................................... (0.5) (0.7) (0.1)
Minority interest.................................................... -- 0.1 (0.1)
--------- --------- ---------
Income (loss) before income taxes and extraordinary item............. 3.5 2.4 (2.4)
Provision for income taxes........................................... -- 1.5 0.2
--------- --------- ---------
Income (loss) before extraordinary item.............................. 3.5 0.9 (2.6)
Extraordinary item................................................... -- -- 0.5
--------- --------- ---------
Net income (loss).................................................... 3.5% 0.9% (3.1)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for the year ended December 31, 1996 increased to $82.0 million
from $44.0 million for the comparable 1995 period. Of the $38.0 million
increase, $28.7 million was due to acquisitions and $9.3 million was due to
internal growth. The Company defines "internal growth" to consist of increased
market penetration in existing markets, fold-in acquisitions in established
areas that are assimilated into existing operations, start-up facilities in new
areas in states where the Company was already established, and sales of new
products and services to existing customers.
Gross profit for the year ended December 31, 1996 was $23.2 million compared
to $12.6 million for the comparable 1995 period, an increase of $10.6 million.
Gross profit as a percentage of revenues decreased to 28.3% for the year ended
December 31, 1996 from 28.6% for the comparable 1995 period. The decrease in
gross profit as a percentage of revenues was primarily the result of the full
period effect of Medicaid reimbursement adjustments in the latter half of 1995
(which resulted in lower reimbursement rates for certain products), certain
pharmaceutical cost increases and the relative margin of companies acquired
during 1996.
Selling, general and administrative expenses for the year ended December 31,
1996 (exclusive of nonrecurring charges of $3.0 million) were $19.6 million
compared to $10.0 million for the comparable 1995 period, an increase of $9.6
million. Selling, general and administrative expenses (exclusive of nonrecurring
charges) as a percentage of revenues were 23.9% for the year ended December 31,
1996 compared to 22.8% for the year ended December 31, 1995. The increase in
total selling, general and
16
<PAGE>
administrative expenses in absolute dollars was primarily the result of
acquisitions completed in 1996, the full period effect of acquisitions completed
in 1995, the increased amortization of goodwill ($0.4 million) associated with
the acquired companies, and the full period effect of the expansion of the
Company's corporate office staff in the latter half of 1995 to support the
Company's growth.
In 1996 the Company incurred a noncash, nonrecurring compensation charge of
$2.5 million (with no related tax benefit) related to (a) the sale in September
1996 of 310,208 shares of Common Stock of the Company to certain directors and
officers at a price less than the initial public offering price of the Common
Stock on November 13, 1996 and (b) the conversion in August 1996 of options to
purchase shares of common stock of certain subsidiaries into options to purchase
146,635 shares of Common Stock of the Company at a weighted average exercise
price less than the initial public offering price of the Common Stock on
November 13, 1996. In addition, in November 1996 the Company incurred a charge
of $0.3 million ($0.2 million net of tax) related to the termination of a
professional services agreement with an affiliate of the Company's principal
stockholder and a charge of $0.2 million ($0.1 million net of tax) related to
special bonuses paid to management in connection with the Company's initial
public offering.
Operating income for the year ended December 31, 1996 was $0.6 million
compared to $2.6 million for the comparable 1995 period. The decrease in
operating income reflects the noncash and nonrecurring charges and increased
operating expenses. Operating income as a percentage of revenues, excluding the
noncash and nonrecurring charges, decreased to 4.4% for the year ended December
31, 1996 from 5.8% for the comparable 1995 period.
Interest expense of $2.7 million for the year ended December 31, 1996
increased by $1.0 million over interest expense for the year ended December 31,
1995, primarily as a result of higher debt levels throughout most of 1996
incurred to fund acquisitions. The Company used approximately $46.1 million in
net proceeds raised in its initial public offering in November and December,
1996 to repay substantially all of its long-term debt outstanding at that time.
In March 1996 the Company recorded an extraordinary item in the amount of
$0.4 million (net of an income tax benefit of $0.4 million) reflecting the
write-off of deferred financing charges in connection with the refinancing of
the Company's credit facility.
The Company's effective tax rates for 1996 and 1995 differ from the federal
statutory rate principally as a result of state income taxes and the
nondeductibility of certain acquisition costs and, in 1996, the non-cash
nonrecurring compensation charge.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
(PREDECESSOR COMPANY PRIOR TO AUGUST 3, 1994)
The results of operations for the year ended December 31, 1994 include the
results of operations of the Company's predecessor company, Gatti LTC Services,
Inc., through August 2, 1994, its acquisition date by the Company, and the
results of the Company from August 3, 1994 through December 31, 1994.
Revenues for the year ended December 31, 1995 increased to $44.0 million
from $15.0 million for the year ended December 31, 1994. Of this $29.0 million
increase, $24.9 million was attributable to acquisitions and $4.1 million was
attributable to internal growth.
Gross profit for the year ended December 31, 1995 was $12.6 million compared
to $4.1 million for the year ended December 31, 1994, which represents an
increase of $8.5 million. Gross profit as a percentage of revenues increased to
28.6% for the year ended December 31, 1995 from 27.0% for the year ended
December 31, 1994. The increase in gross profit as a percentage of revenues was
primarily the result of acquisitions of companies with higher gross margins and
more favorable reimbursement rates in the states in which such acquired
companies operate. The effect was partially offset by the acquisition of certain
retail pharmacy operations that typically operate at a lower gross margin.
17
<PAGE>
Selling, general and administrative expenses for the year ended December 31,
1995 were $10.0 million compared to $3.2 million for the year ended December 31,
1994 representing an increase of $6.8 million. Selling, general and
administrative expenses as a percentage of revenues increased to 22.8% for the
year ended December 31, 1995 from 21.5% for the year ended December 31, 1994.
The increase in total selling, general and administrative expenses is primarily
the result of increased amortization of goodwill and increased ongoing
professional fees associated with the acquired companies and expenses associated
with the formation of the Company, including the hiring of management personnel
and the establishment of the corporate office.
Operating income for the year ended December 31, 1995 was $2.6 million
compared to $0.8 million for the year ended December 31, 1994. The increase in
operating income reflects the effect of increased revenues, achieved both
through acquisitions and internal growth, as well as the improvement in the
Company's gross profit margin. Operating income as a percentage of revenues
increased to 5.8% for the year ended December 31, 1995 from 5.5% for the year
ended December 31, 1994.
Interest expense of $1.8 million for the year ended December 31, 1995
increased by $1.4 million over interest expense for the year ended December 31,
1994, primarily as a result of higher debt levels related to acquisitions.
The Company's effective tax rates for 1995 and 1994 differ from the federal
statutory rate principally as a result of state income taxes and the
nondeductibility of certain acquisition costs.
LIQUIDITY AND CAPITAL RESOURCES
In November and December 1996, the Company completed an initial public
offering of 6,160,550 shares of Common Stock at $15.00 per share, generating net
proceeds of $83.2 million (after underwriting discount and offering expenses).
The proceeds were used to (a) make a one-time preferential distribution of $20.8
million to the Company's principal shareholder, (b) to repay long-term debt, and
accrued interest thereon, of $46.1 million, (c) to make an additional investment
of $2.0 million in Good Samaritan Supply, which was then used to repay a portion
of its long-term debt, and (d) to make a payment of $0.5 million to the
Company's principal shareholder for accrued management fees and the termination
of a management agreement. The remaining proceeds of approximately $14.0 million
will be used to fund business acquisitions and for other general corporate
purposes.
The Company's principal cash requirements to date have been to fund
acquisitions, to provide working capital to support internal growth and for
capital expenditures.
Net cash provided (used) by operating activities was $(0.5) million, $0.2
million and $(2.0) million for the years ended December 31, 1994, 1995 and 1996,
respectively. The net use of cash for the year ended December 31, 1996 was
primarily attributable to an increase in accounts receivable related to internal
sales growth and slower payments at certain of the Company's operating
subsidiaries.
Net cash used in investing activities was $12.4 million, $22.8 million and
$26.0 million for the years ended December 31, 1994, 1995 and 1996,
respectively. The majority of these expenditures were related to the
acquisitions completed in the respective periods, including the acquisition of
the predecessor company, along with capital expenditures. Capital expenditures
were $0.3 million, $0.7 million and $1.6 million for the years ended December
31, 1994, 1995 and 1996, respectively. The capital expenditures for the year
ended December 31, 1996 increased as a result of leasehold improvements at three
locations, and increases in transportation equipment, computer equipment,
equipment leased to customers and medication carts used in locations served.
The Company's wholly-owned subsidiary, AMC Regional Holdings, Inc., has a
Credit Agreement which provides for maximum borrowings in the aggregate of $25.0
million, consisting of a $10.0 million revolving line of credit and a $15.0
million revolving acquisition loan facility. At AMC Regional Holdings, Inc.'s
option, the maximum borrowings under the Credit Agreement can be increased by
$25.0 million to
18
<PAGE>
$50.0 million, consisting of a $4.0 million increase to the revolving line of
credit and a $21.0 million increase to the revolving acquisition loan facility.
Borrowings under the revolving line of credit are limited to specified
percentages of eligible inventories and accounts receivable. At December 31,
1996, the Company had no borrowings outstanding under the Credit Agreement. The
revolving line of credit terminates on March 15, 2002, and the revolving
acquisition loan facility converts to a term loan on March 15, 1998 and
thereafter matures on March 31, 2002. The Credit Agreement provides for interest
to be paid on amounts outstanding at varying rates, depending on the applicable
facility under the Credit Agreement and whether certain financial ratio tests
are met. The Credit Agreement also provides for a 0.5% annual commitment fee on
the unused portion of the revolving line of credit and acquisition loan facility
($25.0 million at December 31, 1996). Obligations under the Credit Agreement are
secured by a lien on substantially all of the assets of the Company's
wholly-owned subsidiary, AMC Regional Holdings, Inc., as well as by a pledge by
the Company of all of the issued and outstanding common stock of AMC Regional
Holdings, Inc.
On June 21, 1996, Good Samaritan Supply entered into a credit agreement
providing for maximum borrowings in the aggregate of $15.0 million, consisting
of a $5.0 million revolving line of credit, a $5.0 million revolving acquisition
loan facility and a $5.0 million term loan (the "Good Samaritan Supply Credit
Agreement"). At December 31, 1996, total borrowings under the Good Samaritan
Supply Credit Agreement were $4.0 million. The revolving line of credit
terminates on June 21, 2001. The revolving acquisition loan facility converts to
a term loan on the earlier of (i) June 21, 1998 and (ii) the date on which (x)
Good Samaritan Supply has obtained term loans in an aggregate principal amount
of $5.0 million and (y) the aggregate principal amount outstanding under the
revolving acquisition loan facility is $5.0 million, and thereafter matures on
June 21, 2001. The term loan matures on June 21, 2001. The Good Samaritan Supply
Credit Agreement contains various provisions and covenants under which Good
Samaritan Supply has agreed to maintain certain financial ratios, including
interest expense coverage, fixed charge coverage, maximum leverage and minimum
operating income (all as defined in the Good Samaritan Supply Credit Agreement).
At December 31, 1996, Good Samaritan Supply did not meet these financial ratios.
In March 1997, the Company, Good Samaritan Supply and the bank agreed that (a)
the bank would establish a new set of financial covenants for 1997 and future
periods and terminate the revolving acquisition loan facility and (b) the
Company (or the other stockholder of Good Samaritan Supply) would invest $2.5
million in Good Samaritan Supply in May 1997, which amount will be used to repay
amounts outstanding under the revolving line of credit and term loan. Amounts
repaid at that time under the term loan will remain available to Good Samaritan
Supply to reborrow through December 31, 1998.
The Company's acquisition strategy will require significant capital
resources and, as a result, the Company may need to incur additional
indebtedness. To pursue its acquisition strategy, the Company also may need to
issue, in public and private transactions, equity or debt securities, the terms
of which will depend on market and other conditions. Capital is needed not only
for acquisitions, but also for the effective integration, operation and
expansion of existing businesses. The Company believes that cash generated from
operations and funds available under the Credit Agreement, as well as funds
available to Good Samaritan Supply under the Good Samaritan Supply Credit
Agreement, will be adequate to support the foreseeable capital requirements of
the Company and its subsidiaries through 1998, although a large acquisition or a
number of smaller acquisitions may require funds in excess of such availability.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company believes that a number of important
factors could cause the Company's actual results to differ from those that may
have been or may be projected in forward-looking statements made by or on behalf
of the Company from time to time. These factors are described under the heading
"Risk Factors" in the Company's Registration Statement on Form S-1 (File No.
333-11667) filed with the Securities and Exchange Commission on November 12,
1996. Specific reference is made to the Risk Factors set forth therein entitled
"Limited Operating History," "Impact of Acquisitions and Management of Growth,"
19
<PAGE>
"Capital Requirements Relating to Growth Strategy," "Industry is Highly
Competitive," "Regulation and Reimbursement" and "Uncertainty Due to Potential
Changes in National and State Health Care Policies."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN MEDSERVE CORPORATION
Report of Independent Auditors............................................................................. 23
Independent Auditors' Report............................................................................... 24
Consolidated Balance Sheets at December 31, 1995 and 1996.................................................. 25
Consolidated Statements of Operations for the year ended June 30, 1995, the six months ended December 31,
1995 and the year ended December 31, 1996................................................................ 26
Consolidated Statements of Stockholders' Equity for the year ended June 30, 1995, the six months ended
December 31, 1995 and the year ended December 31, 1996................................................... 27
Consolidated Statements of Cash Flows for the year ended June 30, 1995, the six months ended December 31,
1995 and the year ended December 31, 1996................................................................ 28
Notes to Consolidated Financial Statements................................................................. 29
G.H.S.C., INC. AND THE CONTRACT SERVICES DIVISION OF LOUIS F. GATTI, INC. (PREDECESSOR COMPANY)
Report of Independent Auditors............................................................................. 42
Combined Balance Sheets as of December 31, 1993 and August 2, 1994......................................... 43
Combined Statements of Income for the year ended December 31, 1993 and for the period beginning January 1,
1994 and ended August 2, 1994............................................................................ 44
Combined Statements of Stockholders' Equity for the year ended December 31, 1993 and for the period
beginning January 1, 1994 and ended August 2, 1994....................................................... 45
Combined Statements of Cash Flows for the year ended December 31, 1993 and for the period beginning January
1, 1994 and ended August 2, 1994......................................................................... 46
Notes to Combined Financial Statements..................................................................... 47
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information regarding the Company's executive officers included
in Part I of this Form 10-K, the information required under this Item is set
forth in the Company's 1997 Proxy Statement which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is set forth in the Company's 1997
Proxy Statement which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is set forth in the Company's 1997
Proxy Statement which is incorporated herein by reference.
20
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is set forth in the Company's 1997
Proxy Statement which in incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The 1996 Consolidated Financial Statements of the Company are included in
Part II, Item 8.
(a) (2) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
- ----------- -------------------------------------------------------------------------- -----------
<S> <C> <C>
VIII Valuation and Qualifying Accounts......................................... S-1
</TABLE>
All other financial statement schedules are omitted because they are not
applicable or because the required information is shown in the Consolidated
Financial Statements and Notes in Item 8 of this Form 10-K.
(a) (3) Exhibits
See Index to Exhibits at page E-1 of this Form 10-K.
(b) Reports on Form 8-K
During the quarter ended December 31, 1996, the Company did not file any
Report on Form 8-K.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN MEDSERVE CORPORATION
Date: March 29, 1997 By: /s/ TIMOTHY L. BURFIELD
- ------------------------------------------------------------------
Timothy L. Burfield
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ BRYAN C. CRESSEY
- ------------------------------ Chairman of the Board of March 29, 1997
Bryan C. Cressey Directors
President, Chief Executive
/s/ TIMOTHY L. BURFIELD Officer and Director
- ------------------------------ (Principal Executive March 29, 1997
Timothy L. Burfield Officer)
Vice President--Finance
/s/ CHARLES R. WALLACE and Chief Financial
- ------------------------------ Officer (Principal March 29, 1997
Charles R. Wallace financial and accounting
officer)
/s/ JAMES H.S. COOPER
- ------------------------------ Director March 29, 1997
James H.S. Cooper
/s/ CHARLES C. HALBERG
- ------------------------------ Director March 29, 1997
Charles C. Halberg
/s/ LEE M. MITCHELL
- ------------------------------ Director March 29, 1997
Lee M. Mitchell
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Medserve Corporation
We have audited the accompanying consolidated balance sheets of American
Medserve Corporation as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended June 30, 1995, the six months ended December 31, 1995 and the
year ended December 31, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of Williamson Drug Company,
Inc., a subsidiary of the Company, for the period from August 11, 1994 (Date of
Acquisition) to June 30, 1995, which statements reflect total revenues of
$4,566,490. Such statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Williamson Drug Company, Inc. is based solely on the report of the other
auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Medserve
Corporation as of December 31, 1995 and 1996, and the consolidated results of
its operations and its cash flows for the year ended June 30, 1995, the six
months ended December 31, 1995 and the year ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
March 19, 1997
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Williamson Drug Company, Inc.
Harrisonburg, Virginia
We have audited the balance sheet of Williamson Drug Company, Inc. as of
June 30, 1995, and the related statements of income, changes in stockholders'
equity and cash flows for the period beginning August 11, 1994 and ending June
30, 1995, not included separately herein. 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 positon of Williamson Drug Company, Inc.
as of June 30, 1995, and the results of its operations and its cash flows for
the period then ended, in conformity with generally accepted accounting
principles.
S.B. HOOVER & COMPANY
Harrisonburg, Virginia
September 15, 1995
24
<PAGE>
AMERICAN MEDSERVE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1996
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 1,437 $ 17,382
Accounts receivable, less allowance of $473 and $1,457 at December 31, 1995 and 1996,
respectively........................................................................... 8,403 20,768
Due from related parties................................................................. 44 2,036
Inventories.............................................................................. 3,939 7,708
Income taxes receivable.................................................................. -- 975
Prepaid expenses and other............................................................... 294 1,999
--------- ----------
Total current assets....................................................................... 14,117 50,868
Equipment, net............................................................................. 2,084 5,509
Excess of cost over net assets acquired, less accumulated amortization of $782 and $2,150
at December 31, 1995 and 1996, respectively.............................................. 27,829 54,174
Deferred financing costs, less accumulated amortization of $206 and $251 at December 31,
1995 and 1996, respectively.............................................................. 871 1,897
Other assets............................................................................... 96 850
--------- ----------
Total assets............................................................................... $ 44,997 $ 113,298
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 2,170 $ 6,635
Current portion of long-term debt........................................................ 1,191 2,844
Accrued expenses......................................................................... 1,133 2,672
Current obligations under capital leases................................................. 83 223
--------- ----------
Total current liabilities.................................................................. 4,577 12,374
Long-term debt, less current portion....................................................... 23,477 5,800
Long-term obligations under capital leases, less current portion........................... 28 287
Minority interest.......................................................................... 2,168 1,197
Deferred income taxes...................................................................... 174 641
Stockholders' equity:
Common stock:
Common stock, $.01 par value; 30,000,000 shares authorized; 12,000,464 shares issued
and outstanding at December 31, 1996................................................. -- 120
Class A--$.01 par value, 56,500 shares issued and outstanding at December 31, 1995..... 1 --
Class B--$.01 par value; 7,714 shares issued and outstanding at December 31, 1995...... -- --
Additional paid-in capital............................................................... 14,219 95,491
Retained earnings (deficit).............................................................. 388 (2,183)
Notes receivable from stockholders....................................................... (35) (429)
--------- ----------
Total stockholders' equity................................................................. 14,573 92,999
--------- ----------
Total liabilities and stockholders' equity................................................. $ 44,997 $ 113,298
--------- ----------
--------- ----------
</TABLE>
See accompanying notes.
25
<PAGE>
AMERICAN MEDSERVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Revenues................................................................ $ 24,793 $ 27,347 $ 82,027
Cost of revenues........................................................ 17,896 19,559 58,807
---------- ------------ ------------
Gross profit............................................................ 6,897 7,788 23,220
Selling, general, and administrative expenses........................... 5,663 6,275 19,605
Nonrecurring charges.................................................... -- -- 3,019
---------- ------------ ------------
Operating income........................................................ 1,234 1,513 596
Other (expense) income:
Interest expense...................................................... (1,001) (1,053) (2,741)
Minority interest..................................................... (43) 5 89
Other, net............................................................ 171 210 84
---------- ------------ ------------
(873) (838) (2,568)
---------- ------------ ------------
Income (loss) before income taxes and extraordinary item................ 361 675 (1,972)
Provision for income taxes.............................................. 269 379 162
---------- ------------ ------------
Income (loss) before extraordinary item................................. 92 296 (2,134)
Write off of deferred financing costs, net of tax benefit of $404....... -- -- 437
---------- ------------ ------------
Net income (loss)....................................................... $ 92 $ 296 $ (2,571)
---------- ------------ ------------
---------- ------------ ------------
Income (loss) per share:
Before extraordinary item............................................. $ .02 $ .05 $ (0.29)
Extraordinary item.................................................... -- -- (.06)
---------- ------------ ------------
Net income (loss) per share............................................. $ .02 $ .05 $ (0.35)
---------- ------------ ------------
---------- ------------ ------------
Shares used in computing net income (loss) per share.................... 6,098,041 6,466,476 7,311,129
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
See accompanying notes.
26
<PAGE>
AMERICAN MEDSERVE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------------------------------------
COMMON STOCK CLASS A CLASS B
------------------------- ----------------------- -----------------------
PAR PAR PAR
SHARES VALUE SHARES VALUE SHARES VALUE
------------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1994.................. -- -- -- $ -- -- $ --
Sale of shares to Class A stockholder.... -- -- 565,000 6 -- --
Sale of shares to officer................ -- -- -- -- 78,671 1
Capital contributions from Class A
stockholder............................ -- -- -- -- -- --
Net income............................... -- -- -- -- -- --
------------- --------- ----------- --------- ----------- ---------
Balance at June 30, 1995................. 565,000 6 78,671 1
Capital contributions from Class A
stockholder............................ -- -- -- -- -- --
Forfeiture of Class B shares............. -- -- -- -- (1,530) --
Reverse stock split, one-for-ten......... -- -- (508,500) (5) (69,427) (1)
Net income............................... -- -- -- -- -- --
------------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1995............. -- -- 56,500 1 7,714 --
Capital contributions from Class A
stockholder............................ -- -- -- --
Forfeiture of Class B shares............. -- -- -- -- (737) --
Issuance of Common Stock in exchange for
the minority interest of acquired
businesses............................. 794,581 8 -- -- -- --
Conversion of options to acquire common
stock of subsidiary companies to
options to acquire shares of Common
Stock.................................. -- -- -- -- -- --
Sale of Common Stock to directors and
officers............................... 310,208 3 -- -- -- --
Issuance of Common Stock for purchase of
a business............................. 33,620 -- -- -- -- --
Initial public offering of Common
Stock.................................. 6,160,550 62 -- -- -- --
Preferential distribution to Class A
stockholder............................ -- -- -- -- -- --
Issuance of Common Stock in satisfaction
of remaining preferential distribution
rights of Class A stockholder.......... 280,289 3 -- -- -- --
Reclassification of each Class A and
Class B share to 69.65 shares of Common
Stock (See Note 10).................... 4,421,216 44 (56,500) (1) (6,977) --
Net loss................................. -- -- -- -- -- --
------------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1996............. 12,000,464 $ 120 -- $ -- -- $ --
------------- --------- ----------- --------- ----------- ---------
------------- --------- ----------- --------- ----------- ---------
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE RETAINED TOTAL
PAID-IN FROM EARNINGS STOCKHOLDERS'
CAPITAL STOCKHOLDERS (DEFICIT) EQUITY
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at July 1, 1994.................. $ -- $ -- $ -- $ --
Sale of shares to Class A stockholder.... 5,644 -- -- 5,650
Sale of shares to officer................ 69 (35) -- 35
Capital contributions from Class A
stockholder............................ 6,750 -- -- 6,750
Net income............................... -- -- 92 92
------------- ----- ------------- -------------
Balance at June 30, 1995................. 12,463 (35) 92 12,527
Capital contributions from Class A
stockholder............................ 1,750 -- -- 1,750
Forfeiture of Class B shares............. -- -- -- --
Reverse stock split, one-for-ten......... 6 -- -- --
Net income............................... -- -- 296 296
------------- ----- ------------- -------------
Balance at December 31, 1995............. 14,219 (35) 388 14,573
Capital contributions from Class A
stockholder............................ 8,350 -- -- 8,350
Forfeiture of Class B shares............. -- -- -- --
Issuance of Common Stock in exchange for
the minority interest of acquired
businesses............................. 7,223 -- -- 7,231
Conversion of options to acquire common
stock of subsidiary companies to
options to acquire shares of Common
Stock.................................. 100 -- -- 100
Sale of Common Stock to directors and
officers............................... 2,820 (394) -- 2,429
Issuance of Common Stock for purchase of
a business............................. 500 -- -- 500
Initial public offering of Common
Stock.................................. 83,097 -- -- 83,159
Preferential distribution to Class A
stockholder............................ (20,772) -- -- (20,772)
Issuance of Common Stock in satisfaction
of remaining preferential distribution
rights of Class A stockholder.......... (3) -- -- --
Reclassification of each Class A and
Class B share to 69.65 shares of Common
Stock (See Note 10).................... (43) -- -- --
Net loss................................. -- -- (2,571) (2,571)
------------- ----- ------------- -------------
Balance at December 31, 1996............. $ 95,491 $ (429) $ (2,183) $ 92,999
------------- ----- ------------- -------------
------------- ----- ------------- -------------
</TABLE>
See accompanying notes.
27
<PAGE>
AMERICAN MEDSERVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
1995 1995 1996
----------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES....................................................
Net income (loss)....................................................... $ 92 $ 296 $ (2,571)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Provision for doubtful accounts....................................... 50 97 581
Depreciation.......................................................... 275 272 895
Amortization.......................................................... 504 432 1,222
Write off of deferred financing costs................................. -- -- 841
Nonrecurring compensation expense..................................... -- -- 2,485
Minority interest..................................................... 43 (5) (89)
Deferred income taxes................................................. 68 138 12
Changes in operating assets and liabilities:
Accounts receivable................................................. (1,509) (272) (3,742)
Inventories......................................................... (304) (289) (1,072)
Income taxes receivable............................................. -- -- (925)
Prepaid expenses and other.......................................... (136) (168) (1,210)
Accounts payable and accrued expenses............................... 448 (793) 1,598
----------- ------------- ------------
Net cash used in operating activities................................... (469) (292) (1,975)
INVESTING ACTIVITIES
Capital expenditures.................................................... (375) (423) (1,579)
Advances to related parties, net........................................ (127) 3 (215)
Acquisition of entities, net of cash acquired........................... (28,411) (5,605) (24,226)
----------- ------------- ------------
Net cash used in investing activities................................... (28,913) (6,025) (26,020)
FINANCING ACTIVITIES
Proceeds from (repayments of) revolving line of credit, net............. 1,300 2,700 (4,000)
Proceeds from long-term debt............................................ 18,000 4,000 36,500
Repayments of long-term debt and capital lease obligations.............. (250) (1,222) (57,304)
Repayment of note payable............................................... -- (500) --
Advance to affiliate.................................................... -- -- (500)
Capital contributions................................................... 12,435 1,750 8,350
Proceeds from initial public offering--net.............................. -- -- 83,159
Sale of common stock.................................................... -- -- 45
Preferential distribution to Class A stockholder........................ -- -- (20,772)
Fees paid for financing arrangements.................................... (903) (174) (1,538)
----------- ------------- ------------
Net cash provided by financing activities............................... 30,582 6,554 43,940
----------- ------------- ------------
Net increase in cash and cash equivalents............................... 1,200 237 15,945
Cash and cash equivalents, beginning of period.......................... -- 1,200 1,437
----------- ------------- ------------
Cash and cash equivalents, end of period................................ $ 1,200 $ 1,437 $ 17,382
----------- ------------- ------------
----------- ------------- ------------
Supplemental disclosure of cash flow information and noncash investing
and financing activities
Notes payable issued in acquisitions.................................. $ 500 $ -- $ 2,228
Sale of common stock in exchange for notes receivable................. -- -- 394
Equipment acquired under capital leases............................... 42 -- 281
Common stock issued in an acquisition................................. -- -- 500
Common stock issued to former minority owners......................... -- -- 7,231
Cash paid during the period for income taxes.......................... 139 395 679
Cash paid during the period for interest.............................. 907 1,108 2,781
</TABLE>
See accompanying notes.
28
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS
American Medserve Corporation (the Company) purchases, repackages and
dispenses pharmaceuticals to patients or residents in its client long-term care
facilities and provides such facilities with related consultant pharmacist and
information services, including formulary management, automated medical
record-keeping, drug therapy evaluation and assistance with regulatory
compliance. The Company also provides infusion therapy, parenteral and enteral
nutrition therapy, inhalation and respiratory therapy and wound care management
services, as well as medical supplies and devices. The Company was formed in
November 1993 and began operations on August 2, 1994 with the acquisition of
G.S.H.C., Inc. and the Contract Services Division of Louis F. Gatti, Inc. (Gatti
LTC Services, Inc.), the combined predecessor company through the Company's
wholly owned subsidiary, AMC Regional Holdings, Inc. (Regional Holdings).
Effective December 14, 1995, the Board of Directors of the Company elected
to change the year-end of the Company for financial reporting and tax purposes
from June 30 to December 31.
2. ACQUISITIONS
On August 11, 1994, the Company acquired 90.0% of the stock of Williamson
Drug Company, Inc. (WDC) based in Harrisonburg, Virginia, for cash of $2,520,
including expenses. The Company may be required to make additional payments
aggregating up to $3,000 contingent upon increases in operating income for each
of the years ended June 30, 1995 through June 30, 1999. No contingent payments
were made during the year ended June 30, 1995 or the six months ended December
31, 1995 and $103 was paid during the year ended December 31, 1996.
On March 9, 1995, the Company acquired substantially all of the assets of
Nihan & Martin, Inc., based in Rockford, Illinois, for cash of $9,942, including
expenses. The seller retained approximately 15.8% of the stock of Nihan &
Martin, Inc.
On April 15, 1995, the Company acquired substantially all of the assets of
Extended Care Associates, Inc. located in Lynchburg, Virginia, for cash of
$1,200, including expenses, and approximately 3.0% of the stock of WDC.
On April 17, 1995, the Company acquired substantially all of the assets of
Dixon Pharmacy, Inc., based in Dixon, Illinois, for cash of $3,734, including
expenses. The seller retained approximately 20.0% of the stock of Dixon
Pharmacy, Inc.
During the year ended June 30, 1995, the Company also acquired substantially
all of the assets of two other less significant companies for cash of $1,509 and
a $500 note payable.
On August 3, 1995, the Company acquired substantially all of the assets of
Sterling Healthcare Services, Inc. (Sterling), based in Shreveport, Louisiana
for cash of $5,650, including expenses. The seller retained approximately 20.0%
of the stock of Sterling Healthcare Services, Inc.
On May 8, 1996, the Company acquired substantially all of the assets of
Pharmed, Inc., based in Alexandria, Louisiana, and Pharmed of Baton Rouge, Inc.,
based in Baton Rouge, Louisiana, for cash of $6,613, including expenses. The
seller retained approximately 20.0% of the stock in each of these companies.
29
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. ACQUISITIONS (CONTINUED)
On August 5, 1996, the Company acquired substantially all of the assets of
Royal Care of America, Inc., based in Malta, New York, for cash of $7,937,
including expenses, and a convertible note for $2,000 (see Note 6).
During the year ended December 31, 1996, the Company completed seven other
less significant acquisitions for cash of $2,011, including expenses, notes
payable to sellers aggregating $228 and 33,620 shares of the Company's Common
Stock. The Company may be required to make additional payments aggregating up to
$533 contingent upon increases in operating income for one of the acquired
companies. No contingent payments were made during the year ended December 31,
1996.
Each acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price for each respective acquisition was
allocated to the respective net assets acquired based on the estimated fair
market values at the respective acquisition dates. Obligations related to
contingent payments will be reflected as increases to excess of cost over net
assets acquired in the period in which it is probable the contingencies will be
resolved. The consolidated statements of operations include the results of
operations of each acquired entity from the effective date of the respective
acquisition. All of the businesses acquired provide substantially similar
products and services as the Company.
In August 1996, the Company elected to convert the minority interests
retained by the former owners of the acquired businesses (Retained Stock) into
shares of the Company's Common Stock. In connection therewith, the Company
issued 794,581 shares of Common Stock based upon a conversion formula as defined
in each of the respective acquisition agreements. The fair value of the shares
at the date of issuance was $9.10 per share. The conversion of the Retained
Stock was accounted for using the purchase method of accounting and resulted in
additional excess of cost over net assets acquired of $4,488.
On April 30, 1996, the Company acquired a 40% equity interest in Good
Samaritan Supply Services, Inc. (Good Samaritan) for cash of $6,000. On November
18, 1996, the Company acquired an additional 10.1% equity interest in Good
Samaritan for cash of $2,000. Prior to November 18, 1996, the investment was
accounted for using the equity method of accounting. Beginning on November 18,
1996, the Company began consolidating the results of Good Samaritan. The
difference between the Company's cost of its investments in Good Samaritan and
its 50.1% interest in the net assets of Good Samaritan ($4,606) is classified as
excess of cost over net assets acquired. This amount will be finalized upon the
completion of a review of the Good Samaritan operations acquired and a
determination of how they will be integrated with the Company's operations. This
review may result in an adjustment to the excess of cost over net assets
acquired. The Company does not believe that the adjustment, if any, will have a
material effect on the results of operations of the Company.
In connection with the acquisition of the 40% equity interest in Good
Samaritan, the Company, Good Samaritan and the other shareholder of Good
Samaritan, entered into a shareholders' agreement. Among other things, the
shareholders' agreement contains provisions whereby the other shareholder has an
option to convert the shares of Good Samaritan held by it (limited, prior to
April 30, 1999, to 10% of the total outstanding shares of Good Samaritan) into
shares of the Company's Common Stock. The shareholders' agreement also contains
provisions whereby the other shareholder may demand that the Company purchase
any or all shares of Good Samaritan held by the other shareholder in excess of
10% of the total outstanding shares of Good Samaritan (the Good Samaritan Put).
The Good Samaritan Put becomes effective after April 1, 1999. In addition, the
Company has an option whereby it may demand that the other
30
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. ACQUISITIONS (CONTINUED)
shareholder sell any or all shares of Good Samaritan held by the other
shareholders in excess of 10% of the total outstanding shares of Good Samaritan
(the Company Call Option). The Company Call Option becomes effective after April
1, 2001. The purchase price for additional purchases of Good Samaritan stock
pursuant to the shareholders' agreement is based on estimated fair value as
determined pursuant to a formula agreed to by the Company and Good Samaritan's
other shareholder. The formula, based upon several factors, is designed to
calculate a price based on the relative fair value of Good Samaritan to the
total fair value of the Company at the date of purchase. While the formula is
intended to approximate fair value at the date of additional purchase(s), the
actual fair value at that date may differ from the amount calculated pursuant to
the formula. All additional purchases shall be accounted for using the purchase
method of accounting.
Unaudited pro forma data as though the Company had completed its initial
public offering and used the net proceeds therefrom to repay approximately $46.1
million of outstanding indebtedness and had purchased all of the above
businesses at the beginning of each of the fiscal periods are set forth below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
1995 1995 1996(A)
----------- ------------ ------------
<S> <C> <C> <C>
Revenues............................................ $ 107,641 $ 56,249 $ 123,171
Income (loss) before extraordinary item............. 1,002 657 (508)
Net income (loss)................................... 1,002 657 (945)
Income (loss) per share before extraordinary item... .08 .05 (.04)
Net income (loss) per share......................... .08 .05 (.08)
</TABLE>
(a) Includes nonrecurring charges of $3,019 ($2,806 after tax) (see Note 9)
which had the effect of reducing net income per share by $0.23.
3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. The Company's 40% equity
investment in Good Samaritan from April 30, 1996 to November 17, 1996 is
accounted for under the equity method. All significant intercompany balances and
transactions have been eliminated in consolidation.
ACCOUNTING ESTIMATES
Accounting estimates are an integral part of the consolidated financial
statements prepared by Company management and are based on management's current
judgments. These judgments are based on knowledge and experience about past and
current events and on assumptions about future events. The Company will accrue
for estimated liabilities when the financial impact is probable and can be
estimated by management. Actual results could differ from those estimates.
31
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH EQUIVALENTS
Cash equivalents, which include financial instruments with an original
maturity of three months or less, are carried at cost which approximates market.
REVENUE RECOGNITION
Revenue is recognized when the products or services are provided to the
Company's customers and is generally based on the amount invoiced. As
significant portions of the Company's revenues are paid through various
departments of public aid (Medicaid) and Medicare programs and are subject to
adjustments by the programs, the Company monitors its receivables and reports
such revenue at the net realizable amounts expected to be received from these
programs.
INVENTORIES
Inventories, which consist principally of pharmaceuticals and medical
supplies, are stated at the lower of cost (first in, first out basis) or market.
EQUIPMENT
Equipment, including capitalized leases and leasehold improvements, is
stated at cost, less accumulated depreciation and amortization. Equipment is
being depreciated or amortized using either straight-line or accelerated methods
based on the estimated useful lives of the assets or the lease terms, as
appropriate.
Equipment acquired through business combinations is stated at fair value at
the date of acquisition.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired is being amortized using the
straight-line method over a period of 40 years. The Company has established a
policy whereby it will evaluate the recoverability of the excess of cost over
net assets acquired on a periodic basis utilizing undiscounted net cash flows of
the acquired entities. In management's opinion, no impairment of value of the
excess of cost over net assets acquired existed at December 31, 1996.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized over the term of the related
debt using the straight-line method.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued expenses, stockholders' notes receivable and debt. The fair
value of all financial instruments were not materially different from their
carrying values.
32
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION EXPENSE
The Company recognizes stock-based compensation expense based on the excess
of the estimated fair value of the stock on the measurement date, which is the
grant date for stock options and the issue date for other employee stock
issuances, over the exercise price of options granted or shares issued to
employees.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION. This statement encourages
companies to record compensation costs for stock options to employees on the
date of grant based on the fair value of these options. Alternatively, it allows
companies to continue to measure compensation based on the difference between
the option exercise price and the fair market value on the date of grant. The
Company has elected to continue measuring compensation under Accounting
Principle Board Opinion No. 25.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common shares outstanding, which gives retroactive effect to the stock splits
and stock reclassification described in Note 10. Common stock sold at prices
below the initial public offering price of the Company's Common Stock and stock
options issued during the 12-month period prior to the Company's initial public
offering are included as if they were outstanding for all periods presented
using the treasury stock method.
RECLASSIFICATION
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
4. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Furniture, fixtures, and equipment........................................ $ 1,913 $ 4,994
Leasehold improvements.................................................... 204 763
Transportation equipment.................................................. 362 717
Equipment under capital lease............................................. 164 809
--------- ---------
2,643 7,283
Accumulated depreciation and amortization................................. (559) (1,774)
--------- ---------
$ 2,084 $ 5,509
--------- ---------
--------- ---------
</TABLE>
33
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accrued professional fees.................................................. $ 337 $ 641
Accrued compensation....................................................... 541 1,263
Accrued interest........................................................... 46 214
Other accrued expenses..................................................... 209 554
--------- ---------
$ 1,133 $ 2,672
--------- ---------
--------- ---------
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Revolving lines of credit................................................ $ 4,000 $ 200
Acquisition loan......................................................... 13,722 --
Term loan................................................................ 6,861 3,786
Convertible note......................................................... -- 2,000
Notes payable to former owners, 7.0% to 8.5%............................. -- 1,608
Other long-term debt..................................................... 85 1,050
--------- ---------
24,668 8,644
Less: Current portion.................................................... 1,191 2,844
--------- ---------
$ 23,477 $ 5,800
--------- ---------
--------- ---------
</TABLE>
CREDIT AGREEMENT
Amounts outstanding at December 31, 1995 under the revolving line of credit,
acquisition loan, and term loan were borrowed by Regional Holdings under a
credit agreement with two banks. On March 22, 1996, Regional Holdings refinanced
the amounts then outstanding ($24,583) with the same two banks. The new Credit
Agreement provides for maximum borrowings in the aggregate of $50,000,
consisting of a $10,000 revolving line of credit, a $15,000 revolving
acquisition loan facility, and a $25,000 term loan (the Credit Agreement). The
Credit Agreement also provides for a $500 letter of credit facility under which
$100 was outstanding at December 31, 1996. The revolving acquisition loan
facility expires on March 15, 1998 and any amounts outstanding under this
facility convert to a term loan on that date. Outstanding commitments for the
revolving line of credit and the term loans expire on March 15, 2002. The Credit
Agreement is collateralized by substantially all of the assets of Regional
Holdings and its wholly-owned subsidiaries. In addition, all issued and
outstanding common stock of Regional Holdings is pledged by the Company to
secure the debt obligations. As a result of the refinancing of the credit
agreement, Regional Holdings wrote off unamortized deferred financing costs of
$841 at March 22, 1996, resulting in an extraordinary charge of $437, net of
taxes, and capitalized the financing costs associated with the new Credit
Agreement. On November 18, 1996, the Company repaid all amounts then outstanding
under the
34
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
6. LONG-TERM DEBT (CONTINUED)
Credit Agreement ($40,950) with a portion of the proceeds of its initial public
offering. At December 31, 1996 no amounts are outstanding under the Credit
Agreement; Regional Holdings has $9,900 available under the revolving line of
credit and $15,000 available under the revolving acquisition loan facility.
The interest rates initially established under the credit agreements were
the lead bank's floating rate, defined as the higher of the bank's corporate
base rate or the federal funds' rate plus one half of 1%, plus an applicable
floating rate margin (as defined within the credit agreements). At Regional
Holding's option, Regional Holding can convert the interest rate to the London
Interbank Borrowing Rate (LIBOR), plus an applicable Eurodollar rate margin (as
defined within the credit agreements). The floating rate margin and Eurodollar
rate margin used to establish the effective interest rates decrease as Regional
Holding's leverage ratio (as defined in the credit agreements) declines.
Interest is generally payable on a quarterly basis at a minimum.
The interest rate on the revolving line of credit was 9.25% at December 31,
1995. Borrowings under the revolving line of credit are limited to specified
percentages of eligible inventories and accounts receivable, as defined within
the Credit Agreement. The interest rate under the acquisition loan was LIBOR
(5.67% at December 31, 1995) plus 2.75%. The interest rate under the term loan
was LIBOR (5.69% at December 31, 1995) plus 2.75%. The LIBOR rate in effect for
both the acquisition and term loans represents the LIBOR rate on the date
Regional Holdings elected its option to convert from the bank's floating rate.
The Credit Agreement also provides for a 0.50% commitment fee on the unused
portion of the revolving line of credit and the acquisition line.
The Credit Agreement contains various provisions and covenants, which
include restrictions on Regional Holding's ability to pay dividends and to incur
additional indebtedness, limitation on future capital expenditures, restrictions
on the disposition of property, and restrictions on the issuance and repurchase
of capital stock. Regional Holdings has also agreed to maintain certain
financial ratios, including interest expense coverage, fixed charge coverage,
maximum leverage, and minimum operating income (all as defined within the Credit
Agreement).
GOOD SAMARITAN CREDIT AGREEMENT
On June 21, 1996, Good Samaritan entered into an agreement with a bank (the
Good Samaritan Credit Agreement), which provided for maximum borrowings in the
aggregate of $15,000, consisting of a $5,000 revolving line of credit, a $5,000
revolving acquisition loan facility and a $5,000 term loan. The revolving line
of credit terminates on June 21, 2001. The term loan matures on June 21, 2001.
The Good Samaritan Credit Agreement is collateralized by substantially all of
the assets of Good Samaritan and its subsidiaries. In conjunction with the Good
Samaritan Credit Agreement, all issued and outstanding common stock of Good
Samaritan was pledged by its stockholders (including the 50.1% equity interest
of the Company) to secure the debt obligations. The Good Samaritan Credit
Agreement also provides for a $500 letter of credit facility.
The interest rates initially established under the Good Samaritan Credit
Agreement is the bank's floating rate, defined as the higher of the bank's prime
rate and the federal funds' rate plus one half of 1%, plus an applicable
floating rate margin, as defined in the Good Samaritan Credit Agreement. At Good
Samaritan's option, Good Samaritan can convert the interest rate to LIBOR, plus
an applicable Eurodollar margin, as defined in the Good Samaritan Credit
Agreement. The floating rate and Eurodollar margin
35
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
6. LONG-TERM DEBT (CONTINUED)
used to establish the effective interest rates decrease as Good Samaritan's
leverage ratio (as defined in the Good Samaritan Credit Agreement) declines. The
Good Samaritan Credit Agreement also provides for a 0.50% commitment fee on the
unused portion of the Credit Agreement. Interest is payable on a monthly basis
for floating rate margin loans and on a quarterly basis, at a minimum, for
Eurodollar margin loans.
The interest rate on the revolving line of credit is 8.29% at December 31,
1996. Borrowings under the revolving line of credit are limited to specified
percentages of eligible inventories and accounts receivable, as defined within
the Good Samaritan Credit Agreement. Good Samaritan had $2,706 available under
the revolving line of credit at December 31, 1996. The weighted average interest
rate on the term loan is LIBOR (5.68% at December 31, 1996) plus 2.75%. Good
Samaritan had $1,214 available under the term loan and $5,000 available under
the revolving acquisition loan facility at December 31, 1996. The Good Samaritan
Credit Agreement also provides for a 0.50% commitment fee on the unused portion
of the total credit facility.
The Good Samaritan Credit Agreement contains various provisions and
covenants which include restrictions on Good Samaritan's ability to pay
dividends and to incur additional indebtedness, limitations on future capital
expenditures, restrictions on the disposition of property, and restrictions on
the issuance and repurchase of capital stock. In addition, Good Samaritan has
agreed to maintain certain financial ratios, including interest expense
coverage, fixed charge coverage, maximum leverage and minimum operating income
(all as defined in the Good Samaritan Credit Agreement). At December 31, 1996,
Good Samaritan did not meet these financial ratios. In March 1997, the Company,
Good Samaritan and the bank agreed that (a) the bank would establish a new set
of financial covenants for 1997 and future periods and terminate the revolving
acquisition loan facility and (b) the Company (or the other stockholder of Good
Samaritan) would invest $2,500 in Good Samaritan in May 1997, which amount will
be used to repay amounts outstanding under the revolving line of credit and term
loan. Amounts repaid at that time under the term loan will remain available to
Good Samaritan to reborrow through December 31, 1998. As a result of the
agreement, $1,300 of the term loan has been included in the current portion of
long-term debt at December 31, 1996.
CONVERTIBLE NOTE PAYABLE
The convertible note was issued by the Company in August 1996 in connection
with the acquisition of a business. In January 1997, the holders of the
convertible note exchanged the note, and accrued interest thereon, for 88,318
shares of Common Stock of the Company and replacement promissory notes
aggregating $951, which are due on July 31, 1999 and bear interest at 8.75%.
Future maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $ 2,844
1998................................................................ 1,243
1999................................................................ 2.667
2000................................................................ 762
2001 and thereafter................................................. 1,128
---------
$ 8,644
---------
---------
</TABLE>
36
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
7. COMMITMENTS AND CONTINGENTS
The Company leases certain property and equipment under various
noncancelable operating and capital leases. These leases contain various terms
and provide for renewal at prevailing market rates.
Future minimum lease payments for noncancelable operating and capital leases
having an initial term of more than one year as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- -----------
<S> <C> <C>
1997..................................................................... $ 1,709 $ 293
1998..................................................................... 1,284 149
1999..................................................................... 894 83
2000..................................................................... 579 68
2001..................................................................... 285 12
----------- -----
$ 4,751 605
Less: Amounts representing interest...................................... (95)
-----
Capital lease obligations................................................ 510
Less: Current portion.................................................... (223)
-----
$ 287
-----
-----
</TABLE>
In conjunction with certain of the acquisitions, subsidiaries of the Company
entered into noncancelable operating lease agreements for office and facility
space with their former owners, who are now stockholders of the Company. Future
minimum lease payments included in the above table relating to these agreements
are $379, $387, $429, $416 and $241 for the years ending December 31, 1997,
1998, 1999, 2000 and 2001, respectively.
Rent expense amounted to $302, $382 and $1,206 for the year ended June 30,
1995, the six months ended December 31, 1995 and the year ended December 31,
1996, respectively, of which approximately $69, $85, and $176 respectively,
related to the leases entered into with stockholders of the Company.
8. INCOME TAXES
The provision (benefit) for income taxes, including the income tax benefit
of the extraordinary item, consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER YEAR ENDED
YEAR ENDED 31 DECEMBER 31
JUNE 30 1995 1995 1996
------------- --------------- -------------
<S> <C> <C> <C>
Current:
Federal........................................... $ 105 $ 140 $ (187)
State............................................. 95 100 (67)
----- ----- -----
200 240 (254)
Deferred............................................ 69 139 12
----- ----- -----
$ 269 $ 379 $ (242)
----- ----- -----
----- ----- -----
</TABLE>
37
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Amortization of excess of cost over net assets acquired................ $ (343) $ (836)
Other.................................................................. (95) (293)
--------- ---------
Total deferred tax liabilities........................................... (438) (1,129)
Deferred tax assets:
Net operating loss carryforwards....................................... -- 749
Accruals and reserves.................................................. 216 686
Other.................................................................. 48 72
Valuation allowance.................................................... -- (430)
--------- ---------
Total deferred tax assets................................................ 264 1,077
--------- ---------
Net deferred tax liabilities............................................. $ (174) $ (52)
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1996, the Company has net operating loss carryforwards
for federal and state income tax purposes of approximately $1,400 and $3,400,
respectively, which expire in the years 2010 and 2011, if not used.
A reconciliation of the income tax provision (benefit) computed at the
federal statutory tax rate compared to the reported income tax provision
(benefit) is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER YEAR ENDED
YEAR ENDED 31 DECEMBER 31
JUNE 30 1995 1995 1996
------------- --------------- ------------
<S> <C> <C> <C>
Income tax at statutory rate........................ 34.0% 34.0% (34.0)%
State income taxes, net of federal tax benefit...... 19.8 12.4 (4.0)
Nondeductible goodwill amortization................. 7.6 6.5 2.3
Other nondeductible expenses........................ 4.1 0.7 30.0
Minority interest................................... 4.1 (0.3) --
Other............................................... 4.9 2.8 (2.9)
--- --- ------------
74.5% 56.1% (8.6)%
--- --- ------------
--- --- ------------
</TABLE>
9. NONRECURRING CHARGES
During 1996, the Company recorded (a) a noncash charge of $2,385 (with no
tax benefit) related to the sale of Common Stock to certain directors and
members of management (see Note 10), (b) a noncash charge of $101 (with no tax
benefit) related to the conversion of options to purchase shares of common stock
of certain subsidiary companies into options to purchase shares of Common Stock
of the Company (see Note 12), (c) a charge of $288 ($173 net of tax) related to
the termination of a professional services agreement with an affiliate of the
Company's principal stockholder (see Note 13) and (d) a charge of $245
38
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
9. NONRECURRING CHARGES (CONTINUED)
($146 net of tax) related to special bonuses paid to management in connection
with the Company's initial public offering.
10. STOCKHOLDERS' EQUITY
Prior to November 1996, the Company had shares of Class A and Class B common
stock authorized, issued and outstanding. In November 1996, the Company adopted
an Amended and Restated Certificate of Incorporation, pursuant to which (a) the
Company authorized 30,000,000 shares of a new class of common stock, $.01 par
value (Common Stock) and (b) each previously issued and outstanding share of the
Company's Class A common stock and Class B common stock was reclassified as
69.65 shares of such newly-authorized Common Stock. Retroactive effect has been
given to this reclassification in the Company's financial statements commencing
June 30, 1996. Unless specified otherwise, all references to shares, income
(loss) per share and stock option data have been restated to reflect this
reclassification. Class A common stock and Class B common stock were
substantially identical, except the holders of Class A common stock were
entitled to a liquidation preference in the amount of original cost plus a 7.2%
annual yield thereon.
In November and December 1996, the Company issued 6,160,550 shares of Common
Stock at $15.00 per share in connection with an initial public offering. Of the
$83,159 in net proceeds raised in the initial public offering, $20,772 was used
to pay the former Class A shareholder a portion of the liquidation preference on
the Class A common stock. The remaining liquidation preference ($4,205) was
satisfied by issuing 280,289 shares of Common Stock to the former Class A
shareholder.
In September 1996, the Company sold 310,208 shares of Common Stock to
certain directors and members of management for a purchase price of $1.41 per
share. The Company received cash proceeds of $45 and $394 of demand notes
receivable in connection with this sale. The demand notes bear interest at the
"corporate base rate" of a specified bank. The fair value of the shares at the
date of issuance was $2,823. The difference between the purchase price and the
fair value of the shares, ($2,385), was recorded as a noncash nonrecurring
compensation expense in 1996.
In August 1996, the Company elected to convert the minority interests
retained by the former owners of the businesses acquired prior to that time into
shares of the Company's Common Stock. In connection therewith, the Company
issued 794,581 shares of Common Stock based on a conversion formula as defined
in each of the respective acquisition agreements. The fair value of the Common
Stock on the date of the conversion was $9.10 per share. The conversion of the
minority interests was accounted for using the purchase method of accounting and
resulted in additional excess cost over net assets acquired of $4,488.
On February 13, 1996, the Board of Directors declared a ten-for-one reverse
stock split of the Company's common stock. This reverse split was reflected in
the financial statements as of December 31, 1995.
11. EMPLOYEE BENEFIT PLANS
The Company adopted profit-sharing and 401(k) plans as previously
established by certain acquired businesses. The plans cover substantially all
full-time employees (as defined in the plans) of the acquired businesses.
Employees can elect to make pretax contributions of a percentage of their annual
compensation, not to exceed IRS limitations. Certain of the plans provide for
discretionary matching or profit-
39
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
sharing contributions in which participants vest over three to five years.
Contributions of $23, $38 and $85 were made to these plans during the year ended
June 30, 1995, the six months ended December 31, 1995 and the year ended
December 31, 1996, respectively.
12. STOCK OPTION PLANS
During 1995, the Company approved the formation of stock option plans at
certain subsidiary companies, which provide for the issuance of up to 5% of the
outstanding common stock of certain of the subsidiaries to key employees of
those subsidiaries. No options to purchase shares of common stock were granted
during the year ended June 30, 1995 or the six months ended December 31, 1995.
In June 1996, the Company granted subsidiary stock options under these plans.
The exercise prices of the options were at amounts considered to be greater than
the fair value of the underlying subsidiary stock.
During 1996, the Company adopted the 1996 Stock Incentive Plan and reserved
1,150,000 shares of Common Stock for issuance under this plan. The changes to
stock options related to this plan are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- -----------
<S> <C> <C>
OUTSTANDING AT JANUARY 1, 1996........................................ -- $ --
Converted options of subsidiary plans................................. 146,635 7.31
Options granted....................................................... 170,000 15.00
Options exercised..................................................... -- --
Options terminated or cancelled....................................... -- --
--------- -----------
OUTSTANDING AT DECEMBER 31, 1996...................................... 316,635 $ 11.42
--------- -----------
Exercisable at December 31, 1996...................................... 48,186 $ 7.44
--------- -----------
--------- -----------
</TABLE>
In August 1996, the subsidiary options were converted into options to
acquire an aggregate of 146,635 shares of the Company's Common Stock. The
average exercise price of these options is $7.31 per share, determined based on
a conversion formula. In November 1996, the Company issued non-qualified options
to purchase an aggregate 170,000 shares to members of management of subsidiary
companies. The options generally vest over seven years, beginning from the date
of the various subsidiary acquisitions and are exercisable for a term not to
exceed ten years.
The effect of applying Statement 123's fair value method to the Company's
stock options results in net loss and loss per share amounts that are not
materially different from amounts reported.
13. RELATED PARTY TRANSACTIONS
Prior to December 1996, the principal stockholder of the Company provided
strategic financial and management consulting services in conjunction with a
five-year agreement for which it charged the Company a management fee. The
management fee expense amounted to $33, $25 and $58 for the year ended June 30,
1995, the six months ended December 31, 1995 and the year ended December 31,
1996, respectively. In December 1996, the Company paid the principal stockholder
an additional $288 to terminate this agreement.
40
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
Certain subsidiares of the Company purchase and sell pharmaceuticals and
related medical supplies from and to entities owned by their former owners who
are now stockholders of the Company, or by an affiliate of the other stockholder
of Good Samaritan. Purchases of these items totaled approximately $111, $831 and
$701 during the year ended June 30, 1995, the six months ended December 31,
1995, and the year ended December 31, 1996, respectively. Sales of these items
totaled $285, $340, and $2,016 during the year ended June 30, 1995, the six
months ended December 31, 1995 and the year ended December 31, 1996,
respectively. $145 and $2,183 are included in amounts due from related parties
at December 31, 1995 and 1996, respectively.
Certain subsidiares have also entered into administrative services
agreements with their former owners, who are now stockholders of the Company,
whereby the entities may provide or receive certain administrative services with
entities directly owned by these stockholders. Net amounts received under these
agreements amounted to approximately $65 for the year ended June 30, 1995, $37
for the six months ended December 31, 1995 and $89 for the year ended December
31, 1996.
14. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk primarily consist of accounts receivable due from
Medicaid and Medicare, third-party insurance companies, and individuals in
various geographic locations. Credit risks with respect to these receivables are
limited due to the large number of patients comprising the Company's customer
base.
15. SUBSEQUENT EVENTS
On January 17, 1997, the Company acquired substantially all of the assets of
HMIS, Inc., located in Timonium, Maryland, for cash of $10,750, including
expenses. The Company may be required to make an additional payment in cash or
Common Stock of the Company contingent upon the operating income of the acquired
business in periods subsequent to January 31, 1997.
On February 3, 1997, the Company acquired substantially all of the assets of
Health Care Concepts, Inc., located in Greensburg, Pennsylvania, for cash of
$3,650, including expenses, and a note payable to the seller of $500. The
Company may be required to make an additional payment in cash aggregating $200
contingent upon operating income of the acquired business for each of the years
ended January 31, 1998 and 1999.
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Gatti LTC Services, Inc. (formerly
G.S.H.C., Inc. and the Contract Services
Division of Louis F. Gatti, Inc.)
We have audited the accompanying combined balance sheets of G.S.H.C., Inc.
and the Contract Services Division of Louis F. Gatti, Inc. as of December 31,
1993 and August 2, 1994, and the related combined statements of income,
stockholders' equity, and cash flows for the year ended December 31, 1993, and
for the period from January 1, 1994 to August 2, 1994. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of G.S.H.C., Inc. and
the Contract Services Division of Louis F. Gatti, Inc. as of December 31, 1993
and August 2, 1994, and the combined results of their operations and their cash
flows for the year ended December 31, 1993, and for the period from January 1,
1994 to August 2, 1994 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
July 26, 1996
42
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................... $ 89,082 $ 4,097
Accounts receivable, less allowance of $102,000 as of December 31, 1993 and $112,000 as
of August 2, 1994.................................................................... 1,771,800 2,623,816
Note receivable........................................................................ 40,000 40,000
Due from related parties............................................................... 545,242 569,740
Inventories............................................................................ 458,691 701,961
Prepaid expenses and other............................................................. 42,179 47,464
Income taxes receivable................................................................ 29,921 --
------------ ------------
Total current assets................................................................. 2,976,915 3,987,078
Equipment, net........................................................................... 559,144 873,448
Excess of cost over net assets acquired less accumulated amortization of $46,666 as of
December 31, 1993, and $57,277 as of August 2, 1994.................................... 235,049 224,238
Intangible assets less accumulated amortization of $408,800 as of December 31, 1993 and
$480,633 as of August 2, 1994.......................................................... 175,200 145,567
Other assets............................................................................. 8,195 9,194
------------ ------------
Total assets......................................................................... $3,954,503 $ 5,239,525
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 453,773 $ 995,356
Notes payable.......................................................................... 513,260 600,588
Notes payable to related parties....................................................... 1,209,070 1,519,033
Accrued expenses....................................................................... 144,593 132,209
Due to related parties................................................................. 411,072 456,339
Current obligations under capital leases............................................... 24,191 67,167
------------ ------------
Total current liabilities............................................................ 2,755,959 3,770,692
Notes payable, less current portion...................................................... 356,762 145,300
Long-term obligations under capital leases, less current portion......................... 45,191 71,828
Notes payable to related parties, less current portion................................... 128,278 46,631
Stockholders' equity:
Common stock........................................................................... 1,000 1,000
Retained earnings...................................................................... 667,313 1,204,074
------------ ------------
668,313 1,205,074
------------ ------------
Total liabilities and stockholders' equity........................................... $3,954,503 $ 5,239,525
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
43
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1994
DECEMBER 31, TO AUGUST 2,
1993 1994
------------ ------------
<S> <C> <C>
Revenues............................................................................. $9,099,103 $ 6,917,522
Cost of goods sold................................................................... 6,824,265 4,963,248
------------ ------------
Gross profit......................................................................... 2,274,838 1,954,274
Selling, general, and administrative expenses........................................ 1,759,979 1,315,423
------------ ------------
Income from operations............................................................... 514,859 638,851
Other expense:
Interest........................................................................... 161,740 77,791
Other, net......................................................................... 3,616 --
------------ ------------
165,356 77,791
------------ ------------
Income before provision for income taxes............................................. 349,503 561,060
Provision for income taxes........................................................... 142,713 24,299
------------ ------------
Net income........................................................................... $ 206,790 $ 536,761
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
44
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- RETAINED STOCKHOLDERS'
SHARES COST EARNINGS EQUITY
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992....................................... 1,000 $ 1,000 $ 460,523 $ 461,523
Net income......................................................... -- -- 206,790 206,790
----- --------- ------------ ------------
Balance at December 31, 1993....................................... 1,000 1,000 667,313 668,313
Net income......................................................... -- -- 536,761 536,761
----- --------- ------------ ------------
Balance at August 2, 1994.......................................... 1,000 $ 1,000 $ 1,204,074 $1,205,074
----- --------- ------------ ------------
----- --------- ------------ ------------
</TABLE>
See accompanying notes.
45
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1994 TO
DECEMBER 31, AUGUST 2,
1993 1994
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................................ $ 206,790 $ 536,761
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation........................................................................ 134,405 108,410
Amortization........................................................................ 130,076 82,444
Change in accounts receivable allowance............................................. 27,000 10,000
Deferred income taxes............................................................... 15,278 --
(Gain) loss on sale of equipment.................................................... (3,184) 627
Changes in operating assets and liabilities:
Accounts receivable............................................................... (195,485) (862,016)
Note receivable................................................................... (40,000) --
Inventories....................................................................... (59,387) (159,270)
Prepaid expenses and other........................................................ (25,652) (6,284)
Accrued expenses.................................................................. 86,594 (12,384)
Accounts payable.................................................................. (122,104) 541,583
Income taxes receivable........................................................... (4,318) 29,921
------------ -----------
Net cash (used in) provided by operating activities............................. 150,013 269,792
INVESTING ACTIVITIES
Purchases of equipment................................................................ (184,127) (253,378)
Proceeds from sale of equipment....................................................... 5,585 63
Acquisition of an institutional pharmacy.............................................. -- (212,000)
Proceeds from termination of joint venture agreement.................................. 92,339 --
------------ -----------
Net cash used in investing activities................................................. (86,203) (465,315)
FINANCING ACTIVITIES
Notes payable proceeds (payments), net................................................ 335,682 (95,818)
Repayments on capital lease obligations............................................... (10,554) (14,413)
Due from and to related parties, net.................................................. (318,327) 20,769
Proceeds from Note payable to related party in conjunction with an acquisition........ -- 200,000
------------ -----------
Net cash provided by financing activities....................................... 6,801 110,538
------------ -----------
Net increase (decrease) in cash................................................. 70,611 (84,985)
Cash at beginning of period........................................................... 18,471 89,082
------------ -----------
Cash at end of period........................................................... $ 89,082 $ 4,097
------------ -----------
------------ -----------
Supplemental disclosure of cash flow information and noncash investing and financing
activities:
Cash paid during the year for interest.............................................. $ 165,964 $ 87,278
Cash paid during the year for income taxes.......................................... 41,640 4,964
Equipment acquired under capital lease obligations.................................. 67,301 84,026
</TABLE>
See accompanying notes.
46
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
1. DESCRIPTION OF BUSINESS
The accompanying combined financial statements include the accounts of
G.S.H.C., Inc. (GSHC), and the Contract Services Division of Louis F. Gatti,
Inc. (LFG), (the Companies), which are affiliated through common ownership. The
accounts of LFG reflect all expenses incurred by LFG's parent on its behalf. All
significant intercompany and interdivisional balances and transactions have been
eliminated.
The Companies provide pharmaceutical products, medical supplies, intravenous
therapies, and related products and consulting services to patients in long-term
care and assisted living facilities throughout the state of Pennsylvania.
On August 1, 1994, Louis F. Gatti, Inc. declared a dividend of the retail
division of Louis F. Gatti, to its sole stockholder. On August 2, 1994, American
Medserve Corporation (AMC) acquired substantially all of the assets and
liabilities of GSHC in exchange for cash of $6,500,000 and acquired 80% of the
voting stock of Louis F. Gatti, Inc. for approximately $2,500,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
Accounting estimates are an integral part of the combined financial
statements prepared by management of the Companies and are based on management's
current judgments. These judgments are based on knowledge and experience about
past and current events and on assumptions about future events. The Companies
will, when determined necessary, accrue for estimated liabilities when the
financial impact is probable and can be estimated by management. Actual results
could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized when the products or services are provided to the
Companies' customers and is generally based on the amounts invoiced. As a
significant portion of the Companies' revenues are paid through the Pennsylvania
Department of Public Aid (Medicaid) and Medicare programs and are subject to
adjustment by the programs, the Companies monitor their receivables and report
such revenue at the net realizable amounts expected to be received from these
programs. At December 31, 1993 and August 2, 1994, net accounts receivable
subject to adjustment under these programs amounted to approximately $772,000
and $926,000, respectively.
INVENTORIES
Inventories, which consist principally of pharmaceuticals and medical
supplies, are stated at the lower of cost (first-in, first-out basis) or market.
EQUIPMENT
Equipment is stated at cost less accumulated depreciation and amortization.
Equipment is being depreciated or amortized using either straight-line or
accelerated methods based on the estimated useful lives of the assets or the
lease term, as appropriate.
47
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment acquired through business combinations accounted for as purchases
is stated at fair value at the date of acquisition.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired is being amortized using the
straight-line method over a period of 20 years. GSHC has established a policy
whereby it will evaluate the recoverability of the excess of cost over net
assets acquired on a periodic basis utilizing undiscounted net cash flows of the
acquired entity. In management's opinion, no impairment of value of the excess
of cost over net assets acquired exists at December 31, 1993 or August 2, 1994.
INTANGIBLE ASSETS
Intangible assets are comprised primarily of noncompete agreements entered
into in conjunction with the July 1990 acquisition of GSHC whereby GSHC agreed
to pay to its former owners the amount of $500,000. The noncompete agreements
are being amortized using the straight line method over the five year term of
the agreements. Amortization expense relating to these noncompete agreements was
$100,000 and $58,333 for the year ended December 31, 1993, and for the period
from January 1, 1994 to August 2, 1994, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies' financial instruments include accounts receivable, accounts
payable, accrued expenses, a note receivable, income taxes receivable, amounts
due to and from related parties, and notes payable. The fair values of all
financial instruments were not materially different from their carrying values.
3. ACQUISITION
On June 14, 1994, GSHC acquired certain assets of an institutional pharmacy
located in Allentown, Pennsylvania in exchange for cash of approximately
$212,000. The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price for the acquisition was allocated to
the respective net assets acquired based on their estimated fair market values
at the acquisition date. The combined statements of income include the results
of operations of the acquired entity from June 14, 1994.
Had this institutional pharmacy been acquired on January 1, 1994, revenues
and operating income of the company would not have been significantly different
than those presented.
48
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
4. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ------------
<S> <C> <C>
Equipment under capital leases.................................... $ 82,000 $ 166,026
Transportation equipment.......................................... 75,496 103,085
Furniture, fixtures and equipment................................. 741,232 1,042,827
Leasehold improvements............................................ 7,827 9,868
------------ ------------
906,555 1,321,806
Accumulated depreciation and amortization......................... (347,411) (448,358)
------------ ------------
$ 559,144 $ 873,448
------------ ------------
------------ ------------
</TABLE>
Depreciation expense and accumulated depreciation and amortization include
amortization on capital lease obligations.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ----------
<S> <C> <C>
Compensation and benefits........................................... $ 79,971 $ 106,152
Interest............................................................ 9,487 --
Income taxes........................................................ -- 20,008
Other............................................................... 55,135 6,049
------------ ----------
$ 144,593 $ 132,209
------------ ----------
------------ ----------
</TABLE>
6. RELATED PARTIES
GSHC routinely receives unsecured operating advances in conjunction with a
note payable arrangement with GSHC's sole stockholder. Such amounts are due on
demand and bear interest at prevailing market rates. $1,193,299 and $1,229,270
were outstanding on this arrangement at December 31, 1993 and August 2, 1994,
respectively.
In conjunction with the noncompete agreements and acquisition referred to
within Note 2, GSHC executed unsecured note payable arrangements totaling
$237,500 with a former owner who continued to be a member of management. The
notes are payable in 60 consecutive monthly payments through July, 1995.
Interest is payable at the prime rate, adjusted yearly at July 1, subject to
certain floors and ceilings (as defined). $144,049 and $136,394, respectively,
were outstanding on these notes at December 31, 1993 and August 2, 1994.
In conjunction with the acquisition referred to in Note 3, GSHC was advanced
$200,000 via a note bearing interest at 8% per annum by the parent company of
the entity which acquired GSHC on August 2,
49
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
6. RELATED PARTIES (CONTINUED)
1994 (Note 1). The note is secured by substantially all the assets of GHSC, as
defined. The note was repaid in conjunction with the acquisition.
The Companies routinely purchase inventory at cost from related entities.
The purchases from these related entities were $104,567, and $46,813 for the
year ended December 31, 1993, and for the period from January 1, 1994 to August
2, 1994, respectively.
The Companies, along with related entities, routinely engage in intercompany
advances and borrowings with funds received under the debt arrangements (Note 6)
of the Companies, in addition to those entered into by related entities. These
advances and borrowings bear interest at prevailing market rates. Such amounts
are recorded in amounts due from and to related parties. Additionally, the
Companies guaranteed the debt of certain of these related entities totaling
$500,000 and $845,000 at December 31, 1993 and August 2, 1994, respectively.
Amounts due from related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ----------
<S> <C> <C>
Gatti Medical Supply............................................... $ 2,173 $ 17,700
Retail Division of Louis F. Gatti, Inc............................. 542,069 552,040
Other.............................................................. 1,000 --
------------ ----------
$ 545,242 $ 569,740
------------ ----------
------------ ----------
</TABLE>
The Companies, along with certain related entities (collectively, the
related entities) are charged payroll expense for certain members of a common
management team shared by these related entities. Those amounts calculated as
payable by the Companies to another entity are included in amounts due to
related parties.
Amounts due to related parties for such payroll expenses consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ----------
<S> <C> <C>
Gatti Medical Supply................................................ $ 411,072 $ 456,339
------------ ----------
$ 411,072 $ 456,339
------------ ----------
------------ ----------
</TABLE>
50
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
7. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ----------
<S> <C> <C>
Notes payable to banks.............................................. $ 303,381 $ 232,000
Notes payable -- Noncompete agreements.............................. 254,071 244,131
Notes payable -- Consulting agreement............................... 118,587 61,574
Notes payable -- Equipment loans.................................... 27,872 118,738
Notes payable to others............................................. 166,111 89,445
------------ ----------
870,022 745,888
Less current portion................................................ 513,260 600,588
------------ ----------
$ 356,762 $ 145,300
------------ ----------
------------ ----------
</TABLE>
During 1990, GSHC and its sole stockholder entered into a collateral note
(Note Agreement) with their bank for a $250,000 revolving line of credit payable
on demand. Interest is payable at the bank's prime rate plus 1/2 of 1%. The
amounts outstanding under the Note Agreement are secured by substantially all
assets of GSHC as defined. $246,000 and $232,000, respectively, were outstanding
on this Note Agreement at December 31, 1993 and August 2, 1994.
During 1993, GSHC entered into a promissory note agreement (Term Note) with
its bank for $77,570, payable in 48 equal monthly installments. The Term Note
bears interest at the bank's prime rate (7.25% at August 2, 1994) plus 1/2 of
1%. The Term Note is secured by substantially all the assets of GSHC and is
guaranteed by its sole stockholder. $57,381 and $0, respectively, were
outstanding on this Term Note at December 31, 1993 and August 2, 1994.
During 1993, GSHC entered into unsecured promissory note agreement
(Promissory Note) with a major vendor in the amount of $230,000. The Promissory
Note bears interest at the prime rate plus 4%, and is payable in 18 equal
monthly installments. $166,111 and $89,445, respectively, were outstanding on
this Promissory Note at December 31, 1993 and August 2, 1994.
In conjunction with the noncompete agreements and acquisition referred to
within Note 2, GSHC executed unsecured note payable arrangements with these
former owners totaling $512,500. The notes are payable in sixty consecutive
monthly payments through July 1995. Interest is payable at the prime rate,
adjusted yearly at July 1, subject to certain floors and ceilings (as defined).
$254,071 and $244,131, respectively, were outstanding on these notes at December
31, 1993 and August 2, 1994.
The Company has equipment loans with various institutions with maturity
dates through 1996. Such loans bear interest at rates ranging from 8% to 11%.
$27,872 and $118,738, respectively, were outstanding on these loans at December
31, 1993 and August 2, 1994.
Notes payable include amounts due in conjunction with a consulting agreement
(Note 10) and are $118,587 and $61,574 at December 31, 1993 and August 2, 1994,
respectively.
51
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
8. S CORPORATION ELECTION
The stockholder of GSHC elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code effective July 1, 1990. The stockholder
of LFG elected S Corporation treatment effective August 1, 1993. The Companies
were not subject to federal income taxes after such election as the income of
the Companies is included in the taxable income of its respective stockholders.
9. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, "Accounting for Income Taxes." LFG adopted the provisions of the new
standard in its financial statements for the year ended December 31, 1992. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Prior to the adoption of Statement
109, income tax expense was determined using the deferred method. Deferred tax
expense was based on items of income and expense that were reported in different
years in the financial statements and tax returns and were measured at the tax
rate in effect in the year the difference originated.
LFG files consolidated federal and state income tax returns with the Retail
Division of Louis F. Gatti, Inc. For purposes of financial statement
presentation, LFG's provision for income taxes has been computed as if LFG were
filing federal and state income tax returns on an individual basis. Those
amounts calculated as payable by LFG in excess of those due to governmental
entities are recorded in amounts due from related parties (Note 7) and are
$98,928 and $11,044, respectively, at December 31, 1993 and August 2, 1994.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ---------
<S> <C> <C>
Current:
Federal............................................................ $ 69,927 $ --
State.............................................................. 57,508 24,299
------------ ---------
127,435 24,299
Deferred............................................................. 15,278 --
------------ ---------
$ 142,713 $ 24,299
------------ ---------
------------ ---------
</TABLE>
The provision for income taxes for the year ended December 31, 1993
substantially represents the income taxes of LFG prior to LFG electing S
Corporation status, as well as $15,278 of income taxes in conjunction with LFG
electing such status.
The difference between the financial statement provision for income taxes
and the statutory federal income tax rate of 34% is related principally to state
income taxes.
Significant components of the Companies deferred tax assets and liabilities
at December 31, 1993 are an allowance for doubtful accounts and depreciation.
52
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
10. CONSULTING AGREEMENT
In conjunction with the noncompete agreements (Note 2), GSHC entered into a
five year consulting agreement with a former owner. A liability has been
recorded based upon the net present value of the outstanding payments discounted
at 8%.
11. STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 AUGUST 2
1993 1994
------------ ------------
<S> <C> <C>
Common stock:
G.S.H.C., Inc., no par value; 1,000 Class A shares authorized,
issued, and outstanding....................................... $ 1,000 $ 1,000
------------ ------------
$ 1,000 $ 1,000
------------ ------------
------------ ------------
Retained earnings and divisional equity (deficit):
G.S.H.C., Inc................................................... $ (236,566) $ 75,552
Contract Services Division of Louis F. Gatti, Inc............... 903,879 1,128,522
------------ ------------
$ 667,313 $ 1,204,074
------------ ------------
------------ ------------
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Companies lease certain property and equipment under various
noncancelable operating and capital leases. These leases contain various terms
and provide for renewal at prevailing market rates.
Future minimum lease payments for noncancelable operating and capital leases
are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ----------
<S> <C> <C>
1995.................................................................. $ 45,894 $ 66,829
1996.................................................................. 34,416 60,808
1997.................................................................. 11,472 28,522
1998.................................................................. -- --
1999.................................................................. -- --
----------- ----------
$ 91,782 156,159
-----------
-----------
Less: Amounts representing interest................................... (17,164)
----------
Capital lease obligations............................................. 138,995
Less: Current portion................................................. (67,167)
----------
$ 71,828
----------
----------
</TABLE>
Rent expense amounted to approximately $42,435 and $32,162 for the year
ended December 31, 1993 and for the period from January 1, 1994 to August 2,
1994.
53
<PAGE>
G.S.H.C., INC. AND THE CONTRACT SERVICES
DIVISION OF LOUIS F. GATTI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1993, AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 2, 1994
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LFG leases facility space from a related party. Rent expense on this lease
amounted to $14,400 and $8,400 for the year ended December 31, 1993 and for the
period from January 1, 1994 to August 2, 1994.
13. EMPLOYEE BENEFIT PLANS
The Companies, along with a related entity, established a 401(k) and
profit-sharing plan covering substantially all full-time employees (as defined)
who have completed one year of service. Employees can elect to make pre-tax
contributions of a percentage of their annual compensation not to exceed IRS
limitations. All contributions by the Companies are made at the discretion of
each Companies' Board of Directors. Participants cliff vest in employer
contributions after completing five years of service with the Companies.
Contributions of $5,225 and $3,196 were made to this plan for the year ended
December 31, 1993, and for the period from January 1, 1994 to August 2, 1994,
respectively.
The Companies, with the entity noted above, also sponsor a defined benefit
pension plan (Plan). During 1991, the Board of Directors of a related entity
authorized the termination of the Plan, and effective December 31, 1991, the
Plan was frozen. Plan participants became fully vested at this time. The
Companies' recognized no curtailment loss in 1991 as a result of the Plan
termination, and no gain or loss was recognized when the Plan's benefit
obligation was settled in 1996.
14. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Companies to
concentrations of credit risk primarily consist of accounts receivable due from
Medicaid and Medicare, third-party insurance companies, and individuals in
various geographic locations. Credit risks with respect to these receivables are
limited due to the large number of patients comprising each Companies' customer
base.
15. JOINT VENTURE AGREEMENT
During 1992, GSHC entered into a joint venture agreement with an unrelated
party to provide pharmaceutical products and intravenous therapies to residents
in long-term care and assisted living facilities in exchange for cash of
$20,000. During February 1993, GSHC agreed to sell its interest in the joint
venture and all related assets in exchange for cash of $92,339 and a
non-interest-bearing note receivable for $40,000.
54
<PAGE>
SCHEDULE VIII
AMERICAN MEDSERVE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
CHARTED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ----------------------------------------------- ------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1996:
Allowance for Doubtful Accounts.............. $ 473 $ 581 $ 797(1) $ 394(2) $ 1,457
Period ended December 31, 1995:
Allowance for Doubtful Accounts.............. $ 362 $ 37 $ 74(1) $ -- $ 473
Period ended June 30, 1995:
Allowance for Doubtful Accounts.............. $ -- $ 35 $ 327(1) $ -- $ 362
</TABLE>
- ------------------------
(1) Represents allowance for doubtful accounts reflected in acquisition
accounting.
(2) Represents write off of accounts receivable.
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
3.2* Amended and Restated By-laws
4.1* Specimen Common Stock Certificate
10.1 1996 Stock Incentive Plan
10.2* Stock Option Plan for Directors and Executive and Key Employees of Gatti LTC Services, Inc.
10.3* Stock Option Plan for Directors and Executive and Key Employees of Williamson Drug Company Incorporated
10.4* Stock Option Plan for Directors and Executive and Key Employees of Nihan & Martin, Inc.
10.5* Stock Option Plan for Directors and Executive and Key Employees of Dixon Pharmacy, Inc.
10.6* Form of Subsidiary Non-Qualified Stock Option Agreement
10.7* Form of Subsidiary Participation Agreement
10.8* Senior Management Agreement, made as of December 3, 1993, between the Company and Timothy L. Burfield
10.9* Senior Management Agreement, made as of September 5, 1996, between the Company and Michael B. Freedman
10.10* Senior Management Agreement, made as of September 5, 1996, between the Company and Charles R. Wallace
10.11* Senior Management Agreement, made as of September 5, 1996, between the Company and J. Jeffrey Gephart
10.12* Director Stock Agreement, made as of September 5, 1996, between the Company and James H.S. Cooper
10.13* Director Stock Agreement, made as of September 5, 1996, between the Company and Charles C. Halberg
10.14* Director Stock Agreement, made as of September 5, 1996, between the Company and Mark A. Jerstad
10.15* Amended and Restated Stockholders Agreement, dated as of August 23, 1996, by and among the Company,
Golder, Thoma, Cressey, Rauner Fund IV, L.P. (the "GTCR Fund"), Timothy L. Burfield, Michael B. Freedman,
Charles R. Wallace, J. Jeffrey Gephart, James H.S. Cooper, Charles C. Halberg, Mark A. Jerstad, William
J. and Mary Jane Gatti, Nelson L. Showalter, Frank R. Gelafio, Lee R. Youngberg, Ronald E. Keith, James
Pietryga, Bruce Gerlich, Mitch Overstreet, Sterling Acquisition Partners, Inc., Pharmed, Inc., Pharmed of
Baton Rouge, Inc., Joseph Dellantonio, Thomas C. Loftus and George E. Pepe
10.16* Registration Agreement, dated as of August 23, 1996, by and among the GTCR Fund, Timothy L. Burfield,
Michael B. Freedman, Charles R. Wallace, J. Jeffrey Gephart, James H.S. Cooper, Charles C. Halberg, Mark
A. Jerstad, William J. and Mary Jane Gatti, Nelson L. Showalter, Frank R. Gelafio, Lee R. Youngberg,
Ronald E. Keith, James Pietryga, Bruce Gerlich, Mitch Overstreet, Sterling Acquisition Partners, Inc.,
Pharmed, Inc., Pharmed of Baton Rouge, Inc., Joseph Dellantonio, Thomas C. Loftus and George E. Pepe
10.17* Agreement made and entered into as of October 9, 1996 by and between the Company and the GTCR Fund.
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
10.18* Amendment No. 1 to the Equity Purchase Agreement, made and entered into as of August 15, 1996, by and
between the Company and the GTCR Fund
<S> <C>
10.19* Agreement, dated as of August 15, 1996, between the Company and the GTCR Fund relating to the Additional
GTCR Shares
10.20* Shareholders Agreement, dated as of April 30, 1996, by and among Good Samaritan Supply Services, Inc.,
The Evangelical Lutheran Good Samaritan Foundation and the Company
10.21* Non-Competition and Marketing Assistance Agreement, made as of April 30, 1996, by and among the Company,
Good Samaritan Supply Services, Inc., The Evangelical Lutheran Good Samaritan Foundation and The
Evangelical Lutheran Good Samaritan Society
10.22* Letter Agreement, dated February 21, 1996, as amended, between the Company and Equitable Securities
Corporation
10.23* Credit Agreement, dated as of March 15, 1996, among AMC Regional Holdings, Inc., the Institutions from
time to time party thereto as Lenders and The First National Bank of Chicago, as Agent (the "Credit
Agreement"). The Company agrees to furnish supplementally to the Commission a copy of any omitted
schedule or exhibit to the Credit Agreement upon request by the Commission
10.24* Credit Agreement, dated as of June 21, 1996, among Good Samaritan Supply Services, Inc., the Institutions
from time to time party thereto as Lenders and LaSalle National Bank, as Agent. The Company agrees to
furnish supplementally to the Commission a copy of any omitted schedule or exhibit to the Credit
Agreement upon request by the Commission
10.25* Termination Agreement, dated as of August 15, 1996, between the Company and GTCR IV, L.P.
10.26* Reimbursement and Conversion Agreement between the Company and the GTCR Fund dated August 2, 1996
10.27 Form of American Medserve Corporation Nonqualified Stock Option Agreement
11.1 Statement re: computation of per share earnings
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Document incorporated by reference from the Company's Registration Statement
on Form S-1 (File No. 333-11667), filed with the Securities and Exchange
Commission on November 12, 1996.
E-2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN MEDSERVE CORPORATION
[INCORPORATED ON NOVEMBER 12, 1993 AS AMERICA MEDSERVE CORPORATION]
AMERICAN MEDSERVE CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: Pursuant to Section 245(b) and 242 of the General Corporation Law
of the State of Delaware (the "Delaware Law"), the Certificate of Incorporation,
as amended, of AMERICAN MEDSERVE CORPORATION, a Delaware corporation (the
"Corporation"), is hereby amended and restated to read in its entirety as
follows:
"AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
FIRST: The name of the corporation is American Medserve
Corporation.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and the objects and purposes to be
conducted or promoted by the Corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
1. AUTHORIZED SHARES. The total number of shares of stock of all classes
which the Corporation shall have authority to issue is thirty one million
(31,000,000), of which one million (1,000,000) shall be shares of Preferred
Stock with a par value of $0.01 per share ("Preferred Stock"), and thirty
million (30,000,000) shall be shares of Common Stock with a par value of $0.01
per share ("Common Stock").
2. RECLASSIFICATION OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK. At
and upon the effectiveness of this Amended and Restated Certificate of
Incorporation, each and every issued and outstanding share of the Corporation's
Class A Common Stock, par value $0.01 per share ("Class A Common"), and each and
every issued and outstanding share of the Corporation's Class B Common Stock,
par value $0.01 per share ("Class B Common"), shall in each case be
automatically converted into and reclassified as 69.65023230 validly issued,
fully paid and non-assessable shares of Common Stock. Upon the Effective Time,
each certificate representing one or more shares of Class A Common and Class B
Common, as the case may be, shall in each case represent a number of shares of
Common Stock (rounded to the nearest whole share of Common Stock, with 0.5 being
rounded up) equal to the shares
<PAGE>
represented by such certificate of Class A Common and Class B Common, as the
case may be, multiplied by 69.65023230. As soon as practicable thereafter, the
Corporation shall ask the holders of certificates representing shares of Class A
Common and holders of certificates representing shares of Class B Common to
deliver such certificates to the Corporation or to its agent, and, upon the
receipt thereof, the Corporation shall distribute, or cause its agent to
distribute, to each such holder a certificate or certificates representing a
number of shares of Common Stock (rounded to the nearest whole share of Common
Stock, with 0.5 being rounded up) equal to the number of shares of Class A
Common or Class B Common, as the case may be, previously evidenced by such
certificate(s) multiplied by 69.65023230. Until such time as the Corporation
has distributed a new certificate or certificate in exchange for a certificate
or certificates tendered by a holder pursuant to this paragraph, the certificate
or certificates being tendered by such holder shall be deemed to represent and
shall represent a number of shares of Common Stock equal to the number of shares
of Class A Common or Class B Common, as the case may be, previously evidenced by
such certificate(s) multiplied by 69.65023230.
3. PREFERRED STOCK.
(a) The Preferred Stock shall be issuable in series, and in connection
with the issuance of any series of Preferred Stock and to the extent now or
hereafter permitted by the laws of the State of Delaware, the Board of Directors
is authorized to fix by resolution the designation of each series, the stated
value of the shares of each series, the dividend rate or rates of each series
(which rate or rates may be expressed in terms of a formula or other method by
which such rate or rates shall be calculated from time to time) and the date or
dates and other provisions respecting the payment of dividends, the provisions,
if any, for a sinking fund for the shares of each series, the preferences of the
shares of each series in the event of the liquidation or dissolution of the
Corporation, the provisions, if any, respecting the redemption of the shares of
each series and, subject to requirements of the laws of the State of Delaware,
the voting rights (except that such shares shall not have more than one vote per
share), the terms, if any, upon which the shares of each series shall be
convertible into or exchangeable for any other shares of stock of the
Corporation and any other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of each series.
(b) Preferred Stock of any series redeemed, converted, exchanged,
purchased, or otherwise acquired by the Corporation shall constitute authorized
but unissued Preferred Stock.
(c) All shares of any series of Preferred Stock, as between themselves,
shall rank equally and be identical (except that such shares may have different
dividend provisions); and all series of Preferred Stock, as between themselves,
shall rank equally and be identical except as set forth in resolutions of the
Board of Directors authorizing the issuance of such series.
4. COMMON STOCK.
(a) After dividends to which the holders of Preferred Stock may then be
entitled under the resolutions creating any series thereof have been declared
and after the Corporation shall have set apart the amounts required pursuant to
such resolutions for the purchase or redemption of any series of Preferred
Stock, the holders of Common Stock shall be entitled to have dividends declared
in cash, property, or other securities of the Corporation out of any net profits
or net assets of the Corporation legally available therefor, if, as and when
such dividends are declared by the Corporation's Board of Directors.
(b) In the event of the liquidation or dissolution of the Corporation's
business and after the holders of Preferred Stock shall have received amounts to
which they are entitled under the resolutions
2
<PAGE>
creating such series, the holders of Common Stock shall be entitled to receive
ratably the balance of the Corporation's net assets available for distribution.
(c) Each share of Common Stock shall be entitled to one vote upon all
matters upon which stockholders have the right to vote, but shall not be
entitled to vote for the election of any directors who may be elected by vote of
the Preferred Stock voting as a class if so provided in the resolution creating
such Preferred Stock pursuant to Section 3(a) of this Article FOURTH.
5. PREEMPTIVE RIGHTS. No holder of any shares of the Corporation shall
have any preemptive right to subscribe for or to acquire any additional shares
of the Corporation of the same or of any other class whether now or hereafter
authorized or any options or warrants giving the right to purchase any such
shares, or any bonds, notes, debentures or other obligations convertible into
any such shares.
FIFTH: The Corporation is to have perpetual existence.
SIXTH. The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
SEVENTH: Except as may otherwise be fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of Preferred Stock to elect directors as a class, the
number of directors of the Corporation shall be fixed from time to time by or
pursuant to the By-Laws of the Corporation. The directors, other than those who
may be elected by the holders of Preferred Stock, shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible. The first class shall be initially elected
for a term expiring at the next ensuing annual meeting, the second class shall
be initially elected for a term expiring one year thereafter, and the third
class shall be elected for a term expiring two years thereafter, with each
member of each class to hold office until his successor is elected and
qualified. At each annual meeting of the stockholders of the Corporation held
after the initial classification and election of directors, the successors of
the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the By-Laws of the Corporation.
Except as may otherwise be fixed by resolution of the Board of Directors
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of Preferred Stock to elect directors as a class, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or any other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created (subject to
the requirements of this Article SEVENTH that all classes be as nearly equal in
number as possible) or in which the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
Subject to the rights of the holders of Preferred Stock to elect directors
as a class, a director may be removed only for cause and only by the affirmative
vote of the holders of 80% of the combined voting
3
<PAGE>
power of the then outstanding shares of stock entitled to vote generally in the
election of directors, voting together as a single class.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
1. To adopt, amend and repeal the By-Laws of the Corporation. Any
By-Laws adopted by the directors under the powers conferred hereby may be
amended or repealed by the directors or by the stockholders.
Notwithstanding the foregoing or any other provision in this Certificate of
Incorporation or the By-Laws of the Corporation to the contrary, Article
II, Sections 3 and 7 and Article III, Sections 1, 2 and 3 of the By-Laws
shall not be amended or repealed and no provision inconsistent therewith
shall be adopted without the affirmative vote of the holders of at least
80% of the voting power of all the shares of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class.
2. To fix and determine, and to vary the amount of, the working
capital of the Corporation, and to determine the use or investment of any
assets of the Corporation, to set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve or reserves.
3. To authorize the purchase or other acquisition of shares of stock
of the Corporation or any of its bonds, debentures, notes, scrip, warrants
or other securities or evidence of indebtedness.
4. Except as otherwise provided by law, to determine the places
within or without the State of Delaware, where any or all of the books of
the Corporation shall be kept.
5. To authorize the sale, lease or other disposition of any part or
parts of the properties of the Corporation and to cease to conduct the
business connected therewith or again to resume the same, as it may deem
best.
6. To authorize the borrowing of money, the issuance of bonds,
debentures and other obligations or evidences of indebtedness of the
Corporation, secured or unsecured, and the inclusion of provisions as to
redeemability and convertibility into shares of stock of the Corporation or
otherwise; and the mortgaging or pledging, as security for money borrowed
or bonds, notes, debentures or other obligations issued by the Corporation,
of any property of the Corporation, real or personal, then owned or
thereafter acquired by the Corporation.
7. To authorize the negotiation and execution on behalf of the
Corporation of agreements with officers and other employees of the
corporation relating to the payment of severance compensation to such
officers or employees.
In addition to the powers and authorities herein or by statute expressly
conferred upon it, the Board of Directors may exercise all such powers and do
all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the By-Laws of the Corporation.
Subject to any limitation in the By-Laws, the members of the Board of
Directors shall be entitled to reasonable fees, salaries, or other compensation
for their services, as determined from time to time by the Board of Directors,
and to reimbursement for their expenses as such members. Nothing herein
4
<PAGE>
contained shall preclude any director from serving the Corporation or its
subsidiaries or affiliates in any other capacity and receiving compensation
therefor.
Notwithstanding anything contained in this Amended and Restated Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at
least 80% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend, adopt any provision inconsistent with or repeal
this Article SEVENTH.
EIGHTH: Both stockholders and directors shall have power, if the By-Laws
so provide, to hold their meetings and to have one or more offices within or
without the State of Delaware.
Except as may otherwise be fixed by resolution of the Board of Directors
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of Preferred Stock, any action required or permitted to be taken by
the stockholders of the Corporation may be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to the
rights of the holders of Preferred Stock, special meetings of stockholders may
be called only by the Chairman, if any, on his own initiative, the President on
his own initiative or by the Board of Directors pursuant to a resolution
approved by a majority of the entire Board of Directors. Notwithstanding
anything contained in this Amended and Restated Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 80% of the voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
alter, amend, adopt any provision inconsistent with or repeal this Article
EIGHTH.
NINTH: Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, the Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
TENTH:
(a) A director of the Corporation shall not be personally liable to the
Corporation 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 or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware, or any other applicable law, is amended to authorize corporation
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, or any other applicable law, as so amended. Any repeal or
modification of this Section (a) by the stockholders of the Corporation shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
(b) (1) Each person who has or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee or
agent of another corporation or of a partnership,
5
<PAGE>
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is an alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, or any other
applicable law, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (2) of this Section (b) with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section (b) shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware, or any
other applicable law, requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding shall be made
only upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section (b) or otherwise.
(2) If a claim under paragraph (1) of this Section (b) is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct which make it permissible under the General
Corporation Law of the State of Delaware, or any other applicable law, for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, stockholders or independent legal
counsel) to have made a determination prior to the commencement of such action
that indemnification of the claimant is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware, or any other applicable law, nor an
actual determination by the Corporation (including its Board of Directors,
stockholders or independent legal counsel) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
(3) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section (b) shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
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(4) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware, or any other
applicable law.
(5) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section (b) with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(6) Any repeal or modification of this Section (b) by the stockholders of
the Corporation shall not adversely affect any right or protection of a
director, officer, employee or agent of the Corporation existing at the time of
such repeal or modification.
ELEVENTH: In determining whether an "Acquisition Proposal" is in the best
interests of the Corporation and its stockholders, the Board of Directors shall
consider all factors it deems relevant including, without limitation, the
following:
(a) The consideration being offered in the Acquisition Proposal, not only
in relation to the then current market price, but also in relation to the then
current value of the Corporation in a freely negotiated transaction and in
relation to the Board of Directors' estimate of the future value of the
Corporation as an independent entity; and
(b) Such other factors the Board of Directors determines to be relevant,
including among others the social, legal and economic effects upon employees,
suppliers, customers and the communities in which the Corporation is located, as
well as on the long term business prospects of the Corporation.
"Acquisition Proposal" means any proposal of any person (i) for a tender
offer, exchange offer or any other method of acquiring any equity securities of
the Corporation with a view to acquiring control of the Corporation, (ii) to
merge or consolidate the Corporation with another corporation, or (iii) to
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation.
This Article ELEVENTH shall not be interpreted to create any rights on
behalf of third persons, such as employees, suppliers, or customers.
TWELFTH: The Corporation has elected to be governed by Section 203 of the
General Corporation Law of Delaware."
SECOND: The Board of Directors of the Corporation, at a meeting duly
called at which a quorum existed, duly adopted resolutions proposing and
approving the Amended and Restated Certificate of Incorporation of the
Corporation and directing that such Amended and Restated Certificate of
Incorporation be submitted to the stockholders of the Corporation to consider
and adopt the same.
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THIRD: Pursuant to Section 228 of the Delaware Law, the adoption of the
Amended and Restated Certificate of Incorporation was consented to in writing by
the holders of the voting power of all shares of capital stock of the
Corporation entitled to vote thereon.
FOURTH: The Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, AMERICAN MEDSERVE CORPORATION has caused this
Certificate to be signed by its President this 8th day of November, 1996.
AMERICAN MEDSERVE CORPORATION
By: /s/ Timothy L. Burfield
------------------------------------
Timothy L. Burfield
President
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EXHIBIT 10.1
AMERICAN MEDSERVE CORPORATION
STOCK INCENTIVE PLAN
(Established October 15, 1996)
<PAGE>
TABLE OF CONTENTS
Section 1. Purpose.........................................................1
Section 2. Definitions.....................................................1
Section 3. Administration..................................................2
Section 4. Common Stock Subject to Plan....................................3
Section 5. Eligibility.....................................................3
Section 6. Options.........................................................4
Section 7. Stock Awards....................................................5
Section 8. Stock Appreciation Rights.......................................6
Section 9. Treatment of Options Upon Termination...........................6
Section 10. Adjustment Provisions...........................................8
Section 11. Term of Plan....................................................8
Section 12. General Provisions..............................................9
Section 13. Amendment or Discontinuance of the Plan........................10
<PAGE>
AMERICAN MEDSERVE CORPORATION
STOCK INCENTIVE PLAN
(ESTABLISHED OCTOBER 15, 1996)
SECTION 1. PURPOSE.
The purpose of the Plan, as hereinafter set forth, is to enable the Company
to attract, retain and reward key employees, non-employee directors and other
non-employees who have an ongoing consultant or independent contractor
relationship with the Company, by offering such individuals an opportunity to
have a greater proprietary interest in and a closer identity with the Company
and its financial success.
SECTION 2. DEFINITIONS.
BOARD: The Board of Directors of the Company.
CODE: The Internal Revenue Code of 1986, as amended.
COMMITTEE: The Compensation Committee of the Board or such other committee
as shall be appointed by the Board to administer the Plan pursuant to Section 3.
COMMON STOCK: The common stock, $0.01 par value, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 10.
COMPANY: American Medserve Corporation, a Delaware corporation, its
subsidiary or subsidiaries, and any successor thereto.
COVERED EMPLOYEE: A Participant who is or is expected to be a "covered
employee" within the meaning of Code Section 162(m) and the related regulations
for the year in which an Incentive is taxable to such employee and for whom the
Committee intends that such Incentive qualify for the performance-based
compensation exemption under Code Section 162(m).
DISABLED OR DISABILITY: Permanent and total disability, as defined in Code
Section 22(e)(3). A Participant shall not be considered Disabled unless the
Committee determines that the Disability arose prior to such Participant's
termination of employment or, in the case of a non-employee Participant, prior
to the termination of the consulting or independent contractor relationship
between such Participant and the Company.
FAIR MARKET VALUE: The amount determined by the Committee from time to
time, using such good faith valuation methods as it deems appropriate, except
that as long as the Common Stock is traded on NASDAQ or a recognized stock
exchange, it shall mean the average of the highest and lowest quoted selling
prices for the shares on the relevant date, or, if there were no sales on such
date, the weighted average of the means between the highest and the lowest
quoted selling prices on the nearest day before and the nearest day after the
relevant date, as described in
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Treasury Regulation Section 20.2031-2(b)(1), as reported in the Wall Street
Journal or a similar publication selected by the Committee.
INCENTIVE STOCK OPTION: An Option that is intended to qualify as an
"incentive stock option" under Code Section 422.
INCENTIVES: Options (including Incentive Stock Options), Stock Awards and
Stock Appreciation Rights.
NONQUALIFIED STOCK OPTION: An Option that is not an Incentive Stock
Option.
OPTION: An option to purchase shares of Common Stock granted to a
Participant pursuant to Section 6.
PARTICIPANT: An employee of the Company (including any employee who is a
member of the Board) or any non-employee member of the Board or non-employee
consultant or advisor to the Company whose participation in the Plan is
determined by the Board to be in the best interest of the Company.
PLAN: The American Medserve Corporation Stock Incentive Plan, as amended
from time to time.
RESTRICTED SHARES: Shares of Common Stock issued subject to restrictions
pursuant to Section 7(b).
RETIREMENT: Termination of employment upon "retirement," as determined by
the Committee in accordance with the Company's then existing policies.
STOCK APPRECIATION RIGHT: An award granted to a Participant pursuant to
Section 8.
STOCK AWARD: An award of Common Stock granted to a Participant pursuant to
Section 7.
SECTION 3. ADMINISTRATION.
(a) COMMITTEE. The Plan shall be administered by the Committee. To
the extent required to comply with Rule 16b-3 under the Securities Exchange Act
of 1934, each member of the Committee shall qualify as a "non-employee
director," as defined therein. To the extent required to comply with the
performance-based compensation exemption under Code Section 162(m) and the
related regulations, each member of the Committee shall qualify as an "outside
director," as defined therein.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall have the
authority to approve individuals for participation; to approve in advance the
grant of any Incentive; to construe and interpret the Plan; to establish, amend
or waive rules and regulations for its administration; and to accelerate the
exercisability of any Incentive or the termination of any restriction under any
Incentive. Incentives may be subject to such provisions as the Committee shall
deem advisable,
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and may be amended by the Committee from time to time; provided that no such
amendment may adversely affect the rights of the holder of an Incentive without
such holder's consent, and no amendment, as it applies to any Covered Employee,
shall be made that would cause an Incentive granted to such Covered Employee to
fail to satisfy the performance-based compensation exemption under Code Section
162(m) and the related regulations (to the extent such Incentive is intended to
satisfy this exemption when granted).
(c) POWERS OF THE COMMITTEE. The Committee may employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of the Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
(d) INDEMNIFICATION. No member of the Committee or the Board shall
be liable for any action or determination made in good faith with respect to the
Plan or any Incentive awarded under it. To the maximum extent permitted by
applicable law, each Committee or Board member shall be indemnified and held
harmless by the Company against any cost or expense (including legal fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection with the
Plan unless arising out of such member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members may have as members of the Board or under the by-laws of the Company.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 1,150,000, as adjusted in accordance with the provisions of
Section 10. In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Incentive granted under the Plan without the issuance of
shares or the payment of cash, the Common Stock subject to or reserved for such
Incentive may be used again for new Incentives hereunder; provided that in no
event may the number of shares of Common Stock issued hereunder exceed the total
number of shares reserved for issuance. Any shares of Common Stock withheld or
surrendered to pay withholding taxes pursuant to Section 12(e) or withheld or
surrendered in full or partial payment of the exercise price of an Option
pursuant to Section 6(d) or the purchase price of any other Incentive shall be
added to the aggregate shares of Common Stock available for issuance.
SECTION 5. ELIGIBILITY.
Incentives may be granted under the Plan to any employee of the Company,
including employees who are officers and/or members of the Board, to any
non-employee director of the Company, and to any non-employee who is a
consultant or advisor to the Company whose participation the Committee
determines is in the best interest of the Company (collectively,
"Participants"). The Committee shall have absolute discretion to determine,
within the limits of the express provisions of the Plan, those Participants to
whom and the time or times at which Incentives shall be granted. The Committee
shall also determine, within the limits of the express provisions of the Plan,
the number of shares to be subject to each Incentive, the duration and specific
terms of each Incentive, including the exercise price under each Option, the
time or
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times within which (during the term of the Option) all or portions of each
Option may become vested and exercisable, and whether an Option shall be an
Incentive Stock Option, a Nonqualified Stock Option or a combination thereof.
In making such determination, the Committee may take into account the nature of
the services rendered by the Participant, his or her present and potential
contributions to the Company's success and such other factors as the Committee
in its discretion shall deem relevant.
SECTION 6. OPTIONS.
Options granted under this Plan may be Incentive Stock Options or
Nonqualified Stock Options. However, no Incentive Stock Option shall be granted
to any individual who is not an employee of the Company. Each Option granted
under the Plan shall be evidenced by an agreement, in a form approved by the
Committee, which shall be subject to the following express terms and conditions
and to such other terms and conditions as the Committee may deem appropriate:
(a) OPTION PERIOD. Each Option agreement shall specify the period
for which the Option thereunder is granted (which, in the case of Incentive
Stock Options, shall not exceed ten years from the date of grant) and shall
provide that the Option shall expire at the end of such period.
(b) EXERCISE PRICE. The per share exercise price of each Option
shall be determined by the Committee at the time the Option is granted, and, in
the case of Incentive Stock Options and in the case of Options granted to
Covered Employees, shall not be less than the Fair Market Value of Common Stock
on the date the Option is granted.
(c) VESTING OF OPTIONS. No part of any Option may be exercised until
the grantee shall have satisfied the vesting conditions (E.G., such as remaining
in the employ of the Company for a certain period of time), if any, as the
Committee may specify in the applicable Option agreement. Subject to the
provisions of Section 6(e), any Option may be exercised, to the extent
exercisable by its terms, at such time or times as may be determined by the
Committee.
(d) PAYMENT. The exercise price of an Option shall be paid in full
at the time of exercise (i) in cash, (ii) through the surrender of
previously-acquired shares of Common Stock having a Fair Market Value equal to
the exercise price of the Option, (iii) through the withholding by the Company
(upon such exercise) of Common Stock having a Fair Market Value equal to the
exercise price or (iv) by a combination of (i), (ii), and (iii).
(e) OTHER RULES APPLICABLE TO INCENTIVE STOCK OPTIONS.
(i) GRANT PERIOD. Consistent with Section 11, an Incentive
Stock Option must be granted within ten years of the date this Plan is
adopted or the date the Plan is approved by the stockholders of the
Company, whichever is earlier.
(ii) TEN PERCENT OWNER. If a Participant on the date that an
Incentive Stock Option is granted owns, directly or indirectly, within the
meaning of Section 424(d) of
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the Code, stock representing more than 10% of the voting power of all
classes of stock of the Company, then the exercise price per share shall in
no instance be less than 110% of the Fair Market Value per share of Common
Stock at the time the Incentive Stock Option is granted, and no Incentive
Stock Option shall be exercisable by such Participant after the expiration
of five years from the date it is granted.
(iii) EMPLOYEE STATUS. To retain favorable Incentive Stock Option
tax treatment, the Option holder must at all times from the date the Option
is granted through a date that is no more than three months prior to the
date it is exercised (or no more than one year prior to the date it is
exercised if the Option holder terminates employment due to death or
Disability) remain an employee of the Company. For this purpose,
authorized leaves of absence shall not be deemed to sever the employment
relationship.
(iv) LIMITATIONS ON DISPOSITIONS. To retain favorable Incentive
Stock Option tax treatment, Common Stock received upon the exercise of an
Incentive Stock Option may not be disposed of prior to the later of two
years from the date the Incentive Stock Option is granted or one year from
the date the shares of Common Stock are transferred to the Participant upon
exercise of the Incentive Stock Option.
(v) VALUE OF SHARES. The aggregate Fair Market Value
(determined at the date of grant) of the Incentive Stock Options
exercisable for the first time by a Participant during any calendar year
shall not exceed $100,000 or any other limit imposed by the Code.
(f) COVERED EMPLOYEE LIMITATION. Options for more than 200,000 shares of
Common Stock may not be granted in any calendar year to any Covered Employee.
SECTION 7. STOCK AWARDS.
(a) GRANT OF STOCK AWARDS. Stock Awards may be made to Participants
on terms and conditions fixed by the Committee. Stock Awards may be in the form
of unrestricted shares of Common Stock or in the form of Restricted Shares
authorized pursuant to Section 7(b). The recipient of Common Stock pursuant to
a Stock Award shall be a stockholder of the Company with respect thereto, fully
entitled to receive dividends, vote and exercise all other rights of a
stockholder except to the extent otherwise provided in the Stock Award.
(b) RESTRICTED SHARES. Restricted Shares may not be sold by the
holder, or subject to execution, attachment or similar process, until the lapse
of the applicable restriction period or satisfaction of other conditions
specified by the Committee.
(c) STOCK AWARDS TO COVERED EMPLOYEES. For purposes of satisfying
the performance-based compensation exemption under Code Section 162(m), the
Committee may condition the grant of any Stock Award to any Covered Employee or
the vesting or lapse of restrictions of any Restricted Shares granted to any
Covered Employee upon the attainment of one or more pre-established performance
goals. In so doing, the committee shall set the specific performance goals on
or about the beginning of the relevant performance period and, after the
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relevant performance period has ended, it shall determine the extent to which
the relevant performance goals have been satisfied and the resulting Stock
Awards. The objective performance criteria upon which performance goals may be
based shall consist of the following: total stockholder return, return on
equity, return on capital, return on assets, return on investment, net income,
operating income, earnings per share, market share, stock price, sales, costs,
net income, cash flow, retained earnings, results of customer satisfaction
surveys, aggregate product price and other product price measures, safety
record, service reliability, and operating and maintenance cost management.
Such performance goals also may be based upon the attainment of specified levels
of performance of the Company under one or more of the measures described above
relative to the performance of other corporations. Stock Awards for more than
200,000 shares of Common Stock may not be granted in any calendar year to any
Covered Employee.
SECTION 8. STOCK APPRECIATION RIGHTS.
(a) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights
may be granted in connection with an Option (at the time of the grant or at any
time thereafter) or may be granted independently. Stock Appreciation Rights for
more than 200,000 shares of Common Stock may not be granted in any calendar year
to any Covered Employee.
(b) VALUE OF STOCK APPRECIATION RIGHTS. The holder of a Stock
Appreciation Right granted in connection with an Option, upon surrender of the
Option, will receive cash or shares of Common Stock equal in value to the excess
of the Fair Market Value on the exercise date over the Option's exercise price,
multiplied by the number of shares covered by such Option. The holder of a
Stock Appreciation Right granted independent of an Option, upon exercise, will
receive cash or shares of Common Stock equal in value to the excess of the Fair
Market Value on the exercise date over the Fair Market Value on the grant date,
multiplied by the number of shares covered by the Stock Appreciation Right.
SECTION 9. TREATMENT OF OPTIONS UPON TERMINATION.
(a) TERMINATION DUE TO DISABILITY OR DEATH. Upon termination of the
employment of an employee Participant or upon the termination of the Board
membership or consulting or advisor relationship of a non-employee Participant
by reason of Disability or death, the following provisions shall apply:
(i) Options and Stock Appreciation Rights (to the extent vested
prior to such Disability or death or to the extent vesting is accelerated
by the Committee) shall be exercisable by the Participant (or, in the case
of death, by his or her estate) during the one-year period commencing on
the date of termination, but not later than the expiration of the term of
the Options or Stock Appreciation Rights.
(ii) Unvested Stock Awards shall be forfeited unless the terms of
the Stock Award provide otherwise or unless the Committee, in its
discretion, waives this forfeiture provision.
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(iii) The Committee, in its discretion, may accelerate the vesting
of any Option, Stock Appreciation Right or Stock Award upon the
Participant's Disability or death.
(b) TERMINATION DUE TO RETIREMENT. Upon termination of the
employment of an employee Participant by reason of Retirement or upon the
termination of the Board membership of a non-employee Participant by reason of
Retirement, the following provisions shall apply:
(i) Incentive Stock Options (to the extent vested prior to such
Retirement or to the extent vesting is accelerated by the Committee) shall
be exercisable by the Participant during the three-month period commencing
on the date of Retirement, but not later than the expiration of the term of
the Options. If a Participant dies during such three-month period, such
Participant's estate may exercise the Incentive Stock Options (to the
extent such Options were vested and exercisable prior to death) during the
one-year period commencing on the date of death, but not later than the
expiration of the term of the Options.
(ii) Nonqualified Stock Options and Stock Appreciation Rights (to
the extent vested prior to such Retirement or to the extent vesting is
accelerated by the Committee) shall be exercisable by the Participant
during the one-year period commencing on the date of Retirement, but not
later than the expiration of the term of the Options or Stock Appreciation
Rights.
(iii) Unvested Stock Awards shall be forfeited unless the terms of
the Stock Award provide otherwise or unless the Committee, in its
discretion, waives this forfeiture provision.
(iv) The Committee, in its discretion, may accelerate the vesting
of any Option, Stock Appreciation Right or Stock Award upon the
Participant's Retirement.
(c) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. Upon the
involuntary termination of the employment of an employee Participant or upon the
involuntary termination of the Board membership or consulting or advisor
relationship of a non-employee Participant for any reason other than for
substantial cause (defined below), Disability, death or Retirement, the
following provisions shall apply:
(i) Options and Stock Appreciation Rights (to the extent vested
prior to such involuntary termination or to the extent vesting is
accelerated by the Committee) may be exercised by the Participant during
the three-month period commencing on the date of termination, but not later
than the expiration of the term of the Options or Stock Appreciation
Rights. If a Participant dies during such three-month period, such
Participant's estate may exercise the Options or Stock Appreciation Rights
(to the extent such Options or Stock Appreciation Rights were vested and
exercisable prior to death) during the one-year period commencing on the
date of death, but not later than the expiration of the term of the Options
or Stock Appreciation Rights.
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(ii) Unvested Stock Awards shall be forfeited unless the terms of
the Stock Award provide otherwise or unless the Committee, in its
discretion, waives this forfeiture provision.
(iii) The Committee, in its discretion, may accelerate the vesting
of any Option, Stock Appreciation Right or Stock Award upon the
Participant's involuntary termination.
(d) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. Upon the
voluntary termination of the employment of an employee Participant or upon the
voluntary termination of the Board membership or consulting or advisor
relationship of a non-employee Participant or upon the involuntary termination
of an employee, Board member, consultant or advisor for "substantial cause," the
Participant's right to exercise his or her Options or Stock Appreciation Rights
shall terminate and any unvested Stock Awards shall be forfeited as of the
effective date of such voluntary termination or at the time notice of
involuntary termination is given by the Company to such Participant. For
purposes of this provision, substantial cause shall include:
(i) The commission of an action against or in derogation of the
interests of the Company which, if proven in a court of law, would
constitute a violation of a criminal code or similar law;
(ii) A material breach of any material duty or obligation imposed
upon the Participant by the Company or by law;
(iii) Divulging the Company's confidential information; or
(iv) The performance of any similar action that the Committee, in
its sole discretion, may deem to be sufficiently injurious to the interests
of the Company so as to constitute substantial cause for termination.
SECTION 10. ADJUSTMENT PROVISIONS.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
Incentives, and (c) the appropriate Fair Market Value and other price
determinations applicable to Incentives. The Committee shall make all
determinations under this Section 10, and all such determinations shall be
conclusive and binding.
SECTION 11. TERM OF PLAN.
The Plan shall be deemed adopted and shall become effective on the date it
is approved by the stockholders of the Company and shall continue until
terminated by the Board or until no Common Stock remains available for issuance
under Section 4, whichever occurs first.
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SECTION 12. GENERAL PROVISIONS.
(a) EMPLOYMENT. Nothing in the Plan or in any related instrument
shall confer upon any employee Participant or upon any other employee any right
to continue in the employ of the Company or shall affect the right of the
Company to terminate the employment of any employee Participant or any other
employee with or without cause.
(b) LEGALITY OF ISSUANCE OF SHARES. No Common Stock shall be issued
pursuant to any Incentive unless and until all legal requirements applicable to
such issuance have been satisfied.
(c) OWNERSHIP OF COMMON STOCK ALLOCATED TO PLAN. No Participant
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Incentive, except as to shares of Common Stock, if any,
as shall have been issued to such Participant or beneficiary.
(d) GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Illinois.
(e) WITHHOLDING OF TAXES. The Company may withhold, or allow a
Participant to remit to the Company, any Federal, state or local taxes
applicable to any grant, exercise, vesting, distribution or other event giving
rise to income tax liability with respect to an Incentive. In order to satisfy
all or any portion of such income tax liability, an Incentive holder may elect
to surrender Common Stock previously acquired by the holder or to have the
Company withhold Common Stock that would otherwise have been issued to the
holder pursuant to the exercise of an Option or in connection with any other
Incentive, the number of shares of such withheld or surrendered Common Stock to
be sufficient to satisfy all or a portion of the income tax liability that
arises upon the exercise, vesting, distribution or other event giving rise to
income tax liability with respect to an Incentive.
(f) NON-TRANSFERABILITY. During the lifetime of a Participant, any
Option granted to him or her shall be exercisable only by him or her or by his
or her guardian or legal representative. No Option or other Incentive may be
assigned or subjected to any encumbrance, pledge or charge of any nature.
(g) NO IMPLIED RIGHTS. Neither the establishment of the Plan nor any
amendment thereof shall be construed as giving any Participant or any other
person any legal or equitable right unless such right shall be specifically
provided for in the Plan or conferred by specific action of the Committee in
accordance with the terms and provisions of the Plan.
(h) SUCCESSORS. All obligations of the Company under the Plan, with
respect to Incentives granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Company.
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SECTION 13. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
(a) AMENDMENT OR DISCONTINUANCE. The Board, acting by a majority of
its members, without further action on the part of the stockholders, may from
time to time alter, amend or suspend the Plan or any Incentive granted hereunder
or may at any time terminate the Plan; provided, however, that the Board may not
(i) materially increase the number of shares of Common Stock subject to the Plan
(except as provided in Section 10 hereof), (ii) amend any other provision of the
Plan, the amendment of which would require stockholder approval by the standards
of NASDAQ or any other stock exchange upon which the Common Stock is then
listed, or (iii) amend any other provision of the Plan, the amendment of which
would require stockholder approval in order to continue to satisfy the
performance-based compensation exemption under Code Section 162(m) and the
related regulations with respect to any Incentive awarded to any Covered
Employee.
(b) EFFECT OF AMENDMENT OR DISCONTINUANCE ON OUTSTANDING OPTIONS. No
amendment or discontinuance of the Plan by the Board or the stockholders of the
Company shall materially and adversely affect any outstanding Incentive
theretofore granted without the consent of the holder thereof.
-10-
<PAGE>
EXHIBIT 10.27
AMERICAN MEDSERVE CORPORATION
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the _____ day of ______________, 199__ (the
"Grant Date") between AMERICAN MEDSERVE CORPORATION, a Delaware corporation (the
"Company"), and ___________________________ (the "Optionee").
WITNESSETH:
WHEREAS, effective as of September 19, 1996, the Board of Directors of the
Company (the "Board") has adopted, and effective as of October 15, 1996, the
stockholders of the Company have approved, the American Medserve Corporation
Stock Incentive Plan (the "Plan") to provide a means whereby the Company may,
through the grant of stock options and other stock incentives to employees and
non-employee directors of the Company and/or any of its affiliates and to
individuals with an ongoing consulting or independent contractor relationship
with the Company and/or any of its affiliates, attract, retain and reward
persons of ability as key employees, non-employee directors, consultants and
advisors and motivate such individuals to exert their best efforts on behalf of
the Company and/or its affiliates; and
WHEREAS, the committee appointed by the Board to administer the Plan (the
"Committee") has decided to grant to the Optionee an option to purchase shares
of the Company's common stock, $.01 par value per share ("Common Stock").
NOW THEREFORE, the parties hereby agree as follows:
1. GRANT. The Company grants to the Optionee an option (the "Option") to
purchase _____________ shares of the Company's Common Stock at a per-share price
of $_____ (the "Option Price"), on the terms and subject to the conditions set
forth in this Agreement and as set forth in the Plan.
2. TIMING AND DURATION OF EXERCISE. Except to the extent otherwise
provided in this Agreement and in the Plan, the Optionee shall become vested in
the Option as follows:
(a) (i) An installment consisting of 20% of the shares covered by
the Option shall become vested within 90 days following each of the first
five anniversaries of the Grant Date if [INSERT NAME OF APPROPRIATE
SUBSIDIARY OF THE COMPANY] achieves the performance targets established by
the Committee for the last fiscal year ending prior to such anniversary.
<PAGE>
(ii) Within 90 days of each fiscal year end, the Committee shall
certify whether the respective performance targets have been met, and shall
determine the extent to which the Option has become vested.
(b) To the extent the Option has not become vested pursuant to
Section 2(a), the Option shall become vested as to all of the shares
covered by the Option on the seventh anniversary of the Grant Date.
The Option shall be exercisable by the Optionee at any time (to the extent
it is vested) for the duration of the Option, which, subject to the provisions
of Section 3 of this Agreement, shall be for the period beginning on the Grant
Date and continuing through the close of business on the tenth anniversary of
the Grant Date (the "Option Period").
3. EXERCISE IN THE EVENT OF DEATH OR OTHER TERMINATION.
(a) If the Optionee dies while an employee or Board member of the
Company or any of its affiliates or while he/she is a consultant or advisor
to the Company or any of its affiliates, or if the Optionee terminates
employment, Board membership or his/her consulting or advisor relationship
with the Company and its affiliates because of Retirement or Disability,
both as defined in Section 2 of the Plan, the Option, to the extent vested
at that time, may be exercised by the Optionee or by the person or persons
to whom the Optionee's rights under the Option pass by will or applicable
law, or if no such person has such right, by his/her executors or
administrators, at any time, or from time to time, within one year after
the date of such death or termination, but not later than the expiration
date specified in Section 5(c) of this Agreement.
(b) If the Optionee's employment, Board membership or consulting or
advisor relationship with the Company and its affiliates shall terminate
for any reason other than those specified in subsections (a) and (c) of
this Section 3, the Optionee may exercise the Option (to the extent the
Option is vested at that time), at any time, or from time to time, within
three months of such termination, but not later than the expiration date
specified in Section 5(c) of this Agreement. If the Optionee dies
following such termination and prior to exercising the portion of the
Option that has not expired as of the date of his/her death, then,
notwithstanding the preceding sentence, that portion of the Option shall
remain exercisable until the first to occur of the expiration date
specified in Section 5(c) of this Agreement or one year after the date of
the Optionee's death.
(c) Notwithstanding anything in this Section 3 to the contrary, if
the Optionee's employment, Board membership or consulting or advisor
relationship with the Company and its affiliates is terminated voluntarily
by the Optionee or involuntarily by the Company and/or any of its
affiliates for substantial cause, his/her ability to exercise any portion
of the Option shall terminate on the date of such termination. For this
purpose, termination for "substantial cause" shall have the meaning
ascribed to it under Section 9(d) of the Plan.
-2-
<PAGE>
(d) Notwithstanding the foregoing, the Committee, in its complete
discretion, may accelerate the vesting of all or any portion of the Option
upon the occurrence of any of the events described in subsections (a) and
(b) of this Section 3.
4. METHOD OF EXERCISE. The Option, or any part of it, shall be exercised
by written notice directed to the Secretary of the Company at the Company's
principal office in Naperville, Illinois. Such notice must satisfy the
following requirements:
(a) The notice must state the Grant Date, the number of shares of
Common Stock subject to the grant, the number of shares of Common Stock
with respect to which the Option is being exercised, the person in whose
name the stock certificate or certificates for such shares of Common Stock
is to be registered and the person's address and Social Security number (or
if more than one person, the names, addresses and Social Security numbers
of such persons).
(b) The notice shall be accompanied by check, bank draft, money order
or other cash payment or by delivery of a certificate or certificates,
properly endorsed, for shares of Common Stock equivalent in Fair Market
Value (as defined in Section 2 of the Plan) on the date of exercise to the
Option Price, or by a combination of cash and shares, or shall state that
the Company shall withhold Common Stock having a Fair Market Value on the
date of exercise equivalent to the Option Price, in full payment of the
Option Price for the number of shares specified in the notice.
(c) The notice shall contain such representations and agreements as
to the holder's investment intent with respect to such shares of Common
Stock as may be satisfactory to the Committee.
(d) The notice must be signed by the person or persons entitled to
exercise the Option and, if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof, satisfactory to
the Committee, of the right of such person or persons to exercise the
Option.
The exercise may be with respect to any one or more shares of Common Stock
covered by the Option (to the extent vested), reserving the remainder for a
subsequent timely exercise. The Company shall make prompt delivery of such
shares; provided that if any law or regulation requires the Company to take any
action with respect to such shares before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to take such
action; and provided further that the Company shall have no obligation to
deliver any such certificate unless and until appropriate provision has been
made for any withholding taxes in respect of such exercise. The Optionee may
elect to surrender shares of Common Stock previously acquired by him/her or to
have the Company withhold shares that would have otherwise been issued pursuant
to the exercise of the Option in order to satisfy all or a portion of any such
tax withholding obligation.
-3-
<PAGE>
5. TERMINATION OF OPTION; BAR TO EXERCISE.
(a) The Committee may at any time terminate the Option if it shall,
in the reasonable exercise of its judgment, find that the Optionee has
violated any provision of Section 6 or has engaged in any activities
otherwise contrary to the best interests of the Company or any of its
affiliates. The right to exercise this Option has been granted, and the
compensation to be realized in the event of exercise has been provided,
upon the express understanding that the Optionee shall refrain from
engaging in any activities prohibited by Section 6 or otherwise contrary to
the best interests of the Company or any of its affiliates.
(b) The Option may not be exercised if such exercise could constitute
a violation of any applicable federal, state or other law or regulation.
(c) The Option may not be exercised after the last day of the Option
Period, as defined in Section 2 of this Agreement, subject to the
limitations in Section 3 of this Agreement, if applicable.
6. COVENANT NOT TO COMPETE; CONFIDENTIAL INFORMATION
(a) In consideration of the Company entering into this Agreement with
the Optionee, the Optionee hereby agrees that effective as of the Grant
Date, for so long as the Optionee is employed by the Company or any of its
affiliates and for a period of two years thereafter (the "Noncompete
Period"), the Optionee shall not at any time in any capacity, directly or
indirectly, do any of the following: (i) provide any management,
consulting, financial, administrative or other services to any Competing
Organization (as defined below), including without limitation,
participating directly or indirectly as an officer, director, stockholder,
member, operator, sole proprietor, independent contractor, consultant,
franchisor, franchisee, owner, employee, agent, representative or partner
of, or having any direct or indirect financial interest (including, without
limitation, the interest of a creditor) in, any "Competing Organization" or
(ii) permit the Optionee's name to be used by any Competing Organization.
"Competing Organization" shall include any person, organization, business
or other enterprise (x) located or doing business within the [INSERT AREA
IN WHICH THE APPLICABLE SUBSIDIARY CONDUCTS BUSINESS] (the "Geographic
Area"), and (y) currently engaged in, or about to become engaged in, a
business identical to or similar to the business of the Company or any of
its affiliates, including without limitation, the provision of the
following services and/or products: enteral nutrition services and
products, parenteral services and products, infusion therapy services and
products, wound care management services and products, urological services
and products, ostomy services and products, and pharmacy or pharamaceutical
services and products.
(b) During the Non-Compete Period, the Optionee shall not at any time
in any capacity, directly or indirectly, (i) induce or attempt to induce
any employee of the Company or any of its affiliates to leave their employ,
or otherwise solicit the
-4-
<PAGE>
employment of any employee of the Company or any of its affiliates, hire
any such employee or in any way interfere with the relationship between the
Company or any of its affiliates and any of their respective employees,
(ii) induce or attempt to induce any supplier, licensee, licensor,
franchisee, or other business relation of either the Company or any of its
affiliates to cease doing business with them or in any way interfere with
the relationship between either the Company or any of its affiliates and
any of their respective customers or business relations, or (iii) solicit
the business of any then-existing patient or customer of the Company or any
of its affiliates.
(c) The Optionee will not disclose or use at any time for so long as
the Optionee is employed by the Company or any of its affiliates and
thereafter, any Confidential Information (as defined below) of which the
Optionee is or becomes aware, whether or not such information is developed
by him or her, except to the extent that such disclosure or use is directly
related to and required by the Optionee's performance of duties, if any,
assigned to the Optionee by the Company or any of its affiliates. As used
in this Agreement, the term "Confidential Information" means information
that is not generally known to the public and that is used, developed or
obtained by the Company or any of its affiliates in connection with its
business, including but not limited to (i) products or services, (ii) fees,
costs and pricing structures, (iii) designs, (iv) computer software,
including operating systems, applications and program listings, (v) flow
charts, manuals and documentation, (vi) data bases, (vii) accounting and
business methods, (viii) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whether or not reduced to
practice, (ix) customers and clients and customer or client lists,
(x) other copyrightable works, (xi) all technology and trade secrets, and
(xii) all similar and related information in whatever form. Confidential
Information will not include any information that has been published in a
form generally available to the public prior to the date the Optionee
proposes to disclose or use such information. The Optionee acknowledges
and agrees that all copyrights, works, inventions, innovations,
improvements, developments, patents, trademarks and all similar or related
information which relate to the actual or anticipated business of the
Company or any of its affiliates (including its predecessors) and are
conceived, developed or made by the Optionee while employed by the Company
or any of its affiliates belong to the Company. The Optionee will perform
all actions reasonably requested by the Company or any of its affiliates
(whether during or after the Noncompete Period) to establish and confirm
such ownership at the Company's expense (including without limitation the
execution of assignments, consents, powers of attorney and other
instruments).
(d) Notwithstanding subsections (a), (b) and (c), if, at the time of
enforcement of any of the provisions of this Section 6 a court holds that
the restrictions stated herein are unreasonable under the circumstances
then existing or are otherwise illegal, invalid or unenforceable in any
respect by reason of their duration, the definition of Geographic Area or
scope of activity, or any other reason, the parties hereto agree that the
maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area.
-5-
<PAGE>
(e) The Company and the Optionee hereby acknowledge and agree that
the provisions of this Section 6 in no way amend, modify or supersede any
other non-compete or non-solicitation agreement between the Company or any
of its affiliates and the Optionee.
(f) Without limiting any of the Company's rights under this
Agreement, the parties hereto acknowledge that the Company shall be
entitled to enforce its rights under this Section 6 specifically, to
recover damages and costs (including reasonable attorneys' fees) caused by
any breach of any provisions of this Section 6 and to exercise all other
rights existing in its favor. The parties hereto acknowledge and agree
that the breach of any term or provision of this Section 6 by the Optionee
shall materially and irreparably harm the Company, that money damages shall
accordingly not be an adequate remedy for any breach of the provisions of
this Section 6 by the Optionee and that the Company in its sole discretion
and in addition to any other remedies it may have at law or in equity may
apply to any court of law or equity of competent jurisdiction (without
posting any bond or deposit) for specific performance and/or other
injunctive relief in order to enforce or prevent any violations of the
provisions of this Section 6.
7. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of stock
deliverable upon the exercise of the Option, or any portion thereof, may be
either previously authorized but unissued shares or issued shares which have
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on any and all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental
regulatory body, which the Committee shall, in its discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The payment to the Company of all amounts which, under federal,
state or local tax law, it is required to withhold upon exercise of the
Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
-6-
<PAGE>
8. RIGHTS NOT CONFERRED. The Option shall not be affected by any change
in the nature of the Optionee's relationship with the Company or any of its
affiliates so long as he/she continues to be engaged by the Company or any of
its affiliates in that or any other eligible capacity. Nothing contained in the
Plan or in the Option shall confer upon the Optionee any right with respect to
continuance of employment, Board membership or consulting or advisor
relationship with the Company or any of its affiliates or interfere in any way
with the right of the Company or any of its affiliates to terminate the
employment, Board membership or consulting or advisor relationship of the
Optionee at any time.
9. NONTRANSFERABILITY. The Option shall not be transferable other than
by will or by the laws of descent and distribution. During the lifetime of the
Optionee, the Option shall be exercisable only by him/her or by his/her guardian
or legal representative.
10. NO RIGHTS AS A STOCKHOLDER. The Optionee shall not have any rights as
a stockholder with respect to any shares of Common Stock subject to the Option
prior to the date of issuance to him/her of a certificate or certificates for
such shares.
11. OPTION SUBJECT TO PLAN. The granting of the Option is being made
pursuant to the Plan and the Option shall be exercisable only in accordance with
the applicable terms of the Plan. The Plan contains certain definitions,
restrictions, limitations and other terms and conditions all of which shall be
applicable to the Option. ALL THE PROVISIONS OF THE PLAN ARE INCORPORATED
HEREIN BY REFERENCE AND ARE MADE A PART OF THIS AGREEMENT IN THE SAME MANNER AS
IF EACH AND EVERY SUCH PROVISION WERE FULLY WRITTEN INTO THIS AGREEMENT. Should
the Plan become void or unenforceable by operation of law or judicial decision,
this Agreement shall have no force or effect. Nothing set forth in this
Agreement is intended, nor shall any of its provisions be construed, to limit or
exclude any definition, restriction, limitation or other term or condition of
the Plan as is relevant to this Agreement and as may be specifically applied to
it by the Committee. In the event of a conflict in the provisions of this
Agreement and the Plan, as a rule of construction the terms of the Plan shall be
deemed superior and apply. The Optionee acknowledges receipt of a copy of the
Plan.
12. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK. In the event of a
stock split, stock dividend, recapitalization, reclassification or combination
of shares, merger, sale of assets or similar event, the number and kind of
shares subject to the Option, and the Option Price may be appropriately adjusted
consistent with such change in such manner as the Committee may deem equitable
to prevent substantial dilution or enlargement of the rights granted to or
available for the Optionee.
13. SEVERABILITY. If any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected and shall remain in full force
and effect in such jurisdiction, and any such invalid or unenforceable provision
shall not be considered invalid or unenforceable in any other jurisdiction.
-7-
<PAGE>
14. BINDING EFFECT. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
- --------------------------------------------------
Optionee's Signature
- --------------------------------------------------
(Print or Type)
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City, State, Zip Code
- ------------------------------- -----------------------------------
Social Security No. Telephone Number
AMERICAN MEDSERVE CORPORATION
By:
--------------------------------
Title:
-----------------------------
APPROVED ON BEHALF OF THE COMMITTEE
By:
--------------------------------
Committee member
-8-
<PAGE>
EXHIBIT 11.1
AMERICAN MEDSERVE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six months
Year ended ended Year ended
June 30 December 31 December 31
1995 1995 1996
--------------------------------------------------
PRIMARY
<S> <C> <C> <C>
Average number of shares outstanding 4,052 4,421 5,330
Net effect of common and common equivalent
shares issued in an initial public offering
under SAB 83 390 390 313
Net effect of common shares issued in
connection with the preferential mandatory
distribution to Class A stockholder 1,655 1,655 1,655
Net effect of dilutive stock options based on
the treasury stock method using average
stock price 13
--------------------------------------------------
Total 6,097 6,466 7,311
--------------------------------------------------
Income (loss) before extraordinary item $92 $296 ($2,134)
Write off of deferred financing costs, net
of income tax benefit of $404 437
--------------------------------------------------
Net income (loss) $92 $296 ($2,571)
--------------------------------------------------
Income (loss) before extraordinary item $0.02 $0.05 ($0.29)
Write off of deferred financing costs, net
of income tax benefit of $404, per share 0.06
--------------------------------------------------
Net income (loss) per share $0.02 $0.05 ($0.35)
--------------------------------------------------
FULLY DILUTED
Average number of shares outstanding 4,052 4,421 5,330
Net effect of common and common equivalent
shares issued in an initial public offering
under SAB 83 390 390 313
Net effect of common shares issued in
connection with the preferential mandatory
distribution to Class A stockholder 1,655 1,655 1,655
Net effect of dilutive stock options based on
the treasury stock method using average
stock price 13
Assumed conversion of 8.75% convertible
note 64
--------------------------------------------------
Total 6,097 6,466 7,375
--------------------------------------------------
Income (loss) before extraordinary item $92 $296 ($2,134)
Add 8.75% interest on convertible note, net
of tax benefit 25
--------------------------------------------------
Income (loss) before extraordinary item, adjusted 92 296 (2,109)
Write off of deferred financing costs, net
of income tax benefit of $404 437
--------------------------------------------------
Net income (loss) $92 $296 ($2,546)
--------------------------------------------------
Income (loss) before extraordinary item per share $0.02 $0.05 ($0.29)
Write off of deferred financing costs, net
of income tax benefit of $404, per share 0.06
--------------------------------------------------
Net income (loss) per share $0.02 $0.05 ($0.35)
--------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ---------- -----------------
AMC Regional Holdings, Inc. Delaware
Dixon Pharmacy, Inc. Illinois
Gatti LTC Services, Inc. Pennsylvania
Good Samaritan Supply Services, Inc. South Dakota
HCC Medical Supply, Inc. Pennsylvania
Nihan & Martin, Inc. Delaware
Pharmacy Associates of Glens Falls, Inc. New York
Pharmed Holdings, Inc. Delaware
Royal Care Holdings, Inc. Delaware
Specialized Patient Care Services, Inc. Alabama
Sterling Healthcare Services, Inc. Delaware
Williamson Drug Company, Inc. Virginia
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Medserve Corporation
We consent to the reference to our report dated September 15, 1995 relating
to the statements of income and cash flows of Williamson Drug Company, Inc.
for the period from August 11, 1994 to June 30, 1995 included in the 1996
Form 10-K of American Medserve Corporation.
S.B. HOOVER & COMPANY, L.L.P.
Harrisonburg, Virginia
March 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDSERVE CORPORATION AT DECEMBER
31, 1996 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 17,382
<SECURITIES> 0
<RECEIVABLES> 24,261
<ALLOWANCES> 1,457
<INVENTORY> 7,708
<CURRENT-ASSETS> 50,868
<PP&E> 7,283
<DEPRECIATION> 1,774
<TOTAL-ASSETS> 113,298
<CURRENT-LIABILITIES> 12,374
<BONDS> 7,284
0
0
<COMMON> 120
<OTHER-SE> 92,879
<TOTAL-LIABILITY-AND-EQUITY> 113,298
<SALES> 82,027
<TOTAL-REVENUES> 82,027
<CGS> 58,807
<TOTAL-COSTS> 58,807
<OTHER-EXPENSES> 22,451<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,741
<INCOME-PRETAX> (1,972)
<INCOME-TAX> 162
<INCOME-CONTINUING> (2,134)
<DISCONTINUED> 0
<EXTRAORDINARY> (437)
<CHANGES> 0
<NET-INCOME> (2,571)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
<FN>
<F1>INCLUDES NONRECURRING CHARGES OF $3,019.
</FN>
</TABLE>
