<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission file number 0-20606
---------
CAPSTONE PHARMACY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2310352
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
2930 Washington Boulevard, Baltimore, MD 21230-1197
(Address of principal executive offices) (Zip Code)
Registrants's telephone number, including area code: (410) 646-7373
Choice Drug Systems, Inc.
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at August 31, 1995
- ---------------------------- ----------------------------------
Common Stock, $.01 Par Value 13,323,810
<PAGE> 2
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
<TABLE>
<S> <C>
Consolidated Balance Sheets as of
August 31, 1995 and February 28, 1995 1-2
Consolidated Statements of Operations for the
three months ended August 31, 1995 and 1994 and
the six months ended August 31, 1995 and 1994 3
Consolidated Statement of Changes in
Stockholders' Equity for the six months
ended August 31, 1995 4
Consolidated Statements of Cash Flows for the
six months ended August 31, 1995 and 1994 5
Notes to Unaudited Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Default Upon Senior Securities Signatures 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
</TABLE>
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31,
1995 February 28,
(Unaudited) 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 4,945,035 $ 546,898
Accounts receivable, net of allowance for doubtful
accounts of $2,213,000 as of August 31, 1995
and $1,561,000 as of February 28, 1995 10,469,773 6,169,272
Due from shareholders (Note 6) 1,138,077 -
Inventories 5,099,310 3,888,163
Income tax refund receivable 594,955 500,000
Prepaid expenses and other current assets 594,681 350,568
Net assets of discontinued operations 218,718 302,820
------------ ------------
23,060,549 11,757,721
------------ ------------
Equipment and leasehold improvements, net 2,378,085 1,329,093
------------ ------------
Other assets:
Notes receivable, less current portion 77,050 94,435
Security deposits and other assets 489,618 509,498
Deferred financing costs 221,996 -
Goodwill, net of accumulated amortization of $1,365,000 as
of August 31, 1995 and $1,117,000 as of February 28, 1995 14,348,946 5,521,512
------------ ------------
15,137,610 6,125,445
------------ ------------
Total assets $ 40,576,244 $ 19,212,259
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31,
1995 February 28,
(Unaudited) 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 840,798 $ 765,387
Accounts payable 4,491,698 2,664,143
Accrued expenses and other current liabilities 2,146,315 1,702,711
Accrued restructuring charges 1,133,019 1,216,410
------------ ------------
Total current liabilities 8,611,830 6,348,651
------------ ------------
Deferred income taxes 589,964 -
Other long-term liabilities 1,106,392 -
Long-term debt, net of current portion 4,247,067 7,650,455
Long-term portion of accrued restructuring charges 229,686 435,623
------------ ------------
6,173,109 8,086,078
------------ ------------
Commitments and contingencies
Stockholders' equity :
Preferred stock, $.01 par value; 500,000 shares authorized;
none issued - -
Common stock, $.01 par value; 30,000,000 shares authorized
at August 31, 1995 and 15,000,000 shares authorized at
February 28, 1995; 13,323,810 shares issued and outstand-
ing as of August 31, 1995 and 8,120,810 shares issued and
outstanding as of February 28, 1995. 133,238 81,208
Capital in excess of par 38,307,500 17,200,050
Accumulated deficit (12,649,433) (12,503,728)
------------ ------------
25,791,305 4,777,530
------------ ------------
Total liabilities and shareholders' equity $ 40,576,244 $ 19,212,259
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended August 31, Six Months Ended August 31,
----------------------------- -----------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 16,250,666 $ 11,052,727 $ 26,959,670 $ 22,275,755
Cost of sales 10,151,171 6,805,075 17,058,969 13,739,178
------------ ------------ ------------ ------------
Gross profit 6,099,495 4,247,652 9,900,701 8,536,577
------------ ------------ ------------ ------------
Operating expenses:
Selling and administrative expenses 5,931,893 3,846,090 10,012,938 7,766,216
Depreciation 222,451 133,038 371,658 273,003
Amortization of intangibles 163,599 92,826 248,706 185,654
Costs in connection with claims and litigation 0 3,575,062 0 3,664,640
------------ ------------ ------------ ------------
Total operating expenses 6,317,943 7,647,016 10,633,302 11,889,513
------------ ------------ ------------ ------------
Operating (loss) income from continuing
operations before income taxes, discon-
tinued operations and extraordinary item (218,448) (3,399,364) (732,601) (3,352,936)
------------ ------------ ------------ ------------
Non-operating expense (income):
Interest expense, net 329,020 236,910 544,859 465,539
Other income (341,442) (9,766) (370,551) (52,403)
------------ ------------ ------------ ------------
Total non-operating expense (income) (12,422) 227,144 174,308 413,136
------------ ------------ ------------ ------------
Loss from continuing operations before
income taxes, discontinued operations
and extraordinary item (206,026) (3,626,508) (906,909) (3,766,072)
Income taxes (benefit) 0 0 0 (6,939)
------------ ------------ ------------ ------------
Loss from continuing operations before
discontinued operations and extraordinary
item (206,026) (3,626,508) (906,909) (3,759,133)
Discontinued Operations:
Gain on sale of assets of discontinued
business segments 477,840 0 477,840 0
Income from operations of discontinued
business segments 0 72,082 0 35,208
------------ ------------ ------------ ------------
Net income (loss) before extraordinary item 271,814 (3,554,426) (429,069) (3,723,925)
Extraordinary item:
Discount on repayment of vendor debt 0 0 283,364 0
------------ ------------ ------------ ------------
Net Income (Loss) $ 271,814 $ (3,554,426) $ (145,705) $ (3,723,925)
============ ============ ============ ============
Net income (loss) per common share:
Continuing operations $ (0.02) $ (0.59) $ (0.10) $ (0.62)
Discontinued operations 0.05 0.01 0.05 0.01
Extraordinary item 0.00 0.00 0.03 0.00
------------ ------------ ------------ ------------
Net income (loss) $ 0.03 $ (0.58) $ (0.02) $ (0.61)
============ ============ ============ ============
Weighted average number of
shares outstanding 9,838,440 6,086,810 9,069,272 6,086,810
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
Common stock Capital Retained
----------------------- in excess earnings
Shares Amount of par (deficit)
---------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, February 28, 1995 8,120,810 $ 81,208 $ 17,200,050 $ (12,503,728)
Issuance of common stock:
Stock issued in connection with
Private Placements, net of related
expenses 5,100,000 51,000 20,804,230
Stock issued in connection with
exercise of stock options 103,000 1,030 303,220
Net loss for the period (145,705)
---------- --------- ------------ -------------
Balance, August 31, 1995 13,323,810 $ 133,238 $ 38,307,500 $ (12,649,433)
========== ========= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED AUGUST 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (145,705) $ (3,723,925)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Proposed settlement of litigation - 3,400,000
Depreciation 371,658 273,003
Amortization of intangibles 248,706 185,654
Provision for bad debts 212,081 175,413
(Gain) loss on sale of equipment - (3,045)
(Gain) on discount of debt repayment to a major vendor (283,364) -
(Gain) on the sale of inventory (88,842) -
Changes in assets and liabilities, net of effects of
acquisitions and divestitures:
(Increase) decrease in accounts receivable (681,206) 771,207
Decrease (increase) in inventories 280,727 (177,174)
(Increase) decrease in income tax refund receivable (4,495) 46,032
Decrease (increase) in prepaid expenses and
other current assets 156,591 (26,932)
(Increase) decrease in other assets (7,216) 403
(Decrease) increase in accounts payable, accrued
expenses and accrued restructuring charges (200,952) 494,328
(Decrease) in other long term liabilities (67,924) -
------------ ------------
Net cash (used in) provided by operating activities (209,941) 1,414,964
------------ ------------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (436,344) (169,340)
Acquisition of Premier Pharmacy, Inc., net of cash acquired (4,168,872) -
Proceeds from notes receivable 84,419 145,541
Proceeds from sale of equipment - 3,045
------------ ------------
Net cash provided by (used in) investing activities (4,520,797) (20,754)
------------ ------------
Cash flows from financing activities:
Loan proceeds from CreditAnstalt 9,650,000 -
Loan repayment to CreditAnstalt (9,650,000) -
Proceeds from issuance of common stock - net 20,021,403 -
Loan proceeds from Counsel Corp. 1,268,250 -
Loan repayment to Counsel Corp. (1,268,250)
Net borrowings (repayments) of UJB bank debt (2,983,303) (693,267)
Repayments of other long-term debt (459,241) (632,700)
Repayment of debt to a major vendor (1,776,064) -
Repayment of PremierPharmacy prior bank indebtedness (5,536,275) -
Principal payments of capital lease obligations (137,645) (78,690)
------------ ------------
Net cash provided by (used in) financing activities 9,128,875 (1,404,657)
------------ ------------
Net increase in cash 4,398,137 (10,447)
Cash, beginning of period 546,898 443,258
------------ ------------
Cash, end of period $ 4,945,035 $ 432,811
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
AUGUST 31, 1995
1. ORGANIZATION AND BACKGROUND:
Capstone Pharmacy Services, Inc. (formerly known as Choice Drug
Systems, Inc. and together with its subsidiaries, herein referred to
as the "Company" or the "Registrant"), a Delaware corporation, is
principally engaged in the business of providing pharmaceuticals and
related services to long-term care facilities, correctional
institutions, hospitals, health maintenance organizations and
medical/surgical entities (each a "Health Care Facility" and
collectively, the "Health Care Facilities"). The Company's long-term
care and health maintenance organization customers are primarily
located in New York, New Jersey, Maryland and Delaware, while the
Company's hospital and correctional facility customers are located
throughout the United States.
On August 28, 1995, at the Annual Meeting of Shareholders, the
shareholders of the Company approved a proposal to change the
Company's state of incorporation from New York to Delaware pursuant to
an Agreement and Plan of Merger. The Agreement and Plan of Merger
became effective on October 2, 1995. In addition to the Agreement and
Plan of Merger, the shareholders approved an increase in the number of
authorized shares of the Company's Common Stock from 15,000,000 to
30,000,000. Effective October 2, 1995, the Company changed its name
from Choice Drug Systems, Inc. to Capstone Pharmacy Services, Inc.
2. INCOME (LOSS) PER SHARE:
Net income (loss) per share is based on the weighted average number of
the Company's common shares outstanding for the three and six month
periods ended August 31, 1995 and 1994.
3. BASIS OF PRESENTATION:
The interim condensed consolidated financial statements of the Company
for the three and six month periods ended August 31, 1995 and 1994
included herein have been prepared by the Company, without audit,
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 pursuant
to such rules and regulations. In the opinion of management, the
accompanying unaudited interim consolidated financial statements
reflect all adjustments necessary to present fairly the financial
position of the Company at August 31, 1995 and the results of
operations for the three and six month periods ended August 31, 1995
and 1994 and the related statements of cash flows for the six month
periods ended August 31, 1995 and 1994.
The results of operations for the three and six month periods ended
August 31, 1995 are not necessarily indicative of the results to be
expected for the full year. These interim condensed consolidated
financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K/A2 as filed with the Securities and
Exchange Commission for the fiscal year ended February 28, 1995. The
balance sheet at February 28, 1995 has been derived from the audited
financial statements at that date. Certain interim prior period
amounts have been reclassified to conform to the current period
presentation.
6
<PAGE> 9
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
4. ACQUISITIONS:
On May 22, 1995, the Company acquired Premier Pharmacy, Inc.
("Premier"), another institutional pharmacy, for a purchase price of
$4.25 million. Premier's operations generate annualized revenues of
approximately $30 million, primarily from pharmacy services provided
to long-term care facilities and hospitals. In connection with this
transaction, Dirk Allison, Chief Executive Officer of Premier, was
elected Chief Executive Officer of the Company. The unaudited
consolidated balance sheet at August 31, 1995 reflects the acquisition
of Premier Pharmacy, Inc. based on the fair value of Premier's assets
and liabilities at he purchase date.
On September 19, 1995, the Company announced that it had signed a
letter of intent to acquire Geri-Care Systems, Inc., a Brooklyn, New
York privately-held provider of institutional pharmacy services in the
New York metropolitan area. Geri-Care generates annualized revenues
of approximately $7.2 million. This transaction is expected to close
by December 1, 1995.
5. CREDIT FACILITY:
On May 22, 1995, the Company entered into a three-year revolving line
of credit (the "Line of Credit") in the amount of $10,000,000 with
CreditAnstalt Corporate Finance, Inc. ("CreditAnstalt"). The initial
borrowings under the Line of Credit were used in conjunction with
funds from the Private Placement (as defined below) to repay the
Company's prior bank indebtedness, repay Premier's prior bank
indebtedness, fund the Premier Acquisition and retire certain other
trade debts. The Line of Credit currently bears interest at prime
rate plus .5%. In connection with the Line of Credit, the Company
paid a facility fee to CreditAnstalt in the amount of $50,000. The
Line of Credit is secured by substantially all the assets of the
Company. The Line of Credit also replaces a $6,000,000 credit
facility at prime rate plus 1.5%.
6. PRIVATE PLACEMENTS:
On May 22, 1995, the Company completed a private offering of 1,600,000
units (the "Units"). Each Unit consisted of one share of Common
Stock, a three-year warrant to acquire 0.5 shares of Common Stock at
the exercise price of $4.50 per share, and a three-year warrant to
acquire 0.4 shares of Common Stock at the exercise price of $5.50 per
share. Investors were granted registration rights with respect to
both the Common Stock included in the Units and the Common Stock
underlying the related warrants. The offering of Units raised
proceeds of approximately $5,760,000, net of related expenses at a
price of $3.65 per Unit.
7
<PAGE> 10
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
On August 29, 1995, the Company completed a second private placement
of it's common stock. This offering consisted of 3,500,000 shares at
a price of $4.38 per share. As of August 31, 1995, $14,000,000 of the
proceeds of this offering, had been received by the Company. The
balance of the proceeds, $1,138,077 (net of placement commissions) was
received on September 5, 1995. The net proceeds of this offering was
$15,096,000 net of related expenses including placement commissions.
The proceeds of this private placement were used to retire the
outstanding debt of $9,650,000 due to CreditAnstalt at August 29,
1995, and for general working capital purposes.
7. RESTRUCTURING:
On February 14, 1995 the Company adopted a formal plan of
restructuring in order to realign and consolidate businesses,
concentrate resources, and better position itself to achieve its
strategic growth objectives. This plan included the sale of the
Company's Medical/Surgical Supply Operations and the closing of the
Company's long-term care pharmacy operation located in Missouri.
The Company sold its Medical/Surgical supply operations effective June
1, 1995. On that date the Company formally ceased taking orders for
its Medical/Surgical supply products at which time it entered into an
arrangement whereby the buyer of its Medical/Surgical supply inventory
would fulfill all customer order requirements outstanding at and
subsequent to June 1, 1995. The gain on the sale of the Company's
Medical/Surgical supply inventory resulted in a gain in the amount of
$290,000 which is included in other income for the three and six month
periods ended August 31, 1995.
The Company formally closed its Missouri operations on June 9, 1995.
8. DISCONTINUED OPERATIONS:
In connection with the adoption of a formal restructuring plan (Note
7), the Company decided to discontinue the operations of its mail
order pharmacy subsidiary and to sell the assets of its computer
software division.
On June 30, 1995, the Company sold the assets of its computer software
division for $700,000 which resulted in a gain in the amount of
$478,000 which has been recorded as income from discontinued
operations.
The Company closed its mail order pharmacy business effective July 31,
1995.
8
<PAGE> 11
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Six Months Ended
August 31,
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $ 397,000 $ 463,000
Taxes $ 44,000 $ 35,000
</TABLE>
10. TANGIBLE NET WORTH:
At August 31, 1995, the tangible net worth of the Company was
approximately $11,220,000. On August 31, 1995, the Company was
notified by the Nasdaq Stock Market that the Company was in compliance
with Nasdaq's continued listing criteria.
9
<PAGE> 12
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview and Status of the Company:
During the first six months of fiscal 1996 the Company has implemented a
corporate restructuring plan by concentrating on its core business lines of
long-term care pharmacy and correctional pharmacy services. At the same time
the Company has worked to sell or close non-core and unprofitable business
segments. The Company has developed new revenues in both the long-term care
division and the correctional division with much of the new business coming
under contract in the three month period ended August 31, 1995.
During the second quarter, the Company was able to sell its medical surgical
operations and its computer software division resulting in a gain in the amount
of $768,000. The Company has successfully completed the shut-down of its
Missouri long-term care operations and has closed its mail-order operations.
In addition, the Company has taken major steps to reduce its operating costs
through the consolidation of three corporate offices into one which is located
in Baltimore, Maryland and by reducing overhead costs through a reduction in
force which took place in June 1995. The effect of these changes has been
reflected in the results of the second quarter cash flow and financial results
as the costs associated with these various activities have been eliminated.
The Company is in the final stages of a conversion of its financial accounting
and accounts payable systems to a mid-range IBM based platform and has
completed the conversion of its payroll and human resource systems. The
company is involved in the conversion of all pharmacy systems to a single
solution and plans to have several sites converted by the end of the third
quarter. Operating expenses are being reduced as opportunities are
identified. The Company will continue to focus on the reduction of its
operating costs as it further integrates the various operations and improves
its management information systems.
Cost of goods sold is being reduced as the company continues to focus on its
purchase activities. Negotiations are underway which, if successful, could
improve primary wholesaler discounts and pricing reductions through direct
relationships with certain drug manufacturers. Inventory levels are being
reduced and the company is planning to reconfigure certain operations to gain
further reductions. The improved cash position has also allowed the company
to take advantage of further payment discounts. Personnel costs continue to be
reviewed as the company is implementing productivity measurements and
objectives for each of the operations. By modification of shifts and changes in
procedure the Company has been able to increase productivity while decreasing
overtime cost.
10
<PAGE> 13
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
With the announced acquisition of Geri-Care Systems, Inc., the Company has
implemented a merger and acquisition strategy as it continues efforts to
consolidate regional pharmacy operations in the northeast United States. The
Company will continue to develop this strategy to be a low-cost high quality
provider of pharmacy services for a broad range of institutional clients.
The results of operations for the three and six month periods ended August 31,
1995, include the following operating information applicable to Premier
Pharmacy, Inc. which was acquired effective May 31, 1995:
<TABLE>
<S> <C>
Net revenues $ 6,009,000
Cost of sales 3,680,000
Selling and administrative expenses 2,224,000
Interest expense 34,000
Other income 14,000
Net income 2,600
</TABLE>
11
<PAGE> 14
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1995
COMPARED WITH THREE MONTHS ENDED AUGUST 31, 1994
NET REVENUES:
Net revenues increased to $16,251,000 from $11,053,000, an increase of
$5,198,000 or 47.0%. Of this increase, $6,009,000 was attributable to
the acquisition of Premier Pharmacy, Inc. The remaining variance in
net revenues was attributable to the exclusion of medical/surgical
revenues during the current period compared to the same period last
year, net of the increased revenues due to new correctional business
added during the quarter.
COST OF SALES:
Cost of sales includes the cost of drugs sold to patients and
institutions. Cost of sales increased to $10,151,000 from $6,805,000.
As a percentage of sales, cost of sales for the comparable quarter
increased from 61.6% to 62.5%. Cost of sales decreased from 64.5% for
the first quarter of 1996 to 62.5% for the second quarter 1996,
reflecting the acquisition of Premier Pharmacy, Inc. and improvements
in the Company's purchasing activities.
SELLING AND ADMINISTRATIVE EXPENSES:
Selling and administrative expenses, excluding depreciation and
amortization, increased from $3,846,000, or 34.8% of sales to
$5,932,000 or 36.5% of sales, an increase of $2,086,000. Of this
increase, $2,224,000 was attributable to the acquisition of Premier
Pharmacy, Inc. The remaining variance includes the cost of
consultants and travel expenses that were not offset by reductions for
selling and administrative expenses of the medical/surgical supply
operation and other decreases in operating costs. The company
incurred approximately $160,000 in non-recurring costs associated with
the reduction in force and reorganization of the company.
INTEREST EXPENSE:
Net interest expense increased by approximately $92,000 compared to
the same quarter in the prior period. Of this increase, $34,000 was
attributable to the acquisition of Premier Pharmacy, Inc. The
remaining increase reflects the changes in the Company's mix of debt
associated with the CreditAnstalt credit facility.
OTHER INCOME:
Other income includes a $290,000 gain from the sale of the Company's
medical/surgical supply inventory.
12
<PAGE> 15
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1995
COMPARED WITH THREE MONTHS ENDED AUGUST 31, 1994
(CONCLUDED)
NET INCOME (LOSS):
Net income for the quarter was $272,000 compared to a loss of
$3,554,000 for the comparable quarter in the prior period. This
increase was primarily attributable to the exclusion of prior period
costs in connection with claims and litigation of $3,575,000, and the
inclusion of the gain on the sale of subsidiary assets and the gain on
the sale of inventory, totaling $768,000, which are included in the
current period. In addition, $160,000 of expenses associated with the
Company's reduction in force and reorganization was expensed during
the three months ended August 31, 1995. The acquisition of Premier
Pharmacy, Inc. did not have a material effect on net income for the
current period.
13
<PAGE> 16
RESULTS OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1995
COMPARED WITH SIX MONTHS ENDED AUGUST 31, 1994
NET REVENUES:
Net revenues increased to $26,960,000 from $22,276,000, an increase of
$4,684,000. Of this increase, $6,009,000 was attributable to the
acquisition of Premier Pharmacy, Inc. The remaining decrease in net
revenues was attributable to the exclusion of medical/surgical
revenues during the current period compared to the same period last
year.
COST OF SALES:
Cost of sales includes the cost of drugs and medical/surgical supplies
sold to patients and institutions. Cost of sales increased to
$17,059,000 from $13,739,000, an increase of $3,320,000. Of this
increase, $3,680,000 was attributable to the acquisition of Premier
Pharmacy and the remaining difference was attributable to the increase
in the cost of drugs offset by the exclusion of the cost of medical
surgical supplies in the current period.
SELLING AND ADMINISTRATIVE EXPENSES:
Selling and administration expenses, excluding depreciation and
amortization, increased from $7,766,000 to $10,013,000 or $2,247,000.
Of this increase, $2,224,000 was attributable to the acquisition of
Premier Pharmacy, Inc. The remaining increase is attributable to
increased costs relating to the settlement of amounts owed under an
agreement not to compete and the cost of consultants and travel
expenses, that were not offset by reductions in the selling and
administrative expenses of the medical/surgical supply operation and
decreases in other operating costs.
INTEREST EXPENSE:
Net interest expense increased by approximately $79,000 compared to
the same period in the prior year. Of this increase, $34,000 was
attributable to the acquisition of Premier Pharmacy, Inc. The
remaining increase reflects the changes in the Company's mix of debt.
OTHER INCOME:
Other income includes a $290,000 gain from the sale of the Company's
medical/surgical supply inventory and $14,000 arising from the
acquisition of Premier Pharmacy, Inc. Other income also includes
contractual service fee income in the amount of $36,000.
14
<PAGE> 17
RESULTS OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1995
COMPARED WITH SIX MONTHS ENDED AUGUST 31, 1994
(CONCLUDED)
NET INCOME (LOSS):
Net loss for the six month period ended August 31, 1995 was $146,000
compared to a loss of $3,724,000 for the comparable period in the
prior year. This change was primarily attributable to the exclusion
of costs in connection with claims and litigation of $3,665,000 in the
current period, and the inclusion of the gain on the sale of
subsidiary assets and the gain on the sale of inventory, totaling
$768,000, which are included in the current period and which were
offset by increased operating expenses.
15
<PAGE> 18
LIQUIDITY, CAPITAL RESOURCES AND CASH FLOW
SIX MONTHS ENDED AUGUST 31, 1995
The Company's net cash used in operating activities was $210,000 for the six
month period ended August 31, 1995 compared to the $1,415,000 net cash provided
by operations for the six month period ended August 31, 1994. Cash used by
operations for the six month period ended August 31, 1995 resulted from the
Company's loss of $146,000 which includes a non-recurring gain on the discount
of indebtedness in the amount of $283,000. Other factors affecting the net
cash used in operations was the increase in accounts receivable, the reduction
of accounts payable and accrued expenses and the decrease in inventories and
prepaid expenses and other current assets.
Net cash used in investing activities was $4,521,000 for the six month period
ended August 31, 1995 compared to $21,000 for the prior period. This
significant increase in cash used in investing activities resulted primarily
from the acquisition of Premier Pharmacy, Inc. as of May 31, 1995. (See note 4
to the Unaudited Consolidated Financial Statements.)
Cash provided by financing activities was $9,129,000 for the six month period
ended August 31, 1995 compared to the $1,405,000 of cash used in financing
activities for the prior period. This change resulted primarily from the
receipt of $19,717,000 from the private placement of 5,100,000 shares of the
Company's common stock during the six month period ended August 31, 1995.
These funds were used to retire United Jersey Bank debt in the amount of
$2,983,000, retire the debt to a major vendor in the amount of $1,776,000
(which resulted in a gain on the discount of debt in the amount of $283,000),
and to retire CreditAnstalt senior debt of $5,536,000 associated with Premier
Pharmacy, Inc. prior to its merger with the Company. During the six month
period ended August 31, 1995, the Company borrowed and repaid $10,918,000 from
both CreditAnstalt and Counsel Corp. during the intervening periods between the
Company's two private placements of its common stock.
Working capital increased to $14,449,000 at August 31, 1995 from $5,409,000 at
February 28, 1995. The increase in working capital resulted primarily from the
acquisition of Premier Pharmacy, Inc. ($3,160,000 in working capital at May 31,
1995) and the excess of the receipts from the proceeds of the Company's two
private placements of its common stock over the funds which were disbursed to
retire bank debt, vendor debt, the acquisition of Premier Pharmacy, Inc. and
the retirement of the prior bank debt of Premier Pharmacy, Inc.
The Company's current ratio at August 31, 1995 was 2.68:1 compared to 1.85:1 at
February 28, 1995.
16
<PAGE> 19
PART II. OTHER INFORMATION
Item 1 Legal Proceedings.
Not Applicable
Item 2 Changes in Securities.
As approved by the shareholders of the Company at the annual
meeting on August 28, 1995, the Company reincorporated as a Delaware
corporation, with new articles of incorporation and bylaws. As a result, the
rights of the Company's Shareholders are governed by Delaware law and these new
documents. The Company hereby incorporates by reference the text of Exhibits
3.1, 3.2 and 3.3 hereto.
Item 3. Default Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
On August 18, 1995, the annual meeting of the stockholders of the
Company was held to elect directors to hold office until the next annual
meeting and to consider and vote upon seven other matters. The following were
elected to serve as directors until the next annual meeting of shareholders.
<TABLE>
<CAPTION>
Name For Withheld Broker Non-votes
---- --- -------- ----------------
<S> <C> <C> <C>
R. Dirk Allison 8,413,277 147,453 0
Joseph F. Furlong, III 8,418,477 142,253 0
John Haronian 7,924,627 636,103 0
Morris A. Perlis 8,415,427 145,303 0
Albert Reichmann 8,415,427 144,903 400
Brendan Ryan 8,418,277 142,453 0
Allan C. Silber 8,410,477 150,253 0
Edward Sonshine, Q.C. 8,415,477 145,253 0
Gail Wilensky, Ph.D. 8,418,227 142,503 0
John Zuccotti 8,411,727 149,003 0
</TABLE>
A proposal to adopt the Company's 1995 Nonqualified Stock Option Plan
for Directors was approved with 6,731,616 shares voted for the proposal,
533,739 voted against, 68,943 shares abstained, broker non-votes of 1,226,432
shares.
17
<PAGE> 20
A proposal to adopt the Company's 1995 Nonqualified Stock Option Plan
for Key Employees and Directors was approved with 5,624,332 shares voted for
the proposal, 1,036,629 voted against, 31,093 shares abstained, broker non-
votes of 1,868,676 shares.
A proposal to amend the Company's 1992 Stock Option Plan to give the
Board of Directors the discretion to extend the expiration date of previously
granted options for retiring directors was approved, with 7,351,383 shares
voted for the proposal, 1,172,979 shares voted against, 36,368 shares
abstained, and no broker non-votes.
A proposal to adopt the Company's Employees Stock Purchase Plan was
approved, with 6,912,005 shares voted for the proposal, 385,250 shares voted
against, 37,043 shares abstained, and broker non-votes of 1,226,432 shares.
A proposal to issue up to 3,500,000 shares of Common Stock in
connection with a private placement was approved, with 6,428,017 shares voted
for the proposal, 230,244 shares voted against, 33,793 shares abstained, and
broker non-votes of 1,868,676 shares.
A proposal to increase the number of authorized shares of the
Company's Common Stock from 15,000,000 to 30,000,000 was approved, with
8,295,003 shares voted for the proposal, 244,934 shares voted against, 20,793
shares abstained, and no broker non-votes.
A proposal to re-incorporate the Company as a Delaware corporation was
approved, with 6,937,021 shares voted for the proposal, 194,320 shares voted
against, 17,543 shares abstained, and broker non-votes of 1,411,846 shares.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of this report are listed in the
Index to Exhibits immediately following the signature page.
(b) (i) A report on Form 8-K, dated August 30, 1995 was filed by
the Company to report information under Item 6 at the request of the Nasdaq
Stock Market to verify compliance with certain listing criteria.
(ii)A report on Form 8-K, dated May 22, 1995, was filed by
the Company to report information under Items 1 and 2 regarding a private
placement and an acquisition.
(iii) A report on Form 8-K/A, dated May 22, 1995, was filed
by the Company to report information under Item 7 regarding financial
statements associated with item (b) (ii) above.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSTONE PHARMACY SERVICES, INC.
--------------------------------
(Registrant)
Dated: October 13, 1995 By: /s/ Don H. Thompson
------------------------------
Don H. Thompson
Vice President and
Chief Financial Officer
19
<PAGE> 22
EXHIBIT INDEX
Exhibit Number
3.1 Certificate of Incorporation of the Company
3.2 Certificate of ownership and merger merging Choice Mergeco,
Inc into the Company
3.3 Bylaws of the Company
27 Financial data schedule (for SEC use only)
20
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CHOICE DRUG SYSTEMS, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "Delaware General Corporation Law"), hereby certifies that:
FIRST: The name of the Corporation (hereinafter called the
"Corporation") is Choice Drug Systems, Inc.
SECOND: The address, including street, number, city, and county, of
the registered office of the Corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, Dover, Delaware 19901, County of Kent; and the
name of the registered agent of the Corporation in the State of Delaware at
such address is The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business or purposes of the Corporation is
to engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
FOURTH:
1. The maximum number of shares of stock which the Corporation
shall have the authority to issue is thirty million (30,000,000) shares of
Common Stock having a par value of $0.01 per share, which shares shall not be
subject to any preemptive rights, and five hundred thousand (500,000) shares of
preferred stock having a par value of $.01 per share.
2. Pursuant to Section 151 of the General Corporation Law of the
State of Delaware, a statement of the designations, powers, preferences and
rights, and the qualifications and restrictions thereof, in respect of each
class of capital stock is as follows:
A. PREFERRED STOCK
The Board of Directors is hereby expressly authorized at any time, and
from time to time, to provide for the issuance of shares of preferred stock in
one or more series, with such voting powers, full or limited, or no voting
powers, and with such designations, preferences and relative, participating,
optional or other rights, and qualifications or restrictions thereof, as shall
be stated and
<PAGE> 2
expressed in the resolution or resolutions providing for the issue thereof
adopted by a majority of the Board of Directors then in office and the
certificate of designations filed under the General Corporation Law of the
State of Delaware setting forth such resolution or resolutions, including
(without limiting the generality thereof) the following as to each such series:
(i) the designation of such series;
(ii) the dividends, if any, payable with respect to such series, the rates
or basis for determining such dividends, any conditions and dates upon
which such dividends shall be payable, the preferences, if any, of
such dividends over, or the relation of such dividends to, the
dividends payable on the Common Stock or any other series of preferred
stock, whether such dividends shall be noncumulative or cumulative,
and, if cumulative, the date or dates from which such dividends shall
be cumulative;
(iii) whether shares of such series shall be redeemable at the option of the
Board of Directors or the holder, or both, upon the happening of a
specified event and, if redeemable, whether for cash, property or
rights, including securities of the Corporation, the time, prices or
rates and any adjustment and other terms and conditions of such
redemption;
(iv) the terms and amount of any sinking, retirement or purchase fund
provided for the purchase or redemption of shares of such series;
(v) whether shares of such series shall be convertible into or
exchangeable for shares of Common Stock or any other series of
preferred stock, at the option of the Corporation or of the holder, or
both, or upon the happening of a specified event and, if provision be
made for such conversion or exchange, the terms, prices, rates,
adjustments and any other terms and conditions thereof;
(vi) the extent, if any, to which the holders of shares of such series
shall be entitled to vote with respect to the election of directors or
otherwise, including, without limitation, the extent, if any, to which
such holders shall be entitled, voting as a series or as a part of a
class, to elect one or more directors upon the happening of a
specified event or otherwise;
(vii) the restrictions, if any, on the issue or reissue of shares of such
series or any other series;
(viii) the extent, if any, to which the holders of shares of such series
shall be entitled to preemptive rights; and
(ix) the rights of the holders of shares of such series upon the
liquidation of the Corporation or any distribution of its assets.
2
<PAGE> 3
B. COMMON STOCK
(i) Dividends and Distributions. No payment of dividends or distributions
shall be made to the holders of shares of Common Stock unless and
until the holders of shares of preferred stock receive any
preferential amounts to which they are entitled under this ARTICLE
FOURTH or in the resolution or resolutions providing for the issue of
shares of preferred stock. Subject to the limitation set forth in the
preceding sentence of this Paragraph (I) and except as otherwise
provided by this Certificate of Incorporation or in the resolution or
resolutions providing for the issue of shares of preferred stock, the
holders of shares of Common Stock shall be entitled to receive such
dividends and distributions as may be declared upon such shares of
Common Stock, from time to time by a resolution or resolutions adopted
by the Board of Directors.
(ii) Voting Rights. All holders of Common Stock shall be entitled to
notice of any stockholders' meeting. Subject to the provisions of any
applicable law and except as otherwise provided in this Certificate of
Incorporation or by the resolution or resolutions providing for the
issue of shares of preferred stock, all voting rights shall be vested
solely in the Common Stock. The holders of shares of Common Stock
shall be entitled to vote upon the election of directors and upon any
other matter submitted to the stockholders for a vote. Each share of
Common Stock issued and outstanding shall be entitled to one
noncumulative vote. A fraction of a share of Common Stock shall not
be entitled to any voting rights whatsoever.
(iii) Liquidation, Dissolution or Winding Up. Except as otherwise provided
in this Certificate of Incorporation and subject to the rights of
holders, if any, of preferred stock to receive preferential
liquidation distributions to which they are entitled under this
ARTICLE FOURTH or under the resolution or resolutions providing for
the issue of shares of preferred stock, in the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment or provision for payment of
the debts and liabilities of the Corporation, all assets of the
Corporation shall be shared pro rata among the holders of the Common
Stock.
3. Except as otherwise provided in this Certificate of
Incorporation or by applicable law, the Corporation's capital stock, regardless
of class, may be issued for such consideration and for such corporate purposes
as the Board of Directors may from time to time determine by a resolution or
resolutions adopted by a majority of the Board of Directors then in office.
3
<PAGE> 4
FIFTH: The name and the mailing address of the incorporator are as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
David Cox Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
</TABLE>
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation.
SIXTH: The name and the mailing address of the Board of Directors are
as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Allan C. Silber Counsel Corporation
2 First Canadian Place, Suite 1300
Toronto, Ontario M5X 1E3
Morris A. Perlis Counsel Corporation
2 First Canadian Place, Suite 1300
Toronto, Ontario M5X 1E3
</TABLE>
SEVENTH: The Corporation shall have perpetual existence.
EIGHTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors, or any class of them, and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation, or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the court directs. If a majority
and number representing three-fourths (3/4) in value of the creditors or class
of creditors and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which said application has been made, be
binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
4
<PAGE> 5
NINTH:
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors.
2. The Board of Directors shall consist of not less than three
(3) nor more than fifteen (15) persons, the exact numbers to be fixed from
time to time by the Board of Directors pursuant to a resolution adopted by a
majority of directors then in office; provided, however, that such maximum
number may be increased from time to time to reflect the rights of holders of
preferred stock to elect directors in accordance with the terms of this
Certificate of Incorporation or of the resolution or resolutions adopted by a
majority of the Board of Directors then in office providing for the issue of
shares of preferred stock.
3. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Corporation, and not withstanding the fact
that some lesser percentage may be specified by law, one or more directors or
the entire Board of Directors of the Corporation may be removed at any time for
cause by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class). "Cause" for
purposes of this paragraph shall mean: (I) any fraudulent or dishonest act or
activity by the director; or (ii) behavior materially detrimental to the
business of the Corporation.
4. Whenever the Corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of this Certificate of Incorporation shall entitle the holder
thereof to the right to vote at any meeting of stockholders except as otherwise
provided by applicable law; provided, that no share of any such class which is
otherwise denied voting power shall entitle the holder thereof to vote upon the
increase or decrease in the number of authorized shares of said class.
TENTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of clause
(b) of Section 102 of the Delaware General Corporation Law, as the same may be
amended or supplemented. The provisions of this Article Tenth are not intended
to, and shall not, limit, supersede or modify any other defense available to a
director under applicable law. Any repeal or modification of this Article
Tenth 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.
5
<PAGE> 6
ELEVENTH:
1. The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as the same may be amended or
supplemented (but in the case of any such amendment or supplement, only to the
extent that such amendment or supplement permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment or supplement), indemnify any and all directors
and officers whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section, and the indemnification provided for herein
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person. The Corporation may, in its sole discretion and to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as the same
may be amended or supplemented, indemnify any and all employees and agents whom
it shall have power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to in or covered by
said section, and the indemnification provided for herein shall continue as to
a person who has ceased to be an employee or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
2. The Corporation shall pay the expenses incurred in defending any
proceeding against a director or officer which is or may be subject to
indemnification pursuant to this Article Eleventh in advance of final
disposition of such proceeding; provided, however, that the payment of such
expenses incurred by a director or officer shall be made only upon receipt of
an undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled to
be indemnified under this Article Eleventh or otherwise. The Corporation may,
in its sole discretion, advance expenses incurred by its employees or agents to
the same extent as expenses may be advanced to its directors and officers
hereunder.
3. The rights conferred on any person by this Article Eleventh shall
be deemed contract rights and shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation or the Corporation's Bylaws, agreement, or vote of
stockholders or disinterested directors or otherwise.
4. The Corporation may purchase and maintain insurance to protect
itself and any other director, officer, employee or agent of the Corporation or
any corporation, partnership, joint venture, trust or other enterprise against
any liability, whether or not the Corporation would have the power to indemnify
such person under the Delaware General Corporation Law.
TWELFTH:
1. From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed in accordance with the laws
of the State of Delaware at the time in force; provided, however, that the
affirmative vote of the holders of at least 66-2/3% of the
6
<PAGE> 7
outstanding shares of the Corporation's capital stock entitled to vote thereon
and 66-2/3% of the members of the Board of Directors then holding office is
required to amend those provisions of this Certificate of Incorporation set
forth in Articles Ninth, Tenth, Eleventh, Twelfth or Thirteenth.
2. The Corporation's Bylaws may be amended, added to or repealed
by an affirmative vote of at least a majority of either (i) the shares of the
Corporation's capital stock entitled to vote thereon, or (ii) the Board of
Directors.
THIRTEENTH: Any action required or permitted to be taken by the
holders of the issued and outstanding capital stock of the Corporation may be
effected solely at an annual or special meeting of stockholders duly called and
held in accordance with law and this Certificate of Incorporation, and not by
the consent in writing of such stockholders or any of them; provided, however,
that any holder of shares of preferred stock may exercise the special voting
rights, if any, of such shares to elect directors upon the occurrence of
certain events specified in this Certificate of Incorporation or in the
resolution or resolutions adopted by a majority of the Board of Directors then
in office providing for the issuance of such shares of preferred stock, in any
manner now or hereafter permitted by this Certificate of Incorporation or
applicable law.
The undersigned, being the incorporator, for the purpose of forming a
Corporation under the laws of the State of Delaware does make, file and record
this Certificate of Incorporation, does certify that the facts herein stated
are true, and, accordingly, has here to set my hand and seal this 1st day of
August 1995.
------------------------------
David Cox, Incorporator
7
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
CHOICE MERGECO, INC.
INTO
CHOICE DRUG SYSTEMS, INC.
(PURSUANT TO SECTION 253 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
Choice Drug Systems, Inc., a Delaware corporation (the "Company"),
does hereby certify:
FIRST: That the Company is a business corporation incorporated
pursuant to the Delaware General Corporation Law (the"DGCL").
SECOND: That the Company owns all of the outstanding shares of the
stock of Choice Mergeco, Inc. ("Mergeco "), a business corporation which is
incorporated pursuant to the DGCL.
THIRD: That the Company, by the following resolutions of its
Directors duly adopted on the 29th day of August, 1995, determined that it is
in the best interests of the Company to merge Mergeco into the Company,
effective as of 12:01 a.m. on September 27, 1995 (the "Effective Date of the
Merger") and thereby to change the name of the Company to "Capstone Pharmacy
Services, Inc." on the Effective Date of the Merger, on the terms described in
such resolutions, which provide as follows:
"NOW, THEREFORE, BE IT RESOLVED, that the Company merge Mergeco into
the Company and assume all of Mergeco's liabilities and obligations effective
as of a date to be selected by an officer of the Company; and
FURTHER RESOLVED, that the corporate name of the Company, as the
surviving corporation, be changed to "Capstone Pharmacy Services, Inc."
effective as of the Effective Date of the Merger; and
FURTHER RESOLVED, that the merger of Mergeco into the Company,
other than to change the name of the Company as provided herein, shall not have
any effect on the Certificate of Incorporation, bylaws, or authorized, issued
or outstanding stock of the Company, and pursuant to such
<PAGE> 2
merger all the issued stock of Mergeco shall be cancelled; and
FURTHER RESOLVED, that the Chairman of the Board, President, any
Executive Vice President or any Vice President of the Company is hereby
authorized and directed to make and execute, and the Secretary or any Assistant
Secretary of the Company is hereby authorized and directed to attest, under the
corporate seal of the Company, a Certificate of Ownership and Merger, setting
forth the date of adoption thereof, and to file the same in the office of the
Secretary of State of Delaware, and to record a certified copy thereof in the
office of the Recorder of Deeds for Kent County, Delaware; and
FURTHER RESOLVED, that the officers of the Company are hereby
authorized and directed to do all acts and things whatsoever, whether within or
without the State of Delaware, which may be necessary or proper to effect such
merger and change of name, and to take any and all action required as the
result of the change of name."
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed on its behalf by its Chairman, President, any Executive Vice President
or any Vice President, and to be attested by its Secretary or any of its
Assistant Secretaries, and its corporate seal to be affixed hereto, this ____
day of September, 1995.
2
<PAGE> 3
CHOICE DRUG SYSTEMS, INC.
[NO CORPORATE SEAL]
------------------------------
By: R. Dirk Allison
Title: President
ATTEST:
- -------------------------------
By: Don H. Thompson
Title: Secretary
STATE OF MARYLAND )
COUNTY OF BALTIMORE )
Before me, _____________________ of the state and county aforesaid,
personally appeared R. Dirk Allison and Don H. Thompson, with whom I am
personally acquainted, or proved to me on the basis of satisfactory evidence
and who, upon oath, acknowledged themselves to be, respectively, the President
and Secretary of Choice Drug Systems, Inc., the within named bargainor, a
corporation, and that they as such President and Secretary, respectively,
executed the foregoing instrument for the purpose therein contained, by signing
the name of the corporation by themselves as President and Secretary,
respectively.
Witness my hand and seal, at office in Baltimore, Maryland, this _____
day of _________ 1995.
----------------------------
Notary Public
My Commission Expires:
- ------------------------------
3
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
CHOICE DRUG SYSTEMS, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Annual Meeting. The annual meeting of the shareholders shall
be held, at such place within or without the state of incorporation as may be
designated by the Board of Directors, on such date and at such time as shall be
designated each year by the Board of Directors and stated in the notice of the
meeting. At the annual meeting the shareholders shall elect a Board of
Directors by a plurality vote and transact such other business as may properly
be brought before the meeting.
1.2 Special Meetings. Special meetings of the shareholders may be
called by the president, a majority of the board of directors, or by the
holders of not less than one-tenth (1/10) of all the shares entitled to vote at
such meeting. The place of said meetings shall be designated by the directors.
The business transacted at special meetings of the shareholders of the
corporation shall be confined to the business stated in the notice given to the
shareholders.
1.3 Notice of Shareholder Meetings. Written or printed notice
stating the place, day, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called and the person
or persons calling the meeting; notice may be communicated in person; by
telephone, telegraph, teletype or other form of wire or wireless communication;
or by mail or private carrier by or at the direction of the president,
secretary, officer, or person calling the meeting to each shareholder entitled
to vote at the meeting. Such notice shall be delivered not less than ten (10)
nor more than two months before the date of the meeting, and shall be deemed to
be delivered when deposited in the United States mail addressed to the
shareholder at his last known address as it appears on the stock transfer books
of the corporation, with postage thereon prepaid, or by confirmed telex;
provided, however, that any such notice may be waived in writing, either prior
to or subsequent to such meeting.
1.4 Quorum Requirements. A majority of the shares entitled to
vote present, in person or represented by proxy, shall constitute a quorum for
the transactions of business. A meeting may be adjourned despite the absence
of a quorum, and notice of an adjourned meeting need not be given if the time
and place to which the meeting is adjourned are announced at the meeting at
which the
<PAGE> 2
adjournment is taken. When a quorum is present at any meeting, a majority in
interest of the stock there represented shall decide any question brought
before such meeting, unless the question is one upon which, by express
provision of this corporation's Certificate of Incorporation or Bylaws, or by
the laws of Delaware, a larger or different vote is required, in which case
such express provision shall govern the decision of such question.
1.5 Voting and Proxies. Every shareholder entitled to vote at a
meeting may do so either in person or by proxy appointment made by an
instrument in writing subscribed by such shareholder which proxy shall be filed
with the secretary of the meeting before being voted. Such proxy shall entitle
the holders thereof to vote at any adjournment of such meeting, but shall not
be valid after the final adjournment thereof. No proxy shall be valid after
the expiration of eleven (11) months from the date of its execution, unless the
said instrument expressly provides for a longer period.
ARTICLE II
BOARD OF DIRECTORS
2.1 Qualification and Election. Directors need not be
shareholders or residents of this State, but must be of legal age. They shall
be elected by a plurality of the votes cast at the annual meetings of the
shareholders or at a special meeting of the shareholders called for that
purpose. Each director shall hold office until the expiration of the term for
which he is elected, and thereafter until his successor has been elected and
qualified.
2.2 Number. The number of directors that shall constitute the
entire Board of Directors shall be not less than three (3) nor more than
fifteen (15), the exact number of directors to be determined by resolution of
the Board of Directors from time to time.
2.3 Meetings. The annual meeting of the board of directors shall
be held immediately after the adjournment of the annual meeting of the
shareholders, at which time the officers of the corporation shall be elected.
The board may also designate more frequent intervals for regular meetings.
Special meetings may be called at any time by the chairman of the board,
president, or any two directors.
2.4 Notice of Directors' Meetings. The annual and all regular
board meetings may be held without notice of the date, time, place or purpose
of the meeting. Special meetings shall be held upon notice sent by any usual
means of communication not less than two (2) days before the meeting noting the
date, time and place of the meeting. The notice need not describe the purposes
of the special meeting. Attendance by a director at a meeting or subsequent
execution or approval by a director of the minutes of a meeting or a consent
action shall constitute a waiver of any defects in notice of such meeting
and/or consent action.
2
<PAGE> 3
2.5 Quorum and Vote. The presence of a majority of the directors
shall constitute a quorum for the transaction of business. A meeting may be
adjourned despite the absence of a quorum, and notice of an adjourned meeting
need not be given if the time and place to which the meeting is adjourned are
fixed at the meeting at which the adjournment is taken, and if the period of
adjournment does not exceed thirty days in any one adjournment. The vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board, unless the vote of a greater number is required
by the certificate of incorporation, these bylaws, or by the laws of the state
of incorporation.
2.6 Executive and Other Committees. The board of directors, by a
resolution adopted by a majority of its members, may designate an executive
committee, consisting of two or more directors, and other committees,
consisting of two or more persons, who may or may not be directors, and may
delegate to such committee or committees any and all such authority as it deems
desirable, including the right to delegate to an executive committee the power
to exercise all the authority of the board of directors in the management of
the affairs and property of the corporation.
ARTICLE III
OFFICERS
3.1 Number. The corporation shall have a President, a Secretary,
and such other officers as the Board of Directors shall from time to time deem
necessary. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
3.2 Election and Term. The officers shall be elected by the board.
3.3 Duties. All officers shall have such authority and perform
such duties in the management of the corporation as are normally incident to
their offices and as the board of directors may from time to time provide.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
4.1 Resignations. Any officer or director may resign at any time
by giving written notice to the chairman of the board, the president, or the
secretary. Any such resignation shall take effect at the time specified
therein, or, if no time is specified, then upon its acceptance by the board of
directors.
4.2 Removal of Officers. Any officer or agent may be removed at
any time with or without cause by the board whenever in its judgment the best
interests of the corporation will be served thereby.
3
<PAGE> 4
4.3 Removal of Directors. Any or all of the directors may be
removed either with or without cause by a proper vote of the shareholders; and
may be removed with cause by a majority vote of the entire board.
4.4 Vacancies. Newly created directorships resulting from an
increase in the number of directors, and vacancies occurring in any office or
directorship for any reason, including removal of an officer or director, may
be filled by the vote of a majority of the directors remaining in office, even
if less than a quorum exists.
ARTICLE V
CAPITAL STOCK
5.1 Stock Certificates. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the corporation in such form as
may be prescribed by the board of directors. Unless otherwise decided by the
board, such certificates shall be signed by the president and the secretary of
the corporation.
5.2 Transfer of Shares. Shares of stock may be transferred on
the books of the corporation by delivery and surrender of the properly assigned
certificate, but subject to any restrictions on transfer imposed by either the
applicable securities laws or any shareholder agreement.
5.3 Loss of Certificates. In the case of the loss, mutilation,
or destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the board of directors shall prescribe.
ARTICLE VI
ACTION BY CONSENT
6.1 Actions by Board of Directors. Whenever the directors are
required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken, signed
by all the persons or entities entitled to vote thereon, and such action shall
be as valid and effective as any action taken at a regular or special meeting
of the directors.
ARTICLE VII
AMENDMENT OF BYLAWS
4
<PAGE> 5
These bylaws may be amended, added to, or repealed either by: (1) a
majority vote of the shares represented at any duly constituted shareholders'
meeting; or (2) by a majority vote of the Board of Directors.
ARTICLE VIII
FISCAL YEAR
The fiscal year for the corporation shall be determined by the
Corporation's Board of Directors.
CERTIFICATION
I certify that these Bylaws were adopted by unanimous written consent
of the shareholders of the corporation on the 1st day of August 1995.
-------------------------------
Secretary
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FILED FOR THE THREE AND SIX MONTHS PERIODS ENDED AUGUST 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILED ON OCTOBER 16,
1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995<F1>
<CASH> 4,945
<SECURITIES> 0
<RECEIVABLES> 12,683
<ALLOWANCES> 2,213
<INVENTORY> 5,099
<CURRENT-ASSETS> 23,061
<PP&E> 7,204
<DEPRECIATION> 4,826
<TOTAL-ASSETS> 40,576
<CURRENT-LIABILITIES> 8,612
<BONDS> 6,173
<COMMON> 38,441
0
0
<OTHER-SE> (12,650)
<TOTAL-LIABILITY-AND-EQUITY> 40,576
<SALES> 16,251
<TOTAL-REVENUES> 0
<CGS> 10,151
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,924
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> (206)
<INCOME-TAX> 0
<INCOME-CONTINUING> (206)
<DISCONTINUED> 478
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
<FN>
<F1>3 MONTH PERIOD ENDED AUGUST 31, 1995
</FN>
</TABLE>
