SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 31, 1996 Commission File No. 0-18472
HEALTH MANAGEMENT, INC.
(Exact name of registrant as specified in charter)
Delaware 75-2096632
(State or other jurisdiction of incorporation) (IRS Employer
Identification No.)
4250 Veterans Memorial Highway, Suite 400 West, Holbrook, New York 11741
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 981-0034
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
As of February 15, 1996, there were outstanding 9,328,182 shares of common
stock, $.03 par value.
HEALTH MANAGEMENT, INC.
January 31, 1996
TABLE OF CONTENTS
Page No.
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . 3
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed consolidated financial statements of Health Management,
Inc. (the "Company") begin on the page following Item 2 of this
Part I.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Preliminary Statement
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding the Company's current business strategy,
the Company's projected sources and uses of cash, and the Company's plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; the ability of the
Company to adequately defend or reach a settlement of outstanding litigations
and investigations involving the Company or it management; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which statements are made pursuant to the Private Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
The financial statements for the three months ended January 31, 1995 have been
restated. (See Note 3 to the Condensed Consolidated Financial Statements.)
Three months ended January 31, 1996 vs. January 31, 1995
The Company's revenues were $40,801,405 for the quarter ended January 31, 1996,
an increase of $18,819,582 or 85.6% over revenues of $21,981,823 for the three
months ended January 31, 1995. This increase was attributable principally to
the increase in revenues generated by the recent acquisitions of the Company
which expanded the Lifecare Program into other chronic disease therapies as well
as to continued growth in the Company's core aftercare business areas.
Gross profit margins were 18.0% for the quarter ended January 31, 1996, as
compared to 31.0% for the quarter ended January 31, 1995. The decrease in gross
profit margins was primarily due to a one-time write-off of $2,840,000 of
medical device inventory. This write-off represents 7.0 points of the gross
profit decline; absent the write-off the gross profit rate would have been
24.9%. The remainder of the decline is attributable to a reduction of
reimbursement rates that occur when the drug benefit is carved out from the
major medical benefit and is switched to a drug card plan. In addition, the
Company has continued to experience an increase in the number of transplant
patients receiving immunosuppressant drug benefits under Medicare due to the
extension of Medicare coverage beyond the historical one year post-transplant
period. Medicare reimburses at lower rates than indemnity insurance.
Operating expenses as a percentage of revenues increased to 57.5% for the
quarter ended January 31, 1996, as compared to 20.0% for the quarter ended
January 31, 1995. Total operating expenses were $23,442,024 for the quarter
ended January 31, 1996, an increase of $18,808,147 over the quarter ended
January 31, 1995. The increase was principally driven by the following one-time
expenses: 1) $8,400,000 of bad debt expense was recorded to adequately provide
for doubtful accounts; 2) $3,600,000 was recorded for costs associated with
organizational consolidations and other cost reduction programs; 3) $2,000,000
of costs for professional fees associated with the Company's restatement,
litigation, etc. The increase was also due to the fact that during the last
quarter of the fiscal year ended April 30, 1995 the Company acquired the
Clozaril Patient Management Business ("CPMB") from Caremark Inc. Operating
expenses for this business were approximately $2,700,000 during the quarter
ended January 31, 1996. The balance of the increase occurred in selling,
distribution and administrative expenses.
Net interest expense for the quarter ended January 31, 1996 was $675,594, an
increase of $744,150 compared to net interest income of $68,556 for the quarter
ended January 31, 1995. Approximately $550,000 of the increase was due to
interest charges relating to the Company's $21,000,000 debt financing of the
CPMB acquisition. The balance of the increase was a result of interest charges
for the Company's borrowings against its line of credit.
The net loss for the quarter ended January 31, 1996 was $9,903,644, compared to
net income of $2,035,968 for the quarter ended January 31, 1995, a decrease of
$11,939,612. The decrease in net income was primarily attributable to the one-
time write-offs discussed above.
Primary earnings and fully diluted earnings per common share for the quarter
ended January 31, 1996 were $(1.06) compared to $.15 for the quarter ended
January 31, 1995.
Nine months ended January 31, 1996 vs. January 31, 1995
Revenues for the nine months ended January 31, 1996 were $118,370,222, an
increase of $58,287,770 or 97.0%, as compared to revenues of $60,082,452 for the
nine months ended January 31, 1995. This increase was attributable principally
to the increase in revenues generated by the recent acquisitions of the Company
which expanded the Lifecare Program into other chronic disease therapies as well
as to continued growth in the Company's core aftercare business areas.
Gross profit margins were 23.9% for the nine months ended January 31, 1996
compared to 29.8% for the same period last year. The decrease in gross profit
margins was primarily due to a one-time write-off of $2,840,000 of medical
device inventory. This write-off represents 2.4 points of the gross profit
decline; absent the write-off, the gross profit rate would have been 26.3%. The
remainder of the decline is attributable to reductions of reimbursement rates
that occur when the drug benefit is carved out from the major medical benefit
and is switched to a drug card plan. In addition, the Company has continued to
experience an increase in the number of transplant patients receiving
immunosuppressant drug benefits under Medicare due to the extension of Medicare
coverage beyond the historical one year post-transplant period. Medicare
reimburses at lower rates than indemnity insurance.
Operating expenses as a percentage of revenues increased 33.9% for the nine
months ended January 31, 1996, as compared to 22.6% for the six months ended
January 31, 1995. The increase was principally driven by the following one-time
expenses: 1) $8,400,000 of bad debt expense was recorded to adequately provide
for doubtful accounts; 2) $3,600,000 was recorded for costs associated with
organizational consolidations and other cost reduction programs; 3) $2,000,000
of costs for professional fees associated with the Company's restatement,
litigation, etc. The increase was also due to the CPMB acquisition which
occurred during the last quarter of the fiscal year ended April 30, 1995.
Operating expenses for this business were approximately $2,700,000 during the
quarter ended January 31, 1996. The balance of the increase occurred in
selling, distribution and administrative expenses.
Net interest expense for the nine months ended January 31, 1996 was $1,938,456
an increase of $2,185,770 compared to net interest income of $247,314 for the
same period last year. Approximately $1,600,000 of the increase was due to
charges relating to the Company's financing of the CPMB acquisition, while the
balance of the increase was a result of interest charges for the Company's
borrowings against its line of credit.
The net loss for the nine months ended January 31, 1996 was $8,175,384, a
decrease of $10,978,290 compared to net income of $2,802,906 for the same period
last year. The decline was primarily attributable to the one-time expenses and
write-offs discussed above.
Primary and fully diluted earnings per share for the nine months ended January
31, 1996 were $(.87) as compared to $.29 for the same fiscal period last year,
LIQUIDITY AND CAPITAL RESOURCES
The decrease in the Company's cash and cash equivalents of $1,165,220 to
$3,397,492 at January 31, 1996 from $4,562,712 at April 30, 1995 was
attributable to cash used for operating and investing activities offset by net
cash provided by financing activities. The Company's continued growth resulted
in utilization of cash for operating and capital investing activities.
Increases in net income, accounts payable and non-cash adjustments were offset
by increases in accounts receivable and inventory.
Working capital at January 31, 1996 was $4,904,029 a decrease of $4,391,206 from
April 30, 1995. The primary factors were increases in accounts receivable net
of the allowance for doubtful accounts of $2,910,910 and inventories of
$1,909,973, and deferred taxes of $4,221,492 offset by increases in accounts
payable of $5,421,472 and accrued expenses of $8,640,327.
The Company has borrowed $21,000,000 on a term loan of which $3,000,000 has been
repaid as of January 31, 1996. The principal is payable over 5 years in
quarterly installment payments of $750,000 through March 31, 1996; $1,000,000
through March 31, 1997; $1,250,000 through March 31, 1999; and $1,000,000
through March 21, 2000.
The Company also maintains a credit facility of up to $15,000,000 with the same
lending institutions and matures in March 1997. As of January 31, 1996, the
Company had borrowed $10,350,000 leaving an availability of $4,650,000 under the
line of credit.
As a result of the restatement of the Company's financial statements for the
year ended April 30, 1995 and the quarters ended July 31, 1995 and October 31,
1995, and the one-time charges taken in the quarter ended January 31, 1996, the
Company is in violation of its current loan agreements. Accordingly, all
borrowings under the term loan and line of credit are classified as current
liabilities as of January 31, 1996.
In connection with the CPMB acquisition, the Company is also obligated on a
$3,000,000 subordinated note payable bearing interest at an annual rate of 8%
and matures on March 31, 2000.
As of January 31, 1996, days sales outstanding were 77 days down 40 days from
117 days for the quarter ended January 31, 1995.
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
Page No.
Balance Sheets as of January 31, 1996 (Unaudited)
and April 30, 1995 (Audited) . . . . . . . . . . . . . . . . . . . . . . 8 - 9
Statements of Income for the Three and Nine Months Ended
January 31, 1996 and January 31, 1995 (Unaudited) . . . . . . . . . . . . . . 10
Statements of Cash Flows for the Nine Months Ended January 31, 1996
and January 31, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 11 - 12
Statement of Changes in Stockholders' Equity for the Nine Months
Ended January 31, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 14 - 16
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, April 30,
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,397,492 $ 4,562,712
Accounts Receivable, less
doubtful accounts 34,250,719 31,339,809
Tax Refund Receivable 6,097,527 1,827,000
Inventories 9,697,634 7,787,661
Due from Seller 706,000 -
Deferred Taxes 7,354,792 3,133,300
Prepaid Expenses and Other 861,898 1,163,541
Total Current Assets 62,366,062 49,814,023
IMPROVEMENTS AND EQUIPMENT, less
accumulated depreciation and
amortization 4,004,522 2,136,062
EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 34,506,732 35,464,260
OTHER 1,098,083 1,275,775
$101,975,399 $ 88,690,120
See Notes to Condensed Consolidated Financial Statements
</TABLE>
HEALTH MANAGEMENT, INC.
And Subsidiaries
Condensed Consolidated Balance Sheets (concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, April 30, 1995
(Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 17,751,463 $ 12,329,991
Accrued Expenses 10,502,734 1,862,407
Current Maturities of Long 30,050,427 23,135,267
TOTAL CURRENT LIABILITIES 58,304,624 37,327,665
Deferred Taxes 426,324 -
Long Term Debt, Less Current 3,191,125 3,191,123
TOTAL LIABILITIES 61,922,073 40,518,788
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock - $.01 Par
Shares Authorized -
Issued and Outstanding-0
Common Stock - $.03 Par Value:
Shares Authorized -
Issued and Outstanding -
9,322,240 and 9,316,017 279,668 279,481
Additional Paid-In Capital 38,076,701 38,019,510
Retained Earnings 1,696,957 9,872,341
TOTAL STOCKHOLDERS' EQUITY
40,053,326 48,171,332
$101,975,399 $88,690,120
See Notes to Condensed Consolidated Financial Statements
</TABLE>
HEALTH MANAGEMENT, INC.
And Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue $40,801,405 $21,981,823 $118,370,222 $60,082,452
Cost of Sales 33,469,977 15,168,383 90,122,957 42,180,785
Gross Profits 7,331,428 6,813,440 28,247,265 17,901,667
Operating Expense:
Selling 1,335,396 693,309 3,627,031 2,019,420
General & Administrative 22,106,628 3,940,568 36,528,116 11,529,555
23,442,024 4,633,877 40,155,147 13,548,975
Income (loss) from Operations (16,110,596) 2,179,563 (11,907,882) 4,352,692
Interest Expense (Income) 675,594 (68,556) 1,938,456 (247,314)
Income Before Income Tax Expense (16,786,190) 2,248,119 (13,846,338) 4,600,006
(benefit)
Income Tax Expense (benefit) (6,882,546) 793,000 (5,670,954) 1,797,100
Net Income (loss) $(9,903,644) $1,455,119 $(8,175,384) $2,802,906
Earnings (loss) Per Common Share
Primary (1.06) $.15 (0.87) $.30
Fully Diluted (1.06) $.15 (0.87) $.30
Weighted Average Shares Outstanding
Primary 9,384,732 9,426,133 9,399,984 9,399,984
Fully Diluted 9,384,732 9,426,133 9,399,984 9,413,767
See Notes to Condensed Consolidated Financial Statements
</TABLE>
HEALTH MANAGEMENT, INC.
And Subsidiaries
Condensed Consolidated Statements of Cash Flow
For the Nine Months Ended January 31
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating
activities:
Net Income $(8,175,384) $2,802,906
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation & Amortization 1,313,692 531,398
Provision for Doubtful Accounts 11,829,901 4,424,700
Deferred Taxes ( 3,795,168) (1,232,000)
Compensation Under Restricted Stock 42,795
Loss from Disposition of Rental Equipment - 287,287
Increase (decrease) in cash flows
from changes in operating assets
and liabilities net of effects of acquisitions:
Accounts receivable (14,740,811) (9,486,733)
Inventory (1,909,973) (1,660,678)
Prepaid Expenses and Other (404,357) (489,977)
Other Assets 518,447 (149,299)
Accounts Payable 5,907,519 447,897
Accrued Salaries and Bonuses 312,856 149,721
Accrued Expenses 7,841,070 773,809
Income Tax Payable (4,270,527) (3,199,558)
Net cash used in operating (5,572,735) (6,757,732)
activities
Cash flows from investing activities
Capital Expenditures (1,575,631) (1,115,325)
Cash used in acquisition of PMA - (187,500)
Proceeds from closing adjustments of
the Murray Group - 1,444,426
Proceeds from Sale of Rental Equipment - 214,598
Net Cash provided by (used in) Investing activities (1,575,631) 356,199
See Notes to Condensed Consolidated Financial Statements
</TABLE>
HEALTH MANAGEMENT, INC.
And Subsidiaries
Condensed Consolidated Statements of Cash Flow (concluded)
For the Nine Months Ended January 31
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from financing activities
Bank borrowing, net of repayment 5,925,768 (209,458)
Proceeds from exercise of stock options 57,378 167,400
Net cash provided by (used in) 5,983,146 (42,058)
financing activities
Net increase (decrease) in cash and (1,165,220) (6,443,591)
cash equivalents
Cash and cash equivalents, 4,562,712 13,495,480
at beginning of period
Cash and cash equivalents, at end of period $3,397,492 $ 7,051,889
Supplemental disclosures of cash flow information:
Cash Paid for Interest $1,510,928 $ 70,284
Cash Paid for Taxes $2,099,047 $6,623,158
See Notes to Condensed Consolidated Financial Statements
</TABLE>
HEALTH MANAGEMENT, INC.
And Subsidiaries
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Stockholders' Equity
Nine Months Ended January 31, 1996
(Unaudited)
Common Stock Additional
$.03 Par Value Paid-In Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance, May 1, 1995 9,316,017 $279,481 $38,019,510 $9,872,341
Common Stock Issued Upon 6,223 187 57,191 -
Exercise of Stock Options
Net Loss for the Nine Months - - - (8,175,384)
Ended January 31, 1996
Balance, January 31, 1996 9,322,240 $279,668 $38,076,701 $1,696,957
See Notes to Condensed Consolidated Financial Statements
</TABLE>
HEALTH MANAGEMENT, INC.
And Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The condensed consolidated financial statements include Health Management, Inc.,
a Delaware corporation (the "Company"), and its wholly-owned subsidiaries,
including Homecare Management, Inc., a New York corporation, HMI Pennsylvania,
Inc., a Delaware corporation, HMI Retail Corp., Inc., a Delaware corporation,
HMI PMA, Inc., a Delaware corporation, Health Reimbursement Corp., a Delaware
corporation, HMI Maryland, Inc., a Delaware corporation, and HMI Illinois, Inc.,
a Delaware corporation. All intercompany accounts and transactions have been
eliminated in consolidation.
The Condensed Consolidated Financial Statements included herein are unaudited
and include all adjustments which, in the opinion of management, are necessary
for a fair presentation of the results of operations of the interim period
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended April 30, 1995. The results of operations for periods for the interim
periods are not necessarily indicative of the operating results for the whole
year.
Note 2: Contingency
On April 3, 1995, American Preferred Prescription, Inc. ("APP") filed a
complaint against the Company, Preferred Rx, Inc., Community Prescription
Services and Sean Strub in the New York Supreme Court for tortious interference
with existing and prospective contractual relationships, for lost customers and
business opportunities resulting from allegedly slanderous statements and for
allegedly false advertising and promotion. Four separate causes of action are
alleged, each for up to $10 million in damages. APP had previously filed a
similar suit in the United States Bankruptcy Court of the East District of New
York, which was dismissed and the court abstained from exercising jurisdiction.
The Company has answered the complaint and counterclaimed for libel and slander
predicated upon a false press release issued by APP and added as defendants the
principals of APP. By stipulation dated January 29, 1996, the Company
discontinued its counterclaim against APP and its third-party claim against the
principals of APP. In addition, by motion dated March 12, 1996, APP moved, in
the Supreme Court of the State of New York, to amend its complaint to add, among
other things, a cause of action against the Company alleging that a proposed
plan of reorganization presented by the Company to the Bankruptcy Court in APP's
bankruptcy case was based on fraudulent financial statements. The motion also
seeks to amend the state court complaint to add certain other defendants. These
proposed defendants, by notice of removal dated March 22, 1996, removed the
state court action to the Bankruptcy Court for the Eastern District of New York.
By motion dated April 2, 1996, APP requested that the Bankruptcy Court remand
the action to the state court. A hearing on the remand motion is scheduled for
May 2, 1996. Management believes APP's suit against it to be without merit,
intends to defend the proceedings vigorously and believes the outcome will not
have a material adverse effect on the Company's results of operations or
financial position.
On or about November 6, 1995, a stipulation of dismissal without prejudice was
entered into in the United States Bankruptcy Court, Eastern District of New York
in respect of the lawsuit which APP brought against the Company and a former
employee of APP who currently is an employee of the Company (the "Employee") and
the Company agreed to discontinue its counterclaim against APP in respect of
that action. That lawsuit, which was filed on or about April 14, 1995,
involved, among others, claims by APP that the Company has offered the Employee
employment in order to obtain confidential information regarding APP and that
the Company's employment of the Employee constituted interference with the
employee's contract with APP. In that lawsuit, APP sought injunctive relief and
damages in excess of $10 million. On or about September 19, 1995, the
Bankruptcy Court denied APP's motion preliminarily to enjoin the Employee from
disclosing proprietary information, as well as from becoming employed by or
working for the Company.
The Company and certain of its past and current directors and officers have been
named as defendants in ten separate class action securities fraud lawsuits filed
in the United States District Court for the Eastern District of New York,
entitled Wayne Alexander, et al. v. Health Management, Inc., et al., 96 Civ.
0889 (ADS); Thomas McInerney, Jr., et al. v. Health Management, Inc., et al., 96
Civ. 0909 (ADS); Charles T. Labozzetta, et al. v. Health Management, Inc., et
al., 96 Civ. 0931 (TCP); Mike Eisenberg, IRA, et al. v. Health Management, Inc.,
et al., 96 Civ. 0980 (TCP); Thomas P. Clancy, et al. v. Health Management, Inc.,
et al., 96 Civ. 0988 (ADS); Frank J. Lowell, IRA, et al. v. Health Management,
Inc., et al., 96 Civ. 1005 (TCP); Harold Feldman, et al. v. Health Management,
Inc., et al., 96 Civ. 1189 (ADS); Blaise Gerrato, et al. v. Health Management,
Inc., et al., 96 Civ. 1756 (ADS); Bursa Trading Corp., et al. v. Health
Management, Inc., et al., 96 Civ. 1952 (ADS); and Rick King, et al. v. Health
Management, Inc., et al., 96 Civ. 0889 (ADS). The complaints each allege
similar claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, arising out of alleged misrepresentations and omissions by the Company in
connection with certain of its disclosure statements. Each lawsuit purports to
represent a class of persons who purchased the Company's common stock during the
period between the date the Company released its 1995 year-end financial
statements and the date the Company announced that it would have to restate
those financial statements. The complaints seek unspecified monetary damages
reflecting the drop in the trading price of the Company's stock. The time for
the Company to answer the various complains has not yet run, although the
Company expects that all the actions will be consolidated shortly into one
proceeding. The Company currently is reviewing the complaints and preparing its
responses.
Certain of the Company's current and former officers and directors and its
accountants, BDO Seidman, LLP, have been named as defendants, and the Company
has been named as a nominal defendant, in three separate lawsuits filed in the
United States District Court for the Eastern District of New York, entitled
Howard Vogel v. Clifford E. Hotte, et al., 96 Civ. 1208 (TCP); Helaine Weissman
and Arthur Weissman v. Clifford E. Hotte, et al., 96 Civ. 1247 (TCP); and Helen
B. Ferst v. Clifford E. Hotte, et al., 96 Civ. 1286 (TCP). The complaints each
allege similar claims for breach of fiduciary duty and contribution against the
individual director defendants arising out of alleged misrepresentations and
omissions contained in the Company's corporate filings. The complaints seek
unspecified monetary damages and declaratory and injunctive relief. The Company
expects that the actions will be consolidated shortly into a single action
before the Federal District Court. Currently, the Company's time to answer or
otherwise move against the complaints has been extended pursuant to stipulation
until May 6, 1996.
The enforcement division of the Securities Exchange Commission has a formal
order of investigation relating to matters arising out of the Company's public
announcement on February 27, 1996 that the Company would have to restate its
financial statements for prior periods as a result of certain accounting
irregularities. The Company is fully cooperating with this investigation.
Note 3: Restatement
In February 1996, a Special Committee of the Board of Directors was established
to review certain accounting and financial matters. The Special Committee
determined that as a result of certain accounting irregularities, restatements
of prior 1995 and 1996 fiscal periods would be required.
As a result of these developments, the Company's auditors withdrew their
previously issued unqualified opinion dated July 27, 1995 on the financial
statements of the Company for the year ended April 30, 1995. Also, the
restatement caused the Company to be in violation of its current loan agreements
and, accordingly, all borrowings under such agreements are classified as current
liabilities as of January 31, 1996.
Subsequent to the disclosure of the irregularities, the Company and certain of
its past and current directors and officers have been named as defendants in ten
separate class action securities fraud lawsuits. In addition, the Company,
certain of its current and former officers and directors, and its auditors were
named in a derivative lawsuit brought by certain shareholders on behalf of the
Company. Since the outcome of this litigation cannot be determined at this
time, no provisions for them have been recorded in the financial statements.
The Company has restated its 1995 financial statements as well as the quarterly
financial statements for each of the four quarters in the year ended April 30,
1995 and the first two quarters of 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 3, 1995, American Preferred Prescription, Inc. ("APP") filed a
complaint against the Company, Preferred Rx, Inc., Community Prescription
Services and Sean Strub in the New York Supreme Court for tortious interference
with existing and prospective contractual relationships, for lost customers and
business opportunities resulting from allegedly slanderous statements and for
allegedly false advertising and promotion. Four separate causes of action are
alleged, each for up to $10 million in damages. APP had previously filed a
similar suit in the United States Bankruptcy Court of the East District of New
York, which was dismissed and the court abstained from exercising jurisdiction.
The Company has answered the complaint and counterclaimed for libel and slander
predicated upon a false press release issued by APP and added as defendants the
principals of APP. By stipulation dated January 29, 1996, the Company
discontinued its counterclaim against APP and its third-party claim against the
principals of APP. In addition, by motion dated March 12, 1996, APP moved, in
the Supreme Court of the State of New York, to amend its complaint to add, among
other things, a cause of action against the Company alleging that a proposed
plan of reorganization presented by the Company to the Bankruptcy Court in APP's
bankruptcy case was based on fraudulent financial statements. The motion also
seeks to amend the state court complaint to add certain other defendants. These
proposed defendants, by notice of removal dated March 22, 1996, removed the
state court action to the Bankruptcy Court for the Eastern District of New York.
By motion dated April 2, 1996, APP requested that the Bankruptcy Court remand
the action to the state court. A hearing on the remand motion is scheduled for
May 2, 1996. Management believes APP's suit against it to be without merit,
intends to defend the proceedings vigorously and believes the outcome will not
have a material adverse effect on the Company's results of operations or
financial position.
On or about November 6, 1995, a stipulation of dismissal without prejudice was
entered into in the United States Bankruptcy Court, Eastern District of New York
in respect of the lawsuit which APP brought against the Company and a former
employee of APP who currently is an employee of the Company (the "Employee") and
the Company agreed to discontinue its counterclaim against APP in respect of
that action. That lawsuit, which was filed on or about April 14, 1995,
involved, among others, claims by APP that the Company had offered the Employee
employment in order to obtain confidential information regarding APP and that
the Company's employment of the Employee constituted interference with the
employees contract with APP. In that lawsuit, APP sought injunctive relief and
damages in excess of $10 million. On or about September 19, 1995, the
Bankruptcy Court denied APP's motion preliminarily to enjoin the Employee from
disclosing proprietary information, as well as from becoming employed by or
working for the Company.
The Company and certain of its past and current directors and officers have been
named as defendants in ten separate class action securities fraud lawsuits filed
in the United States District Court for the Eastern District of New York,
entitled Wayne Alexander, et al. v. Health Management, Inc., et al., 96 Civ.
0889 (ADS); Thomas McInerney, Jr., et al. v. Health Management, Inc., et al., 96
Civ. 0909 (ADS); Charles T. Labozzetta, et al. v. Health Management, Inc., et
al., 96 Civ. 0931 (TCP); Mike Eisenberg, IRA, et al. v. Health Management, Inc.,
et al., 96 Civ. 0980 (TCP); Thomas P. Clancy, et al. v. Health Management, Inc.,
et al., 96 Civ. 0988 (ADS); Frank J. Lowell, IRA, et al. v. Health Management,
Inc., et al., 96 Civ. 1005 (TCP); Harold Feldman, et al. v. Health Management,
Inc., et al., 96 Civ. 1189 (ADS); Blaise Gerrato, et al. v. Health Management,
Inc., et al., 96 Civ. 1756 (ADS); Bursa Trading Corp., et al. v. Health
Management, Inc., et al., 96 Civ. 1952 (ADS); and Rick King, et al. v. Health
Management, Inc., et al., 96 Civ. 0889 (ADS). The complaints each allege
similar claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, arising out of alleged misrepresentations and omissions by the Company in
connection with certain of its disclosure statements. Each lawsuit purports to
represent a class of persons who purchased the Company's common stock during the
period between the date the Company released its 1995 year-end financial
statements and the date the Company announced that it would have to restate
those financial statements. The complaints seek unspecified monetary damages
reflecting the drop in the trading price of the Company's stock. The time for
the Company to answer the various complains has not yet run, although the
Company expects that all the actions will be consolidated shortly into one
proceeding. The Company currently is reviewing the complaints and preparing its
responses.
Certain of the Company's current and former officers and directors and its
accountants, BDO Seidman, LLP, have been named as defendants, and the Company
has been named as a nominal defendant, in three separate lawsuits filed in the
United States District Court for the Eastern District of New York, entitled
Howard Vogel v. Clifford E. Hotte, et al., 96 Civ. 1208 (TCP); Helaine Weissman
and Arthur Weissman v. Clifford E. Hotte, et al., 96 Civ. 1247 (TCP); and Helen
B. Ferst v. Clifford E. Hotte, et al., 96 Civ. 1286 (TCP). The complaints each
allege similar claims for breach of fiduciary duty and contribution against the
individual director defendants arising out of alleged misrepresentations and
omissions contained in the Company's corporate filings. The complaints seek
unspecified monetary damages and declaratory and injunctive relief. The Company
expects that the actions will be consolidated shortly into a single action
before the Federal District Court. Currently, the Company's time to answer or
otherwise move against the complaints has been extended pursuant to stipulation
until May 6, 1996.
The enforcement division of the Securities Exchange Commission has a formal
order of investigation relating to matters arising out of the Company's public
announcement on February 27, 1996 that the Company would have to restate its
financial statements for prior periods as a result of certain accounting
irregularities. The Company is fully cooperating with this investigation.
Item 2. Change in Securities - None
Item 3. Default Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information
On April 26, 1996, the Registrant issued a press release, a copy of
which is attached as Exhibit 1 to this Quarterly Report on Form 10-Q
and is incorporated herein by reference.
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company, as filed with
the Secretary of State of Delaware on March 25, 1986
(incorporated by reference to Registration Statement on Form
S-1. Registration No. 33-04485).
3.2 Certificate of Amendment to Certificate of Incorporation of
the Company, as filed with the Secretary of State of
Delaware on March 9, 1988 (incorporated by reference to Form
10-K for year ended April 30, 1988).
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company, as filed with the Secretary of State of
Delaware on March 31, 1992 (incorporated by reference to
Registration Statement on Form S-1, No. 3346996).
3.4 Certificate of Amendment to Certificate of Incorporation of
the Company, as filed with the Secretary of State of
Delaware on October 27, 1994 (incorporated by reference to
Form 1O-K for year ended April 30, 1995).
3.5* Amended and Restated By-Laws of the Company.
27* Financial Data Schedule - 601 (c)
99-1* Press release dated April 26, 1996, issued by the
Company.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during
the fiscal quarter ending January 31, 1996.
The Company filed three Current Reports on Form 8-K dated
February 27, 1996, March 21, 1996 and April 15, 1996,
respectively, with the Securities and Exchange Commission.
* Filed with this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Suffolk, State of
New York, on the 30th day of April, 1996.
HEALTH MANAGEMENT, INC.
(Registrant)
By: /s/ James R. Mieszala
James R. Mieszala, Acting President
(Principal Executive Officer)
By: /s/ Paul Jurewicz
Paul Jurewicz, Treasurer,
Chief Financial Officer
and Executive Vice President
(Principal Financial Officer)
EXHIBIT 3.5
AMENDED
AND
RESTATED
BY-LAWS
OF
HEALTH MANAGEMENT, INC.
EFFECTIVE SEPTEMBER 25, 1995
HEALTH MANAGEMENT, INC.
A DELAWARE CORPORATION
AMENDED AND RESTATED
BY-LAWS
EFFECTIVE AS OF SEPTEMBER 25, 1995
ARTICLE I
STOCKHOLDERS
SECTION 1.1 ANNUAL MEETING.
An annual meeting of stockholders for the purposes of electing directors
and of transacting such other business as may come before it shall be held on
the first Friday during November of each year if not a legal holiday, and if a
legal holiday, the next succeeding full business day, or at such other date and
time as shall be designated from time to time by the Board of Directors or the
President, either within or without the State of Delaware, as may be specified
by the Board of Directors.
SECTION 1.2 SPECIAL MEETINGS.
Special meetings of stockholders for any purpose or purposes may be held at
any time upon call of the Chairman of the Board, if any, the President, the
Secretary, or a majority of the Board of Directors, at such time and place
either within or without the State of Delaware as may be stated in the notice.
A special meeting of stockholders shall be called by the President or the
Secretary upon the written request, starting time, place, and the purpose or
purposes of the meeting, of stockholders who together own of record 25% of the
outstanding stock of all classes entitled to vote at such meeting.
SECTION 1.3 NOTICE OF MEETINGS.
Written notice of stockholders' meetings, stating the place, date, and hour
thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, if
any, the President, any Vice President, the Secretary, or an Assistant
Secretary, to each stockholder entitled to vote thereat at least ten days but
not more than sixty days before the date of such meeting, unless a different
period is prescribed by law.
SECTION 1.4 QUORUM.
Except as otherwise provided by law or in the Certificate of Incorporation
or these Amended and Restated By-Laws, at any meeting of stockholders, the
holders of a majority of the outstanding shares of each class of stock entitled
to vote thereat shall be present or represented by proxy in order to constitute
a quorum for the transaction of any business. In the absence of quorum, a
majority in interest of the stockholders present or the chairman of the meeting
may adjourn the meeting from time to time in the manner provided in Section 1.5
of these Amended and Restated By-Laws until a quorum shall attend.
SECTION 1.5 ADJOURNMENT.
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION 1.6 ORGANIZATION.
The Chairman of the Board, if any, or in his absence the President, or in
their absence any Vice President, shall call to order meetings of stockholders
and shall act as chairman of such meetings. The Board of Directors or, if the
Board fails to act, the stockholders may appoint any stockholder, director, or
officer of the Corporation to act as chairman of any meeting in the absence of
the Chairman of the Board, the President, and the Secretary.
The Secretary of the Corporation shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman of the meeting
may appoint any other person to act as secretary of the meeting.
SECTION 1.7 VOTING.
Except as otherwise provided by law or in the Certificate of Incorporation
or these Amended and Restated By-Laws and except for the election of directors,
at any meeting duly called and held at which a quorum is present, a majority of
the votes cast at such meeting upon a given question by the holders of the
outstanding shares of stock of all classes of stock of the Corporation entitled
to vote thereon who are present in person or by proxy shall decide such
question. At any meeting duly called and held for the election of directors at
which a quorum is present, those directors receiving a plurality of the votes
cast by the holders (acting as such) of shares of stock of the Corporation
entitled to elect directors as a class shall be elected.
SECTION 1.8 ACTION WITHOUT A MEETING.
The stockholders may take any action required or permitted to be taken by
them without a meeting unless otherwise prohibited by law or the Certificate of
Incorporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER AND TERM OF OFFICE.
The business, property, and affairs of the Corporation shall be managed by
or under the direction of a Board of one director; provided, however, that the
Board, by resolution adopted by vote of a majority of the then authorized number
of directors, may increase or decrease the number of directors. The directors
shall be elected by the holders of shares entitled to vote thereon at the annual
meeting of stockholders, and each shall serve (subject to the provisions of
Article IV) until the next succeeding annual meeting of stockholders and until
his respective successor is elected and qualified.
SECTION 2.2 CHAIRMAN OF THE BOARD.
The directors may elect one of their members to be Chairman of the Board
of Directors. The Chairman shall be subject to the control of, and may be
removed by, the Board of Directors. He shall perform such duties as may from
time to time be assigned to him by the Board.
SECTION 2.3 MEETINGS.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held at such time and
place as shall be designated in the notice of the meeting whenever called by the
Chairman of the Board, if any, the President, or by a majority of the directors
then in office.
SECTION 2.4 NOTICE OF SPECIAL MEETINGS.
The Secretary, or, in his absence, any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least five days before the
meeting, or by telecopy or overnight courier at least three days before the
meeting. Unless otherwise stated in the notice thereof, any and all business
may be transacted at any meeting without specification of such business in the
notice.
SECTION 2.5 QUORUM AND ORGANIZATION OF MEETINGS.
A majority of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place, and
the meeting may be held as adjourned without further notice or waiver. Except
as otherwise provided by law or in the Certificate of Incorporation or these
Amended and Restated By-Laws, a majority of the directors present at any meeting
at which a quorum is present may decide any question brought before such
meeting. Meetings shall be presided over by the Chairman of the Board, if any,
or in his absence by the President, or in the absence of both by such other
person as the directors may select. The Secretary of the Corporation shall act
as secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
SECTION 2.6 COMMITTEES.
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to consist of one or
more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business, property, and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have power or
authority in reference to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
pursuant to authority expressly granted to the Board of Directors by the
Certificate of Incorporation, fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of the
assets of the Corporation, or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law of the State of Delaware, recommending to the stockholders the
sale, lease, or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of dissolution, or amending these Amended and
Restated By-Laws; and, unless such resolution or resolutions expressly so
provided, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware. Each committee which has been established by the Board
of Directors pursuant to these Amended and Restated By-Laws may fix its own
rules and procedures. Notice of meetings of committees, other than of regular
meetings provided for by committee rules, shall be given to committee members.
All action taken by committees shall be recorded in minutes of the meetings.
SECTION 2.7 ACTION WITHOUT MEETING.
The Board of Directors or any committee designated by the Board may take
any action required or permitted to be taken by them without a meeting unless
otherwise prohibited by law or the Certificate of Incorporation.
SECTION 2.8 TELEPHONE MEETINGS.
Nothing contained in these Amended and Restated By-Laws shall be deemed to
restrict the power of members of the Board of Directors, or any committee
designated by the Board, to participate in a meeting of the Board, or committee,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a President, a
Treasurer, and a Secretary, each of whom shall be elected by the Board of
Directors. The Board of Directors may elect or appoint such other officers
(including a Controller and one or more Assistant Treasurers and Assistant
Secretaries) as it may deem necessary or desirable. Each officer shall hold
office for such term as may be prescribed by the Board of Directors from time to
time. Any person may hold at one time two or more offices.
SECTION 3.2 POWERS AND DUTIES.
The Chairman of the Board, if any, or, in his absence, the President, or,
in his absence, the Secretary shall preside at all meetings of the stockholders
and of the Board of Directors. The President shall be the chief executive
officer of the Corporation. In the absence of the President, the Secretary and,
in the absence of the Secretary, a Vice President appointed by the President or,
if the President fails to make such appointment, by the Board, shall perform all
the duties of the President. The officers and agents of the Corporation shall
each have such powers and authority and shall perform such duties in the
management of the business, property, and affairs of the Corporation as
generally pertain to their respective offices, as well as such powers and
authorities and such duties as from time to time may be prescribed by the Board
of Directors.
ARTICLE IV
RESIGNATION, REMOVALS, AND VACANCIES
SECTION 4.1 RESIGNATIONS.
Any director or officer of the Corporation, or any member of any committee,
may resign at any time by giving written notice to the Board of Directors, the
President, or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein or, if the time be not specified therein,
then upon receipt thereof. The acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.2 REMOVALS.
The Board of Directors, by a vote of not less than a majority of the entire
Board, at any meeting thereof, or by written consent, at any time, may, to the
extent permitted by law, remove with or without cause from office or terminate
the employment of any officer or member of any committee and may, with or
without cause, disband any committee.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares entitled at the time
to vote at an election of directors.
SECTION 4.3 VACANCIES.
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from an increase in the number of directors, may be
filled any time by a majority of the directors then in office (even though less
than a quorum remains) or, in the case of any vacancy in the office of any
director, by the stockholders, and, subject to the provisions of this Article
IV, the person so chosen shall hold office until his successor shall have been
elected and qualified; or, if the person so chosen is a director elected to fill
a vacancy, he shall (subject to the provisions of this Article IV) hold office
for the unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
SECTION 5.1 STOCK CERTIFICATES.
The certificates representing shares of the capital stock of the
Corporation shall be in such form as shall be prescribed by law and approved,
from time to time, by the Board of Directors.
SECTION 5.2 TRANSFER OF SHARES.
Shares of the capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificate, properly endorsed, representing such stock.
SECTION 5.3 FIXING RECORD DATE.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which, unless
otherwise provided by law, shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action.
SECTION 5.4 LOST CERTIFICATES.
The Board of Directors or any transfer agent of the Corporation may direct
a new certificate or certificates representing stock of the Corporation to be
issued in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors (or any transfer agent of the Corporation
authorized to do so by a resolution of the Board of Directors) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as the Board of
Directors (or any transfer agent so authorized) shall direct to indemnify the
Corporation against any claim that may be made against the Corporation with
respect to the certificate or certificates alleged to have been lost, stolen, or
destroyed or the issuance of such new certificate or certificates, and such
requirement may be general or confined to specific instances.
SECTION 5.5 REGULATIONS.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware."
SECTION 6.2 FISCAL YEAR.
The fiscal year of the Corporation shall end on April 30 or such date as
otherwise determined by the Board of Directors.
SECTION 6.3 NOTICES AND WAIVERS THEREOF.
Whenever any notice whatever is required by law, the Certificate of
Incorporation, or these Amended and Restated By-Laws to be given to any
stockholder, director, or officer, such notice, except as otherwise provided by
law, may be given personally, or by mail, telecopy, or overnight courier
addressed to such address as appears on the books of the Corporation. Any
notice given by telecopy shall be deemed to have been given when it shall have
been delivered for transmission, and any notice given by mail or overnight
courier shall be deemed to have been given when it shall have been deposited in
the United States mail with postage thereon prepaid or given to such courier
service, as the case may be.
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these Amended and Restated By-Laws, written waiver thereof,
signed by the person entitled to such notice, whether before or after the
meeting or at the time stated therein, shall be deemed equivalent in all
respects to such notice to the full extent permitted by law.
SECTION 6.4 STOCK OF OTHER CORPORATIONS OR OTHER INTERESTS.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such attorneys or agents of the Corporation as may be, from time
to time, authorized by the Board of Directors or the President shall have full
power and authority on behalf of the Corporation to attend and to act and vote
in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which the Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which the Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The President, Secretary, or such attorneys or agents may
also execute and deliver on behalf of the Corporation powers of attorney,
proxies, consents, waivers, and other instruments relating to the shares or
securities owned or held by the Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have the power to adopt, amend, or repeal these Amended and
Restated By-Laws of the Corporation by vote of not less than a majority of such
shares, and, except as otherwise provided by law, the Board of Directors shall
have power equal in all respects to that of the stockholders to adopt, amend, or
repeal these Amended and Restated By-Laws of the Corporation by vote of not less
than a majority of the entire Board. However, any By-Law adopted by the Board
may be amended or repealed by vote of the holders of a majority of the shares
entitled at the time to vote for the election of directors.
ARTICLE VIII
PROVISIONS OF LAW
These Amended and Restated By-Laws of the Corporation shall be subject to
such provisions of the statutory and common laws of the State of Delaware as may
be applicable to corporations organized under the laws of the State of Delaware.
References herein to provisions of law shall be deemed to be references to the
aforesaid provisions of law unless otherwise explicitly stated. All references
in these Amended and Restated By-Laws to such provisions of law shall be
construed to refer to such provisions as from time to time amended.
ARTICLE IX
CERTIFICATE OF INCORPORATION
These Amended and Restated By-Laws of the Corporation shall be subject to
the Certificate of Incorporation of the Corporation. All references in these
Amended and Restated By-Laws to the Certificate of Incorporation shall be
construed to mean the Certificate of Incorporation of the Corporation as from
time to time amended.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 INDEMNIFICATION GENERALLY.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise 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 is or was a director, officer, employee, or
agent of the Corporation or any of its direct or indirect subsidiaries or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of any other corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee, or agent or in
any other capacity while serving as a director, officer, employee, or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation 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 permitted prior thereto), against all expense, liability, and loss
(including attorneys' fees, judgments, fines, excise or other taxes assessed
with respect to an employee benefit plan, penalties, and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith, and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the indemnitee's heirs, executors, and administrators; provided,
however, that, except as provided in Section 10.3 with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors.
SECTION 10.2 ADVANCEMENT OF EXPENSES.
The right to indemnification conferred in Section 10.1 shall include the
right to be paid by the Corporation the expenses incurred in defending any
proceeding for which such right to indemnification is applicable in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an indemnitee 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 indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Article X or otherwise.
SECTION 10.3 STANDARDS FOR INDEMNIFICATION.
The rights to indemnification and to the advancement of expenses conferred
in Sections 10.1 and 10.2 shall be contract rights. If a claim under such
sections is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by an indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law, and (ii) any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article X or otherwise, shall be on the Corporation.
SECTION 10.4 NON-EXCLUSIVE RIGHTS.
The rights to indemnification and to the advancement of expenses conferred
in this Article X shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Certificate of Incorporation,
these Amended and Restated By-Laws, or any agreement, vote of stockholders or
disinterested directors, or otherwise.
SECTION 10.5 INSURANCE.
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 Delaware General Corporation Law.
SECTION 10.6 PRORATION.
The Corporation's obligation, if any, to indemnify any person who was or is
serving as a director, officer, employee, or agent of any direct or indirect
subsidiary of the Corporation or, at the request of the Corporation, of any
other corporation or of a partnership, joint venture, trust, or other enterprise
shall be reduced by any amount such person, may collect as indemnification from
such other corporation, partnership, joint venture, trust, or other enterprise.
SECTION 10.7 MODIFICATION.
Any repeal or modification of the foregoing provisions of this Article X
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
AMENDMENT TO BYLAWS
EFFECTIVE FEBRUARY 26, 1996
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
The executive officers of the Corporation be a Chief Executive Officer, a
President, a Treasurer, and a Secretary, each of whom shall be elected by the
Board of Directors. The Board of Directors may elect or appoint such other
officers (including a Controller and one or more Assistant Treasurers and
Assistant Secretaries) as it may deem necessary or desirable. Each officer
shall hold office for such term as may be prescribed by the Board of Directors
from time to time. Any person may hold at one time two or more offices.
Section 3.2 Powers and Duties.
The Chairman of the Board, if any, or, in his absence, the Chief Executive
Officer, or, in his absence, the President, or, in his absence, the Secretary
shall preside at all meetings of the stockholders and of the Board of Directors.
In the absence of the Chief Executive Officer, the President, and in the absence
of the President, the Secretary and, in the absence of the Secretary, a Vice
President appointed by the Chief Executive Officer or, if the Chief Executive
Officer, fails to make such appointment, by the Board, shall perform all the
duties of the Chief Executive Officer. The officers and agents of the
Corporation shall each have such powers and authority and shall perform such
duties in the management of the business, property, and affairs of the
Corporation as generally pertain to their respective offices, as well as such
powers and authorities and such duties as from time to time may be prescribed by
the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JANUARY
31, 1996 FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JAN-31-1996
<CASH> 3,397,492
<SECURITIES> 0
<RECEIVABLES> 51,821,002
<ALLOWANCES> 17,570,283
<INVENTORY> 9,697,634
<CURRENT-ASSETS> 62,366,062
<PP&E> 5,714,160
<DEPRECIATION> 1,709,638
<TOTAL-ASSETS> 101,975,399
<CURRENT-LIABILITIES> 58,304,624
<BONDS> 33,241,552
0
0
<COMMON> 279,668
<OTHER-SE> 39,773,658
<TOTAL-LIABILITY-AND-EQUITY> 101,975,399
<SALES> 118,370,222
<TOTAL-REVENUES> 118,370,222
<CGS> 90,133,957
<TOTAL-COSTS> 130,278,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,829,901
<INTEREST-EXPENSE> 1,938,456
<INCOME-PRETAX> (13,846,338)
<INCOME-TAX> (5,670,954)
<INCOME-CONTINUING> (8,175,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,175,384)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
</TABLE>
EXHIBIT 99.1
HEALTH MANAGEMENT, INC. NAMES NEW CEO; REPORTS FINANCIAL
RESTATEMENTS AND FISCAL THIRD QUARTER 1996 RESULTS
HOLBROOK, NY-APRIL 26,1996 ... Health Management, Inc. ("HMI") (NNM:HMISE) today
announced the appointment of Wm. James Nicol, 52, as Chief Executive Officer
and President, effective May 1, 1996. Nicol joins HMI from his post as Chief
Financial Officer of CareLine, Inc., a $200 million publicly traded emergency
medical services transportation company based in Santa Ana, CA, recently
acquired by the MedTrans Division of Laidlaw (NYSE). Prior to CareLine, Nicol
was Senior Vice President and CFO (1990-1994) for $300 million Quantum Health
Resources, Inc. (NNM) headquartered in Indianapolis, IN, a provider of home
health services to individuals with certain rare chronic disorders, primarily
hemophilia. From 1973 to 1990, he held various senior executive posts with
Comprehensive Care Corporation (NYSE), a company specializing in treatment
programs for behavioral disorders, based in Irvine, CA, and was its President
and CEO in 1989-90 at which time he initiated a financial recovery program.
"Jim Nicol's experience in managing various high growth medical specialty
companies is perfectly suited to lead HMI to its next strategic plateau," said
Andre C. Dimitriadis, Chairman of the Office of the CEO for HMI. "Jim adds the
combined profile of a proven business leader and a visionary entrepreneur to an
already impressive top management team which is sure to help the Company achieve
new levels of productivity and realize its full potential. He joins Jim
Mieszala, President of the Home Care Subsidiary and Paul Jurewicz, Executive
Vice President and Chief Financial Officer."
Messrs. Jurewicz and Mieszala, who joined the Company in December, 1995 and
January, 1996, respectively, have already made significant progress towards
stabilizing and improving the Company's profitability by various revenue
enhancing and cost cutting moves. "On behalf of my two colleagues in the Office
of the CEO, Mark Weinberg and Timothy Triche, I would like to thank Paul, Jim
and all the HMI employees for their tremendous efforts," added Dimitriadis.
In addition, HMI released its restated financial results for fiscal 1995
(including restatements of each of 1995's individual quarters) and for fiscal
1996 first and second quarters. The financial results for the third quarter of
fiscal 1996 have also been released.
The restatements combine a series of adjustments necessary to reflect the proper
recording of revenues and cost of sales. Additionally, SG&A expenses in each of
the quarters of fiscal year 1995 have been restated reflecting increased
provisions for uncollectable accounts receivable. The Company intends to file
restated 1OQs for the fiscal quarters of 1995 and a restated 1OK for 1995, as
well as restated 1OQs for the first two quarters of 1996 and to file its 1OQ for
the third quarter of 1996 by April 30, 1996.
For the fiscal third quarter ended January 31, 1996, the Company recorded a one-
time write-off totaling $16.8 million. $8.4 million for required increases in
provision for uncollectable accounts receivable, $2.8 million related to write-
offs of hardware inventory, $3.6 million for provisions for organizational
consolidations, and $2.0 million related to the establishment of a provision for
fees associated with legal, accounting and other professional fees. Without the
$16.8 million of one-time expenses, year-to-date fiscal year 1996 income before
income taxes would have been $3.0 million or $0.18 EPS.
As reported earlier, HMI has implemented cost reduction measures that include
the consolidation of its Long Island, NY corporate administrative functions to
HMI's offices located in Buffalo Grove, IL. The Company expects to save more
than $500,000 annually from these efforts. This is incremental to the
previously announced savings of $1.0 million from other cost reduction efforts.
The Company also announced that it has initiated several actions to improve its
financial reporting and internal control capabilities. These include the
implementation of a perpetual inventory system which will significantly enhance
the control over the reporting of cost of sales and inventory balances. The
Company is also moving to single General Ledger and Accounts Payable Systems
from the several systems that previously existed. These actions are expected to
be completed by July 1996.
Health Management, Inc. is a national provider of integrated health management
services to patients with chronic medical conditions and to health care
professionals, drug manufacturers and third-party payers involved in their care.
(FINANCIAL TABLES FOLLOW)
For additional information:
Diane Perry, Joseph Kist or Ruth Markowitz (Analysts) Mark Danes (Media)
212-704-8293/212-704-8239/212-704-4451 212-704-4464
<TABLE>
HEALTH MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FIRST THROUGH THIRD QUARTER 1996
<CAPTION>
1996 3rd 2nd 1st
<S> <C> <C> <C> <C>
Revenues $118,370,222 $40,801,405 $39,274,787 $38,294,030
Cost of Sales 90,122,957 33,469,977 30,119,746 26,533,234
Gross Profit 29,247,265 7,331,428 9,155,041 11,760,796
% 23.86% 17.97% 23.31% 30.71%
Operating Expenses
Selling 3,627,031 1,335,396 1,206,433 1,085,202
Gen'l & Administrative 36,528,116 22,106,628 7,057,074 7,364,414
Total Operating Expenses 40,155,147 23,442,024 8,263,507 8,449,616
Income from Operations (11,907,882) (16,110,596) 891,534 3,311,180
Interest Expense (Income) 1,938,456 675,594 651,926 610,936
Income Before Income
Taxes (13,846,338) (16,786,190) 239,608 2,700,244
% (11.7)% (41.14)% 0.61% 7.05%
Income Taxes (5,670,954) (6,882,546) 100,086 1,111,506
Net Income $(8,175,384) $(9,903,644) $139,522 $1,588,738
% (7.0)% (24.27)% 0.36% 4.15%
Earnings Per Share of
Common Stock- Primary $(0.87) $(1.05) $0.01 $0.17
Earnings Per Share of
Common Stock - Fully Diluted$(0.87) $(1.05) $0.01 $0.17
Weighted Average Shares
Outstanding- Primary 9,411,624 9,384,732 9,405,222 9,444,919
Weighted Average Shares
Outstanding- Fully Diluted9,418,259 9,404,637 9,405,222 9,444,919
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FIRST THROUGH FOURTH QUARTER 1995
<CAPTION>
1995 4th 3rd 2nd 1st
<S> <C> <C> <C> <C> <C>
Revenues $88,456,028 $28,373,576 $21,981,823 $20,884,327 $17,216,302
Cost of Sales 63,708,021 21,527,236 15,168,383 14,781,442 12,230,960
Gross Profit 24,748,007 6,846,340 6,813,440 6,102,885 4,985,342
% 27.98% 24.13% 31.00% 29.22% 28.96%
Operating Expenses
Selling 2,898,208 878,788 693,309 804,027 522,084
Gen'l & Administrative 18,626,981 7,097,426 3,940,568 3,582,619 4,006,368
Interest 269,316 198,536 16,566 34,214 20,000
Total Operating Expenses 21,794,505 8,174,750 4,650,443 4,420,860 4,548,452
Income from Operations 2,953,502 (1,328,410) 2,162,997 1,682,025 436,890
Interest Income 333,077 14,983 85,122 124,668 108,304
Income Before Income
Taxes 3,286,579 (1,313,427) 2,248,119 1,806,693 545,194
% 3.72% (4.63)% 10.23% 8.65% 3.17%
Income Taxes 1,340,391 (456,709) 793,000 762,500 241,600
Net Income $1,946,188 $(856,718) $1,455,119 $1,044,193 $303,594
% 2.20% (3.02)% 6.62% 5.00% 1.76%
Earnings Per Share of
Common Stock- Primary $0.21 $(0.09) $0.15 $0.11 $0.03
Earnings Per Share of
Common Stock- Fully Diluted $0.21 $(0.09) $0.15 $0.11 $0.03
Weighted Average Shares
Outstanding- Primary 9,408,300 9,535,000 9,426,133 9,332,371 9,321,448
Weighted Average Shares
Outstanding- Fully Diluted 9,420,816 9,535,000 9,426,133 9,373,719 9,321,448
</TABLE>
