<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 March 31, 1996
--------------
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)
<TABLE>
<S> <C>
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)
</TABLE>
Registrants's telephone number, including area code: (410) 646-7373
None
- --------------------------------------------------------------------------------
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.
<TABLE>
<S> <C>
Class Outstanding at May 10, 1996
- ---------------------------- ------------------------------------
Common Stock, $.01 Par Value 15,364,540
</TABLE>
<PAGE> 2
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 1-2
Consolidated Statements of Operations for the
three months ended March 31, 1996 and 1995 3
Consolidated Statement of Changes in
Stockholders' Equity for the three months
ended March 31, 1996 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 5
Notes to Unaudited Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX OF EXHIBITS 16
</TABLE>
<PAGE> 3
Part 1. Financial Information
Item 1. Financial Statements
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
--------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,275,941 $ 2,763,416
Accounts receivable, net of allowance for doubtful
accounts of $1,721,000 as of March 31, 1996
and $1,294,000 as of December 31, 1995 20,107,211 12,646,087
Inventories 7,237,284 5,023,008
Refundable income taxes 44,955 828,628
Prepaid expenses and other current assets 689,379 688,549
--------------- ----------------
29,354,770 21,949,688
--------------- ----------------
Equipment and leasehold improvements, net 3,790,858 2,692,298
--------------- ----------------
Other assets:
Notes receivable, less current portion 89,404 77,289
Advances to affiliates - 2,242,841
Security deposits and other assets 623,140 587,915
Goodwill, net of accumulated amortization of
$1,791,000 as of March 31, 1996 and
$1,554,000 as of December 31, 1995 33,706,625 14,580,564
--------------- ----------------
34,419,169 17,488,609
--------------- ----------------
Total assets $ 67,564,797 $ 42,130,595
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-1-
<PAGE> 4
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
--------------- ----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,065,506 $ 4,671,435
Accrued expenses and other current liabilities 2,205,548 1,465,837
Current portion of long-term debt 2,186,302 4,222,608
Current portion of non-compete agreements 200,000 200,000
Accrued restructuring charges 595,411 575,349
--------------- ----------------
9,252,767 11,135,229
--------------- ----------------
Deferred income taxes 542,787 542,787
Non-compete agreements, net of current portion 400,000 400,000
Long-term debt, net of current portion 24,969,411 2,692,202
Long-term portion of accrued restructuring charges 374,830 520,640
--------------- ----------------
26,287,028 4,155,629
--------------- ----------------
Stockholders' equity:
Common stock: $.01 par value; 30,000,000 shares
authorized at March 31, 1996 and December 31,
1995; 14,663,002 shares issued and 14,324,540
shares outstanding as of March 31, 1996 and
13,610,810 shares issued and outstanding as of
December 31, 1995 143,245 136,108
Capital in excess of par 43,876,845 38,985,006
Accumulated deficit (11,995,088) (12,281,377)
--------------- ----------------
32,025,002 26,839,737
--------------- ----------------
Total liabilities and stockholders' equity $ 67,564,797 $ 42,130,595
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE> 5
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $22,027,865 $10,950,534
Cost of sales 13,575,566 6,974,972
----------- -----------
Gross profit 8,452,299 3,975,562
----------- -----------
Operating expenses:
Selling, general and administrative expenses 7,277,293 4,060,639
Depreciation and amortization 569,057 287,121
Restructuring charges - 2,069,432
----------- -----------
Total operating expenses 7,846,350 6,417,192
----------- -----------
Income (loss) from operations 605,949 (2,441,630)
----------- -----------
Non-operating expense (income):
Interest expense, net 263,188 212,063
Other income, net (46,528) (55,932)
----------- -----------
Total non-operating expense, net 216,660 156,131
----------- -----------
Income (loss) before income taxes
and discontinued operations 389,289 (2,597,761)
Provision (benefit) for income taxes 103,000 (118,845)
----------- -----------
Income (loss) from continuing operations 286,289 (2,478,916)
Discontinued operations:
Loss from operations of discontinued business
segments - (268,041)
Loss on disposal of business segments, net - (503,067)
----------- -----------
Net income (loss) $ 286,289 $(3,250,024)
=========== ===========
Earnings per share data:
Primary
Continuing operations $ 0.02 $ (0.30)
Discontinued operations 0.00 (0.10)
----------- -----------
Net income (loss) $ 0.02 $ (0.40)
=========== ===========
Fully diluted
Continuing operations $ 0.02 $ (0.30)
Discontinued operations 0.00 (0.10)
----------- -----------
Net income (loss) $ 0.02 $ (0.40)
=========== ===========
Weighted average number of common shares outstanding:
Primary 16,592,126 8,111,210
=========== ===========
Fully diluted 16,692,186 8,111,210
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
<PAGE> 6
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Common stock Capital
------------ in excess Accumulated
Shares Amount of par value deficit Total
---------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 13,610,810 $ 136,108 $ 38,985,006 $ (12,281,377) $ 26,839,737
Common stock issued in connection
with acquisition 1,007,692 10,077 7,169,729 - 7,179,806
Common stock held in escrow (338,462) (3,385) (2,408,157) - (2,411,542)
Common stock issued in connection
with the exercise of stock options 44,500 445 130,267 - 130,712
Net income for the three months
ended March 31, 1996 - - - 286,289 286,289
---------- ------------- ------------ -------------- -------------
Balance, March 31, 1996 14,324,540 $ 143,245 $ 43,876,845 $ (11,995,088) $ 32,025,002
========== ============= ============ ============== =============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
-4-
<PAGE> 7
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1996 1995
------------ ---------------
<S> <C> <C>
Cash flows from (to) operating activities:
Net income (loss) $ 286,289 $ (3,250,024)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 569,057 287,121
Loss on disposal of business segments - 503,067
Change in assets and liabilities, net of effects from
acquisition/disposal of businesses:
(Increase) decrease in accounts receivable (787,308) 2,062,040
(Increase) decrease in inventories (491,121) 631,211
Decrease in prepaid expenses and
other current assets 769,865 126,907
Increase in other assets (9,759) (114,185)
Decrease in accounts payable (2,515,923) (699,968)
Decrease in pre-acquisition advances to affiliates, net (427,086) -
Increase (decrease) in accrued expenses and
other current liabilities 560,585 (217,845)
(Decrease) increase in accrued restructuring charges (125,748) 1,191,023
------------ --------------
Net cash (used in) provided by operating activities (2,171,149) 519,347
------------ --------------
Cash flows from (to) investing activities:
Purchase of equipment and leasehold improvements (328,652) (53,215)
Acquisitions, net of cash acquired (17,048,672) -
Repayments of notes receivable 32,973 100,310
------------ --------------
Net cash (used in) provided by investing activities (17,344,351) 47,095
------------ --------------
Cash flows from (to) financing activities:
Loan proceeds from Creditanstalt 20,483,000 -
Repayment of subsidiary pre-acquisition indebtedness (1,800,000) -
Proceeds from exercise of stock options 130,712 63,500
Repayments of long-term debt, net (717,144) (514,188)
Principal payments of capital lease obligations (68,543) (40,754)
------------ --------------
Net cash provided by (used in) financing activities 18,028,025 (491,442)
------------ --------------
Net (decrease) increase in cash and cash equivalents (1,487,475) 75,000
Cash and cash equivalents, beginning of period 2,763,416 25,000
------------ --------------
Cash and cash equivalents, end of period $ 1,275,941 $ 100,000
============ ==============
Supplemental Disclosure of Cash Flows Information
Cash paid for:
Interest $ 82,671 $ 182,400
============ ==============
Taxes $ 68,296 $ 88,711
============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE> 8
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. ORGANIZATION AND BUSINESS:
Capstone Pharmacy Services, Inc. (formerly known as Choice Drug
Systems, Inc.), a Delaware corporation, together with its wholly-owned
subsidiaries (the "Company") is principally engaged in the business of
providing pharmaceuticals and related services to long-term care
facilities, correctional institutions, hospitals and health
maintenance organizations. The Company's long-term care and health
maintenance organization customers are primarily located in New York,
New Jersey, Maryland, Pennsylvania, Delaware and Illinois, while the
Company's hospital and correctional facility customers are located
throughout the United States.
On August 28, 1995, the Company changed its state of incorporation
from New York to Delaware. Effective October 2, 1995, the Company
changed its name from Choice Drug Systems, Inc. to Capstone Pharmacy
Services, Inc. Additionally, effective December 31, 1995, the Company
changed its year-end from February 28 to December 31.
2. INCOME (LOSS) PER SHARE:
Net loss per common share for the three months ended March 31, 1995
was computed by dividing the net loss by the weighted average number
of common shares outstanding. For the three months ended March 31,
1996, primary and fully diluted earnings per common share were
computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents outstanding. The
amount of common stock equivalents outstanding was computed using the
treasury stock method.
3. BASIS OF PRESENTATION:
The interim condensed consolidated financial statements of the Company
for the three months ended March 31, 1996 and 1995 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 March 31, 1996 and the results of its operations and its
cash flows for the three months ended March 31, 1996 and 1995.
The results of operations for the three months ended March 31, 1996
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
as filed with the Securities and Exchange Commission for the ten
months ended December 31, 1995. The balance sheet at December 31,
1995 has been derived from the audited financial statements at that
date.
6
<PAGE> 9
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company has restated its previously reported fiscal 1995 quarterly
results of operations to provide comparable 1995 calendar quarter data
to the results of operations presented during 1996. This restatement,
presented initially for the three months ended March 31, 1995,
required certain adjustments and reclassifications to conform 1995
monthly and quarterly amounts and their presentation to those used in
the 1996 quarterly periods.
4. ACQUISITIONS:
In May 1995, the Company acquired Premier Pharmacy, Inc. ("Premier"),
an institutional pharmacy, for a purchase price of $4.25 million in
cash. Premier's operations generate annualized revenues of
approximately $24.0 million, primarily from pharmacy services provided
to long-term care facilities and hospitals located in the New York
metropolitan area and the southeastern United States.
During January 1996, the Company acquired Geri-Care Systems, Inc. and
its affiliate Scripts & Things, Inc. ("Geri-Care") a Brooklyn, New
York based provider of institutional pharmacy services. Geri-Care
generates annualized revenues of approximately $7.0 million from
institutional pharmacy services primarily in the New York metropolitan
area. The Agreement and Plan of Merger between the selling
shareholders of Geri-Care and the Company provides for, among other
things, the future payment of additional shares (338,462) of the
Company's common stock based on certain circumstances defined in the
agreement. At closing, the additional shares were issued and placed
into an escrow account and have been accounted for as a reduction of
outstanding shares in the accompanying consolidated balance sheets.
In February 1996, the Company acquired IMD Corporation ("IMD"), a
Chicago, Illinois based provider of institutional pharmacy services.
The purchase price was approximately $15.5 million in cash. IMD's
operations generate annualized revenues of approximately $18.0
million, primarily from nursing homes located in the Chicago
metropolitan area.
The Premier, Geri-Care, and IMD acquisitions have been accounted for
under the purchase method of accounting with the assets and
liabilities of the acquired companies recorded at their estimated fair
market values at the dates of acquisition. Goodwill, representing the
excess of acquisition cost over the fair market value of the net
assets acquired, is amortized over 40 years.
7
<PAGE> 10
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. ACQUISITION PRO FORMA FINANCIAL STATEMENTS:
The results of operations of acquired businesses are included in the
Company's consolidated results from the date of acquisition. Had the
acquisition of Premier and the private placement funding for this
acquisition (Note 7) and the acquisition of Geri-Care and IMD and the
bank borrowings used to fund the IMD acquisition (Note 6) occurred on
January 1, 1995, management estimates that the unaudited pro forma
results of operations for the three months ended March 31, 1996 and
1995 ($000 omitted) would have been:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 26,386 $ 23,656
Cost of sales 16,060 14,423
----------- --------
Gross profit 10,326 9,233
Operating expenses including interest and taxes 9,671 9,548
----------- --------
Income (loss) from continuing operations 655 (315)
Restructuring charges - 2,069
Discontinued operations - 771
----------- --------
Net income (loss) $ 655 $ (3,155)
=========== ========
Net income (loss) per common share $ .04 $ (.34)
=========== ========
</TABLE>
These pro forma operating results reflect certain adjustments,
including amortization of goodwill acquired, incremental interest
expense and related income tax effects. The pro forma results are
not necessarily indicative of the operating results that would have
occurred had the Premier, Geri-Care and IMD acquisitions been
consummated on January 1, 1995, nor are they necessarily indicative of
future results.
6. CREDIT FACILITY:
The Company maintains a Line of Credit and a term loan facility (the
"Term Loan") with CreditAnstalt-Bankverein under which borrowings of
up to $15.0 million on the Line of Credit and up to $10.0 on the Term
Loan are available. Borrowings under the agreement are secured by
substantially all of the assets of the Company. Amounts available to
be borrowed under this agreement are based upon levels of accounts
receivable and inventory. The Line of Credit bears interest at prime
plus .25% and the Term Loan bears interest at the prevailing LIBOR
rate plus 1.25%. Borrowings under both facilities are subject to
other provisions and covenants, all as defined by the underlying
agreement. One such provision resulted in the increase of available
borrowings under the Line of Credit and Term Loan to $21.0 million and
$14.0 million, respectively, following completion of the April 18,
1996 private placement, more fully described in Note 7.
8
<PAGE> 11
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. PRIVATE PLACEMENTS:
On December 16, 1994, the Company entered into a Stock Purchase
Agreement with Counsel Corporation, an Ontario corporation
("Counsel"), pursuant to which Counsel acquired 2,000,000 shares of
the Company's common stock for net proceeds of approximately
$7,191,000. Counsel was also granted two three-year warrants, the
first of which grants Counsel the right to purchase up to 1,000,000
shares of the Company's common stock at the exercise price of $4.50
per share, and the second of which grants Counsel the right to acquire
up to 800,000 shares of the Company's common stock at the exercise
price of $5.50 per share.
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. The proceeds of the private placement were
used in part to fund the acquisition of Premier.
On August 29, 1995, the Company completed a private placement of its
common stock. This offering consisted of 3,500,000 shares at a price
of $4.38 per share. The net proceeds of this offering were
$15,080,000, net of related expenses including placement commissions.
There were no warrants issued in connection with this second private
placement.
On April 18, 1996, the Company completed a private placement of its
common stock. This offering consisted of 1,035,000 shares at a price
of $8.50 per share. The net proceeds of this offering, $8,370,000
net of related expenses including placement commissions, increased the
Company's net worth so that its tangible net worth meets the
requirements of the Nasdaq stock market. There were no warrants
issued in connection with this third private placement.
8. RESTRUCTURING:
During February 1995, the Company adopted a formal plan of corporate
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.
9. DISCONTINUED OPERATIONS:
In connection with the adoption of a formal restructuring plan (Note
8), 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 and closed its mail order pharmacy business, effective July
31, 1995.
9
<PAGE> 12
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview and Status of the Company:
The Company, during the three months ended March 31, 1995, implemented a
corporate restructuring plan. Key elements of the plan included concentrating
the Company's operating and marketing focus on its core business lines - -
long-term care pharmacy and correctional pharmacy services. The Company has as
part of this plan raised additional private equity, which has enabled it to
reduce debt and initiate a merger and acquisition program intended to further
its overall strategy of becoming a low-cost, high quality provider of pharmacy
services for a broad range of institutional clients. At the same time, the
Company has worked to sell or close non-core and unprofitable business
segments.
In addition, the Company has continued steps previously initiated to reduce
both operating and overhead costs through the consolidation and streamlining of
operations and corporate functions. Partially offsetting the improved results
of operations were increased legal and other costs associated with the ongoing
implementation of the Company's restructuring plan.
Cost of goods sold are being reduced as a result of the Company's continued
focus on its purchasing activities to improve primary wholesaler discounts and
achieve price advantages. Increased purchasing volume, lower inventory levels
relative to sales volume and the reconfiguring of operations are the key
elements of the Company's success in reducing cost of sales. The Company
continues to pursue the plans initiated during the first quarter of 1995 to
improve purchasing efficiency and inventory cost control.
The Company has continued its efforts to consolidate regional pharmacy
operations in the northeast United States and to expand its operations into
other major metropolitan markets. The Company completed the acquisitions of
PremierPharmacy, Inc. in May 1995; Geri-Care Systems, Inc. in January 1996; and
IMD Corporation in February 1996.
10
<PAGE> 13
RESULTS OF OPERATIONS, THREE MONTHS ENDED
MARCH 31, 1996 COMPARED WITH THE THREE
MONTHS ENDED MARCH 31, 1995
NET SALES:
Net sales increased to $22,027,865 from $10,950,534, an increase of
$11,077,331 or 101.2%. Of this increase, approximately $10,640,000 was
attributable to the acquisitions of Premier, Geri-Care, and IMD. Net
sales on a comparable Company basis increased by approximately
$1,482,000 or 13.5%, after giving effect to the elimination of
medical/surgical sales which were included in the prior period and the
increase in sales to correctional facilities during the first quarter
of 1996.
COST OF SALES:
Cost of sales includes the cost of pharmaceuticals sold to patients
and institutions. Cost of sales increased to $13,575,566 from
$6,974,972, an increase of $6,600,594 or 94.6%. Of this increase,
approximately $6,431,000 or 97.4% was attributable to acquisitions and
the remainder resulted from increased sales volumes.
SELLING AND ADMINISTRATIVE EXPENSES:
Selling and administrative expenses, excluding depreciation and
amortization of goodwill, increased by $3,216,564 from $4,060,639 to
7,277,293 or 79.2%. Of this increase, approximately $3,398,000 was
attributable to acquisitions. On a comparable company basis, selling
and administrative expenses decreased by approximately $181,000, or
4.5%, as the result of the Company's continued cost containment
efforts.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization increased by $281,936, or 98.2% compared
to the same period in the prior year. Of this increase, $153,898, or
54.6%, is attributable to depreciation which relates to acquisitions.
Amortization of goodwill increased by approximately $156,000 in the
current period as a result of acquisitions.
INTEREST EXPENSE:
Net interest expense increased by $51,125, or 24.1%, compared to the
same period in the prior year. This increase results from the
increase in bank debt which was incurred in connection with the
acquisition of IMD.
INCOME TAXES:
Income taxes consist of accruals and adjustments for state and local
income taxes based upon apportioned state taxable income. The Federal
income tax provision has been reduced to zero by the anticipated
utilization of net operating loss carry forwards.
11
<PAGE> 14
RESULTS OF OPERATIONS, THREE MONTHS ENDED
MARCH 31, 1996 COMPARED WITH THE THREE
MONTHS ENDED MARCH 31, 1995
(Continued)
NET INCOME (LOSS):
Net income for the three months ended March 31, 1996 was $286,289
compared to a net loss of $3,250,024 for the comparable period of the
prior year. This change is primarily attributable to restructuring
charges in the amount of $2,069,432 recorded during the prior period
and the loss from operations of discontinued business segments and the
loss on disposal of business segments aggregating $771,108 which are
included in the prior period. Excluding the restructuring charges
discussed above, income from operations increased by $978,147 to
$605,949 for the three months ended March 31, 1996.
12
<PAGE> 15
LIQUIDITY, CAPITAL RESOURCES AND CASH FLOW
THREE MONTHS ENDED MARCH 31, 1996
The Company's net cash used in operating activities was $2,171,149 for
the three months ended March 31, 1996 compared to the $519,347 net
cash provided by operating activities for the three months ended
March 31, 1995. Cash used in operating activities for the three
months ended March 31, 1996 resulted from increases in accounts
receivable and inventories, the reduction of accounts payable, accrued
expenses and other long term liabilities, partially offset by the
decrease in prepaid expenses and other current assets.
Net cash used in investing activities was $17,344,351 for the three
months ended March 31, 1996 compared to $47,095 net cash provided by
investing activities for the prior period. Of the first quarter 1996
amount, $17,048,672 was attributable to the acquisitions of Geri-Care
and of IMD.
Cash provided by financing activities was $18,028,025 for the three
months ended March 31, 1996 compared to the $491,442 of cash used in
financing activities for the prior period. During the period ended
March 31, 1996, the Company borrowed $20,483,000 from CreditAnstalt as
a source of funding for the acquisitions. A portion of these borrowed
funds, $1,800,000, were used to repay certain pre-acquisition
indebtedness of one of the acquired companies.
Working capital increased to $20,102,003 at March 31, 1996 from
$10,814,459 at December 31, 1995. Generally, such changes result from
long-term acquisition financing and the impact on the balance sheet of
assets acquired and liabilities assumed.
The Company's current ratio at March 31, 1996 was 3.17:1, compared to
1.97:1 at December 31, 1995.
13
<PAGE> 16
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5 Other Information
Not Applicable
Item 6 Exhibits and Reports on Form 8-K
a) The exhibits filed as a part of this Report are listed in
the Exhibit Index immediately following the signature page.
b) Reports on Form 8-K filed in the first three months of
1996.
Date Filed Report Name
---------- -----------
1/08/96 Current Report on Form 8-K dated December 31, 1995
3/08/96 Current Report on Form 8-K/A dated December 31, 1995
3/15/96 Current Report on Form 8-K dated February 29, 1996
3/20/96 Current Report on Form 8-K dated March 20, 1996
14
<PAGE> 17
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: May 15, 1996 By: /S/ Donald W. Hughes
-------------------------------
Donald W. Hughes
Vice President and
Chief Financial Officer
15
<PAGE> 18
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Asset Purchase Agreement dated February 29, 1996, by and among IMD Corporation, Dennis Ruben, the
Trust, Illinois Pharmacy Acquisition Co. and Capstone Pharmacy Services, Inc. (incorporated by
reference to Exhibit 2 to Form 8-K dated February 29, 1996.)
3.1 Certificate of Incorporation of Choice Drug Systems, Inc. (incorporated by reference to Exhibit 3.1 to
Form 10Q for period ending August 30, 1995.)
3.2 Certificate of Ownership and Merger Merging Choice Mergeco, Inc. into Choice Drug Systems, Inc.
(incorporated by reference to Exhibit 3.2 to form 10Q for period ending August 30, 1995).
3.3 Bylaws of Choice Drug Systems, Inc. (Incorporated by reference to Exhibit 3.3 to Form 10Q for period
ending August 30, 1995.)
10.1 Form of Second Amendment to Registration Rights Agreement dated March 20, 1996.
10.2 Form of Third Amendment to Registration Rights Agreement dated April 11, 1996.
10.3 Form of Registration Rights Agreement dated April 17, 1996.
27 Financial Data Schedule. (for SEC use only)
</TABLE>
16
<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of April ___, 1996, by and among CAPSTONE PHARMACY SERVICES,
INC., a Delaware corporation, and the parties named on Schedule I attached
hereto (each a "Holder" and, collectively, the "Holders").
RECITALS
The Holders propose to acquire up to 3,000,000 shares (the "Shares")
of the Company's common stock, par value $.01 per share (the "Common Stock"),
upon the terms set forth in those certain Subscription Agreements dated as of
the date hereof between the Company and each of the respective Holders (each, a
"Subscription Agreement" and collectively, the "Agreements").
In order to induce Holders to purchase the Shares and in satisfaction
of a condition to the obligations of the Holders under the Subscription
Agreements, the Company has agreed to provide the registration rights set forth
in this Agreement.
1. Piggyback Registrations.
(a) Right to Piggyback. If, at any time after 90 days after the date
hereof, the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Securities Act") and the registration
form to be used may be used for the registration of Shares (a "Piggyback
Registration" and the rights to such registration "Piggyback Registration
Rights"), the Company will give prompt written notice (in any event at least 30
days in advance) to all Holders of its intention to effect such a registration
and will include in such registration all Shares with respect to which the
Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
(b) Piggyback Expenses. The expenses incurred in connection with such
registration by the Holders will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback
<PAGE> 2
Registration is, in whole or in part, an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number of piggyback shares which can be sold
in such offering, the Company will include in such registration (i) first, the
shares of Common Stock the Company proposes to sell, (ii) second, the shares of
Common Stock proposed to be sold by holders thereof who have registration
rights pursuant to the Registration Rights Agreement dated December 16, 1994,
as amended, or the Registration Rights Agreement dated May 22, 1995, as amended
(such holders hereinafter referred to as the "Existing Holders"), (iii) third,
the Shares requested to be included in such registration, pro rata among the
Holders of such Shares on the basis of the number of Shares requested to be
included by such Holders, and (iv) fourth, other shares of Common Stock
requested to be included in such registration.
(d) Priority on Secondary Registration.
(i) If the Holders exercise their Piggyback Registration Rights in
connection with a registration statement filed in response to the exercise of
Demand Registration Rights (as defined below) by the Existing Holders, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering, the Company will include in such
registration (i) first, the shares of Common Stock requested to be included by
the Existing Holders (ii) second, the Shares requested to be included in such
registration, pro rata among the Holders of such Shares on the basis of the
number of Shares requested to be included by such Holders, and (iii) third,
other securities requested to be included in such registration.
(ii) If the Existing Holders exercise their Piggyback Registration
Rights in connection with a registration statement filed in response to the
exercise of Demand Registration Rights by the Holders, and the managing
underwriters advise the Company in writing that, in their option, the number of
securities requested to be included in such registration exceeds the number
2
<PAGE> 3
which can be sold in such offering, the Company will, subject to the rights of
the Existing Holders under paragraph 2(c) hereof, include in such registration
statement (i) first, the Shares, (ii) second, the shares of Common Stock
requested to be included by the Existing Holders, and (iii) third, other
securities requested to be included in such registration.
2. Demand Registration.
(a) Registration. At any time after December 16, 1996, the Holders of
not less than one-half of the Shares (as defined in Section 8(a) below)
previously not registered pursuant to Section 1 may request one registration
under the Securities Act of all or part of their Registrable Securities on Form
S-1 under the Securities Act or any other permitted registration form ("Demand
Registration" and the right to such registration "Demand Registration Rights")
for which the Company will pay all Registration Expenses (as defined Section 5
below), in the event that not all Shares were previously registered pursuant to
a Piggyback Registration. A registration will not count as a Demand
Registration until it has become effective.
(b) Priority on Demand Registrations. If, at any time after December
16, 1996, the Company receives a request by the Holders for a Demand
Registration, within five days after the receipt thereof the Company will (i)
give written notice of such request to all Holders and Existing Holders
previously not registered and (ii) include in such Demand Registration all
shares of Common Stock with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the
Company's notice. If the managing underwriter of any Demand Registration
advises the Company in writing that in its opinion the number of Shares and
other securities requested to be included exceeds the number of Shares and
other securities which can be sold in such offering, the Company will include
in such registration prior to the inclusion of any securities which are not
Shares, the number of Shares requested to be included which in the opinion of
such underwriter can be sold, pro rata among the respective Holders on the
basis of their relative shares of Shares requested to be included. Any persons
other than Holders who participate in the Demand Registration must pay their
share of the Registration Expenses as provided in Section 5.
3
<PAGE> 4
(c) Priority on Demand Registrations with respect to Existing Holders.
If, during the period after the Company has received a request by the Holders
for a Demand Registration and 15 days after the Holders and Existing Holders
have received the Company's notice described in the first sentence of Section
2(b) above, the Company receives a request by the Existing Holders for a Demand
Registration, then the Holders agree that the Company may file a registration
statement in response to the request by the Existing Holders in lieu of filing
a registration statement in response to the request by the Holders. The Holders
will have Piggyback Registration Rights in connection with such Demand
Registration in accordance with Section l(d)(i) hereof.
(d) Selection of Underwriters. The Company will have the right to
decide if a Demand Registration shall be underwritten and to select the
investment banker(s) and manager(s) to manage or administer any offering
pursuant to a Demand Registration. Notwithstanding the foregoing, the Company's
unwillingness or inability to select such banker or manager shall not limit the
Company's obligation to proceed with a requested Demand Registration.
(e) Other Registration Rights. Except as provided in this Agreement,
the Company will not grant to any persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities on terms that are superior
to or pari passu with the rights granted herein, without the written consent of
the holders of at least two-thirds of the Shares.
(f) The Registration Expenses of the Holders will be paid by the
Company in Demand Registration.
3. Holdback Agreements.
(a) Each Holder agrees not to effect any public sale or distribution
of equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 180 day period beginning on the effective date of any underwritten
Piggyback Registration or any underwritten Demand Registration in which Shares
are included (except as part of such underwritten
4
<PAGE> 5
registration), unless the underwriters managing the registered public offering
otherwise agree.
4. Registration Procedures. Whenever the Holders have requested that any Shares
be registered pursuant to the Agreement, the Company will use its best efforts
to effect the registration and the sale of such Shares in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will
as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"SEC") a registration statement with respect to such Shares and use its best
efforts to cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to a single law firm selected by
the Holders of a majority of the Shares covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to the reasonable review of such counsel which review will be limited
to information concerning the Holders and their plans of distribution and other
issues reasonably related to the Holders as Selling Shareholders);
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than six months and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Holders thereof set forth in such registration statement;
(c) furnish to each Holder of Shares such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such Holder may reasonably request in order to
facilitate the disposition of the Shares owned by such Holder;
(d) use its best efforts to register or qualify such Shares
5
<PAGE> 6
under such other securities or blue sky laws of such jurisdiction as any Holder
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of the Shares owned by such Holder (provided
that the Company will not be required to (i) qualify generally to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this subparagraph, (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction);
(e) notify each Holder of such Shares, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of any such Holder, the Company will prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of such
Shares, such prospectus will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein not
misleading.
(f) cause all such Shares to be listed on each securities exchange on
which similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all such Shares not
later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Shares being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Shares
(including, without limitation, effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of Shares, any
underwriter participating in any disposition pursuant to such
6
<PAGE> 7
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(j) obtain a comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by comfort letters as the holders of a majority of the Shares being
sold reasonably request (provided that such Shares constitute at least 10% of
the securities covered by such registration statement).
5. Registration Expenses.
(a) All expenses incident to the Company's performance under this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions, which are the responsibility of the
seller) and other persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne as provided in this
Agreement, except that the Company will, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance
and the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
each Holder, its officers, directors and employees and each person who controls
such holder (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities
7
<PAGE> 8
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
Holder expressly for use therein or by such Holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such Holder with a sufficient number of
copies of the same. In connection with an underwritten offering, the Company
will indemnify such underwriters, their officers, directors and employees and
each person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the Holders. Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in any such
underwriting agreement are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
(b) In connection with any registration statement in which a Holder is
participating, each such Holder will furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the
extent permitted by law, will indemnify the Company, its directors, officers
and employees and each person who controls the Company (within the meaning of
the Securities Act) against any loss, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder expressly for use herein.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any
8
<PAGE> 9
claim with respect to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense, is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim.
7. Participation in Underwritten Registrations. No person may participate in
any registration hereunder which includes an underwritten offering unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, power of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
8. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which are superior to the
rights granted to the Holders in this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its securities
which would materially and adversely affect the ability of the holders of
Shares to include such Shares in a registration undertaken pursuant to this
Agreement or which would materially and adversely affect the marketability of
such Shares in any such registration (including,
9
<PAGE> 10
without limitation, effecting a stock split or a combination of shares).
(c) Remedies. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason or any breach of any provision of this Agreement and
to exercise all other rights granted by law.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of holders of at
least two-thirds of the Shares.
(e) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of purchasers or Holders of are also for
the benefit of, and enforceable by, any subsequent Holder, provided that the
Company is given written notice at the time of or within a reasonable time
after said assignment, stating the name and address of the assignee or holder
and identifying the securities with respect to which such registration rights
are being assigned, and provided further, that the assignee or Holder of such
rights assumes the obligations of such Holder under this Agreement.
(f) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be effective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signature of more
than one party, but all such
10
<PAGE> 11
counterparts taken together will constitute one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. The construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto will be governed by the
internal law, and not the law of conflicts, of the State of New York.
(j) Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent to each other Holder at the address provided by such Holder and to
Company at the address indicated below:
Capstone Pharmacy Services, Inc.
2930 Washington Boulevard
Baltimore, Maryland 21230
With a copy mailed to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Mark Manner, Esq.
11
<PAGE> 12
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the Company has executed this Agreement as of April ___,
1996.
CAPSTONE PHARMACY SERVICES, INC.
By: ________________________
Its: ________________________
12
<PAGE> 13
Schedule 1
13
<PAGE> 14
Exhibit B
14
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
This Second Amendment (the "Second Amendment") to Registration Rights
Agreement is entered into as of March 20, 1996 among Capstone Pharmacy
Services, Inc., f/k/a Choice Drug Systems, Inc. (the "Company"), the new
investors listed on the signature page hereto (the "Additional Investors") and
the Initial Investors and Secondary Investors, to amend that certain
Registration Rights Agreement dated May 22, 1995 by and among the Company and
the Initial Investors (the "Original Agreement"), as previously amended by that
certain Amendment to Registration Rights Agreement (the "First Amendment")
dated August 29, 1995 by and among the Company, the Initial Investors and
Secondary Investors as, (the Original Agreement, as amended by the First
Amendment is hereby referred to as the "Registration Rights Agreement").
Terms used but not defined herein shall have the meaning set forth in the
Registration Rights Agreement.
WHEREAS, the Company the Initial Investors, and the Secondary
Investors have entered into the above-referenced Registration Rights Agreement;
and
WHEREAS, the Registration Rights Agreement currently provides that
under certain circumstances the Company may grant registration rights that are
pari passu to the rights originally granted in the Registration Rights
Agreement with respect to up to 300,000 shares of common stock; and
WHEREAS, in connection with an acquisition, the Company desires to
offer to the Additional Investors demand and piggyback registration rights with
respect to an aggregate of 1,007,692 shares of common stock comparable to those
provided to the Initial Investors and Secondary Investors pursuant to the
Registration Rights Agreement; and
WHEREAS, Initial Investors and Secondary Investors holding at least
two-thirds of the securities which are subject to the Registration Rights
Agreement are being asked to consent to this Amendment.
NOW, THEREFORE, to induce the Additional Investors to participate in
the acquisition transaction and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree to
amend the Registration Rights Agreement as follows:
1. The first sentence of the Registration Rights Agreement shall
be deleted in its entirety and substituted with the following:
<PAGE> 2
This REGISTRATION RIGHTS AGREEMENT is made as of May
22, 1995 among Choice Drug Systems, Inc. (the "Company"),
Counsel Corporation and the other investors (collectively,
the "Initial Investors"), who participated in the Company's
offering of units consisting of common stock and Warrants
which closed on May 22, 1995 (the "Unit Offering"), the
investors (collectively, the "Secondary Investors") who
participated in the Company's offering of common stock which
closed on August 29, 1995 (the "Common Offering") and the
selling shareholders (the "Additional Investors") who
participated in the acquisition by the Company of Geri-Care
Systems, Inc. and Scripts & Things, Inc. pursuant to that
certain Agreement and Plan of Merger effective as of September
30, 1995 (the "Merger").
2. The second recital of the Registration Rights Agreement is
hereby deleted in its entirety and substituted with the following:
WHEREAS, in connection with the Unit Offering, the Common
Offering and the Merger, the Company desires to offer to
Counsel, the Initial Investors, the Secondary Investors and
the Additional Investors comparable (but not identical)
registration rights similar to those set forth in the 1994
Agreement; and
3. The fifth paragraph of the Registration Rights Agreement is
hereby deleted in its entirety and substituted with the following:
NOW, THEREFORE, to induce Counsel to terminate the 1994
Agreement, to induce the Initial Investors to participate in
the Unit Offering, to induce the Secondary Investors to
participate in the Common Offering and to induce the
Additional Investors to participate in the Merger, the Company
has agreed to provide the various registration rights set
forth in this Agreement and the Holders have agreed to accept
the same, all subject to the terms and conditions set forth
herein.
4. Paragraph 1(a) of the Registration Rights Agreement which
contains the definition of the term "Registrable Securities" shall be deleted
in its entirety and substituted with the following:
(a) The term "Registrable Securities" means (i) the
Shares of the Company's common stock issued to, and issued
upon exercise of the Warrants held by, Counsel pursuant to the
1994 Stock Purchase Agreement or by persons to whom Counsel
has transferred any of said shares in a transaction not
<PAGE> 3
involving any public offering, (ii) the Stock and shares of
the Company's common stock issued upon exercise of the
Warrants held by the Initial Investors pursuant to the Unit
Offering or by persons to whom the Initial Investors have
transferred any of said stock in a transaction not involving
any public offering, (iii) the stock held by the Secondary
Investors pursuant to the Common Offering or by persons to
whom the Secondary Investors have transferred any of said
stock in a transaction not involving any public offering, (iv)
the Shares of the Company's common stock issued to the
Additional Investors in connection with the Merger such shares
to be evidenced by certificates containing the legend set
forth in Section 10(k) hereof, and (v) any securities issued
or issuable with respect to the securities referred to in
clauses (i), (ii), (iii) or (iv) above by way of a stock
dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other
reorganization.
5. Paragraph 1(b) of the Registration Rights Agreement which
contains the definition the term "Holders" shall be deleted in its entirety and
substituted with the following:
(b) The term "Holders" means Counsel, the Initial
Investors, the Secondary Investors, the Additional Investors
and any of their respective permitted successors and assigns.
The term "Initial Holders" means Counsel, the Initial
Investors, any of their respective permitted successors and
assigns; the term "Secondary Holders" means the Secondary
Investors and any of their respective permitted successors and
assigns; and the term "Additional Holders" means the
Additional Investors and any of their respective permitted
successors and assigns.
6. Paragraph 1(c) of the Registration Rights Agreement which
contains the definition of the term "Investors" shall be deleted in its
entirety and substituted with the following:
(c) The term "Investors" means the Initial Investors
(including Counsel), the Secondary Investors and the
Additional Investors.
7. Paragraph 2(c) of the Registration Rights Agreement will be
amended by deleting that portion of the paragraph beginning with clause (ii)
and substituting in its stead the following:
<PAGE> 4
(ii) second, the Registrable Securities requested to be
included in such registration, pro rata among the Initial
Holders of such Registrable Securities on the basis of the
number of shares requested to be included by such Initial
Holders, (iii) third, the Registrable Securities requested to
be included in such registration, pro rata among the Secondary
Holders of such Registrable Securities on the basis of the
number of shares requested to be included by such Secondary
Holders, (iv) fourth, the Registrable Securities requested to
be included in such registration, pro rata among the
Additional Holders of such Registrable Securities on the basis
of the number of shares requested to be included by such
Additional Holders, and (v) fifth other securities requested
to be included in such registration.
8. Paragraph 2(d) of the Registration Rights Agreement will be
amended by deleting that portion of the paragraph beginning with clause (i) and
substituting in its stead the following:
(i) first, the Registrable Securities requested to be included
in such registration, pro rata among the Initial Holders of
such securities on the basis of the number of securities
requested to be included by such Initial Holders, (ii) second,
the Registrable Securities requested to be included in such
registration, pro rata among the Secondary Holders of such
securities on the basis of the number of securities requested
to be included by such Secondary Holders, (iii) third, the
Registrable Securities requested to be included in such
registration, pro rata among the Additional Holders of such
securities on the basis of the number of securities requested
to be included by such Additional Holders, (iv) fourth, other
securities requested to be included in such registration, and
(v) fifth, the securities the Company proposes to sell.
9. Paragraph 3(e) of the Registration Rights Agreement shall be
deleted in its entirety and replaced with the following:
(e) Other Registration Rights. Except as provided in this
Agreement, the Company will not grant to any persons the right
to request the Company to register any equity securities of
the Company, or any securities convertible or exchangeable
into or exercisable for such securities on terms that are
superior or pari passu to the rights granted herein, without
the written consent of the Holders of at least two-thirds of
the Registrable Securities.
<PAGE> 5
10. Except as specifically amended by this Amendment, the
Registration Rights Agreement and its provisions shall remain in full force and
effect. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered will be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
11. This Amendment shall be effective upon its execution by
Initial Investors and Secondary Investors holding at least two-thirds of the
securities that were subject to the Registration Rights Agreement as of August
29, 1995.
IN WITNESS WHEREOF, the Company and the Investors have caused this
Amendment to be entered into and effected as of March 15, 1996.
CAPSTONE PHARMACY SERVICES, INC.
By:
----------------------------------
Title:
----------------------------------
ADDITIONAL INVESTORS
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
<PAGE> 6
INITIAL AND SECONDARY INVESTORS
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
<PAGE> 7
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
---------
<PAGE> 1
EXHIBIT 10.3
THIRD AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
This THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "Third
Amendment") is entered into as of April 11, 1996 by and among Capstone Pharmacy
Services, Inc., f/k/a Choice Drug Systems, Inc. (the "Company"), the Initial
Investors, the Secondary Investors and the Additional Investors to amend that
certain Registration Rights Agreement dated May 22, 1995 by and among the
Company and the Initial Investors, as amended (the "Registration Rights
Agreement"). Terms used but not defined herein shall have the meaning set
forth in the Registration Rights Agreement.
WHEREAS, the Company is currently making a private placement of up to
3,000,000 shares of common stock (the "Private Offering") to certain investors,
and in connection therewith the Company desires to allow the exercise by the
Initial Investors, the Secondary Investors and the Additional Investors of
their demand rights at an earlier date, and to have such Investors waive the
six-month restriction period on certain registrations set forth in Section
2(e); and
WHEREAS, the Initial Investors, the Secondary Investors and the
Additional Investors holding at least two- thirds of the securities that are
subject to the Registration Rights Agreement are being asked to consent to this
Third Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to amend the
Registration Rights Agreement as follows:
1. Paragraph 2(e) of the Registration Rights Agreement (captioned
"Other Registrations") shall be deleted in its entirety.
2. Paragraph 3(a) of the Registration Rights Agreement shall be
amended by deleting the date "December 16, 1996" and substituting the date
"October 15, 1996".
3. Except as specifically amended by this Third Amendment, the
Registration Rights Agreement and its provisions shall remain in full force and
effect. This Third Amendment may be executed in any number of counterparts,
each of which when so
Page 1 of 2
<PAGE> 2
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
4. This Third Amendment shall be effective upon its execution by
the Initial Investors, the Secondary Investors and the Additional Investors
holding at least two-thirds of the securities that are subject to the
Registration Rights Agreement.
IN WITNESS WHEREOF, the Company and the Investors have caused this
Amendment to be entered into and effective as of the date first above written.
CAPSTONE PHARMACY SERVICES, INC.
By:
--------------------------------
Title:
--------------------------------
Signature of Investor and Printed Name
-----------------------------------------
Signature
-----------------------------------------
Name (Type or Print)
Address:
--------------------------------
-----------------------------------------
-----------------------------------------
Social Security or FEIN Number:
-------
Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,276
<SECURITIES> 0
<RECEIVABLES> 21,828
<ALLOWANCES> 1,721
<INVENTORY> 7,237
<CURRENT-ASSETS> 29,355
<PP&E> 9,084
<DEPRECIATION> 5,293
<TOTAL-ASSETS> 67,565
<CURRENT-LIABILITIES> 9,253
<BONDS> 26,287
0
0
<COMMON> 143
<OTHER-SE> 31,882
<TOTAL-LIABILITY-AND-EQUITY> 67,565
<SALES> 22,028
<TOTAL-REVENUES> 0
<CGS> 13,576
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,658
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 389
<INCOME-TAX> 103
<INCOME-CONTINUING> 286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
