SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
(Mark One)
|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended March 31, 1997
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For transition period from ___________________ to ____________________
Commission file No. 0-17292
ACCUHEALTH, INC.
(Exact name of registrant as specified)
New York 13-3176233
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1575 Bronx River Avenue, Bronx, New York 10460
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 518-9511
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of June 18, 1997, the aggregate market value of the Common Stock held by
non affiliates of the registrant was approximately $3,686,921.
As of June 18, 1997, there were 1,787,598 shares of the Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders to be held on September
26, 1997 in Part III of this Form 10-K.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
Accuhealth, Inc., together with its wholly-owned subsidiaries, provides
comprehensive home health care services, including administration of a wide
array of infusion therapies, sales of oral medications and sales and rentals of
durable medical equipment ("DME") and related supplies.
The Company was incorporated in the State of New York on August 25, 1983.
Effective August 20, 1990, the present name, Accuhealth, Inc., was adopted
pursuant to an amendment to the Company's Certificate of Incorporation. The
Company's principal offices are located at 1575 Bronx River Avenue, Bronx, New
York 10460, and its telephone number is (718) 518-9511. Unless the context
otherwise requires, references herein to the "Company" include Accuhealth, Inc.
and all of its wholly-owned subsidiaries.
On March 14, 1997, the Company entered into a merger agreement whereby the
Company agreed to acquire ProHealthCare Infusion Services, Inc. ("PHCIS") for
300,000 shares of Company Common Stock. PHCIS, based in Springfield, New Jersey,
specializes in caring for complex HIV/AIDS patients and those suffering from
cancer. PHCIS also has a strong disease management capability in treating
patients suffering from congestive heart failure and cardiomyopathy.
(b) Narrative Description of Business
Products and Services
Home infusion therapy is the at-home administration of nutrients, fluids,
antibiotics and other drugs to patients. The service consists of preparation of
prescription and non-prescription drugs by the Company's registered pharmacists,
delivery of IV solutions to the patient's home, supply of pumps and other
apparatus to administer the drugs and the provision of certain related nursing
care. In addition, the Company trains patients in the self administration of
infusion therapies and in many cases will also train another family member. The
Company offers a wide array of infusion services for patients ranging in age
from prenatal to geriatric.
Home care results in significant cost savings over hospital-based
treatments, enables patients to undergo their treatments in a more comfortable
and familiar environment and can be continued over long periods of time.
Infusion therapies include the in-home administration of nutrients, antibiotics
and other medications to patients intravenously (into a vein), subcutaneously
(under the skin), intramuscularly (into the muscle), through respiratory
inhalation (into the lungs), intrathecally or epidurally (via spinal routes) or
through feeding tubes. The principal infusion therapies provided by the Company
are as follows:
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Antibiotic Therapy. Antibiotic therapy is the infusion of antibiotic drugs
into the patient's bloodstream, generally through a catheter inserted into a
vein in the patient's arm. It is used to treat a variety of infections and
diseases including osteomyelitis (bone infection), lyme disease, bacterial
endocarditis (infection of the lining around the heart), septicemia (blood
poisoning), wound infections and infections of the kidneys and urinary tract. In
addition, patients with suppressed immune systems, including cancer patients on
chemotherapy and patients with AIDS, may require antibiotic therapies.
Parenteral Nutrition. Total parenteral nutrition, or TPN, involves the
intravenous delivery of life sustaining nutrients to patients unable to ingest
or absorb nutrients due to a disorder of the gastrointestinal tract. Certain
conditions that require TPN include intestinal obstruction, cancer, AIDS,
inflammatory bowel disease, short bowel syndrome and many other gastrointestinal
disorders. TPN is administered through a catheter, which is surgically implanted
in a major blood vessel during hospitalization, to permit required nutrients to
be fed directly into the patient's blood stream. Many TPN patients require
indefinite or permanent treatment because the illnesses from which they suffer
are recurring in nature.
Enteral Nutrition Therapy. Enteral nutrition therapy administers nutrients
to patients who cannot eat as a result of an obstruction to the digestive tract
or because they are otherwise unable to feed themselves orally. Enteral
nutrition is administered by direct infusion of nutrients through a feeding tube
into the portion of the patient's digestive tract that remains functional.
Pain Management Therapy. Pain management therapy is the administration of
analgesic drugs to terminally or chronically ill patients suffering from acute
or chronic pain. Generally, this therapy is administered under physician orders
in a way that permits the patient to regulate the intravenous infusion of
analgesic drugs in proportion to the severity of the pain experienced.
Chemotherapy. Chemotherapy is the administration of antineoplastic
pharmaceuticals to patients suffering from various types of cancer. Continuous
infusion chemotherapy is the administration of chemotherapeutic agents through a
catheter inserted into a patient's vein or a catheter which is surgically
implanted in a major blood vessel.
Intra-Dialytic Parenteral Nutrition ("IDPN"). IDPN is the provision of life
sustaining nutrients to patients suffering from end stage renal disease during
their dialysis treatment.
Other Therapies. Other therapies provided by the Company currently
represent a small percentage of its business. These therapies are dobutamine
therapy, blood components, IV gamma globulin, hydration therapy, tocolytic
therapy and aerosol pentamidine.
The Company also sells oral medications to certain of its home health care
patients, and it sells and rents, with options to purchase, a broad range of
durable medical equipment ("DME") and supplies such as hospital beds,
wheelchairs, walkers, canes, electronic monitoring equipment, surgical supplies,
ostomy and incontinence products, oxygen (ventilators, concentrators and liquid
tanks) and other miscellaneous products and services. The Company both employs
and contracts
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with registered respiratory therapists who instruct patients in the proper use
and maintenance of oxygen equipment.
The Company has contracts with three hospices in New York City to provide
DME, on a non-exclusive basis to patients upon their discharge from the
hospices. The Company also has contracts to provide DME, on a non-exclusive
basis, to patients of seven nursing services whose trained personnel provide
out-patient care. In addition, the Company's name appears on "approved provider"
lists given to patients upon their discharge from approximately 30 hospitals in
the New York metropolitan area.
The Company also provides comprehensive pharmacy services to large
institutional pharmacy clients including sub-acute and long term care
facilities. These engagements typically involve the Company's managing and
operating the pharmacy under contract with the institution and providing the
drugs, medications, biologicals and supplies the patients require.
Home Nursing. The Company provides a wide variety of nursing services to
individuals with acute illnesses, long term chronic health conditions, permanent
disabilities, terminal illnesses or post-surgical needs. This care is normally
provided in conjunction with a variety of infusion therapies and specialty care
regimens to patients in the home. The nurses also instruct patients and their
families in the self-administration of certain infusion therapies and
procedures, such as wound care and infection control, emergency procedures and
the proper handling and usage of medications, medical supplies and equipment.
Sales and Marketing
The Company promotes its infusion therapy and durable medical equipment
products and services via contacts with physicians whose patients use these
services, hospital discharge planners, social workers and hospital nurses who
work with patients requiring these services. The Company also works closely with
nursing services and agencies that provide home care to patients. The Company
also markets its products and services to insurance companies, Health
Maintenance Organizations (H.M.O.'s), Preferred Provider Organizations
(P.P.O.'s) and case management companies. Marketing efforts emphasize the
quality of the Company's services, cost containment and technological excellence
offered by the Company. In addition, the Company participates in clinics run by
New York City hospitals.
Because the Company can provide oral medications to its home health care
customers, the Company promotes itself as a "one stop shop" for infusion
therapy, durable medical equipment and pharmaceuticals. The Company stocks
pharmaceuticals not widely used P by the general population to meet the needs of
critically ill patients, including drugs used to treat AIDS and AIDS-related
diseases.
The Company has made special efforts to meet the needs of persons afflicted
with AIDS. The Company has a contract with a nursing service program to supply
DME for persons suffering from AIDS and provides special instructions to
employees who visit the homes of persons afflicted
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with AIDS and other communicable diseases. The Company also markets to certain
free-standing AIDS-specific rehabilitation centers and hospitals. The Company
currently provides products and services to patients in two such facilities
(Rivington House and Phoenix House in Manhattan).
Reimbursement from Third-Party Payors
The Company accepts assignment of Medicare claims, as well as claims with
respect to other third-party payors, on behalf of its patients whenever the
reimbursement coverage is adequate to ensure payment of the patient's
obligations. The Company processes its customers' claims, accepts payment at
prevailing and allowable rates and assumes the risks of delay for improperly
billed services or non-payment for services which are determined by the
third-party payor as being medically unnecessary. Although no assurance can be
given that a significant number of future requests for reimbursement will not be
denied, the Company's policies, procedures and prices are intended to minimize
this risk.
The Company works closely with the patients it serves to properly document
and file claims for timely and direct reimbursement from third party payors and
governmental agencies. Generally, the Company contacts third-party payors prior
to the commencement of services or delivery of product in order to determine the
patient's coverage and the percentage of costs that the payor will reimburse.
The Company's reimbursement specialists carefully review such issues as lifetime
limits, pre-existing condition clauses, the availability of special state
programs and other reimbursement-related issues. The Company will often
negotiate with the third-party payor on the patient's behalf to help ensure that
coverage is available. In addition, the Company typically obtains an assignment
of benefits from the patient that enables the Company to file claims for its
services with the third-party payors. As a result, third-party payors pay the
Company directly for the reimbursable amounts of its charges. Once reimbursement
processing for a patient has been established by a third-party payor, claims
processing and reimbursement tend to become routine, subject to continued
patient eligibility and other coverage limitations.
Like other health care companies, the Company's revenues and profitability
are adversely affected by the continuing efforts of third-party payors to
contain or reduce the costs of health care by lowering reimbursement rates,
increasing case management review of bills for services and negotiating reduced
contract pricing. Home health care, which is generally less costly to
third-party payors than hospital-based care, has benefitted from such cost
containment objective. However, as expenditures in the home health care market
continue to grow, initiatives aimed at reducing costs of health care delivery at
non-hospital sites are increasing.
Competition
The home infusion therapy market is highly competitive and the Company
anticipates that competition will intensify. There are many small local
providers, some of whom do not offer the variety of therapies provided by the
Company. There are also several large regional or national companies that offer
more therapies than the Company. The primary competitive factors are quality of
care, including responsiveness of service and quality of professional personnel;
ability to establish
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and maintain relationships with referring physicians, hospitals, health
maintenance organizations, clinics and nursing services; price and breadth of
infusion therapies offered; general reputation with physicians, other referral
sources and potential patients and the ability to function as a "one stop shop."
The DME business is also very competitive. The Company competes with
national, regional and local specialty suppliers of medical equipment, chain
drugstores and local independent drugstores. Competitive factors in DME markets
generally track those stated above.
Many of the Company's competitors have greater name recognition, broader
geographic markets and substantially greater marketing, financial and
administrative resources than the Company. Some of the larger existing and
future competitors can be expected to expand the varieties of therapies offered.
JCAHO Accreditation
The Company is accredited by the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"). Accreditation by JCAHO has become a
prerequisite for contracts from many hospices and hospitals, certified health
agencies ("CHHA's"), insurance companies, HMO's and PPO's.
Insurance
Physicians, hospitals and other participants in the health care market are
routinely subject to lawsuits alleging malpractice, product liability or related
legal theories, many of which involve large claims and significant defense
costs. The Company has in force general liability insurance with coverage limits
of $1,000,000 per incident and $2,000,000 in the aggregate annually, and
professional liability insurance on each of its pharmacy employees and
professionals with coverage limits of $1,000,000 per claim and in the aggregate
annually. The Company has not experienced difficulty in obtaining insurance in
the past, and management believes that the Company's insurance coverage is
reasonable given its claims history.
Customers
During the years ended March 31, 1997 and 1996, services provided to
Rivington House accounted for 19% and 16%, respectively, of the Company's net
sales for that year. No single customer accounted for more than 10% of net sales
in Fiscal 1995.
Suppliers
The Company does not depend upon a limited number of suppliers for the
conduct of its continuing business and generally has second sources for all of
the materials and products used in its business. The Company purchases drugs,
solutions, medical equipment and other materials and leases certain equipment in
connection with the Company's business from many suppliers and
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distributors. The Company is not currently experiencing and does not anticipate
that it will experience in the future any material difficulty in purchasing or
leasing the required products, supplies and equipment used in its business.
In the event that existing suppliers or distributors are unable to or
should fail to deliver products, supplies and equipment to the Company,
management believes that alternate sources are available to adequately meet its
needs at comparable prices.
Government Regulation
The New York State Board of Pharmacy (the "State Board") regulates the
Company's pharmacists by requiring each pharmacist to be registered with the
State Board. Each of the Company's pharmacy departments and its infusion therapy
center is licensed and regulated by the State Board as a pharmacy, and the
Company's warehouse is similarly licensed and regulated as a wholesaler of
prescription drugs. Each of the Company's pharmacy departments and its infusion
therapy center is also registered with the United States Drug Enforcement Agency
as a supplier of controlled substances. Any failure to obtain or maintain
required licenses or registrations could prevent or limit the Company's
operation of one or more pharmacy departments, its infusion therapy center or
its warehouse of prescription drugs.
The Company is also licensed by the State of New York to lease, sell and
sterilize bedding and by the City of New York as a provider of products for the
disabled and as a dealer in used equipment. The failure to maintain any required
license could materially adversely affect the Company by preventing or limiting
the continuation of some of the Company's home medical equipment operations.
JCAHO has established written standards for home care services, including
standards for services provided by home infusion therapy companies. Many payors
use this criteria in order to select only the highest quality providers. The
Company's facility presently complies with JCAHO's standards and has been
accredited since February 1990. In addition, the Company received approval in
1991 from the New York State Department of Health to provide nursing services in
New York State.
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable
include amounts due from third party payors, primarily governmental agencies
(Medicare and Medicaid). At March 31, 1997, gross Medicare and Medicaid
receivables aggregated $2,415,732.
Employees
As at March 31, 1997, the Company employed 99 persons, of which 94 were
full-time employees and 5 were part-time employees. The supply of qualified
staff is adequate and retainable in the New York City area. The Company
considers its relations with its employees to be
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satisfactory. The Company's employees are not represented by a labor union or
other labor organization.
Disclosure Regarding Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information in Items 1, 2, 3, 6,
7, and 8 of this Form 10-K include information that is forward looking, such as
the Company's opportunities to increase sales through, among other things,
increasing its number of patients, its anticipated liquidity and the results of
legal proceedings. The matters referred to in forward looking statements could
be affected by the risks and uncertainties involved in the Company's business.
These risks and uncertainties include, but are not limited to, the effect of
economic and market conditions, the impact of the cost containment efforts of
third-party payors and the Company's ability to obtain and maintain required
licenses, as well as certain other risks described above in this Item under
"Competition" and "Government Regulation," and below in Item 3 in "Legal
Proceedings" and in Item 7 in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Subsequent written and oral forward
looking statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by the cautionary statements in this
paragraph and elsewhere in this Form 10-K.
ITEM 2. PROPERTIES
The Company's offices, pharmacy and warehouse are located in a 31,000
square-foot building (the "Facility") in the Bronx. The Company is lessee under
a ten-year capital lease dated as of April 1, 1989 with the New York City
Industrial Development Agency (the "IDA"), the lessor (the "Lease Agreement").
The IDA acquired the property in April 1989 by issuing an Industrial Development
Bond (the "Bond").
At the end of the term of the capital lease, the Company, upon payment in
full of the outstanding principal and interest on the Bond, may purchase the
Facility for one dollar plus any fees and expenses in connection with the
redemption of the Bond. The Company also has the option to purchase the Facility
at any time during the term of the lease for the amount necessary to redeem the
outstanding Bond in accordance with the Indenture, plus all expenses of
redemption and one dollar.
The Company believes the Facility is in good condition and is adequate to
meet its needs in Fiscal 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings other
than as described below. See also Note 7 of Notes to Consolidated Financial
Statements.
In June 1995, a former employee commenced an action in Supreme Court, New
York County, New York against the Company and certain of its former and current
officers, directors and
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shareholders. The action alleges that the Company breached plaintiff's
employment agreement by withholding at least $750,000 in commissions allegedly
owed to him. In addition to the breach of contract claim, plaintiff asserted
claims for violation of the Racketeering Influence and Corruption Act ("RICO"),
violations of New York's Labor Law (stemming from the Company's alleged breach
of contract) and fraud. In or about September 1995, the defendants made a
pre-Answer motion to dismiss the RICO, fraud and conspiracy claims. On June 18,
1996 the Court granted defendants' motion effectively dismissing the Complaint
as to the Company's current and former officers, directors and shareholders and
leaving plaintiff's claim for breach of contract and violation of New York's
Labor Law solely against the Company. The Company has now served an Answer and a
Document Request. The plaintiff has not proceeded with discovery and the case is
currently dormant. The Company intends to deny the principal allegations in the
Complaint and to defend this action vigorously. Management believes that this
action will not have any material adverse impact on the Company's financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
The Company's common stock, par value $.01 per share (the "Common Stock")
trades on the over-the-counter Bulletin Board under the symbol AHLT.U.
The following table sets forth, for the periods indicated, the high and low
closing bid prices for the Common Stock as reported by the NASDAQ Stock Market
Trading and Market Services Department. Such over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
do not necessarily represent actual transactions.
Fiscal 1997 Fiscal 1996
-------------------- -----------------
High Low High Low
---- --- ---- ---
Quarter ended June 30 2 1 3-3/8 2-3/4
Quarter ended September 30 2 1-1/8 3 1-3/4
Quarter ended December 31 1-3/8 1-1/2 1-3/4 1
Quarter ended March 31 3-1/16 1-11/16 1-1/8 1
The Company's 6% Redeemable Cumulative Convertible Preferred Stock is
subject to significant restrictions on sale and does not have a public trading
market.
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Number of Shareholders
Management has been advised by the Company's transfer agent that there were
56 holders of record of the Common Stock as of June 15, 1997. Since most holders
of the Company's stock have placed their shares in street name, this figure is
much lower than the actual number of beneficial holders of common stock, which
is estimated to be approximately 300 stockholders.
Dividends
To date, the Company has not paid any cash dividends on the Common Stock.
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition and other relevant factors. The Board does
not intend to declare any dividends on the Common Stock in the foreseeable
future, but instead intends to retain all earnings, if any, for use in the
Company's business operations.
The Company is obligated to pay annual dividends of $.12 per share on its
1,350,000 outstanding shares of 6% Redeemable Cumulative Convertible Preferred
Stock. Such dividends accrue daily, are payable each June 1 and December 1 and,
at the election of the Company, may be paid in shares of Common Stock valued in
accordance with the terms of such stock. Dividends on the Company's 6%
Redeemable Cumulative Convertible Preferred Stock are payable in preference and
priority to any payment of any dividends on the Common Stock.
The Company satisfied its liability payable at June 1, 1996 and at December
1, 1996 by the issuance of 52,856 and 104,509 shares of the Company's Common
Stock issued July 8, 1996 and April 11, 1997, respectively.
The Company satisfied its liability payable at June 1, 1995 and at December
1, 1995 by the issuance of 25,440 and 54,793 shares of the Company's Common
Stock issued September 28, 1995 and May 7, 1996, respectively.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the
consolidated financial statements of Accuhealth, Inc. and its subsidiaries for
the years ended March 31, 1997, 1996, 1995 and 1994, which have been audited and
reported upon by Ernst & Young LLP, and should be read in conjunction with "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
included elsewhere in this Form 10-K. The Company has not declared or paid any
cash dividends on the Common Stock.
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Statement of Operations Data:
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<TABLE>
<CAPTION>
Fiscal Year
1997 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 16,369,376 $ 15,112,071 $ 15,468,402 $ 15,380,043
Gross profit 6,770,120 6,931,649 7,211,622 6,920,977
Selling, general and administrative expenses 6,146,783 7,104,529 6,913,959 7,599,214
Interest expense 496,606 605,452 635,848 270,833
Recovery (expenses) related to pre-investigation
management off book cash practices -- -- 525,820 (454,065)
Debt surrendered in settlement of claims -- -- 488,500 --
Income (loss) from continuing operations before income taxes 126,731 (778,332) 676,135 (1,403,135)
Income (loss) from continuing operations 126,731 (778,332) 676,135 (1,358,651)
Discontinued operations -- -- (278,733) (1,187,055)
Income (loss) before extraordinary item 126,731 (778,332) 397,402 (2,545,706)
Extraordinary gain on debt surrendered in settlement of claims -- -- 60,000 --
Net (loss) income 126,731 (778,332) 457,402 (2,545,706)
Net (loss) income applicable to common stockholders (35,269) (982,168) 350,555 (2,545,706)
Net loss (income) per common share:
Primary:
Loss (income) from continuing operations (.03) (.77) .39 (.87)
Income (loss) before extraordinary item (.03) (.77) .20 (1.64)
Extraordinary item -- -- .04 --
Net (loss) income per share (.03) (.77) .24 (1.64)
Fully Diluted:
Income (loss) from continuing operations: (.03) (.77) .36 (.87)
Income (loss) before extraordinary item (.03) (.77) .20 (1.64)
Extraordinary item -- -- .04 --
Net (loss) income per share (.03) (.77) .24 (1.64)
Weighted average number of shares of common stock
and equivalents outstanding
Primary 1,400,423 1,273.274 1,472,854 1,550,000
Fully diluted 1,400,423 1,273,274 1,893,991 1,550,000
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data
March 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets $ 8,500,165 $ 7,650,957 $ 7,294,898 $ 7,823,526 $13,018,469
Long-term liabilities 974,543 488,352 694,628 1,586,394 1,684,351
Total liabilities 7,078,786 6,356,309 5,277,090 8,242,117 10,917,730
Preferred stock -- -- 2,710,164 -- --
Stockholders' equity (deficiency) 1,421,379 1,294,648 (692,356) (418,591) 2,100,739
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis should be read in conjunction
with the consolidated financial statements of the Company and related notes
included elsewhere in this Form 10-K.
Results of Operations
Fiscal Year Ended March 31, 1997 as Compared to Fiscal Year Ended March 31, 1996
Net sales for Fiscal 1997 increased approximately $1,257,000 to $16,369,000
from the $15,112,000 reported in Fiscal 1996. The increase was the result of an
increase of approximately $2,143,000 and $81,000 in the Company's institutional
pharmacy business and oral medication revenues, respectively, offset partially
by decreases in the Company's infusion services and durable medical equipment
revenues of $853,000 and $114,000, respectively.
The revenues from infusion services were lower than the previous fiscal
year services partially as a result of the Company's marketing shift away from
treating a small number of high revenue patients, primarily HIV/AIDS Medicaid
patients, to increased numbers of lower revenue patients referred to the Company
via insurance companies and HMO's. The strategy derives from two trends: the
HIV/AIDS population stabilizing and the downward pressure on Medicaid
reimbursements for infusion therapy services.
Gross profits for Fiscal 1997 were approximately $6.8 million and were
41.4% of total net sales as compared to approximately $6.9 million or 45.9% for
Fiscal 1996. The decrease in gross profits reflects an overall shift in the
Company's mix of business, including expanded institutional pharmacy business
which carries lower margins.
Selling, general and administrative expenses ("SG&A") were approximately
$6.1 million or 37.6% of net sales for Fiscal 1997 as compared to $7.1 million
or 47.0% for Fiscal 1996. The decrease was principally the result of reductions
in professional fees ($283,000), marketing costs ($190,000), certain clinical
and administrative salaries ($159,000), and other administrative costs
($368,000).
Interest expense in Fiscal 1997 was $496,606 as compared to $605,452 in
fiscal 1996.
Fiscal Year Ended March 31, 1996 as Compared to Fiscal Year Ended March 31, 1995
Net sales for Fiscal 1996 decreased approximately $356,000 to $15,112,000
from the $15,468,000 reported in Fiscal 1995. The decrease was the result of a
reduction of approximately $2,544,000 and $321,000 in the Company's revenues
from infusion services and oral medications, respectively, offset partially by
an increase in the Company's institutional pharmacy revenues of $2,423,000.
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The revenues from infusion services and oral medications were lower than
the previous fiscal year services partially as a result of the Company's
marketing shift away from treating a small number of high revenue patients,
primarily HIV/AIDS Medicaid patients, to increased numbers of lower revenue
patients referred to the Company via insurance companies and HMO's. The strategy
derives from two trends: the HIV/AIDS population stabilizing and the downward
pressure on Medicaid reimbursements for infusion therapy services. In addition,
the Company lost a physician referral source approximating $1 million in net
sales.
Gross profits for Fiscal 1996 were approximately $6.9 million and were
45.9% of total net sales as compared to approximately $7.2 million or 46.6% for
Fiscal 1995. The decrease in gross profits reflects an overall shift in the
Company's mix of business, including expanded institutional pharmacy business
which carries lower margins.
Selling, general and administrative expenses ("SG&A") were approximately
$7.1 million or 47.0% of net sales for Fiscal 1996 as compared to $6.9 million
or 44.7% for Fiscal 1995. The increase was primarily attributable to higher than
expected legal fees and marketing costs and a reduction of $387,000 in its
reserves for contingencies in Fiscal 1995. Legal fees were approximately
$114,000 higher than in the prior period as a result of certain litigation,
which has now been either settled or closed. Non-recurring marketing costs were
approximately $117,000 higher than the prior period due to the Company's
attempts to increase the number of patients it serves.
Actions taken in the second half of Fiscal 1996, principally a reduction in
compensation costs, were directed to bringing the Company's level of SG&A
expenses into line with revenues. As a result of these efforts, fourth quarter
SG&A expenses were $1,587,000 compared to an average of $1,839,000 for the three
quarters ended December 31, 1995.
Interest expense in Fiscal 1996 was $605,452 or 4.8% lower than Fiscal
1995. Fiscal 1995 included interest charges of $59,000 related to debt
surrendered in settlement of claims.
Financial Condition
As of March 31, 1997, the Company had working capital of approximately
$63,000.
The Company's cash provided by financing activities of approximately
$479,000 was primarily attributable to the proceeds of approximately $869,000
under the Company's revolving credit facility and term loan offset by principal
payments on capital leases.
Accounts receivable include amounts due from third party payors, primarily
governmental agencies (Medicare and Medicaid). At March 31, 1997, gross Medicare
and Medicaid receivables aggregated $2,415,732.
12
<PAGE>
On April 28, 1994, the Company obtained a $2.5 million maximum commitment
working capital facility from Rosenthal and Rosenthal ("Rosenthal") and used
funds borrowed under that facility to reduce its indebtedness. The loan is
secured by assets of the Company including its receivables, inventories,
equipment and fixtures. The Company's ability to use this credit facility is
dependent upon the level of its eligible receivables as defined in the Loan and
Security Agreement. Pursuant to the terms of a Loan and Security Agreement with
Rosenthal, the Company granted Rosenthal warrants to purchase 70,000 shares of
the Company's common stock.
Effective February 1, 1996, the Company agreed to an amendment of the Loan
and Security Agreement. The amendment extended the agreement through April 28,
1997 and allowed the Company to borrow, under certain conditions and terms, up
to $3,500,000 at an interest rate of prime plus 3 7/8%. In addition, the Company
granted Rosenthal warrants to purchase 30,000 shares of the Company's common
stock.
Effective February 1, 1997, the Company agreed to an amendment of the Loan
and Security Agreement. This amendment extends the agreement through April 1,
1998 and allows the Company to borrow, under certain conditions, up to
$4,000,000 in the form of a Term Loan of $500,000 at an interest rate of prime
plus 5% and a working capital facility of $3,500,000 at an interest rate of
prime plus 2 7/8%. In addition, the expiration date of the 100,000 warrants was
amended to be the later of April 1, 2001 or thirty six months following the last
day of any term to which the loan commitment has been extended and the exercise
price for all warrants was restated to $2.00 per share.
The Company operates under cash flow pressure primarily due to losses and
insufficient working capital. The Company believes that its cash position and
liquidity will continue to require careful management for the foreseeable
future, but that its existing credit facility, together with cash generated by
operations, will be sufficient to fund the Company's operations and required
debt repayments at least through March 31, 1998.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which is required to be adopted beginning with the quarter ended December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options and warrants will be excluded. The Company does
not anticipate that the adoption of SFAS 128 will have a significant impact on
the calculation of primary and fully diluted earnings per share.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and financial statement schedules are included in the
Consolidated Financial Statements, as a separate section of this Report, set
forth on pages F-1 through F-25, attached hereto, and found immediately
following the signature pages of this Report.
13
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers and directors of the Company at
June 15, 1997:
<TABLE>
<CAPTION>
Annual meeting
Officer or at which
Name Director Since Age Position Term will Expire
---- -------------- --- -------- ----------------
<S> <C> <C> <C> <C>
E. Virgil Conway 1994 67 Director 1999
Glenn C. Davis 1994 48 President, Chief Executive 1997
Officer and Director
Stanley Goldstein 1994 61 Chairman and Director 1998
Donald B. Louria, MD 1994 68 Director 1997
Sally Hernandez-Pinero 1994 44 Director 1997
Corbett A. Price 1994 47 Director 1999
</TABLE>
Set forth below are brief summaries of the business experience of the
persons who were directors as of June 15, 1997:
E. Virgil Conway chairs the Company's Audit and Stock Option Committees and
was elected a director on April 29, 1994. Mr. Conway is a member of the
Executive and Compensation and Nominations Committees. Since May 16, 1995, he
has served as Chairman of the Board of the Metropolitan Transportation
Administration of the City of New York and, from 1989 to 1996, he served as
Chairman of the Audit Committee of the City of New York. From 1992 until July
1995, Mr. Conway served as Chairman of the Financial Accounting Standards
Advisory Council. From 1968 through 1988, Mr. Conway served as Chairman and
Chief Executive Officer and as a director of the Seamen's Bank for Savings, FSB.
From 1986 until 1989, Mr. Conway also served as Vice Chairman of Seamen's
Corporation. From 1967 to 1968, Mr. Conway served as an Executive Vice President
and Trustee at the Manhattan Savings Bank. From 1964 to 1967, Mr. Conway served
as First Deputy Superintendent of Banks of the State of New York and Secretary
of the New York State Banking Board. Mr. Conway specializes in financial
consulting. Mr. Conway serves on several corporate boards, including Union
Pacific Corporation, Con Edison,
14
<PAGE>
HRE, a real estate investment trust, Trism, Inc., a specialized trucking firm,
and mutual funds managed by Phoenix Home Life.
Glenn C. Davis became President of Accuhealth Home Care, Inc. in December
1993, and became a director, Chief Executive Officer and President of the
Company on February 3, 1994. Mr. Davis is a member of the Executive Committee.
Mr. Davis served as the Treasurer of the Company from April 29, 1994 until
August 5, 1994. From June 1993 until June 30, 1995, Mr. Davis was a general
partner of Capstone Management Company, an investment partnership engaged
principally in the initiation, acquisition and management of businesses in the
health care industry. Mr. Davis is a certified public accountant. From 1980
until January 1993, Mr. Davis was a partner with Coopers & Lybrand, an
international accounting and consulting firm.
Stanley Goldstein was elected Chairman of the Company's Board of Directors
on April 29, 1994. Mr. Goldstein has been a private investor from 1981 until the
present. Mr. Goldstein is Chairman of the Executive Committee. From June 1993
until June 30, 1995, Mr. Goldstein was a general partner of Capstone Management
Company, an investment partnership engaged principally in initiation,
acquisition and management of businesses in the health care industry. Mr.
Goldstein is a certified public accountant. From 1964 until 1981, Mr. Goldstein
was the founder and Managing Partner of Goldstein Golub Kessler & Company,
Certified Public Accountants. Mr. Goldstein serves on the boards of directors of
Security Mutual Life Insurance Company and Security Equity Life Insurance
Company.
Donald B. Louria, M.D., M.A.C.P. was elected a director on April 29, 1994.
He is a member of the Professional Conduct Committee. Dr. Louria has been a
Professor and Chairman of the Department of Preventive Medicine and Community
Health of the University of Medicine and Dentistry of New Jersey-New Jersey
Medical School from July 1969 until the present. Over the same period, among
other appointments, Dr. Louria has served as a consultant in Infectious Diseases
to Memorial Hospital for Cancer and Allied Diseases and, from 1971 until the
present, has served on the Consultant Medical Staff in Infectious Diseases at
St. Michael's Medical Center in Newark, New Jersey.
Sally B. Hernandez-Pinero was elected a director on September 20, 1994. She
chairs the Compensation and Nominations Committee and also serves on the
Professional Conduct Committee. Ms. Hernandez-Pinero is a member of the law firm
of Kalkines Arky Zall & Bernstein, where she is primarily engaged in public
finance, housing and economic development projects, low income tax credit
syndications and intergovernmental relations. Ms. Hernandez-Pinero served as
Chairwoman of the New York City Housing Authority from February 1992 to January
1994. In that position she had direct operational responsibility for the
nation's largest public housing program with 325 developments housing over
600,000 people, a staff of 16,000 and a budget of $1.45 billion. From January
1990 to February 1992, Ms. Hernandez-Pinero was Deputy Mayor for Finance and
Economic Development, in which position she designed and supervised the
development and implementation of business, industrial and commercial
development policies for the City of New York. From January 1988 to January 1990
she served as Commissioner/Chairwoman of the Board of Directors of the Financial
Services Corporation of
15
<PAGE>
New York City where she developed and implemented the course of action and
priorities for that agency's economic development programs. Prior to January
1988, Ms. Hernandez-Pinero served as Deputy Borough President of Manhattan;
General Counsel to the State of New York Mortgage Agency, and as an attorney
with a number of community development and legal service organizations. Ms.
Hernandez-Pinero is a director of Consolidated Edison Corporation and the Dime
Savings Bank and National Income Realty Trust.
Corbett A. Price was elected a director on September 20, 1994. Mr. Price is
a member of the Professional Conduct and Audit Committees. He is the Chairman
and Chief Executive Officer of KURRON, a New York based health care management
company which Mr. Price founded in January 1990. KURRON specializes in the
rehabilitation of distressed hospitals and health care systems. Mr. Price began
his career in health care management in 1975 at the Hospital Corporation of
America, where he served as a Vice President from 1983 to 1989. As head of
Hospital Corporation of America's Mid-Atlantic Division, he directed the
operations of approximately twenty hospitals in four states and the District of
Columbia. Mr. Price has advised the governments of Mexico, Barbados and Jamaica
on health care delivery systems and facilities.
The Company has Audit, Compensation and Nominations, Executive,
Professional Conduct and Stock Options Committees. The Compensation and
Nominations Committee administers the Company's stock option plans.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3, 4 and 5 (and amendments thereto)
furnished to the Company, and certain written representations received by it,
the Company is not aware of any person who, during the prior fiscal year, was a
director, officer or beneficial owner of more than 10% of its outstanding Common
Stock, during (or with respect to) the prior or (except as may have been
previously reported) previous fiscal year, failed to file with the Securities
and Exchange Commission on a timely basis reports required by Section 16 (a) of
the Securities Exchange Act of 1934, except that one Form 4 for Mr. Corbett A.
Price was inadvertently filed after the due date thereof, and one Form 5 for
Donald B. Louria, M.D. was inadvertently filed after the due date thereof.
ITEM 11. EXECUTIVE COMPENSATION
From April 1, 1994 through May 31, 1994, the Company paid directors who
were not officers of the Company $2,000 per meeting attended. In June 1994, the
Board of Directors established a policy of paying directors who are not officers
or consultants a fee of $6,000 per annum plus $1,000 per annum ($2,000 per annum
for the Chair) for each committee on which they serve. Messrs. Conway and Price,
Dr. Louria and Ms. Hernandez-Pinero are eligible for the foregoing fees. The
Company does not intend to pay any fee to officers or consultants for serving as
directors. Effective June 28, 1994, the Company entered into a Consulting
Agreement with Mr. Goldstein for certain services to be rendered. Such
consulting agreement calls for a monthly consulting fee and expense
reimbursement of $5,000.
16
<PAGE>
The following table sets forth all compensation earned, awarded or paid by
the Company to its Chief Executive Officer for the fiscal year ended March 31,
1997. No other person who was a director, executive officer or employee at any
time during the fiscal year ended March 31, 1997, received salary and bonus in
excess of $100,000 during or attributable to such fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------------- -------------------
Name and All other
Principal Position Year Salary Bonus Compensation
- -------------------------------- ----------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Glenn C. Davis FY1997 $200,000 -- --
President and Chief Executive FY1996 $219,229 -- $1,854
Officer FY1995 $150,000 $100,000 $2,471
</TABLE>
Employment Agreement
The Company renewed its employment agreement with its President and Chief
Executive Officer through May 2, 1998. Under the employment agreement, the
Company's President and Chief Executive Officer is entitled to an annual salary
at a rate of $250,000 and 25,000 shares of the Company's common stock. The
agreement also provides for a severance payment equal to 150% of his annual
compensation, including base salary and any initial bonus ("Annual
Compensation"), at the date of termination if (i) his employment is terminated
by him due to a breach of the agreement by the Company, (ii) the Company fails
to offer to extend his employment for additional terms of one year on the same
terms; or (iii) his employment terminates due to disability. If the employment
is terminated due to his death, the severance payment is equal to 50% of his
Annual Compensation at the date of death. The agreement further provides that,
in the event of a merger or sale of substantially all of the assets of the
Company, either the successor corporation or he may elect to terminate his
employment and that, if his employment is so terminated, he would be entitled to
receive a severance payment equal to 300% of his Annual Compensation at the date
of termination. In addition, the agreement provides that he will not compete
with the Company for 18 months after a termination of his employment, except
that, if such termination is by the Company for cause, the non-competition
period will be for 24 months.
Stock Options
The following tables set forth information concerning exercisable options
during the fiscal year ended March 31, 1997, with respect to the Common Stock.
No stock options or stock appreciation rights were granted to executive officers
and no stock options or stock appreciation rights were exercised by executive
officers during such year.
Additional information required by this item is incorporated by reference
to the Company's Proxy Statement.
17
<PAGE>
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercisable in-the-Money
Unexercised Options at Fiscal Year-End Options at Fiscal Year End
------------------------------------------- -------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Glenn C. Davis 100,000 100,000 (1) --
</TABLE>
- -----------------
(1) The option exercise price of such shares is $2.00 per share.
The information required by items 402(k) and 402(l) of Regulation S-K is
incorporated herein by reference to the Company's Proxy Statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth existing stock ownership as of June 15,
1997, with respect to the beneficial ownership of shares of Common Stock by (i)
each person known by the Company to be the beneficial owner of 5% of more of the
outstanding shares of Common Stock, (ii) each nominee for director, (iii) each
director, (iv) each current executive officer named in the Summary Compensation
Table above, and (v) all officers and directors as a group, and the percentage
of the outstanding shares of Common Stock represented thereby.
18
<PAGE>
<TABLE>
<CAPTION>
Amount of Nature
Name of of Beneficial
Beneficial Owner(1) Ownership(1) Percent of Class(2)
- --------------------------------- ----------------------- --------------------------
<S> <C> <C>
Glenn C. Davis 313,951(3)(4)(5) 19.3
c/o Accuhealth, Inc.
1575 Bronx River Ave.
Bronx, New York, 10460
Stanley Goldstein 349,147(3)(4)(6) 21.1
c/o Accuhealth, Inc.
1575 Bronx River Ave.
Bronx, New York, 10460
E. Virgil Conway 22,287(11)(12) 1.5
Donald B. Louria, M.D. 36,000(7) 2.4
Sally Hernandez-Pinero 6,000(12) *
Corbett A. Price 27,262(11) 1.8
Special Situation Fund III, L.P. 603,054(8) 31.7
153 East 53 Street
New York, New York 10022
Penfield Partners, L.P. 278,200(9) 16.7
153 East 53 Street
New York, New York 10022
Special Situations Cayman Fund, 210,646(10) 13.0
L.P.
153 East 53 Street
New York, New York 10022
CMNY Capital II, L.P. 294,266(13) 17.0
Emanuel Geduld 88,253(9)(14) 5.7
All Directors and Executive 763,981(15) 40.3
Officers as a Group (10 persons)
</TABLE>
- -----------------------
* Percentage of shares beneficially owned does not exceed 1% of the class.
19
<PAGE>
(1) As used herein, the term "beneficial ownership" with respect to a security
is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition of the shares) with respect to
the security through any contract, arrangement, understanding, relationship
or otherwise, including a right to acquire such power(s) during the next 60
days. Unless otherwise noted, beneficial ownership consists of sole
ownership, voting and investment rights.
(2) Percent of class assumes issuance of the shares subject to currently
exercisable options and shares issuable upon the conversion of 6% Preferred
Stock, as well as an equivalent increase in the number of shares
outstanding.
(3) Includes 100,000 shares issuable pursuant to currently exercisable stock
options.
(4) Includes shares owned of record and beneficially for the following:
Glenn C. Davis
Stanley Goldstein
(5) Includes 50,000 shares issuable upon conversion of 50,000 shares of 6%
Preferred Stock.
(6) Includes 78,000 shares issuable upon conversion of 78,000 shares of 6%
Preferred Stock.
(7) Includes 15,000 shares issuable pursuant to currently exercisable stock
options and 21,000 shares owned directly or in trust for the benefit of
members of Dr. Louria's family.
(8) Includes 178,054 shares owned of record and beneficially and 425,000 shares
issuable upon conversion of 425,000 shares of 6% Preferred Stock.
(9) Includes 33,200 shares owned of record and beneficially and 245,000 shares
issuable upon conversion of 245,000 shares of 6% Preferred Stock.
(10) Includes 17,262 shares owned of record and beneficially and 73,146 shares
owned of record and beneficially and 137,500 shares issuable upon
conversion of 137,500 shares of 6% Preferred Stock.
(11) Includes 10,000 shares issuable upon conversion of 10,000 shares of 6%
Preferred Stock.
(12) Includes 6,000 shares issuable pursuant to currently exercisable stock
options.
(13) Includes 44,266 shares owned of record and beneficially and 250,000 shares
issuable upon conversion of 250,000 shares of 6% Preferred Stock.
20
<PAGE>
(14) Includes 13,253 shares owned of record and beneficially and 75,000 shares
issuable upon conversion of 75,000 shares of 6% Preferred Stock.
(15) Includes 349,647 shares owned of record and beneficially, 266,334 shares
issuable pursuant to currently exercisable stock options and 148,000 shares
issuable upon conversion of 148,000 shares of 6% Preferred Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of June 28, 1994, the Company entered into a Consulting Agreement with
Stanley Goldstein, who is Chairman of the Board. Mr. Goldstein does not receive
compensation for services provided as a director of the Company during the term
of his consulting agreement.
Pursuant to such Consulting Agreement, Mr. Goldstein provides consulting
services to the Company in, among other areas, capital financing, mergers and
acquisitions. The Company has agreed to pay consulting fees to Mr. Goldstein in
the amount of $4,000 per month and an office expense reimbursement of $1,000 per
month for use of Mr. Goldstein's offices and support facilities in the
performance of his consulting duties. The foregoing fees were accrued but not
paid during the prior fiscal year. In further consideration of Mr. Goldstein's
consulting services, the Company granted to Mr. Goldstein an option to purchase
100,000 shares of Common Stock at prices ranging from $2.00 to $3.00 per share.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1), (a)(2) See the separate section of this report following Item 14 for a
list of financial statements and schedules filed herewith.
(a)(3) Exhibits as required by Item 601 of Regulation S-K are listed
in Item 14(c) below.
(b) The Company did not file any Reports on Form 8-K during the
last quarter of the fiscal year ended March 31, 1997.
(c) Exhibits
3.1 Registrant's Articles of Incorporation, as amended
(incorporated herein by reference to Exhibit 3 (I) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994)
3.2 Registrant's By-laws, as amended (incorporated herein by
reference to Exhibit 3(ii) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994)
10.1 Asset Purchase and Sale Agreement dated September 22, 1993 by
and between Em-Bee Drug Inc., Riverview Pharmacy, Inc.,
Westview Drug Co. Inc., Brittany Chemists, Inc.,
21
<PAGE>
Villageview Pharmacy, Inc., Eastview 87th St. Inc., Midview
Drug, Inc. and the Registrant and RXD Acquisition Group Inc.
(incorporated herein by reference to Exhibit (10)(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1993)
10.2 Employment Agreement dated March 17, 1993 between Edwin T.
Veith and the Registrant (incorporated herein by reference to
Exhibit (10)(b) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993)
10.3 Letter Agreement dated November 11, 1993 between the Registrant
and Edwin T. Veith (incorporated herein by reference to Exhibit
(10)(c) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993)
10.4 Letter Agreement dated February 3, 1994 between the Registrant
and Edwin T. Veith (incorporated herein by reference to Exhibit
(10)(d) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993)
10.5 Option Agreement dated March 17, 1993 between Edwin T. Veith
and the Registrant (incorporated herein by reference to Exhibit
(10)(e) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993)
10.6 Stock Option Agreement Alternative Benefits Letter dated March
17, 1993 between Edwin T. Veith and the Registrant
(incorporated herein by reference to Exhibit (10)(f) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1993)
10.7 Employment Agreement dated March 23, 1993 between Allan E.
Johnson and the Registrant (incorporated herein by reference to
Exhibit (10)(g) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993)
10.8 Letter Agreement dated November 11, 1993 between the Registrant
and Allan E. Johnson (incorporated herein by reference to
Exhibit (10)(h) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993)
10.9 Letter Agreement dated February 3, 1994 between the Registrant
and Allan E. Johnson (incorporated herein by reference to
Exhibit (10)(I) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993)
10.10 Option Agreement dated March 23, 1993 between Allan E. Johnson
and the Registrant (incorporated herein by reference to Exhibit
(10)(j) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993)
10.11 Agreement dated February 3, 1994 between the Registrant and
Capstone Management Company (incorporated herein by reference
to Exhibit (10)(k) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993)
22
<PAGE>
10.12 Loan and Security Agreement dated April 28, 1994 between
Rosenthal & Rosenthal, Inc. and the Registrant, Midview Drug,
Inc., Accuhealth Home Care, Inc. and Citiview Drug Co., Inc.
(the "Loan and Security Agreement") (incorporated herein by
reference to Exhibit 10 (l) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994)
10.13 Amendment No. 1 to the Loan and Security Agreement, dated as of
February 1, 1996
10.14 Warrant dated April 28, 1994 for the Registrant's Common Stock
issued by the Registrant to Rosenthal & Rosenthal, Inc.
(incorporated herein by reference to Exhibit 10(m) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994)
10.15 Employment Agreement dated May 2, 1994 between Glenn C. Davis
and the Registrant (incorporated herein by reference to Exhibit
10.14 to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1995)
10.16 Consulting Agreement dated June 28, 1994 between Donald B.
Louria, M.D. and the Registrant (incorporated herein by
reference to the Registrant's Annual Report on Form 10-K for
the year ended March 31, 1995)
10.17 Consulting Agreement dated June 28, 1994 between Stanley
Goldstein and the Registrant (incorporated herein by reference
to Exhibit 10.16 to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1995)
10.18 Asset Purchase Agreement dated as of December 1, 1994 between
Registrant and Citiview Drug Co., Inc., Towerview, Inc., R & B
Pharmacy, Inc. and P & S Pharmacy, Inc. (incorporated herein
by reference to Exhibit 10.17 to the Registrant's Annual
Report on Form 10-K for the year ended March 31, 1995)
10.19 Amended and Restated 1988 Stock Option Plan (incorporated
herein by reference to Exhibit B to the Registrant's 1994
Notice of Annual Meeting and Proxy Statement)
10.20 Option Agreement dated September 20, 1994 between Corbett A.
Price and the Registrant (incorporated herein by reference to
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1995)
10.21 Option Agreement dated September 20, 1994 between James E.
Bacon and the Registrant (incorporated herein by reference to
Exhibit 10.20 to the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1995)
10.22 Option Agreement dated September 20, 1994 between E. Virgil
Conway and the Registrant (incorporated herein by reference to
Exhibit 10.21 to the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1995)
23
<PAGE>
10.23 Option Agreement dated September 20, 1994 between Sally
Hernandez-Pinero and the Registrant (incorporated herein by
reference to Exhibit 10.22 to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1995)
10.24 Option Agreement dated September 20, 1994 between Harold D.
Reiter and the Registrant (incorporated herein by reference to
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1995)
10.25 Option Agreement dated June 28, 1994 between Glenn C. Davis and
the Registrant (incorporated herein by reference to Exhibit
10.24 to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1995)
10.26 Option Agreement dated June 28, 1994 between Stanley Goldstein
and the Registrant (incorporated herein by reference to Exhibit
10.25 to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1995)
10.27 Option Agreement dated June 28, 1994 between Bob L. Wood and
the Registrant (incorporated herein by reference to Exhibit
10.26 to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1995)
10.28 Option Agreement dated June 28, 1994 between Donald B. Louria,
M.D. and the Registrant (incorporated herein by reference to
Exhibit 10.27 to the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1995)
10.29 Option Agreement dated September 20, 1994 between Gary S.
LaPorta and the Registrant (incorporated herein by reference
to Exhibit 10.28 to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1995)
10.30 Agreement and Plan of Merger dated as of March 14, 1997 among
Accuhealth, Inc., ACH Acquiring Corp., ProHealthCare, Inc.,
ProHealthCare Infusion Services, Inc., Thomas Laurita and David
Brian Cohen.
11 Statement re Computation of Per-Share Earnings
21 Subsidiaries of the Registrant
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCUHEALTH, INC.
Date: June 30, 1997 By: /s/ Glenn C. Davis
---------------------------------
Glenn C. Davis
President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: June 30, 1997 By: /s/ Stanley Goldstein
----------------------------------
Stanley Goldstein,
Chairman of the Board of Directors
Date: June 30, 1997 By: /s/ Glenn C. Davis
----------------------------------
Glenn C. Davis,
Chief Executive Officer,
President and Director
Date: June 30, 1997 By: /s/ E. Virgil Conway
----------------------------------
E. Virgil Conway, Director
Date: June 30, 1997 By: /s/ Donald B. Louria
----------------------------------
Donald B. Louria, M.D., Director
Date: June 30, 1997 By: /s/ Sally Hernandez-Pinero
----------------------------------
Sally Hernandez-Pinero, Director
Date: June 30, 1997 By: /s/ Corbett A. Price
----------------------------------
Corbett A. Price, Director
25
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
----
Report of Independent Auditors F - 2
Consolidated Balance Sheets at
March 31, 1997 and March 31, 1996 F - 3
Consolidated Statements of Operations for
the Years Ended March 31, 1997, 1996 and 1995 F - 4
Consolidated Statements of Stockholders'
Equity/(Deficiency) for the Years Ended March 31, 1997, 1996
and 1995 F - 5
Consolidated Statements of Cash Flows for
the Years Ended March 31, 1997, 1996
and 1995 F - 6
Notes to Consolidated Financial Statements F - 7
Financial Statement Schedules
II. Valuation and Qualifying Accounts F - 25
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Accuhealth, Inc.
We have audited the accompanying consolidated balance sheets of Accuhealth, Inc.
and subsidiaries as of March 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity/(deficiency) and cash flows for
each of the three years in the period ended March 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Accuhealth, Inc. and subsidiaries at March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
June 16, 1997
F-2
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 31,548 $ 2,694
Accounts receivable, less allowance for doubtful
accounts of $317,000 in 1997 and $292,000 in 1996 5,279,369 4,459,693
Inventories 665,335 621,838
Prepaid expenses and other current assets 191,323 103,114
----------- -----------
Total Current Assets 6,167,575 5,187,339
Revenue producing equipment, net 485,305 670,352
Fixed assets, net 1,659,056 1,758,646
Other 188,229 34,620
----------- -----------
Total Assets $ 8,500,165 $ 7,650,957
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - revolving credit facility $ 2,782,677 $ 2,413,392
Notes payable - other 224,869 294,598
Accounts payable 1,801,120 1,512,836
Accrued expenses and other current liabilities 1,128,828 1,221,422
Current portion of capital lease - Facility 53,625 71,500
Current portion of other capital lease obligations 113,124 354,209
----------- -----------
Total Current Liabilities 6,104,243 5,867,957
Notes payable - term loan 500,000 --
Notes payable - other 101,031 --
Capital lease - Facility, less current portion 303,875 375,375
Other capital lease obligations, less current portion 69,637 112,977
----------- -----------
Total Liabilities 7,078,786 6,356,309
Commitments and Contingencies (See Notes 7 and 10)
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 3,650,000 shares;
no shares issued and outstanding
6% Redeemable cumulative convertible preferred stock $.01 par value;
$2,754,000 liquidation preference, authorized
issued and outstanding 1,350,000 shares 13,500 13,500
Common stock $0.1 par value; authorized 15,000,000 shares;
1,787,598 (1997) and 1,630,233 (1996) shares issued 17,876 16,302
Additional paid-in capital 6,168,364 6,007,938
(Deficit) (4,154,041) (4,118,772)
----------- -----------
2,045,699 1,918,968
Less treasury stock (308,004 shares) at cost 624,320 624,320
----------- -----------
Total Stockholders' Equity 1,421,379 1,294,648
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,500,165 $ 7,650,957
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $16,369,376 $15,112,071 $15,468,402
Cost of goods sold 9,599,256 8,180,422 8,256,780
------------ ------------ ------------
Gross profit 6,770,120 6,931,649 7,211,622
Selling, general and administrative expenses 6,146,783 7,104,529 6,913,959
------------ ------------ ------------
Operating (loss) income 623,337 (172,880) 297,663
Interest expense (496,606) (605,452) (635,848)
Other income:
Recovery related to pre-investigation
management off book cash practices -- -- 525,820
Debt surrendered in settlement of claims -- -- 488,500
------------ ------------ ------------
Income (loss) from continuing operations 126,731 (778,332) 676,135
Discontinued operations:
Loss from discontinued retail drugstore
operations -- -- (473,177)
Gain on disposal of retail drug stores -- -- 194,444
------------ ------------ ------------
-- -- (278,733)
------------ ------------ ------------
Income (loss) before extraordinary item 126,731 (778,332) 397,402
Extraordinary gain on debt surrendered in
settlement of claims -- -- 60,000
------------ ------------ ------------
Net income (loss) 126,731 (778,332) 457,402
------------ ------------ ------------
Redeemable preferred stock dividends
and accretion (162,000) (203,836) (106,847)
------------ ------------ ------------
Net (loss) income applicable to common
stockholders $(35,269) $(982,168) $350,555
============ ============ ============
Net (loss) income per common share applicable to common stockholders:
Primary:
(Loss) income from continuing operations $(.03) $(.77) $.39
(Loss) income before extraordinary item $(.03) $(.77) $.20
Extraordinary item -- -- $.04
Net (loss) income per share $(.03) $(.77) $.24
Fully diluted: --
(Loss) income from continuing operations $(.03) $(.77) $.36
(Income) loss before extraordinary item $(.03) $(.77) $.20
Extraordinary item -- -- $.04
Net (loss) income per share $(.03) $(.77) $.24
Weighted number of common shares
and equivalents outstanding:
Primary 1,400,423 1,273,274 1,472,854
Fully diluted 1,400,423 1,273,274 1,893,991
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIENCY)
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<CAPTION>
Preferred Stock Common Stock
------------------------ -----------------------
Number $.01 Number $.01 Additional Paid-
of Shares Par Value of Shares Par Value In Capital Deficit
--------- --------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994 -- $ -- 1,550,000 $15,500 $3,053,068 $(3,487,159)
Surrender of shares by former officers &
directors recorded as treasury stock
Net income 457,402
Accretion of redeemable preferred stock
and preferred stock dividends accrued (106,847)
--------- ------- --------- ------- ---------- -----------
Balance, March 31, 1995 -- -- 1,550,000 15,500 3,053,068 (3,136,604)
Reclassification of redeemable preferred
stock 1,325,000 13,250 2,739,282
Sale of preferred stock 25,000 250 62,250
Preferred stock dividends paid with
common stock - September 28, 1995 25,440 254 72,886 (26,468)
Preferred stock dividends paid with
common stock - May 7, 1996 54,793 548 80,452 (81,000)
Accretion of redeemable preferred stock
and preferred stock dividends accrued (96,368)
Net loss (778,332)
--------- ------- --------- ------- ---------- -----------
Balance, March 31, 1996 1,350,000 $13,500 1,630,233 $16,302 $6,007,938 $(4,118,772)
Preferred stock dividends paid
with common stock - July 8, 1996 52,856 529 80,471 (81,000)
Preferred stock dividends paid
with common stock- April 11, 1997 104,509 1,045 79,955 (81,000)
Net Income 126,731
--------- ------- --------- ------- ---------- -----------
Balance, March 31, 1997 1,350,000 $13,500 1,787,598 $17,876 $6,168,364 $(4,154,041)
========= ======= ========= ======= ========== ===========
<CAPTION>
Treasury Stock
--------------------
Number
of Shares Cost Equity
--------- ---- ------
<S> <C> <C> <C>
Balance, March 31, 1994 -- $ -- $(418,591)
Surrender of shares by former officers &
directors recorded as treasury stock (308,004) (624,320) (624,320)
Net income 457,402
Accretion of redeemable preferred stock
and preferred stock dividends accrued (106,847)
-------- --------- ----------
Balance, March 31, 1995 (308,004) (624,320) (692,356)
Reclassification of redeemable preferred
stock 2,752,532
Sale of preferred stock 62,500
Preferred stock dividends paid with
common stock - September 28, 1995 46,672
Preferred stock dividends paid with
common stock - May 7, 1996 --
Accretion of redeemable preferred stock
and preferred stock dividends accrued (96,368)
Net loss (778,332)
-------- --------- ----------
Balance, March 31, 1996 (308,004) $(624,320) $1,294,648
Preferred stock dividends paid
with common stock - July 8, 1996 --
Preferred stock dividends paid
with common stock- April 11, 1997 --
Net Income 126,731
-------- --------- ----------
Balance, March 31, 1997 (308,004) $(624,320) $1,421,379
======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 126,731 $ (778,332) $ 457,402
Adjustments to reconcile net (loss) income to net cash used
in operating activities:
Recovery related to pre-investigation management off book
cash practices -- -- (624,320)
Debt surrendered in settlement of claims -- -- (647,000)
Amortization of financing costs 7,688 142,251 126,885
Depreciation and amortization 343,761 410,354 359,022
Write off of Revenue Producing Equipment -- 53,376 --
Reserve for contingencies -- -- (480,000)
Deferred rent -- -- 168,000
Loss on sale of drug store assets -- -- (194,444)
Changes in operating assets and liabilities:
Accounts receivable (819,676) (795,446) 321,567
Refundable income taxes -- -- 200,000
Inventories (43,497) (76,279) 39,660
Prepaid expenses and other current assets (88,209) (23,040) (39,391)
Other assets (4,297) (49,530) (202,721)
Accounts payable 288,284 225,260 (1,647,347)
Notes payable, other -- (248,373) --
Accrued expenses and other current liabilities (249,594) 103,466 127,835
----------- ----------- -----------
Cash used in operating activities (438,809) (1,036,293) (2,034,852)
----------- ----------- -----------
Investing activities
Cash proceeds from sale of drug store assets -- -- 25,000
Notes receivable -- 82,000 --
Purchase of fixed assets and revenue producing equipment (11,295) (32,629) (91,892)
----------- ----------- -----------
Cash (used in) provided by
investing activities (11,295) 49,371 (66,892)
----------- ----------- -----------
Financing activities
10% loans converted to redeemable convertible preferred shares -- -- 400,000
Proceeds from sale of redeemable convertible preferred shares -- 62,500 2,250,000
Proceeds from note payable - revolving credit facility, net 369,285 916,227 1,497,165
Proceed from notes payable - term loan 500,000 -- --
Notes payable - other 31,302 395,565 (1,189,294)
Principal payments on note payable -Towerview -- -- (56,635)
Principal payments on capital lease - facility (89,375) (71,500) (214,500)
Payments on other capital lease obligations (332,254) (271,261) (155,605)
Due to prior officers -- (189,222) (310,778)
----------- ----------- -----------
Cash provided by financing activities 478,958 842,309 2,220,353
----------- ----------- -----------
Net increase (decrease) in cash 28,854 (144,613) 118,609
Cash at beginning of period 2,694 147,307 28,698
----------- ----------- -----------
Cash at end of period $ 31,548 $ 2,694 $ 147,307
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 500,000 $ 613,000 $ 522,771
=========== =========== ===========
Income taxes paid $ -- $ -- $ --
=========== =========== ===========
Noncash investing and financing activities:
Additions to capital leases $ 48,000 $ 212,000 $ 609,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial Statements.
F-6
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. Organization and Summary of Significant Accounting Policies
Description of Business
Accuhealth Inc., together with its subsidiaries (collectively, the
"Company"), provides comprehensive home health care services, including
administration of a wide array of infusion therapies, sales of oral
medications and sales and rentals of durable medical equipment and related
supplies. The Company operates throughout the New York, New Jersey and
Connecticut metropolitan area.
Basis of Preparation
The consolidated financial statements include the accounts of Accuhealth,
Inc. and its subsidiaries, all of which are wholly-owned. Significant
intercompany accounts and transactions have been eliminated in
consolidation.
Management is formulating plans to strengthen the Company's working capital
position and generate sufficient cash to meet its operating needs through
at least March 31, 1998 by among other actions, obtaining additional
financing and attempting to increase its institutional pharmacy business.
Inventories
Inventories consist of over-the-counter and prescription drugs, infusion
products and supplies, and home health care equipment and supplies and are
priced at the lower of cost or market using the first-in, first-out
("FIFO") method.
Contractual Allowances
Certain prescription pharmaceutical sales, medical equipment and supply
revenues are recorded at the Company's established rates and reduced by
estimated contractual allowances pursuant to third-party reimbursement
arrangements.
Reclassifications
Certain items in the March 31, 1996 financial statements have been
reclassified to conform to the March 31, 1997 presentation.
F-7
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fixed Assets and Revenue Producing Equipment
Fixed assets and revenue producing equipment are stated at cost.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets and for revenue producing equipment
and leasehold improvements, over the shorter of the estimated useful lives
or the term of the related leases.
Earnings Per Share
For Fiscal 1997 and 1996, net loss per share was computed by dividing the
applicable net loss by the weighted average number of shares outstanding
during the year. Shares of common stock used to pay preferred stock
dividends were considered outstanding as of the declaration date. Common
share equivalents, which represents shares issuable upon the exercise of
stock options and warrants, were not included as their effect would be
antidilutive.
For Fiscal 1995, primary earnings per common share was calculated by
dividing net earnings applicable to common stock by the weighted average of
common stock and common stock equivalents outstanding. On a fully diluted
basis, both net earnings and shares outstanding, if applicable, are
adjusted to assume the conversion of convertible preferred stock from the
date of issue and for the incremental option shares for fully diluted
purposes.
In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), which is required to be adopted beginning with the quarter
ended December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options and
warrants will be excluded. The Company does not anticipate the adoption of
SFAS 128 to have a significant impact on the calculation of primary and
fully diluted earnings per share.
Income Taxes
The Company files consolidated Federal, combined New York State and
combined New York City income tax returns. The Company's method of
accounting for income taxes is the liability method required by FASB
Statement No. 109 "Accounting for Income Taxes."
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
F-8
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents. At
March 31, 1997 and 1996, the Company had no cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable
include amounts due from third party payers, primarily governmental
agencies (Medicare and Medicaid). At March 31, 1997 and 1996, gross
Medicare and Medicaid receivables aggregated $2,415,732 and $2,082,751,
respectively.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation for which action for noncompliance
includes fines, penalties, and exclusion from the Medicare and Medicaid
programs. The Company believes that it is in compliance with all applicable
laws and regulations.
The Company's revenues from one customer accounted for 19% and 16% of the
Company's net sales for the years ended March 31, 1997 and 1996,
respectively. At March 31, 1997 and 1996, 20% and 22%, respectively, of net
accounts receivable was due from this customer. No single customer
accounted for more than 10% of net sales for the year ended March 31, 1995.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal
years beginning after December 31, 1995 and prescribes accounting and
reporting standards for all stock-based compensation plans, including
employee stock options, restricted stock, employee stock purchase plans and
stock appreciation rights. SFAS 123 requires compensation expense to be
recorded (i) using the new fair value method or (ii) using existing
accounting rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to
F-9
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Employees" ("APB 25") and related interpretations with pro forma disclosure
of what net income and earnings per share would have been had the Company
adopted the new fair value method. The Company intends to continue to
account for its stock based compensation plans in accordance with the
provisions of APB 25.
2. Sale of Drug Store Assets
On December 1, 1994 the company sold the assets of its two remaining
drugstore subsidiaries for $665,000. The sale resulted in a gain for
financial reporting purposes of $194,444.
Net sales of the discontinued retail drugstores operations were
approximately $3,332,000 for the year ended March 31, 1995.
3. Revenue Producing Equipment, Net
The following summarizes the Company's investment in revenue producing
equipment:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------- Estimated
1997 1996 Useful Lives
--------------------------------------------------------------------
<S> <C> <C> <C>
Revenue producing
equipment primarily under capital
lease...................................... $1,957,661 $2,006,809 3-5 years
Less accumulated depreciation
and amortization........................... 1,472,356 1,336,457
---------- ----------
$ 485,305 $ 670,352
========== ==========
</TABLE>
F-10
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Fixed Assets
<TABLE>
<CAPTION>
March 31,
--------------------------------------------- Estimated
1997 1996 Useful Lives
--------------------------------------------------------------------
<S> <C> <C> <C>
Land under capital lease..................... $ 136,277 $136,277
Building under capital lease................. 1,226,498 1,226,498 40 years
Equipment, furniture and fixtures............ 816,078 778,863 5-10 years
Leasehold improvements....................... 3,838 3,838 10-15 years
Equipment, furniture and fixture
under capital leases....................... 164,953 164,953 5-10 years
Building improvements........................ 292,956 285,463 40 years
---------- ----------
2,640,600 2,595,892
Less accumulated depreciation and
amortization, including $399,740 in
1997 and $345,341 in 1996 attribut-
able to assets under capital leases ....... 981,544 837,246
---------- ----------
$1,659,056 $1,758,646
========== ==========
</TABLE>
5. Notes Payable and Long-Term Debt
Notes payable - other
The Company's other notes which arose in connection with the purchase of
inventories are as follows:
(A) In December 1995, the Company issued an unsecured note payable to a trade
creditor in the principal amount aggregating $348,616. The note was
satisfied as of March 31, 1997. The outstanding principal balance at March
31, 1996 of $247,649 was payable in monthly installments of $36,808 which
included interest at 12% per annum.
(B) The Company converted a portion of its accounts payable into a note payable
to a trade creditor in the principal amount aggregating $46,949. This note
is payable in monthly installments of approximately $4,200 beginning
October 11, 1996 which includes interest at 10.9% per annum. At March 31,
1996, the Company classified the principal balance as a note payable-other.
The outstanding principal balance at March 31, 1997 was $20,183.
F-11
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(C) The Company converted several of its capital leases into notes payable to a
trade creditor in principal amounts aggregating $276,830. These notes are
payable in monthly installments ranging from approximately $2,000 to $8,000
with interest rates ranging from 10.0% to 14.5%. Future minimum payments on
the outstanding principal balance of $233,767 at March 31, 1997 are
$187,537 (fiscal 1998) and $46,230 (fiscal 1999).
(D) In February 1997, the Company reached a settlement with the City of New
York relating to an audit of General Corporation and Commercial Rent taxes
for the years 1990 through 1992. In accordance with this settlement
agreement, the outstanding principal balance at March 31, 1997 of $71,950
is payable in monthly installments of $1,976 which includes interest at 10%
per annum. A final balloon payment of $18,146 is due on March 1, 2000.
The weighted average interest rate for notes payable-other was 12.51%, 10.94%
and 9.31% for the years ended March 31, 1997, 1996 and 1995, respectively. The
average amount of notes payable-other outstanding for the years ended March 31,
1997 and 1996 was approximately $210,000 and $122,000, respectively. Notes
payable - other are principally short-term in nature. As such, fair value
approximates the carrying value.
Notes payable - revolving credit facility and term loan
In April 1994, the Company entered into a Loan and Security Agreement (the
"Agreement") with Rosenthal and Rosenthal ("Rosenthal") to borrow, under certain
conditions and terms, up to $2,500,000 at an interest rate of prime plus 4-7/8%.
Borrowings under the Agreement are collateralized by certain assets of the
Company, including accounts receivables, inventories, equipment and fixtures.
The Company's ability to use this revolving credit facility is dependent upon
the level of its eligible receivables, as defined in the Agreement. In addition,
the Company granted Rosenthal warrants to purchase 70,000 shares of the
Company's common stock (see Note 11).
Effective February 1, 1996, the Company and Rosenthal amended the Loan and
Security Agreement ("Amendment No. 1"). Amendment No. 1 extended the Agreement
through April 28, 1997 and allowed the Company to borrow, under certain
conditions and terms up to $3,500,000 (based on eligible accounts receivable, as
defined) at an interest rate of prime plus 3-7/8%. Effective February 1, 1997,
the Company and Rosenthal amended the Loan and Security Agreement ("Amendment
No. 2") to extend the Agreement through April 1, 1998 and reduce the interest
rate to prime (8 1/2% at March 31, 1997) plus 2 7/8% Rosenthal warrants to
purchase an additional 30,000 shares of the Company's common stock (see Note
11). Commencing April 28, 1996, the Company was required to pay a facility fee
of $35,000 per annum, which Amendment No. 2 has increased to $40,000 per annum.
Amendment No. 2 also provided a $500,000 term loan to the Company due on April
1, 1998 with interest payable monthly at a rate of prime plus 5%.
F-12
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The revolving credit facility and the term loan bear interest at variable market
rates and as such the carrying value approximates their fair value.
The weighted average interest rate, including the facility fee, for the years
ended March 31, 1997, 1996 and 1995 was 13.14%, 17.8% and 16.9%, respectively.
The average amount outstanding for the years ended March 31, 1997 and 1996 was
$2,801,000 and $1,963,000, respectively.
6. Capital Lease Obligations
The Company leases its principal offices and warehouse facility and certain
equipment, furniture and fixtures, rental equipment and leasehold improvements
under capital lease agreements which extend through April 2000.
Capital lease-facility
The Company occupies a pharmacy warehouse and office facility (the "Facility")
which was obtained under a ten-year lease (the "Lease Agreement") with the New
York City Industrial Development Agency (the "Agency") as lessor. The Agency
issued to National Westminster Bank, U.S.A. (now "Fleet") $1,072,500 principal
amount of its Industrial Development bonds (the "Bonds") pursuant to an
Indenture of Mortgage and Agreement dated April 1, 1989 (the "Indenture") which
created a lien on the facility. The Company also paid $227,500 in order for the
Agency to purchase the warehouse. This amount and other acquisition costs are
capitalized as land and building under capital lease (see Note 4).
At the end of the term of the lease, the Company may purchase the Facility for
one dollar so long as all terms and conditions of the lease have been met. The
Lease Agreement and Guaranty Agreement require the Company and its subsidiaries
to comply with certain covenants, including but not limited to, maximum debt to
worth ratio, maximum allowable losses and debt service coverage ratio. The
Company's non-compliance with the debt to worth ratio covenant was waived by
Fleet through April 1, 1998.
In lieu of rent the Company pays principal on the Bonds in quarterly
installments of $17,875, plus interest at the rate of prime (8 1/2% at March 31,
1997) plus 1%. On April 28, 1994, in conjunction with the Rosenthal financing
(Note 5), the Company made an additional principal payment of $143,000. A final
balloon payment of $232,375 plus interest thereon is due on April 1, 1999. Each
of the Company's wholly-owned subsidiaries has guaranteed the Company's
obligations under the lease. The Lease Agreement and Guaranty Agreement also
restrict the payment of cash dividends in any one year to an aggregate amount
not to exceed 25% of the Company's net income for the immediately preceding
year.
The obligation under capital lease-facility bears interest at variable market
rates and as such the carrying value approximates its fair value.
F-13
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other capital leases
The Company leases durable medical equipment under capital lease agreements
which extend through March 31, 2000 with interest rates ranging from 9.00% to
16.71%.
Future minimum lease payments under capital leases with initial or remaining
noncancellable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Other
Capital Capital
Fiscal Year Lease Facility Leases
- ----------- -------------- ------
<S> <C> <C>
1998 $85,465 $143,693
1999 96,689 47,296
2000 234,215 13,571
-------- --------
416,369 204,560
Less interest 58,869 21,799
-------- --------
Present value of net minimum obligations 357,500 182,761
Less current portion 53,625 113,124
-------- --------
Long term obligations at March 31, 1997 $303,875 $ 69,637
======== ========
</TABLE>
7. Contingencies
In June 1995, a former employee commenced an action in Supreme Court, New
York County, New York against the Company and certain of its former and
current officers, directors and shareholders. The action alleges that the
Company breached plaintiff's employment agreement by withholding at least
$750,000 in commissions allegedly owed to him. In addition to the breach of
contract claim, plaintiff asserted claims for violation of the Racketeering
Influence and Corruption Act ("RICO"), violations of New York's Labor Law
(stemming from the Company's alleged breach of contract) and fraud. In or
about September 1995, the defendants made a pre-Answer motion to dismiss
the RICO, fraud and conspiracy claims. On June 18, 1996 the Court granted
defendants' motion effectively dismissing the Complaint as to the Company's
current and former officers, directors and shareholders and leaving
plaintiff's claim for breach of contract and violation of New York's Labor
Law solely against the Company. The Company has now served an Answer and a
Document Request. The plaintiff has not proceeded with discovery and the
case is currently dormant. The Company intends to deny the principal
allegations in the Complaint and to defend this action vigorously.
Management believes
F-14
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
that this action will not have any material adverse impact on the Company's
financial position, results of operations or cash flows.
An agency of New York State is conducting a review of the Company's
Medicaid reimbursement for the years 1990 through 1993. The Company has not
been advised as to whether any claim will be made.
Management believes that the above matters will be settled without any
material adverse impact to the Company's financial position, results of
operations or cash flows.
8. 6% Convertible Preferred Stock
On December 14, 1994 and January 30, 1995, the Company completed the sale
at $2.00 per share, of 1,325,000 shares of redeemable convertible preferred
stock (Preferred Stock) with a 6% per annum cumulative dividend. During the
quarter ended December 31, 1995, the Company sold at $2.50 per share,
25,000 additional shares of Preferred Stock to certain officers and
directors of the Company. The Preferred Stock is convertible at any time at
the option of the holder, subject to antidilution adjustments, into
1,350,000 shares of common stock. The Company has reserved 1,350,000 shares
of common stock for such conversion. At any time on or after December 31,
1995, subject to certain conditions, such as the registration of the
underlying common stock under the Securities Act of 1933, compliance with
the terms of the Preferred Stock and any other agreement with the holders
of the Preferred Stock and the payment of all dividends that are accrued
and unpaid on the Preferred Stock as of the Redemption Date, the Company
may redeem all or any portion of the Preferred Stock then outstanding. For
each share that is called for redemption, the Company shall pay $3.00 per
share from December 31, 1995 through December 31, 1997 and $4.00 per share
on or after January 1, 1998. The holders of the Preferred Stock are
entitled to voting rights equivalent to that of the common stock. The
Preferred Stock is senior to the common stock in the event of a liquidation
of the Company. The liquidation preference is $2.00 per share plus accrued
and unpaid dividends.
The Preferred Stock was subject to mandatory redemption requirements of up
to $4.00 per share plus accrued dividends. As of June 16, 1995, the 6%
Convertible Preferred shareholders agreed to modify their stockholder
agreements to negate the mandatory redemption requirements. This
modification eliminates the need for recognition of accretion effective
June 16, 1995, and results in the 6% Convertible Preferred Shares being
classified as equity rather than debt.
The Company is obligated to pay annual dividends of $.12 per share on its
1,350,000 outstanding shares of Preferred Stock. Such dividends accrue
daily, are payable each June 1 and December 1 and, at the election of the
Company, may be paid in shares of
F-15
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Common Stock valued in accordance with the terms of such stock. Dividends
on the Company's Preferred Stock are payable in preference and priority to
any payment of any dividends on the common stock.
The June 1, 1996 dividend was paid out in 52,856 shares of common stock on
July 8, 1996. The December 1, 1996 dividend was paid out in 104,509 shares
of common stock subsequent to year-end. Accrued and unpaid dividends from
December 1, 1996 to March 31, 1997 of $54,000 are included in accrued
expenses and other current liabilities at March 31, 1997.
9. Recovery Related to Pre-Investigation Management
The Company's prior management in place through February 26, 1993 had
engaged in certain improprieties through such date. Such improprieties were
the subject of a formal SEC investigation which resulted in prior
management making restitution to the Company valued at $1,212,320 and the
Company agreeing to an SEC order to cease and desist from committing or
causing any violation or future violation of certain anti-fraud, reporting,
record keeping and internal controls provisions of the Securities Act of
1933 and Securities Exchange Act of 1934. The order did not impose any
financial penalty on the Company.
Effective October 12, 1994, settlements of the Company's restitution claims
against its former Chief Executive Officer and President and two former
officers and directors were concluded. The terms of the agreements include:
the surrender to the Company of a $588,000 promissory note; the
surrendering of 298,504 shares of Company's common stock held by these
individuals; the termination of all stock options and warrants held by
these individuals; a restriction of their rights to sell voting securities
for the next two years; a release of Accuhealth from any financial
obligations to them; and a release of these individuals by Accuhealth from
any claims, damages or losses that the Company may suffer because of the
actions claimed to have been committed. The agreements also prohibit these
individuals from acquiring shares of the Company for a period of 10 years.
These transactions were recorded by the Company in the quarter ended
December 31, 1994. The restitution of 298,504 shares of stock was valued at
$597,008, the estimated fair value of such stock at the time of
restitution. The determination of estimated fair market value of such stock
at $2.00 per share on October 12, 1994 was principally based on the average
closing price of the Company's common stock during the preceding 21 days of
trading ($2.75 a share), reduced to reflect an appropriate blockage
discount for the large amount of stock in relation to the outstanding
common shares of the Company. The Company believes that the valuation of
the stock received is reasonable and was determined using appropriate and
conservative methodologies. The restitution was offset by professional fees
of approximately $98,500.
F-16
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The loan from an officer and director of $588,000 at March 31, 1994
represented the amount of loans previously made to the Company by its
former Chief Executive Officer and President. The fair value of the note
payable surrendered on October 12, 1994 was $587,000 based on a rate of
9.3% (difference between the Company's weighted average borrowing rate of
16.9% and the stated rate in the note of 7.6%) and assuming that the note
had a one year extended maturity. The difference between the carrying
amount of the note ($647,000 including accrued interest of $59,000) and the
fair value of the note ($587,000) or $60,000 was classified as
extraordinary income. The restitution was offset by professional fees of
$98,500.
On March 31, 1995, settlements of the Company's restitution claims against
another former officer and director of the Company was concluded. This
individual surrendered 9,500 shares of the Company's common stock. The
shares of stock were valued at $27,312, the estimated fair value of such
shares at the time of restitution, and recorded in the quarter ended March
31, 1995.
10. Commitments
Operating Leases
Rent expense for the year ended March 31, 1995 was approximately $335,000.
This amount represents retail drugstore rents included in discontinued
operations.
A vendor has a security interest in certain assets of the Company,
including accounts receivable, inventories, equipment and fixtures. This
security interest is subordinate and junior in all respects to the Loan and
Security Agreement (See Note 5.)
Related Party Transactions
A director has a consulting arrangement with the Company whereby he
receives $4,000 and an office expense reimbursement of $1,000 per month.
Employment Agreement
Subsequent to year-end, the Company modified its employment agreement with
its President and Chief Executive Officer providing for, among other
things, annual compensation of $250,000 and 25,000 shares of the Company's
common stock.
11. Stock Options and Warrants
In September 1988, the Company adopted, and in September 1994 amended, the
1988 Stock Option Plan ("Stock Option Plan"), under which options to
purchase an aggregate
F-17
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
maximum of 300,000 shares of the Company's common stock may be granted. The
Stock Option Plan is administered by the Board of Directors, who are
responsible for determining the individuals who will be granted options,
the number of shares to be subject to each option, the option price per
share, and the exercise period of each option. The option price may not be
less than the fair market value of the Company's common stock. The fair
market value is defined in the Stock Option Plan to be the mean between the
closing bid and the closing asked prices for the common stock of the
Company on the date of grant. No option may have a term in excess of ten
years. As to any stockholder who owns 10% or more of the Company's common
stock, the option price per share will be no less than 110% of the fair
market value of the Company's common stock on the date of grant and such
options shall not have a term in excess of five years.
Pursuant to the Stock Option Plan, in February 1992 the former Board of
Directors granted a total of 54,000 options to purchase shares of the
Company's common stock to fifteen employees with an exercise price of $4.75
per share. In June 1996 and 1995, the Board of Directors granted a total of
188,500 and 159,000 options, respectively, to purchase shares of the
Company's common stock to employees with an exercise price of $1.625 and
$2.75 per share, respectively. These options are exercisable in three equal
annual increments.
F-18
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Weighted
Average
Exercise Price
Shares Per Share
-------- --------------
<S> <C> <C>
Outstanding March 31, 1994 30,500 $4.75
Canceled (20,000) 4.75
------- -----
Outstanding March 31, 1995 10,500 4.75
Granted 159,000 2.75
Canceled (52,000) 3.12
------- -----
Outstanding March 31, 1996 117,500 $2.77
Granted 188,500 1.63
Canceled (36,500) 2.31
------- ------
Outstanding at March 31, 1997 269,500 $ 2.03
======= ======
Exercisable at March 31, 1995 10,500 $ 4.75
====== ======
Exercisable at March 31, 1996 1,000 $ 4.75
====== ======
Exercisable at March 31, 1997 32,500 $ 2.81
====== ======
</TABLE>
Separate from options issued under the Stock Option Plan, in June 1990, the
Company granted options to purchase 60,500 shares of common stock at a
price of $5.00 per share ("1990 Options"). The 1990 Options vest and become
exercisable ratably after the first, second and third anniversaries of the
grant date and expire after the fifth anniversary of the grant date.
Options to purchase shares of the Company's common stock pursuant to the
1990 Options and related aggregate option prices were as follows:
<TABLE>
<CAPTION>
Shares Aggregate Price
<S> <C> <C>
Outstanding March 31, 1994 and 1995 22,500 112,500
Expired 22,500 112,550
------ -------
Outstanding March 31, 1996 -- --
------ --------
</TABLE>
Separate from options issued under the Stock Option Plan, in February 1992,
the Board of Directors granted to three former directors of the Company a
total of 60,000 options to purchase shares of the Company's common stock
("1992 Options"). The exercise
F-19
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
price of the 1992 Options is the mean between the closing bid and the
closing asked prices for the common stock of the Company on the date of
grant, which was $4.75. These options may be exercised in 25% increments on
the first, second, third and fourth anniversary of the date of issue, and
have a term of ten years. During the year ended March 31, 1995, 30,000 of
these options were canceled, leaving 15,000 options outstanding as of March
31, 1997 and 1996.
During fiscal 1995, separate from options issued under the Stock Option
Plan, the Company granted options to purchase 352,500 of common shares to
officers and directors ("1995 Options"). The exercise prices of the 1995
Options range from $2.00 to $3.00, with options to purchase 135,000 shares
vesting immediately at $2.00 and the balance vesting over five years from
the date of issuance. During the fiscal years ended March 31, 1997 and
1996, options to purchase an additional 79,167 shares and 104,167 shares,
respectively, vested at prices ranging from $2.00 to $3.00 per share. At
March 31, 1997, these options remain unexercised and outstanding.
In September 1995, separate from options issued under the Stock Option
Plan, the Company granted options to purchase 37,500 of the Company's
common shares to directors ("1996 Options"). The exercise price of the 1996
Options are $1.875 with the shares vesting over five years from the date of
issuance.
In June 1996, separate from options issued under the Stock Option Plan, the
Company granted options to purchase 37,500 of the Company's common shares
to directors ("1997 Options"). The exercise price of the 1997 Options are
$1.625 with the shares vesting over five years from the date of issuance.
In June 1996, separate from options issued under the Stock Option Plan, the
Company granted options to purchase 50,000 of the Company's common shares
to a director ("June 1996 Options"). The exercise price of the June 1996
Options are $1.625 with the shares vesting over three years from the date
of issuance.
As of March 31, 1997, an aggregate 898,000 shares of the Company's common
stock are reserved for issuance under the Stock Option Plan, and the 1990,
1992, 1995, 1996, June 1996 and 1997 Options. As of March 31, 1997 options
to purchase 238,334 of such shares are exercisable.
Pro forma information regarding net income and earnings per share is
required SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
fair market value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997 and 1996:
F-20
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
March 31,
Assumption 1997 1996
- -------------------------------------------------- ----- ------
<S> <C> <C>
Risk-free rate 6.2% 6.0%
Dividend yield 0% 0%
Volatility factor of the expected market price of
the Company's common stock 1.7 1.7
Average life 4.9 years 4.8 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
Years Ended March 31,
1997 1996
--------------------------------
<S> <C> <C>
Pro forma net loss $ (91,725) $ (900,140)
Pro forma net loss per share (.18) (.87)
</TABLE>
The weighted average fair value of options granted during the years ended
March 31, 1997 and 1996 were $1.53 and $2.60 respectively, for shares
granted with an exercise price equal to the market price on the date of
grant. The weighted average fair value of options granted during the year
ended March 31, 1996 for which the exercise price was less than the market
price on the date of grant was $1.83. The weighted-average remaining
contractual life of options exercisable at March 31, 1997 is 4.3 years. The
exercise prices range from $1.63 to $4.95 for options outstanding as of
March 31, 1997.
In April 1994, pursuant to the terms of a Loan and Security Agreement (see
Note 5), the Company granted to a financing company warrants to purchase
70,000 shares of common stock at a price of $2.00 per share. On February 1,
1996, the Company granted warrants to purchase an additional 30,000 shares
of common stock at $2.50 per share expiring on April 28, 1998. On February
1, 1997, the expiration date of the
F-21
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
100,000 warrants was amended to be the later of April 1, 2001 or thirty-six
months following the last day of any term to which the Loan Commitment has
been extended and the exercise price for all warrants was restated to $2.00
per share. As of March 31, 1997, no warrants have been exercised and an
aggregate of 100,000 of the Company's common stock are reserved for
issuance under warrants.
12. Employee Savings and Profit Sharing Plan
In December 1986, the Company established a profit sharing and thrift plan
(the "Plan") covering substantially all eligible employees. The Plan
qualifies under Section 401(k) of the Internal Revenue Code. The Company
matches contributions equal to 50% (25% effective July 1, 1996) of an
eligible employee's pre-tax 401(k) contribution. The matching contribution
is limited for any part of an eligible employee's pre-tax 401(k)
contribution which exceeds 10% of their compensation. At the discretion of
the Board of Directors, the Company may also make additional contributions
dependent on profits each year for the benefit of eligible employees under
the Plan. The Company's contribution to the Plan was approximately $35,000,
$47,000 and $67,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
In August 1995, the Company adopted a deferred compensation plan for the
Board of Directors (the "Directors Plan"). Under the Directors Plan, a
director may elect to defer receipt of all or a specified portion of his or
her compensation. As of March 31, 1997, no director had elected to defer
any portion of his or her compensation.
F-22
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Income Taxes
The Company had net deferred assets as follows:
<TABLE>
<CAPTION>
March 31
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Federal, State and Local Net Operating
Loss Carryforwards $1,726,000 $1,570,000
Reserve for Doubtful Accounts 143,000 132,000
Business Credit Carryforwards 52,000 52,000
Other (16,000) 214,000
---------- ----------
Total 1,905,000 1,968,000
Less: Valuation Allowance 1,905,000 1,968,000
---------- ----------
Net Deferred Assets $ -0- $ -0-
============= ==========
</TABLE>
The following is a reconciliation of the amount of the income tax expense
(benefit) attributable to continuing operations to the amount of income tax
that would result from applying the federal rate to pretax income from
continuing operations:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ---------------------- ------------------------
(Benefit) (Benefit) (Benefit)
Percent Liability Percent Liability Percent Liability
---------- ------------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income tax (benefit) at statutory rate 34% $43,000 (34%) $(265,000) 34% $300,000
Permanent Differences 5.1% 6,500 -- -- -- --
Other decrease in valuation
allowances related to the Federal
portion of continuing operations (39.1%) (49,500) (34%) (300,000)
Loss producing no current benefit -- -- 34% 265,000 -- --
------- ------- ----- --------- ------ --------
-- $ -- -- $ -- -- $ --
======= ======= ===== ========= ====== ========
</TABLE>
At March 31, 1997, based upon tax returns filed and to be filed, the
Company has net operating loss carryforwards for U. S. tax purposes of
approximately $3,528,000 which will begin to expire in 2009 and a general
business tax credit carryforward of approximately $52,000 available to
reduce future payments of federal income taxes. The Company also has net
operating loss carryforwards for New York State and City tax purposes of
approximately $4,481,000 and $4,487,000, respectively.
F-23
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The valuation allowances decreased $63,000 in 1997, increased $265,000 in
1996 and decreased $214,000 in 1995, amounts equal to the changes in
deferred tax assets to reflect the uncertainty as to realization of such
assets.
The availability of net operating loss Carry forwards and general business
tax carryforwards is subject to various limitations under the Internal
Revenue Code of 1986 as amended (the "Code"). Although a formal study has
not been performed, it appears that as of March 31, 1995, the Company may
have undergone an ownership change as defined by Section 382 of the Code.
The effect of such an ownership change is to limit the amount of taxable
income and tax liability that can be offset in any tax year by the net
operating loss and credit carryovers.
14. Acquisition
The Company has entered into an agreement, subject to certain terms and
conditions, to acquire the stock of ProHealth Care Infusion Services, Inc.
in exchange for 300,000 shares of the Company's common stock. The
acquisition is expected to close after June 16, 1997.
F-24
<PAGE>
SCHEDULE II - Valuation and Qualifying Accounts
Accuhealth, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
Charged
Balance at to Cost Balance at
Beginning of and End of
Description Period Expenses Deductions(1) Period
- ----------- ------ -------- ---------- ------
<S> <C> <C> <C> <C>
Year Ended March 31, 1995
Allowance for Doubtful
Accounts $454,000 $145,752 $289,752 $310,000
Year Ended March 31, 1996
Allowance for Doubtful
Accounts $310,000 $93,000 $111,000 $292,000
Year Ended March 31, 1997
Allowance for Doubtful
Accounts $292,000 $82,000 $57,000 $317,000
</TABLE>
- ---------------
(1) Uncollected accounts written off.
F-25
<PAGE>
EXHIBIT INDEX
3.1 Registrant's Articles of Incorporation, as amended (incorporated herein
by reference to Exhibit 3 (I) to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1994)
3.2 Registrant's By-laws, as amended (incorporated herein by reference to
Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994)
10.1 Asset Purchase and Sale Agreement dated September 22, 1993 by and
between Em-Bee Drug Inc., Riverview Pharmacy, Inc., Westview Drug Co.
Inc., Brittany Chemists, Inc., Villageview Pharmacy, Inc., Eastview
87th St. Inc., Midview Drug, Inc. and the Registrant and RXD
Acquisition Group Inc. (incorporated herein by reference to Exhibit
(10)(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993)
10.2 Employment Agreement dated March 17, 1993 between Edwin T. Veith and
the Registrant (incorporated herein by reference to Exhibit (10)(b) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.3 Letter Agreement dated November 11, 1993 between the Registrant and
Edwin T. Veith (incorporated herein by reference to Exhibit (10)(c) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.4 Letter Agreement dated February 3, 1994 between the Registrant and
Edwin T. Veith (incorporated herein by reference to Exhibit (10)(d) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.5 Option Agreement dated March 17, 1993 between Edwin T. Veith and the
Registrant (incorporated herein by reference to Exhibit (10)(e) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.6 Stock Option Agreement Alternative Benefits Letter dated March 17, 1993
between Edwin T. Veith and the Registrant (incorporated herein by
reference to Exhibit (10)(f) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1993)
10.7 Employment Agreement dated March 23, 1993 between Allan E. Johnson and
the Registrant (incorporated herein by reference to Exhibit (10)(g) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
<PAGE>
10.8 Letter Agreement dated November 11, 1993 between the Registrant and
Allan E. Johnson (incorporated herein by reference to Exhibit (10)(h)
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.9 Letter Agreement dated February 3, 1994 between the Registrant and
Allan E. Johnson (incorporated herein by reference to Exhibit (10)(I)
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.10 Option Agreement dated March 23, 1993 between Allan E. Johnson and the
Registrant (incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.11 Agreement dated February 3, 1994 between the Registrant and Capstone
Management Company (incorporated herein by reference to Exhibit (10)(k)
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.12 Loan and Security Agreement dated April 28, 1994 between Rosenthal &
Rosenthal, Inc. and the Registrant, Midview Drug, Inc., Accuhealth Home
Care, Inc. and Citiview Drug Co., Inc. (the "Loan and Security
Agreement") (incorporated herein by reference to Exhibit 10 (l) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended March
31, 1994)
10.13 Amendment No. 1 to the Loan and Security Agreement, dated as of
February 1, 1996
10.14 Warrant dated April 28, 1994 for the Registrant's Common Stock issued
by the Registrant to Rosenthal & Rosenthal, Inc. (incorporated herein
by reference to Exhibit 10(m) to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1994)
10.15 Employment Agreement dated May 2, 1994 between Glenn C. Davis and the
Registrant (incorporated herein by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the year ended March 31,
1995)
10.16 Consulting Agreement dated June 28, 1994 between Donald B. Louria, M.D.
and the Registrant (incorporated herein by reference to Exhibit 10.15
to the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
10.17 Consulting Agreement dated June 28, 1994 between Stanley Goldstein and
the Registrant (incorporated herein by reference to Exhibit 10.16 to
the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
10.18 Asset Purchase Agreement dated as of December 1, 1994 between
Registrant and Citiview Drug Co., Inc., Towerview, Inc., R & B
Pharmacy, Inc. and P & S Pharmacy,
<PAGE>
Inc. (incorporated herein by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the year ended March 31,
1995)
10.19 Amended and Restated 1988 Stock Option Plan (incorporated herein by
reference to Exhibit B to the Registrant's 1994 Notice of Annual
Meeting and Proxy Statement)
10.20 Option Agreement dated September 20, 1994 between Corbett A. Price and
the Registrant (incorporated herein by reference to Exhibit 10.19 to
the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
10.21 Option Agreement dated September 20, 1994 between James E. Bacon and
the Registrant (incorporated herein by reference to Exhibit 10.20 to
the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
10.22 Option Agreement dated September 20, 1994 between E. Virgil Conway and
the Registrant (incorporated herein by reference to Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
10.23 Option Agreement dated September 20, 1994 between Sally
Hernandez-Pinero and the Registrant (incorporated herein by reference
to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1995)
10.24 Option Agreement dated September 20, 1994 between Harold D. Reiter and
the Registrant (incorporated herein by reference to Exhibit 10.23 to
the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
10.25 Option Agreement dated June 28, 1994 between Glenn C. Davis and the
Registrant (incorporated herein by reference to Exhibit 10.24 to the
Registrant's Annual Report on Form 10-K for the year ended March 31,
1995)
10.26 Option Agreement dated June 28, 1994 between Stanley Goldstein and the
Registrant (incorporated herein by reference to Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for the year ended March 31,
1995)
10.27 Option Agreement dated June 28, 1994 between Bob L. Wood and the
Registrant (incorporated herein by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended March 31,
1995)
10.28 Option Agreement dated June 28, 1994 between Donald B. Louria, M.D. and
the Registrant (incorporated herein by reference to Exhibit 10.27 to
the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
<PAGE>
10.29 Option Agreement dated September 20, 1994 between Gary S. LaPorta and
the Registrant (incorporated herein by reference to Exhibit 10.28 to
the Registrant's Annual Report on Form 10-K for the year ended March
31, 1995)
10.30 Agreement and Plan of Merger dated as of March 14, 1997 among
Accuhealth, Inc., ACH Acquiring Corp., ProHealthCare, Inc.,
ProHealthCare Infusion Services, Inc. Thomas Laurita and David Brian
Cohen.
11 Statement re Computation of Per-Share Earnings
21 Subsidiaries of the Registrant
AGREEMENT AND PLAN OF MERGER
among
ACCUHEALTH, INC.
ACH ACQUIRING CORP.
PROHEALTHCARE, INC.
PROHEALTHCARE INFUSION SERVICES, INC.
THOMAS LAURITA
and
DAVID BRIAN COHEN
Dated as of March 14, 1997
<PAGE>
AGREEMENT AND PLAN OF MERGER
This agreement and plan of merger dated as of March 14, 1997 is among
Accuhealth, Inc., a New York corporation ("Parent"), ACH Acquiring Corp., a New
Jersey corporation and wholly-owned subsidiary of Parent ("Sub"), ProHealthCare,
Inc., a Delaware corporation ("ProHealthCare"), ProHealthCare Infusion Services,
Inc., a New Jersey corporation and a wholly-owned subsidiary of ProHealthCare
(the "Company"), and Thomas Laurita and David Brian Cohen (collectively, the
"Stockholders").
Parent, Sub, ProHealthCare, the Company and the Stockholders desire that
Parent acquire the Company pursuant to the merger of Sub with and into the
Company in accordance with the terms of this agreement and the New Jersey
Business Corporation Act (the "NJBCA").
The parties agree as follows:
1. The Merger; The Surviving Corporation
1.1 The Merger. At the Effective Time (as defined in section 1.3), Sub
shall be merged with and into the Company (the "Merger") pursuant to the NJBCA,
and the separate existence of Sub shall cease. The Company shall be the
surviving corporation (the "Surviving Corporation") and shall continue to be
governed by the NJBCA.
1.2 Closing. The closing of the transactions contemplated by this agreement
(the "Closing") shall take place at the offices of Proskauer Rose Goetz &
Mendelsohn LLP, at 10:00 a.m., local time, two business days after the
conditions specified in section 10 have been satisfied or on such other date and
at such other time and place as Parent and the Company shall agree (the "Closing
Date").
1.3 Effective Time of the Merger. As soon as practicable after the Closing,
a properly executed certificate of merger providing for the Merger shall be
filed with the Secretary of State of the State of New Jersey. The Merger shall
become effective at the time of filing of the certificate of merger or at such
later time specified in the certificate of merger (the "Effective Time").
1.4 Certificate of Incorporation and By-Laws. The articles of incorporation
and by-laws of Sub in effect at the Effective Time shall be the certificate of
incorporation and by-laws of the Surviving Corporation until amended, except
that the name of the Surviving Corporation shall be "ProHealthCare Infusion
Services, Inc."
<PAGE>
2. Conversion of Shares; Options
2.1 Treatment of Shares of the Company. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder thereof:
(a) All the shares of capital stock, no par value per share, of the
Company ("Company Common Stock") issued and outstanding immediately prior
to the Effective Time (other than shares to be cancelled in accordance with
section 2.1(b)) shall automatically be cancelled and shall be converted
into the right to receive an aggregate of 300,000 shares of the common
stock, par value $.01 per share, of Parent ("Parent Common Stock"), which
shall be delivered to ProHealthCare within one business day after the
surrender of the certificate or certificates formerly representing such
share of Company Common Stock in accordance with section 2.2.
(b) Any shares of Company Common Stock that are held by the Company as
treasury shares shall be cancelled and retired and cease to exist, and no
securities of Parent or other consideration shall be delivered in exchange
therefor.
(c) Each share of common stock, par value $.01 per share, of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective
Time shall be converted into and become one fully paid and nonassessable
share of common stock, par value $.01 per share, of the Surviving
Corporation.
2.2 Exchange of Company Stock.
(a) Promptly after the Effective Time, ProHealthCare shall present to
Parent for cancellation a certificate or certificates, which immediately prior
to the Effective Time represented all the issued and outstanding shares of
Company Common Stock, free and clear of all Liens (as defined in section 5.2),
and Parent shall thereupon deliver to ProHealthCare in exchange therefor a
certificate or certificates representing 300,000 shares of Parent Common Stock.
(b) If Final Incremental Gross Profit (as defined in section 2.4) exceeds
$1.2 million, then, promptly after the determination of Final Incremental Gross
Profit, Parent shall deliver to ProHealthCare a number of shares equal to the
product of (i) the amount, if any, by which (x) the quotient of $1.2 million
divided by the average of the per share closing price for Parent Common Stock on
the NASDAQ or the average of the last per share bid prices on the
over-the-counter Bulletin Board (as reported by the Nasdaq Stock Market, Inc.),
as the case may be, for the 30 trading days immediately preceding the first
anniversary of the Closing (the "Average Price") exceeds (y) the number of
shares of Parent Common stock delivered to ProHealthCare pursuant to section
2.2(a) multiplied by (ii) a fraction, the numerator of which is the number of
shares of Parent Common Stock delivered to ProHealthCare pursuant to section
2.2(a) that are held, on the first anniversary of the Closing, by ProHealthCare
or by any person
<PAGE>
who is a stockholder of ProHealthCare on the date of this agreement, and the
denominator of which is the number of shares of Parent Common Stock delivered to
ProHealthCare pursuant to section 2.2(a); provided that the aggregate number of
shares delivered to ProHealthCare pursuant to sections 2.2(a) and 2.2(b) shall
not exceed 500,000. Notwithstanding the preceding sentence, Parent shall not
deliver any share to ProHealthCare pursuant to this section 2.2(b) if (a) the
average of the per share closing price for Parent Common Stock on the NASDAQ or
the average of the last per share bid prices on the over-the-counter Bulletin
Board (as reported by the Nasdaq Stock Market, Inc.), as the case may be, for
any ten consecutive trading days prior to the first anniversary of the Closing
is greater than or equal to $4.00 or (b) the Parent Common Stock is converted,
by merger or any similar corporate event, into publicly-traded securities of
which, on the date of conversion, the per share closing price is greater than or
equal to $4.00. Parent's obligation under this section 2.2(b) shall be expressly
assumed by any successor of Parent. If Parent shall pay a dividend in Parent
Common Stock, subdivide the outstanding Parent Stock, combine the outstanding
Parent Stock into a smaller number of shares or issue by any similar capital
event other securities of the Company, the kind and number of shares deliverable
pursuant to this section 2.2(b) and the $4.00 target price shall be adjusted
appropriately. Notwithstanding anything in this section 2.2(b) to the contrary,
no shares shall be delivered pursuant to this section 2.2(b) if any shares are
delivered pursuant to section 2.2(c).
(c) If, prior to the determination of Final Incremental Gross Profit,
Parent consummates a merger or similar transaction (a "Parent Merger") as a
result of which, on June 30, 1998, Thomas Laurita is no longer employed by
Parent or any successor of Parent in a senior management position, then, on
September 30, 1998, Parent shall deliver to ProHealthCare a number of shares
equal to the product of (i) the amount, if any, by which (x) the quotient of
$1.0 million divided by the Average Price exceeds (y) 300,000 multiplied by (ii)
a fraction, the numerator of which is the number of shares of Parent Common
Stock delivered to ProHealthCare pursuant to section 2.2(a) that are held, on
the first anniversary of the Closing, by ProHealthCare or by any person who is a
stockholder of ProHealthCare on the date of this agreement, and the denominator
of which is 300,000; provided that the aggregate number of shares of Parent
Common Stock delivered to ProHealthCare pursuant to sections 2.2(a) and 2.2(c)
shall not exceed 500,000. Notwithstanding the preceding sentence, Parent shall
not deliver any share to ProHealthCare pursuant to this section 2.2(c) if (a)
the average of the per share closing price for Parent Common Stock on the NASDAQ
or a national securities exchange or the average of the last per share bid
prices on the over-the-counter Bulletin Board (as reported by the Nasdaq Stock
Market, Inc.), as the case may be, for any ten consecutive trading days prior to
the first anniversary of the Closing is greater than or equal to $4.00 or (b)
the Parent Common Stock was converted, by the Parent Merger, into
publicly-traded securities of which, on the date of conversion, the per share
closing price is greater than or equal to $4.00. Parent's obligation under this
section 2.2(c) shall be expressly assumed by any successor of Parent. If Parent
shall pay a dividend in Parent Common Stock, subdivide the outstanding Parent
Stock, combine the outstanding Parent Stock into a smaller number of shares or
issue by any similar capital event other securities of the Company, the kind and
number of shares deliverable pursuant to this section 2.2(c), and the $4.00
target price, shall be adjusted appropriately. The number and kind
<PAGE>
of shares deliverable pursuant to this section 2.2(c) and the $4.00 target price
shall be deemed to refer to the appropriate number and kind, and price of, any
security into which the outstanding Parent Common Stock may be converted as a
result of the Parent Merger.
2.3 No Fractional Securities. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of certificates of Company Common Stock or pursuant to section 2.2(b),
section 2.2(c) or section 4.2, and such fractional interests shall not entitle
the owner thereof to vote or to any rights of a security holder. In lieu of any
such fractional securities ProHealthCare would otherwise have been entitled to
receive pursuant to sections 2.2(b), 2.2(c) or 4.2, ProHealthCare will be
entitled to receive, and Parent will timely make, a cash payment (without
interest) determined by multiplying (i) the fractional interest to which
ProHealthCare would otherwise be entitled and (ii) in the case of any fractional
security ProHealthCare would otherwise have been entitled to receive pursuant to
section 2.2(b) or section 2.2(c), the Average Price or, in the case of any
fractional security ProHealthCare would otherwise have been entitled to receive
pursuant to section 4.2, $4.00.
2.4 Determination of Final Incremental Gross Profit.
(a) Parent Calculation of Incremental Gross Profit.
(i) Within 50 days after the end of each of Parent's fiscal quarters
up to and including March 31, 1998, Parent shall deliver to ProHealthCare
and each Stockholder a statement of Parent's calculation of Incremental
Gross Profit for that quarter.
(ii) Within 90 days after the end of Parent's fiscal quarter ending
June 30, 1998, Parent shall deliver to ProHealthCare a statement (the
"Parent's IGP Statement") in reasonable detail of the Parent's calculation
of Incremental Gross Profit for any four consecutive fiscal quarters of
Parent ending on or prior to June 30, 1998.
(b) For purposes of this agreement, "Incremental Gross Profit" means the
Net Sales of the Surviving Corporation and of Parent minus all costs of
medicines and supplies sold, field nursing, freight and other direct, out of
pocket expenses, which are attributable to goods or services marketed under the
"Accuhealth" or "ProHealthCare" name to customers referred by the referral
sources identified on Schedule 2.4 hereto. ProHealthCare and Thomas Laurita
represent and warrant to Parent that, except as set forth on Schedule 2.4, each
customer and referral source identified on Schedule 2.4 has purchased goods or
services from, or referred customers to, ProHealthCare or the Company on one or
more occasions during the 12-month period commencing March 11, 1996 and ending
March 14, 1997. For purposes of this agreement, "Net Sales" shall mean sales
collected and sales that Parent expects to be collected.
(c) ProHealthCare's Verification of Incremental Gross Profit. After the
delivery to ProHealthCare of the Parent's IGP Statement, ProHealthCare and its
representatives shall have access at reasonable times and on reasonable notice,
at ProHealthCare's
<PAGE>
sole expense, to the books and records of the Surviving Corporation for the
purpose of verifying the accuracy of the Incremental Gross Profit calculation
set forth in the Parent's IGP Statement. If ProHealthCare disagrees with the
calculation of Incremental Gross Profit set forth in the Parent's IGP Statement,
ProHealthCare shall deliver to Parent, prior to the end of the 90th day
following the delivery of the Parent's Statement, a statement (the "Seller's IGP
Statement") that sets forth in reasonable detail an explanation of such
disagreement and a proposed alternative determination of Incremental Gross
Profit. If ProHealthCare does not deliver to Parent a Seller's IGP Statement
within such 90-day period, the Incremental Gross Profit set forth in the
Parent's IGP Statement shall be deemed final, binding and conclusive upon each
party hereto.
(d) Dispute Resolution.
(i) If ProHealthCare shall timely deliver a Seller's IGP Statement,
then Parent and ProHealthCare will attempt in good faith to resolve all
differences with regard to their respective determinations of Incremental
Gross Profit during the next 30 days or such longer period as Parent and
ProHealthCare may agree in writing. If Parent and ProHealthCare are unable
to resolve such differences and agree as to Incremental Gross Profit prior
to the expiration of such 30-day period (or longer period if so agreed)
Incremental Gross Profit shall be determined pursuant to section
2.4(d)(ii).
(ii) Promptly following the 30-day period referred to in section
2.4(d)(i), Parent and ProHealthCare shall jointly select a firm of
independent public accountants of national or regional prominence to
resolve any dispute concerning the calculation of Incremental Gross Profit
that is not resolved by Parent and ProHealthCare. If Parent and
ProHealthCare fail to select such firm within 30 days after the 30-day
period referred to in section 2.4(d)(i), such firm shall be Richard A.
Eisner & Company or, if Richard A. Eisner & Company is or has been engaged
for any purpose by any party to this agreement, any "big six" accounting
firm selected by the President of the Association of the Bar of the City of
New York (as long as it is not a firm that any party to this agreement has
engaged for any purpose within the preceding five years). Such firm
selected pursuant to this section 2.4(d)(ii) is hereinafter referred to as
the "IGP Accountants". The IGP Accountants shall be instructed to deliver
to Parent and ProHealthCare a written report (the "Accountants' IGP
Report") setting forth the IGP Accountants' calculation of Incremental
Gross Profit, no later than 60 days following their selection. The
determination of Incremental Gross Profit set forth in the Accountants' IGP
Report shall be deemed final, binding and conclusive upon each party
hereto. The fees and expenses of the IGP Accountants shall be paid by
ProHealthCare, except that if the IGP Accountant's calculation of
Incremental Gross Profit is at least $50,000 greater than Parent's
calculation of Incremental Gross Profit, the fees and expenses of the
Accountants shall be paid by Parent.
(e) Final Incremental Gross Profit. Incremental Gross Profit as mutually
agreed to by Parent and ProHealthCare pursuant to section 2.4(d)(i), or as
deemed final, binding and conclusive pursuant to section 2.4(c) or 2.4(d)(ii),
shall be deemed the "Final Incremental Gross Profit".
<PAGE>
3. Determination of Final Net Liquid Assets; Adjustment to Merger
Consideration
3.1 Parent Calculation of Net Liquid Assets. Within 90 days after the end
of Parent's fiscal quarter ending December 31, 1997, Parent shall deliver to
ProHealthCare a statement (the "Parent's Statement") in reasonable detail of the
Parent's calculation of Net Liquid Assets as of December 31, 1997.
(a) For purposes of this agreement, "Net Liquid Assets" means the
difference between (i) the sum of $__________, which represents the value of the
Company's inventory as of the Closing Date that was purchased from Parent, plus
all payments received after the Closing Date in respect of accounts receivable
of the Company, including those accounts receivable assigned by ProHealthCare to
the Company pursuant to Section 10.2(m), that were outstanding on the Closing
Date ("Accounts Receivable"), minus (ii) the sum of all payments made by the
Company, the Surviving Corporation, Parent or any affiliate of any of them after
the Closing Date in respect of liabilities of the Company and ProHealthCare that
existed as of the Closing Date, including payments pursuant to section 9.5 of
this agreement, and the value of all unpaid liabilities (as determined in
accordance with generally accepted accounting principles ("GAAP")) of the
Company and ProHealthCare that existed as of the Closing Date, plus all
financing charges and similar fees incurred, after the Closing Date, by Parent
or the Surviving Corporation in connection with the discharge of liabilities of
the Company or ProHealthCare that existed as of the Closing Date less any
liabilities that were reduced, written off, waived, assumed by ProHealthCare
pursuant to an assignment and assumption agreement in the form of Exhibit E- 1
to this agreement or that otherwise will not be payable by the Surviving
Corporation. It is understood that to the extent that Parent or Sub incurs debt
to satisfy accounts payable of the Company, interest, financing and other actual
costs related to such debt will reduce Net Liquid Assets, and, as Accounts
Receivable of the Company are collected, collected amounts shall be deemed to
reduce the principal of such borrowed funds for purposes of calculating ongoing
costs.
(b) Within 45 days after the end of each calendar month up to and including
November 30, 1997, Parent shall deliver to ProHealthCare and each Stockholder a
statement (a "Monthly Statement") of Parent's calculation of Net Liquid Assets
as of the end of that month. In addition, each Monthly Statement shall set forth
any amount withdrawn from the Stratogen Account (as denied in section 9.5)
during the month to which the Monthly Statement relates and the use of such
amount.
3.2 ProHealthCare's Verification of Net Liquid Assets. After the delivery
to ProHealthCare of each Monthly Statement and after delivery to ProHealthCare
of the Parent's Statement, ProHealthCare and its representatives shall have
access at reasonable times and on reasonable notice, at ProHealthCare's sole
expense, to the books and records of the Surviving Corporation for the purpose
of verifying the accuracy of the Net Liquid Assets calculation set forth in the
Monthly Statement or in the Parent's Statement.
<PAGE>
3.3 Dispute Resolution.
(a) If ProHealthCare disagrees with the calculation of Net Liquid Assets
set forth in the Parent's Statement, ProHealthCare shall deliver to Parent,
prior to the end of the 90th day following the delivery of the Parent's
Statement, a statement approved by ProHealthCare's board of directors (the
"Seller's Statement") that sets forth in reasonable detail an explanation of
such disagreement and a proposed alternative determination of Net Liquid Assets.
If ProHealthCare does not deliver to Parent a Seller's Statement within such
90-day period, Net Liquid Assets set forth in the Parent's Statement shall be
deemed final, binding and conclusive upon each party hereto.
(b) If ProHealthCare shall timely deliver a Seller's Statement, then Parent
and ProHealthCare will attempt in good faith to resolve all differences with
regard to their respective determinations of Net Liquid Assets during the next
30 days or such longer period as Parent and ProHealthCare may agree in writing.
If Parent and ProHealthCare are unable to resolve such differences and agree as
to Net Liquid Assets prior to the expiration of such 30-day period (or longer
period if so agreed) Net Liquid Assets shall be determined pursuant to section
3.3(c).
(c) Promptly following the 30-day period referred to in section 3.3(b),
Parent and ProHealthCare shall jointly select a firm of independent public
accountants of national or regional prominence to resolve any dispute concerning
the calculation of Net Liquid Assets that is not resolved by Parent and
ProHealthCare. If Parent and ProHealthCare fail to select such firm within 30
days after the 30-day period referred to in section 3.3(b), such firm shall be
Richard A. Eisner & Company or, if Richard A. Eisner & Company is or has been
engaged for any purpose by any party to this agreement, any "big six" accounting
firm selected by the President of the Association of the Bar of the City of New
York (as long as it is not a firm that any party to this agreement has engaged
for any purpose within the preceding five years). Such firm selected pursuant to
this section 3.3(c) is hereinafter referred to as the "Accountants". The
Accountants shall be instructed to deliver to Parent and ProHealthCare a written
report (the "Accountants' Report") setting forth the Accountants' calculation of
Net Liquid Assets no later than 60 days following their selection. The
determination of Net Liquid Assets set forth in the Accountants' Report shall be
deemed final, binding and conclusive upon each party hereto. The fees and
expenses of the Accountants shall be paid by ProHealthCare, except that if the
Accountant's calculation of Net Liquid Assets is at least $50,000 greater than
Parent's calculation of Net Liquid Assets, the fees and expenses of the
Accountants shall be paid by Parent.
3.4 Final Net Liquid Assets.
(a) Net Liquid Assets as mutually agreed to by Parent and ProHealthCare
pursuant to section 3.3(b), or as deemed final, binding and conclusive pursuant
to such section or section 3.3(a) or 3.3(c), shall be deemed the "Final Net
Liquid Assets".
<PAGE>
(b) If Final Net Liquid Assets is a positive number, within 30 days after
the determination of Final Net Liquid Assets pursuant to section 3.4(a), Parent
shall deliver to ProHealthCare an amount in cash equal to Final Net Liquid
Assets.
(c) If Final Net Liquid Assets is a negative number, immediately after the
determination of Final Net Liquid Assets pursuant to Section 3.4(a), (i) there
shall be deemed repurchased and cancelled a number of shares of Parent Common
Stock issued pursuant to section 2 equal to the quotient of Final Net Liquid
Assets divided by the greater of the Liquid Assets Average Price (as defined
below) or $2.00 or (ii) ProHealthCare shall, at its option, promptly deliver to
Parent an amount in cash equal to the product of Final Net Liquid Assets
multiplied by negative one. Notwithstanding anything in the preceding sentence
to the contrary, the number of shares cancelled and deemed repurchased pursuant
to this section 3.4(c) shall not exceed 150,000.
(d) For purposes of this agreement, the "Liquid Assets Average Price" means
average of the per share closing price for Parent Common Stock on the NASDAQ or
the average of the last per share bid prices on the over-the-counter Bulletin
Board (as reported by the Nasdaq Stock Market, Inc.), as the case may be, for
the 30 trading days immediately preceding the date on which Final Net Liquid
Assets is determined pursuant to section 3.4(a).
3.5 Treatment of Intercompany Advances. For purposes of determining Net
Liquid Assets and Final Net Liquid Assets pursuant to this section 3, advances
from ProHealthCare or any of its affiliates to the Company and advances from the
Company to ProHealthCare (collectively, "Intercompany Advances") shall not be
given effect.
4. Tangible Property; Adjustment to Merger Consideration.
4.1 Calculation of Tangible Property. For purposes of this agreement,
"Tangible Property" means the book value of all inventory, furniture and
fixtures, vehicles, computers, equipment and leasehold improvements, net of
allowances for depreciation and amortization (as determined in accordance with
GAAP), of the Company as of March 14, 1997 minus $___________, which represents
medications and other inventory of the Company as of the Closing Date that was
purchased from Parent, as set forth on Schedule 4.1.
4.2 Adjustment to Merger Consideration. Within one business day after the
Closing, Parent shall deliver to ProHealthCare a number of whole shares of
Parent Common Stock equal to the quotient of the Tangible Property divided by
$5.00.
<PAGE>
5. Representations and Warranties of ProHealthCare
ProHealthCare and the Stockholders jointly and severally represent and
warrant to Parent and Sub as follows:
5.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. The Company is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not have a Company Material Adverse Effect.
For purposes of this agreement, "Company Material Adverse Effect" means a
material adverse effect, individually or in the aggregate, on the financial
condition, results of operations, business, assets or prospects of the Company
or the ability of the Company to consummate the Merger and the other
transactions contemplated by this agreement.
5.2 Capitalization.
(a) The authorized capital stock of the Company consists of 50 shares of
Company Common Stock, of which 50 shares of Company Common Stock are issued and
outstanding. ProHealthCare is, and immediately prior to the Closing will be, the
record and beneficial owner of all the issued and outstanding shares of Company
Common Stock, free and clear of liens, pledges, security interests, claims,
charges or other encumbrances of any kind whatsoever ("Liens").
(b) There is not outstanding any security, right, subscription, warrant,
call, option or other agreement or arrangement of any kind (collectively,
"Rights") entitling any person to acquire any shares of the capital stock or any
other security of the Company, and there is no outstanding security of any kind
convertible into or exchangeable for the capital stock of the Company. There is
no voting agreement, voting trust, proxy or other agreement, instrument or
understanding with respect to the voting of the capital stock of the Company or
any agreement with respect to the transferability, purchase or redemption of the
capital stock of the Company.
5.3 Subsidiaries. The Company does not own any interest in any other
business or entity.
5.4 Authority. ProHealthCare, the Company and each Stockholder has the full
legal corporate power or capacity, as the case may be, to execute and deliver
each Document (as defined below) to which he, she or it is a party. The
execution, delivery and performance of each Document executed or to be executed
by ProHealthCare or the Company have been duly
<PAGE>
authorized by its respective board of directors and stockholder(s), and no other
corporate proceedings on the part of ProHealthCare or the Company are necessary
to authorize this agreement or any other Documents or for ProHealthCare and the
Company to consummate the transactions contemplated hereby or thereby. The
Documents are, or when executed and delivered will be, valid and binding
obligations of ProHealthCare, the Company and each Stockholder, enforceable
against ProHealthCare, the Company and each Stockholder in accordance with their
terms, except as may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
For purposes of this agreement, "Documents" means this agreement, the
Employment Agreement (as defined in section 10.2(d)), the Non-Competition
Agreement (as defined in section 10.2(e)), the Registration Rights Agreement (as
defined in section 10.3(c)), the Tax Provisions Agreement (as defined in section
10.2(h)) and each other document or agreement executed and delivered by
ProHealthCare, the Company and/or any Stockholder pursuant to this agreement.
5.5 Consents and Approvals; No Violations. Except as set forth on Schedule
5.5, the execution, delivery and performance of this agreement will not: (i)
conflict with or result in any breach of any provisions of the certificate of
incorporation, by laws or other organizational documents of ProHealthCare or the
Company, (ii) require a filing with, or a permit, authorization, consent or
approval of, any federal, state, local or foreign court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or administrative agency or commission (a "Governmental Entity"),
except the filing of a certificate of merger, (iii) conflict with, or result in
the breach, termination or acceleration of, or constitute a default under, or
result in the creation of a Lien on any property or asset of ProHealthCare or
the Company pursuant to any written lease, agreement, commitment or other
instrument (each, a "Contract") to which ProHealthCare, the Company or any
Stockholder is a party or by which any of them or any of their properties or
assets are bound or (iv) violate any law, order, writ, injunction, decree,
statute, rule or regulation of any Governmental Entity applicable to
ProHealthCare, the Company or any Stockholder or any of their respective
properties or assets.
5.6 Financial Statements. The combined balance sheet of ProHealthCare and
the Company as of March 31, 1996, the statements of operations, changes in
stockholders' equity and cash flows of ProHealthCare and the Company for the
year ended March 31, 1996, and the balance sheet of the Company (the "Interim
Balance Sheet") as of February 19, 1997 and the statement of operations of the
Company (together with the Interim Balance Sheet, the "Interim Financial
Statements") for the period from April 1, 1997 through February 19, 1997
(collectively, the "Financial Statements") are attached to this agreement as
Schedule 5.6A. Except as described on Schedule 5.6B, the Financial Statements
are true and correct in all material respects and fairly present in all material
respects the financial position and the results of operations of ProHealthCare
and the Company or the Company, as the case may be, as of the dates and for the
periods indicated, except for, with respect to ProHealthCare, any matter that
does not affect the
<PAGE>
Company or represent the financial position or results of operation of the
Company. The Interim Financial Statements do not reflect any Intercompany
Advances or tax adjustments. Since March 31, 1996, there has been no change in
any of the significant accounting (including tax accounting) policies, practices
or procedures of the Company. The Interim Financial Statements reflect the
financial position and the results of operations of the Company's business and
do not reflect the separate operations of ProHealthCare.
5.7 Absence of Undisclosed Liabilities. Except to the extent reflected or
reserved for in the Financial Statements, the Company does not have any
liability or obligation of any kind, whether accrued, absolute, contingent or
otherwise, other than (a) as set forth on Schedule 5.7, (b) liabilities and
obligations under agreements and other commitments entered into in the ordinary
course of business and in amounts substantially consistent with past practices
and (c) other liabilities that are not, individually or in the aggregate,
material in amount, and none of ProHealthCare, the Company and the Stockholders
knows of any basis for the assertion against the Company of any such liability
that is not fully disclosed or reserved for in the Financial Statements. The
Company does not have any indebtedness to any Stockholder or any affiliate of
any Stockholder. All liabilities of the Company assigned to ProHealthCare as of
the Closing are set forth on Schedule 3.1.
5.8 Absence of Certain Changes or Events. Except as set forth on Schedule
5.8, since December 31, 1996,
(a) the Company has conducted its business and operations in the
ordinary course of business and consistent with past practice, and there
has not been any material change in the Company's outstanding liabilities
or the level of compensation (including Company Plans (as defined in
section 5.18)) paid to its employees;
(b) the Company has not taken any actions that, if it had been in
effect, would have violated or been inconsistent with the provisions of
section 7.1; and
(c) there has not been any fact, event, circumstance or change
affecting or relating to the Company, which, to the best knowledge of
ProHealthCare, the Company and the Stockholders has had, or is reasonably
likely to have, a material adverse effect on the Company.
5.9 Material Contracts. Schedule 5.9 lists each Contract to which the
Company is a party or is bound or which is applicable to the Company's
businesses that is material in nature or amount or that was entered into other
than in the ordinary course of business and consistent with past practice (a
"Material Contract"), including, without limitation, the following:
(a) each Contract for the purchase of products or services that
involves or will involve an expenditure or series of related expenditures
of more than $5,000;
<PAGE>
(b) each real or personal property lease that involves annual payments
or receipts of more than $5,000;
(c) each note or other Contract relating to any indebtedness or any
guaranty of indebtedness;
(d) each employment or consulting agreement that provides for
compensation in excess of $2,500 per year and each Contract that provides
for severance or similar benefits;
(e) each Contract between the Company, on the one hand, and any of its
affiliates, associates or stockholders, on the other hand;
(f) each Contract to which the Company is a party containing any
provisions relating to a change in its control;
(g) each Contract under which the Company is restricted from engaging
in any business or competing with any other person;
(h) any Contract for the sale, lease, license, rental or disclosure of
any lists or records, including customer lists, relating to the business of
the Company; and
(i) any other Contract (written or oral) that requires payment by or
to the Company of more than $10,000 or cannot be terminated by the Company
on less than 30 days notice without liability.
True and complete copies of all the Material Contracts have been delivered to
Parent.
5.10 No Default. Except as set forth on Schedule 5.10, each Material
Contract is in full force and effect in accordance with its terms, and, to the
best knowledge of the Company and each Stockholder, no party is in default (and
no event has occurred, which, with notice or the lapse of time or both, would
constitute a default) of any term, condition or provision of any Material
Contract, except for any default that would not have a Company Material Adverse
Effect.
5.11 Compliance with Law. The Company is not in violation (and no event has
occurred, which, with notice or the lapse of time or both, would constitute a
violation) of any order, writ, injunction, decree, statute, rule or regulation
of any Governmental Entity applicable to the Company.
<PAGE>
5.12 Health Care Matters.
(a) Schedule 5.12(a) lists the required cost reports and other submissions
and filings (other than claims for payments), with respect to Medicaid and
Medicare or other third party payments to the Company and indicates each cost
report or other submission or filing that has been audited by the government or
other third party payor (and all disallowances and retroactive rate adjustments
thereon settled, paid or otherwise recouped). All the cost reports and other
submissions and filings were complete and accurate in all material respects, and
were prepared in accordance with the requirements of the Medicaid program, the
Medicare program or the other third party payors, as applicable.
(b) No third-party payor (including, without limitation, Medicare or
Medicaid) has asserted any liability against the Company in respect of any
period through the date of this agreement, which has not been settled or paid.
To the best knowledge of ProHealthCare, the Company and each Stockholder, there
is no pending audit or any pending or threatened audit assessment or retroactive
rate adjustment against the Company and no basis therefor, and, if any such
audit assessment or retroactive rate adjustment is so asserted, it will be
promptly paid or otherwise satisfied by the Company and will have no material
effect upon any of their rates, operations or financial performance.
(c) Schedule 5.12(c) lists all agreements, arrangements and other
relationships of the Company, which are in effect or were in effect at any prior
time, with individuals and entities who refer or have referred to or otherwise
generate or have generated business for the Company (including without
limitation, sales representatives and referring health care providers).
(d) None of ProHealthCare, the Company or the Stockholders has actual
knowledge that any referring physician, chiropractor, podiatrist, dentist, nurse
or other licensed health professional has, or has ever had, an ownership
interest in or otherwise has or had a financial relationship with the Company.
5.13 Litigation, etc. Except as set forth on Schedule 5.13, there is no
suit, action, proceeding, investigation or review pending or, to the best
knowledge of ProHealthCare, the Company and each Stockholder, threatened against
or affecting the Company or any suit, action or proceeding brought by or on
behalf of the Company, and, to the best knowledge of ProHealthCare, the Company
and each Stockholder, there is no basis for any such suit, action, proceeding,
investigation or review. There is no judgment, decree, injunction, ruling or
order of any Governmental Entity outstanding against the Company.
5.14 Permits. The Company holds, or, on the Closing Date, will hold, all
permits, licenses, exemptions, orders and approvals of all Governmental Entities
necessary for the conduct of its businesses (collectively, "Permits"). The
Company is in compliance with the terms of all Permits, and (i) no fact exists
or event has occurred, and no action or proceeding is pending
<PAGE>
or, to ProHealthCare's, the Company's and the Stockholders' best knowledge,
threatened, that is reasonably likely to result in a revocation, nonrenewal,
termination, suspension or other material impairment of any material Permit.
5.15 Taxes. Except as set forth on Schedule 5.15, ProHealthCare and the
Company have (a) filed with the appropriate federal, state and local taxing
authorities all tax returns required to be filed by or with respect the
Company's business or operations, and those tax returns are correct and complete
in all material respects, and (b) paid in full or made adequate provision for
the payment of all taxes shown to be due on those tax returns. Neither
ProHealthCare nor the Company has received any notice of deficiency or
assessment from any federal, state or local taxing authority with respect to
liabilities for taxes that have not been fully paid or finally settled.
5.16 Title to Properties; Encumbrances. The Company has good and marketable
title to, or valid leasehold interests or licenses in, all its properties and
assets of whatever kind (real or personal, tangible or intangible), including,
without limitation, all the Company's properties and assets reflected in the
Financial Statements (except for properties and assets disposed of in the
ordinary course of business and consistent with past practices since March 31,
1996). None of such properties or assets are subject to any Liens (whether
absolute, accrued, contingent or otherwise), except for liens for current taxes
and assessments not yet due and payable. Such properties and assets include all
the properties and assets necessary to operate the Company's business as
presently operated. Except as set forth on Schedule 5.16A, none of the
properties or assets, including, without limitation, contract rights, used by
the Company in the conduct of its businesses as presently conducted is owned or
leased by ProHealthCare. Schedule 5.16B contains a complete list of all real
property (including buildings and structures) and all equipment, computers,
furniture, leasehold improvements, vehicles and other personal property owned,
leased or used by the Company.
5.17 Proprietary Rights. Schedule 5.17 lists all patents and patent
applications, trademarks, trade names, registered copyrights, service marks, and
applications therefor owned, used or held for use in connection with the
businesses of the Company (collectively, "Proprietary Rights"), specifying as to
each, as applicable: (i) the owner of the Proprietary Right and (ii) all
licenses, sublicenses and other agreements, including any amendments or addenda
thereto, to which ProHealthCare, the Company or any Stockholder is a party and
pursuant to which any person is authorized to use the Proprietary Right. The
Company has no notice of any claim that the Proprietary Rights infringe any
other party's rights and, to ProHealthCare's, the Company's and the
Stockholders' best knowledge, the Company has used the Proprietary Rights
without infringing any other party's rights without infringement by others. None
of ProHealthCare, the Company and the Stockholders is aware of any assertion or
any reasonable basis for asserting that any Proprietary Right is invalid or
unenforceable.
<PAGE>
5.18 Employee Benefit Plans; ERISA; Labor Matters.
(a) Schedule 5.18 sets forth a true and complete list of all Company Plans.
For purposes of this agreement, "Company Plan" shall mean any employee benefit
plan, arrangement or agreement that is maintained, or was maintained or
contributed to by the Company or by any Company ERISA Affiliate (as defined
below) on behalf of employees or former employees or with respect to which the
Company has or could incur liability. The Company has not taken any action to
modify, amend or alter any material benefit arrangement.
For purposes of this agreement, Company ERISA Affiliate means any trade or
business, whether or not incorporated which together with the Company would be
deemed a "single employer" within the meaning of Section 414(b), (c), (m) or (o)
of the Code or Section 4001 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(b) Each Company Plan is and has been operated and administered in all
material respects in accordance with the terms of the Company Plan and in
accordance with the requirements prescribed by all applicable statutes, orders
and governmental rules and regulations, including in compliance with ERISA and
the Code. Each Company Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified.
(c) Neither the Company nor any Company ERISA Affiliate nor any
predecessors of the Company or any Company ERISA Affiliate maintains, has ever
maintained, contributes to or has ever contributed to a plan which is subject to
Section 412 of the Code or Title IV of ERISA. No Company Plan is a multiemployer
plan (within the meaning of Sections 3(37) or 4001(a)(3) of ERISA or Section
414(f) of the Code) ("Multiemployer Plan") and no Company Plan is a multiple
employer plan as defined in Section 413 of the Code ("Multiple Employer Plan").
All contributions have been made for all employees and former employees of the
Company under or with respect to each Company Plan with respect to all periods
through the Effective Time except as fully accrued and reflected in the
Financial Statements. Neither the Company nor any Company ERISA Affiliate is or
was obligated to contribute to any Multiemployer Plan or Multiple Employer Plan.
To the best knowledge of ProHealthCare, the Company and the Stockholders, there
are no material pending, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Company Plans or any
trusts related thereto.
(d) The Company is not a party to, or bound by, any collective bargaining
agreement, contract or other understanding with a labor union or labor
organization and, to the knowledge of ProHealthCare and the Company, there is no
activity involving any employees of the Company seeking to certify a collective
bargaining unit or engaging in any other organizational activity.
<PAGE>
5.19 Environmental Laws and Regulations.
(a) The Company is and has been in compliance with, and none of
ProHealthCare, the Company and the Stockholders is aware of any outstanding
allegations by any person or entity that the Company is not or has not been in
compliance with, all federal, state and local laws, rules, regulations, common
law, ordinances, administrative orders or other binding legal requirements
relating to employee health and safety, air, water or noise pollution or
otherwise relating to public health and safety or environmental protection
(including the protection of endangered species), or the use, generation,
manufacture, accumulation, storage, discharge, release, disposal or
transportation of hazardous materials ("Environmental Laws"). The Company
currently hold all permits, licenses, registrations and other governmental
authorizations (including exemptions, waivers, and the like) and financial
assurance required under Environmental Laws for the Company to operate its
businesses.
(b) Without conducting any investigation, to the knowledge of
ProHealthCare, the Company and the Stockholders, there is no friable
asbestos-containing material in or on any real property currently owned, leased
or operated by the Company, and there are and have been no underground storage
tanks (whether or not required to be registered under any applicable law),
dumps, landfills, lagoons, surface impoundments, injection wells or other land
disposal units in or on any property currently owned, leased or operated by the
Company.
(c) Neither ProHealthCare nor the Company has received (i) any written
communication from any person stating or alleging that either of them may be a
potentially responsible party under any Environmental Law (including, without
limitation, the Federal Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended) with respect to any actual or alleged
environmental contamination or (ii) any request for information under any
Environmental Law from any Governmental Entity with respect to any actual or
alleged material environmental contamination; and (iii) none of ProHealthCare,
the Company or any Governmental Entity is conducting or has conducted (or, to
the knowledge of ProHealthCare and the Company, is threatening to conduct) any
environmental remediation or investigation which could result in a material
liability of the Company under any Environmental Law.
5.20 Brokers. No broker, finder or financial advisor is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this agreement based upon arrangements made by
or on behalf of ProHealthCare or the Company.
<PAGE>
6. Representations and Warranties of Parent. Parent represents and warrants to
the Company as follows:
6.1 Organization. Parent is a corporation duly organized, validly existing
and in good standing under the laws of the state of New York and has the
corporate power to carry on its business as it is now being conducted or
presently proposed to be conducted. Parent is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified will not have a Parent Material Adverse Effect. For purposes of this
agreement, "Parent Material Adverse Effect" means a material adverse effect,
individually or in the aggregate, on the financial condition, results of
operations, business, assets or prospects of Parent and its subsidiaries taken
as a whole or the ability of Parent to consummate the Merger and the other
transactions contemplated by this agreement. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey. Sub has not engaged in any business (other than in connection with
this agreement and the transactions contemplated hereby) since the date of its
incorporation.
6.2 Capitalization.
(a) The authorized capital stock of Parent consists of 15,000,000 shares of
Parent Common Stock, of which 1,375,085 are issued and outstanding and 308,004
are treasury shares, and 5,000,000 shares of preferred stock, of which 1,350,000
shares of 6% cumulative convertible preferred stock of Parent are issued and
outstanding. Options and warrants to acquire an aggregate of 862,500 shares of
Parent Common Stock (collectively, the "Parent Stock Options") are outstanding.
All the outstanding shares of capital stock of Parent are, and the shares of
Parent Common Stock issuable in exchange for shares of Company Common Stock at
the Effective Time in accordance with this agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable.
(b) The authorized capital stock of Sub consists of 1,000 shares of Sub
Common Stock, of which 100 shares are issued and outstanding. All the
outstanding shares of Sub Common Stock are owned by Parent and are validly
issued, fully paid and nonassessable.
6.3 Authority. Each of Parent and Sub has the full legal corporate power to
execute and deliver each Document to which it is a party. The execution,
delivery and performance of each Document executed or to be executed by Parent
or Sub have been duly authorized by its respective boards of directors, and no
other corporate proceedings on the part of Parent or Sub are necessary to
authorize this agreement or any other Document or for Parent and Sub to
consummate the transactions contemplated hereby or thereby. The Documents to
which Parent or Sub are a party are, or when executed and delivered will be,
valid and binding obligations of Parent or Sub, enforceable against Parent or
Sub in accordance with their terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the
<PAGE>
enforcement of creditors' rights in general and subject to general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).
6.4 Consents and Approvals; No Violations. The execution, delivery and
performance of this agreement by Parent and Sub will not: (i) conflict with or
result in any breach of any provisions of the certificate of incorporation or
by-laws of Parent or of Sub, (ii) require a filing with, or a permit,
authorization, consent or approval of, any Governmental Entity, except in
connection with or in order to comply with the applicable provisions of the
Securities Exchange Act of 1934 (the "Exchange Act") and the filing of a
certificate of merger, (iii) except as set forth on Schedule 6.4, conflict with,
or result in the breach, termination or acceleration of, or constitute a default
under, or result in the creation of a Lien on any property or asset of Parent or
any of its subsidiaries pursuant to any term, condition or provision of any
material Contract to which Parent or Sub is a party or by which either of them
or any of their properties or assets are bound or (iv) violate any law, order,
writ, injunction, decree, statute, rule or regulation of any Governmental Entity
applicable to Parent, Sub or any of their properties or assets.
6.5 Reports and Financial Statements. Since March 31, 1995, Parent has
filed all reports required to be filed with the Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933 (the "Securities Act")
(collectively, the "SEC Reports"). The SEC Reports, as of their respective
dates, complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and none of such SEC
Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the SEC Reports have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated (except as otherwise noted
therein or, in the case of unaudited statements, as permitted by applicable law)
and fairly present (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments and any other adjustments described therein) in
all material respects the consolidated financial position of Parent and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of operations and cash flows of Parent and its consolidated subsidiaries for the
periods then ended. Since the date of Parent's last report on Form 10-Q, there
has not been any fact, event, circumstance or change affecting or relating to
the Company or any of its subsidiaries which has had or is reasonably likely to
have a Parent Material Adverse Effect.
6.6 Brokers. No broker, finder or financial advisor is entitled to any
brokerage finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this agreement based upon arrangements made by
or on behalf of Parent or Sub.
6.7 Dispositions. Parent has no present intention to dispose of a
substantial amount of the stock or assets of the Company.
<PAGE>
7. Covenants of ProHealthCare, the Company and the Stockholders
7.1 Conduct of Business. Prior to the Effective Time, except as Parent
shall otherwise agree in writing or as otherwise expressly contemplated by this
agreement, the Company shall conduct, and ProHealthCare shall cause the Company
to conduct, its business only in the ordinary and usual course consistent with
past practice, and the Company shall use its reasonable efforts to preserve
intact the present business organization, keep available the services of its
present officers and key employees, and preserve the goodwill of those having
business relationships with it. Without limiting the generality of the foregoing
and except as contemplated by this agreement, prior to the Effective Time,
unless Parent shall otherwise agree in writing:
(a) the Company shall not (i) amend its charter, by-laws or other
organizational documents, (ii) split, combine or reclassify any shares of
its outstanding capital stock, (iii) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property, or (iv) directly
or indirectly redeem or otherwise acquire any shares of its capital stock;
(b) the Company shall not (i) authorize for issuance, issue or sell or
agree to issue or sell any shares of, or Rights to acquire any securities
or convertible into any shares of, its capital stock; (ii) merge or
consolidate with another entity; (iii) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization or otherwise acquire any assets
outside the ordinary and usual course of business and consistent with past
practice; (iv) enter into any material contract, commitment or transaction
outside the ordinary and usual course of business consistent with past
practice; (v) sell, lease, license, waive, release, transfer, encumber or
otherwise dispose of any of its assets outside the ordinary and usual
course of business and consistent with past practice; (vi) incur, assume or
prepay any material indebtedness or any other material liabilities other
than in the ordinary course of business and consistent with past practice;
(vii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person; (viii) make any loans, advances or capital contributions to,
or investments in, any other person, other than extensions of credit to
customers in the ordinary course of business consistent with past practice;
(ix) authorize or make capital expenditures other than in the ordinary
course of business consistent with past practice; (x) change any accounting
principle or practice used by it, except as required by generally accepted
accounting principles; (xi) permit any insurance policy naming the Company
as a beneficiary or a loss payee to be cancelled or terminated other than
in the ordinary course of business; or (xii) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
and
(c) the Company shall not (i) adopt, enter into, terminate or amend
(except as may be required by applicable law) any Company Plan or other
arrangement for the current or future benefit or welfare of any director,
officer or current or former employee, (ii) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee of the Company (except for normal increases in salaried
compensation in the ordinary course of business consistent with past
practice), or (iii) take any action to fund or in any
<PAGE>
other way secure, or to accelerate or otherwise remove restrictions with
respect to, the payment of compensation or benefits under any employee
plan, agreement, contract, arrangement or other Company Plan.
7.2 No Solicitation. Prior to the Effective Time, ProHealthCare agrees that
neither it, any of its subsidiaries or any of their affiliates, nor any of the
respective directors, officers, employees, agents or representatives of the
foregoing will, directly or indirectly, solicit, initiate, facilitate or
knowingly encourage (including by way of furnishing or disclosing non-public
information) any inquiries or the making of any proposal with respect to any
merger, consolidation or other business combination involving ProHealthCare, the
Company or any other subsidiary of ProHealthCare or the acquisition of any
securities of, or of all or any significant assets of, ProHealthCare, the
Company or any other subsidiary of ProHealthCare, taken as a whole, (an
"Acquisition Transaction") or enter into or continue any discussions or
negotiations with any person (other than Parent and its representatives) with
respect to any Acquisition Transaction or enter into any agreement, arrangement
or understanding with respect to any such Acquisition Transaction or which would
require it to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this agreement. ProHealthCare and the Company agree
that as of the date of this agreement, they, and their affiliates, and the
respective directors, officers, employees, agents and representatives of the
foregoing, shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person (other than Parent and
its representatives) conducted heretofore with respect to any Acquisition
Transaction. ProHealthCare and the Company agree to immediately advise Parent in
writing of any inquiries or proposals received by, any information requested
from, or any negotiations or discussions sought to be initiated or continued
with, any of ProHealthCare, its subsidiaries or affiliates, or any of the
respective directors, officers, employees, agents or representatives of the
foregoing, in each case from a person (other than Parent and its
representatives) with respect to an Acquisition Transaction, and the terms
thereof, including the identity of such third party, and to update on an ongoing
basis or upon Parent's request, the status thereof.
7.3 Access and Information.
(a) ProHealthCare and the Company shall (and shall cause its respective
officers, directors, employees, auditors and agents to) afford to the Parent and
to the Parent's officers, employees, financial advisors, legal counsel,
accountants, consultants and other representatives reasonable access during
normal business hours throughout the period prior to the Effective Time to all
books and records (other than privileged documents) relating to the Company,
properties and plants used in connection with the Company's business and
personnel who are familiar with the Company's business.
(b) Unless otherwise required by law, Parent agrees that (i) prior to the
Effective Time, it (and its representatives) shall hold in confidence all
non-public information acquired by it pursuant to this section 7.3 and (ii) it
(and its representatives) shall hold in confidence all non-public information
acquired by it pursuant to this section 7.3 that relates solely
<PAGE>
to ProHealthCare, including without limitation information relating to the sale
of ProHealthCare of Miami Beach, Inc. d/b/a Stratogen Health of Miami Beach
("Stratogen").
8. Covenant of Parent.
Subject to section 9.7 of this agreement, Parent shall use all reasonable
efforts to collect in a timely fashion all accounts receivable of the Company
outstanding as of the Closing Date, and Parent shall not compromise, reduce or
release any such accounts receivable without the consent of ProHealthCare, which
consent shall not be unreasonably withheld. Subject to section 10.2(j), Parent
shall not (in a manner that deviates from the Company's past practices) delay
payment of any material account payable of the Company outstanding as of the
Closing Date.
9. Additional Agreements.
9.1 Reasonable Best Efforts. Subject to the terms and conditions of this
agreement, each party agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this agreement, including, without
limitation, the obtaining of all necessary waivers, consents and approvals and
the effecting of all necessary registrations and filings.
9.2 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
9.3 Public Announcements. None of Parent, ProHealthCare or the Company
shall issue any press release or otherwise make any public statement with
respect to this agreement or the transactions contemplated hereby without the
prior consent of the others, which consent shall not be unreasonably withheld or
delayed; provided, however, that such disclosure can be made without obtaining
such prior consent if (a) the disclosure is required by law and (b) the party
making such disclosure has first used all reasonable efforts to consult with the
other party about the form and substance of such disclosure.
9.4 Supplemental Disclosure. ProHealthCare shall give prompt notice to
Parent, and Parent shall give prompt notice to ProHealthCare, of (a) the
existence, nonexistence, occurrence, or non-occurrence, of any fact,
circumstance or event the existence, nonexistence, occurrence, or non-occurrence
of which would be likely to cause (i) any representation or warranty by any
party contained in this agreement to be untrue or inaccurate or (ii) any
covenant, condition or agreement contained in this agreement not to be complied
with or satisfied and (b) any failure of ProHealthCare, the Company or Parent,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this section 9.4 shall not have any
<PAGE>
effect for the purpose of determining the satisfaction of the conditions set
forth in section 10 of this agreement or otherwise limit or affect the remedies
available hereunder to any party.
9.5 Deposits of Certain Payments. After the Closing, ProHealthCare shall
deposit in a separate account established by the Surviving Corporation (the
"Stratogen Account"), as and when received by ProHealthCare, the first $90,000
of the payments made by the purchaser of Stratogen after the Closing Date;
provided that ProHealthCare shall not be required to deposit, during any one
month, an amount in excess of the product of the number of months elapsed since
the Closing Date multiplied by $15,000. The amounts on hand in such account (i)
may be used by the Surviving Corporation to discharge the obligations assumed by
ProHealthCare pursuant to section 10.2(j) of this agreement, (ii) after March
31, 1997, may be used by the Surviving Corporation, at any time that Net Liquid
Assets during a month (without giving effect to prior months) is a negative
number, to discharge liabilities of the Company that were outstanding as of the
Closing Date, and, (iii) to the extent not used pursuant to the preceding
clauses (i) and (ii), shall be paid to ProHealthCare within five days after the
first anniversary of the Closing Date or, if earlier, the date on which
ProHealthCare certifies to Parent that the aggregate liabilities (as determine
in accordance with GAAP) of ProHealthCare do not exceed $25,000. Upon request by
ProHealthCare, Parent may, in its sole and absolute discretion, from time to
time, permit ProHealthCare to withdraw from the Stratogen Account amounts
required by ProHealthCare to satisfy obligations of ProHealthCare; provided that
ProHealthCare shall agree to refund to the Stratogen Account, within 30 days
from the date of withdrawal, any amount withdrawn from the Stratogen Account by
ProHealthCare pursuant to this sentence (it being understood that ProHealthCare
shall not be required to so refund the Stratogen Account after all amounts in
the Stratogen Account have been paid to ProHealthCare pursuant to the
immediately preceding sentence).
9.6 Leased Property. After the Closing and during the term of the lease
dated June 26, 1995 between ProHealthCare and Mario Curiale ("Lessor"),
ProHealthCare shall permit Parent and the Surviving Corporation full and
exclusive use of the property subject to that lease (the "Premises") for a
period concurrent with the term of such lease; provided that the Surviving
Corporation shall, during the term of such lease, (a) pay to Lessor, on behalf
of ProHealthCare, (i) when rent is due to Lessor, an amount equal to such rent
due under such lease and (ii) any other amounts due under such lease that arise
out of the Surviving Corporation's use of the Premises after the Closing and (b)
satisfy any other obligation under such lease that arises out of the Surviving
Corporation's use of the Premises after the Closing. The Surviving Corporation
shall promptly negotiate in good faith with Lessor for an agreement with Lessor
to lease the Premises. If, prior to June 30, 1997, the Surviving Corporation has
not entered into an agreement to lease the Premises, the Surviving Corporation
shall assume all ProHealthCare's rights and obligations under ProHealthCare's
lease of the Premises; provided that any lease assumed by the Surviving
Corporation pursuant to this sentence shall contain terms no less favorable to
the lessee than the terms of the lease dated June 26, 1995, and provided further
that Parent shall not assume any obligation to pay any amounts due under such
lease arising out of the Company's use of the Premises prior to the Closing
Date. ProHealthCare shall be entitled to maintain on the Premises,
<PAGE>
at no cost and for a period of one year or, if shorter, for as long as Parent is
using the Premises, an office for administrative purposes; provided that such
office shall be for the exclusive use of the president of ProHealthCare (it
being understood that Parent may exclude from such office any other person), and
provided further that ProHealthCare's right to maintain such office may be
terminated by Parent upon not less than 60 days' notice. Parent may, in its sole
and absolute discretion, grant access to such office to other officers and
directors of ProHealthCare and their respective agents, advisors and
representatives, for the sole purpose of examining the books and records of
ProHealthCare.
9.7 Accounts Receivable. If Parent determines, in its sole discretion, that
any Accounts Receivable are uncollectable, Parent shall, or shall cause the
Surviving Corporation to, assign to ProHealthCare, those Accounts Receivable.
Parent shall, or shall cause the Surviving Corporation to, assign to
ProHealthCare all Accounts Receivable that are uncollected as of December 31,
1997. For purposes of calculation of Net Liquid Assets and Final Net Liquid
Assets, no value shall be given to any Accounts Receivable assigned to
ProHealthCare pursuant to this section 9.7.
10. Conditions to Consummation of the Merger
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions,
unless waived in writing by each party:
(a) No Governmental Action. No Governmental Entity (including a
federal or state court) of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which materially
restricts, prevents or prohibits consummation of the Merger or any
transaction contemplated by this agreement; provided, however, that the
parties shall use all reasonable efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted.
(b) Board Approval. The Board of Directors of Parent shall have
approved this Agreement and the transactions contemplated hereunder,
including, without limitation, the Merger, and that approval shall not have
been withdrawn.
10.2 Conditions to Obligations of Parent and Sub to Effect the Merger. The
obligations of Parent and Sub to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by Parent:
(a) Representations and Warranties. The representations and warranties
of ProHealthCare, the Company and Stockholders set forth in this agreement
shall be true and correct in all material respects, as of the date of this
agreement, and, except to the extent such representations and warranties
speak as of an earlier date, as of the Effective Time as though
<PAGE>
made at and as of the Effective Time, and Parent shall have received a
certificate signed on behalf of ProHealthCare by the chief executive
officer or the chief financial officer of ProHealthCare to such effect.
(b) Performance of Obligations of the Company. ProHealthCare, the
Company and each Stockholder shall have performed in all material respects
all obligations required to be performed by it under this agreement at or
prior to the Effective Time.
(c) Consent. All notices to, and consents, approvals and waivers set
forth on Schedule 5.5, Schedule 5.10 and Schedule 6.4, including, without
limitation, the consents required pursuant to section 10.2(j), shall have
been obtained, in each case without any condition or qualification adverse
to Parent or Sub.
(d) Employment Agreement. Thomas Laurita shall have entered into an
employment agreement with the Company (the "Employment Agreement") in
substantially the form attached to this agreement as Exhibit A; provided
that the Employment Agreement shall not contain terms substantially more
favorable to Thomas Laurita than the terms set forth in Exhibit A and that
the definition and calculation of Incremental Gross Profit shall be the
same in the Employment Agreement as in this agreement.
(e) Non-Competition Agreement. Thomas Laurita shall have entered into
a non-competition agreement with Parent and the Company in substantially
the form attached to this agreement as Exhibit B (the "Non-Competition
Agreement").
(f) Releases. Each Stockholder shall have executed and delivered to
the Company a general release in the form annexed hereto as Exhibit C-1,
and Susan Bauer and ProHealthCare Registered Nursing PC shall have executed
and delivered a release in form and substance reasonably satisfactory to
Parent.
(g) Permits. ProHealthCare shall have caused to have been transferred
or issued to the Company all Permits that are transferrable or issuable to
the Company and which were not theretofore originally issued in the name of
the Company.
(h) Tax Provisions Agreement. ProHealthCare shall have entered into a
tax provisions agreement with Parent and the Company substantially in the
form attached to this agreement as Exhibit D (the "Tax Provisions
Agreement").
(i) Escrow Agreement. ProHealthCare shall have entered into the escrow
agreement referred to in section 12.3 of this agreement.
(j) Assumption of Certain Liabilities. ProHealthCare shall have
assumed, pursuant to an assignment and assumption agreement in
substantially the form of Exhibit E-2 to this agreement, those liabilities
of the Company indicated on Schedule 3.1.
<PAGE>
(k) Opinion of Counsel. Parent shall have received an opinion dated
the Closing Date of Crummy, Del Deo, Dolan, Griffinger & Vecchione in
substantially the form attached to this agreement as Exhibit F.
(l) Certifications. Thomas Laurita shall have delivered to the Parent
a certificate to the effect that he has not:
(1) filed or had filed against him a petition under the Federal
bankruptcy laws or any state insolvency law;
(2) had a receiver, fiscal agent or similar officer appointed by
a court for his business or property or any partnership in which he
was a general partner at, or any time after, January 1, 1994 or any
corporation or business association of which he was an executive
officer at, or any time after, January 1, 1994;
(3) been convicted in a criminal proceeding or named subject of a
pending criminal proceeding;
(4) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated
by the Commodities Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with such
activity,
(ii) engaging in any type of business or practice or
(iii) engaging in any activity in connection with the
purchase or sale of any security or in connection with any
violation of Federal or state securities laws;
(5) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or state
authority barring, suspending or otherwise limiting for more than 60
days the right of such person to engage in any activity described in
paragraph (d) above, or to be associated with persons engaged in any
such activity;
<PAGE>
(6) been found by a court of competent jurisdiction in a civil
action or by the Securities Exchange Commission to have violated any
Federal or state securities law, and the judgment in such civil action
or finding by the Securities Exchange Commission has not been
subsequently reversed, suspended or vacated;
(7) been found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated
any Federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated;
(8) failed to file any federal or state tax returns required to
be filed by him, filed any tax return that is incomplete or incorrect
in any material respect, failed to pay in full or make adequate
provision for the payment in full of all taxes shown to be due on his
tax returns, or received any notice of deficiency or assessment from
any federal or state taxing authority with respect to liabilities for
taxes that have not been fully paid or finally settled; or
(9) except as set forth in Schedule 5.13, performed services for
ProHealthCare or the Company in violation of any contract or other
obligation by which he is or was bound, including, but not limited to,
any non-competition agreement.
(m) Assignment of Assets. ProHealthCare shall have assigned to the
Company, pursuant to an assignment agreement in form and substance
reasonably satisfactory to Parent, all the inventory, trade accounts
receivable (other than trade accounts receivable that arose from the
business of Stratogen prior to the date of this agreement) and fixed assets
and equipment of ProHealthCare reflected on the Interim Balance Sheet.
10.3 Conditions to Obligation of ProHealthCare and the Company to Effect
the Merger. The obligation of ProHealthCare, the Company and the Stockholders to
effect the Merger shall be subject to the satisfaction at or prior to the
Effective Time of the following additional conditions, unless waived in writing
by ProHealthCare:
(a) Representations and Warranties. The representations and warranties
of Parent set forth in this agreement shall be true and correct in all
material respects as of the date of this agreement, and, except to the
extent such representations and warranties speak as of an earlier date, as
of the Effective Time as though made on and as of the Effective Time, and
ProHealthCare shall have received a certificate signed on behalf of Parent
by the chief executive officer or the chief financial officer of Parent to
such effect.
(b) Performance of Obligations of Parent and Sub. Each of Parent and
Sub shall have performed in all material respects all obligations required
to be performed by it under this agreement at or prior to the Effective
Time.
<PAGE>
(c) Registration Rights Agreement. Parent shall have entered into a
registration rights agreement with ProHealthCare in the form attached to
this agreement as Exhibit G (the "Registration Rights Agreement").
(d) Opinion of Counsel. The Company and Stockholders shall have
received the opinion of Proskauer Rose Goetz & Mendelsohn LLP dated the
Closing Date in substantially the form attached to this agreement as
Exhibit H.
11. Termination
11.1 Termination. This agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual consent of Parent and ProHealthCare;
(b) by either Parent or ProHealthCare, if the Merger shall not have
been consummated before April 1, 1997 (unless, in the case of any
termination pursuant to this section 11.1(b), the failure to so consummate
the Merger by such date shall have been caused by the action or failure to
act of the party (or its subsidiaries) seeking to terminate this agreement,
which action or failure to act constitutes a breach of this agreement);
(c) by Parent, if (i) there has been any material breach of warranty
or material misrepresentation by ProHealthCare, the Company or any
Stockholder set forth in this agreement or (ii) there has been a breach in
any material respect of any of the covenants or agreements set forth in
this agreement on the part of ProHealthCare, the Company or any
Stockholder, in either case, which breach is not curable or, if curable, is
not cured within 30 days after written notice of such breach is given by
Parent to ProHealthCare; or
(d) by ProHealthCare, if (i) there has been a material breach of
warranty or material misrepresentation by Parent set forth in this
agreement or (ii) there has been a breach in any material respect of any of
the covenants or agreements set forth in this agreement on the part of
Parent, in either case, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by
ProHealthCare to Parent.
11.2 Effect of Termination. In the event of termination of this agreement
pursuant to this section 11, the Merger shall be deemed abandoned and this
agreement shall forthwith become void, without liability on the part of any
party hereto, except as provided in sections 7.3(b), 9.2 and (to the extent
applicable to the foregoing sections) 13 and except that nothing in this section
11.2 shall relieve any party from liability for any breach of this agreement.
<PAGE>
12. Indemnification
12.1 Survival. All representations and warranties contained in sections 5
and 6 of this agreement shall survive the Closing, subject to section 12.3
hereof, notwithstanding any examination or investigation made by or for any
party. Each party hereto shall be deemed to have waived its right to
indemnification hereunder with respect to Losses (as defined in section 12.2)
other than Losses involving a third party, which arise out of or in connection
with any misrepresentation, breach of warranty or breach or nonfulfillment of
any covenant or agreement known to such party on the Closing Date.
12.2 Indemnification by the Stockholders. ProHealthCare and the
Stockholders shall jointly and severally indemnify, defend and hold harmless
Parent, Sub and the Surviving Corporation and their respective affiliates,
directors, officers, employees, agents and representatives and all of their
successors and assigns (collectively, "Parent Claimants"), promptly upon demand
at any time and from time to time, against any and all claims, actions,
liabilities, losses, costs, damages or expenses whatsoever (including without
limitation reasonable attorneys' fees and disbursements) (collectively,
"Losses") whether involving a third party or between the parties to this
agreement that any Parent Claimant may suffer, sustain or become subject to
arising out of or in connection with (a) any misrepresentation or breach of any
warranty of any Stockholder, ProHealthCare or the Company contained in this
agreement) or; (b) any breach or nonfulfillment of any covenant or agreement of
any Stockholder, ProHealthCare or the Company contained in this agreement.
Notwithstanding anything in this section 12 to the contrary, but subject to
section 2.4 of the Tax Provisions Agreement, the Sellers' and the Buyer's
indemnification obligations with respect to Income Taxes (as defined in the Tax
Provisions Agreement) shall be exclusively governed by the Tax Provisions
Agreement.
12.3 Limitation on Indemnification. Subject to section 3.4(c), but
notwithstanding anything else to the contrary contained in this agreement (a) no
party hereto shall be obligated to indemnify any party pursuant to this section
12 with respect to any claim for indemnification asserted after the first
anniversary of the Closing Date unless such claim is based upon a breach of the
representations and warranties contained in sections 5.1, 5.2, 5.4, 5.5., 5.11,
5.15, 6.1, 6.2, 6.3 or 6.4 hereof, and (b) the sole remedy of any Parent
Claimant pursuant to this section 12 with respect to ProHealthCare or any
Stockholder shall be to obtain from the Indemnity Escrow, as hereinafter
defined, shares of Parent Common Stock, as hereinafter provided. At the Closing,
the Stockholders shall deposit into escrow with counsel for ProHealthCare (the
"Indemnity Escrow Agent"), and subject to the terms and conditions of an escrow
agreement to be entered into by ProHealthCare, Parent and the Indemnity Escrow
Agent in form and substance satisfactory to such parties, 225,000 shares of
Parent Common Stock (the "Indemnity Escrow Shares"). The Indemnity Escrow Shares
shall be available to satisfy the indemnification claims of Parent Claimants
pursuant to this section 12 and for such purpose shall be valued as of the date
such shares are released to Parent at a price per share equal to the average
closing price for Parent Common Stock on NASDAQ or the average of the last per
share bid prices for Parent Common Stock on the over-the-counter Bulletin Board
(as reported by the
<PAGE>
Nasdaq Stock Market, Inc.), as the case may be, in each case for the 30 trading
days preceding such release. Unless a claim or claims by Parent Claimants are
then pending, in amounts in excess of the then value of 112,500 shares of Parent
Common Stock, 112,500 shares of Parent Common Stock shall be released six months
after the Closing and, unless any claim or claims by Parent Claimants are then
pending, the balance shall be released on the later of the first anniversary of
the Closing Date and such date on which the aggregate liabilities (as determined
in accordance with GAAP) of ProHealthCare do not exceed $25,000.
12.4 Indemnification by Parent. Parent shall indemnify, defend and hold
harmless ProHealthCare, the Stockholders, and their respective affiliates and
directors, officers, employees, agents and representatives (collectively, the
"Company Claimants"), promptly upon demand at any time and from time to time
against any and all Losses asserted against, imposed upon or incurred by any
Company Claimant resulting from or arising out of (a) any misrepresentation or
breach of any warranty of Parent or Sub contained in this agreement, or (b) any
breach or nonfulfillment of any covenant or agreement of Parent or Sub contained
in this agreement.
12.5 Indemnification Procedures.
(a) An indemnified party shall promptly give written notice to the
indemnifying party after the indemnified party has knowledge that any legal
proceeding has been instituted or any claim has been asserted in respect of
which indemnification may be sought under the provisions of section 12. If the
indemnifying party, within 10 days after the indemnified party has given such
notice (or within such shorter period of time as an answer or other responsive
motion may be required), shall have acknowledged in writing his or its
obligation to indemnify and shall have furnished to the indemnified party a
bond, letter of credit, escrow or similar arrangement in an amount equal to the
total amount demanded in such claim or proceeding, then the indemnifying party
shall have the right to control the defense of such claim or proceeding, and the
indemnified party shall not settle or compromise such claim or proceeding
without the written consent of the indemnifying party, which consent shall not
unreasonably be withheld or delayed. The indemnified party may in any event
participate in any such defense with his or its own counsel and at his or its
own expense.
(b) The indemnified party shall be kept fully informed by the indemnifying
party of such action, suit or proceeding at all stages thereof, whether or not
the indemnified party is represented by counsel. The indemnifying party shall,
at its expense, make available to the indemnified party and its representatives
all books and records of the indemnifying party relating to such proceedings or
litigation, and the parties hereto agree to render to each other such assistance
as they may reasonably require of each other in order to ensure the proper and
adequate defense of any such action, suit or proceeding. The indemnifying party
shall make no settlement of any claims which the indemnifying party has
undertaken to defend, without the indemnified party's consent, unless the
indemnifying party fully indemnifies the indemnified party for all losses, there
is no finding or admission of violation of law by, or effect on any other claims
<PAGE>
that may be made against, the indemnified party and the relief granted in
connection therewith requires no action on the part of and has no effect on the
indemnified party.
13. Miscellaneous
13.1 Amendment and Modification. Prior to the Effective Time, this
agreement may be amended or modified only by written agreement of Parent, Sub,
ProHealthCare, the Company and the Stockholders.
13.2 Waiver. Prior to the Effective Time, Parent and Sub, on the one hand,
and ProHealthCare, the Company and the Stockholders, on the other hand, may
waive compliance by the other with any provision of this agreement. No waiver of
any provision shall be construed as a waiver of any other breach of that
provision or of any other provision of this agreement. Any waiver must be in
writing.
13.3 Notices. Any notice or other communication under this agreement shall
be in writing and shall be considered given upon receipt, if personally
delivered or telecopied, or one day after delivery to a courier for next-day
delivery, to the parties at the addresses set forth below (or at such other
address as a party may specify by notice to the others).
If to Parent or Sub, to it at:
Accuhealth, Inc.
1575 Bronx River Avenue
Bronx, New York 10460
Facsimile number: 718-824-2432
Attention: Glenn C. Davis
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Facsimile number: 212-969-2900
Attention: Robert A. Cantone, Esq.
<PAGE>
if to ProHealthCare, the Company or any Stockholder, to it, him or her at:
ProHealthCare, Inc.
30 Hillside Avenue
Springfield, New Jersey 07081
Attention: Thomas Laurita
with copies to:
David Brian Cohen
c/o Bonnie Nelson
1000 Island Boulevard
Apartment 2509
North Miami, Florida 33160
and
Crummy, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102-5497
Facsimile number: 201-596-0545
Attention: Jeffrey A. Baumel, Esq.
13.4 Headings. The section headings of this agreement are for reference
purposes only and shall not affect the construction or interpretation of this
agreement.
13.5 Entire Agreement; Assignment. This agreement (including the schedules
and exhibits) contains a complete statement of the understanding of the parties
with respect to its subject matter and supersedes and cancels any prior
communications, understandings and agreements among them relating to that
subject matter. This agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns;
provided that neither this agreement nor any right or obligation under this
agreement may be assigned or transferred, except that (a) Parent or Sub may
assign its rights and obligations hereunder to a direct or indirect subsidiary
of Parent, but no such assignment shall relieve Parent or Sub, as the case may
be, of its obligations hereunder, and (b) ProHealthCare may assign its rights
and obligations under sections 8.6 and 8.9 to its stockholders. If Parent shall
issue by merger or any similar corporate event other securities of Parent or of
any successor of Parent, each reference in this agreement to Parent Common Stock
shall be deemed to be a reference to such kind and number of shares into which
Parent Common Stock shall have been converted.
<PAGE>
13.6 Governing Law. This agreement shall be governed by and construed in
accordance with the law of the state of New York excluding choice-of-law
principles.
13.7 Severability. The parties agree that any provision of this agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
13.8 Counterparts. This agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
<PAGE>
The parties have executed this agreement as of the date set forth above.
ACCUHEALTH, INC.
By:__________________________________
Name:
Title:
ACH ACQUIRING CORP.
By:__________________________________
Name:
Title:
PROHEALTHCARE, INC.
By:__________________________________
Name:
Title:
PROHEALTHCARE INFUSION SERVICES, INC.
By:__________________________________
Name:
Title:
STOCKHOLDERS:
-------------------------------------
Thomas Laurita
-------------------------------------
David Brian Cohen
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<C> <S> <C> <C>
1. The Merger; The Surviving Corporation........................................................................1
1.1 The Merger..........................................................................................1
1.2 Closing.............................................................................................1
1.3 Effective Time of the Merger........................................................................1
1.4 Certificate of Incorporation and By-Laws............................................................1
2. Conversion of Shares; Options................................................................................2
2.1 Treatment of Shares of the Company..................................................................2
2.2 Exchange of Company Stock...........................................................................2
2.3 No Fractional Securities............................................................................4
2.4 Determination of Final Incremental Gross Profit.....................................................4
3. Determination of Final Net Liquid Assets; Adjustment to Merger Consideration.................................6
3.1 Parent Calculation of Net Liquid Assets.............................................................6
3.2 ProHealthCare's Verification of Net Liquid Assets...................................................6
3.3 Dispute Resolution..................................................................................7
3.4 Final Net Liquid Assets.............................................................................8
3.5 Treatment of Intercompany Advances..................................................................8
4. Tangible Property; Adjustment to Merger Consideration........................................................8
4.1 Calculation of Tangible Property....................................................................8
4.2 Adjustment to Merger Consideration..................................................................9
5. Representations and Warranties of ProHealthCare..............................................................9
5.1 Organization........................................................................................9
5.2 Capitalization......................................................................................9
5.3 Subsidiaries........................................................................................9
5.4 Authority..........................................................................................10
5.5 Consents and Approvals; No Violations..............................................................10
5.6 Financial Statements...............................................................................10
5.7 Absence of Undisclosed Liabilities.................................................................11
5.8 Absence of Certain Changes or Events...............................................................11
5.9 Material Contracts.................................................................................11
5.10 No Default.........................................................................................12
5.11 Compliance with Law................................................................................12
5.12 Health Care Matters................................................................................13
5.13 Litigation, etc....................................................................................13
5.14 Permits. .........................................................................................14
5.15 Taxes..............................................................................................14
5.16 Title to Properties; Encumbrances..................................................................14
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C>
5.17 Proprietary Rights.................................................................................14
5.18 Employee Benefit Plans; ERISA; Labor Matters.......................................................15
5.19 Environmental Laws and Regulations.................................................................16
5.20 Brokers............................................................................................16
6. Representations and Warranties of Parent....................................................................17
6.1 Organization.......................................................................................17
6.2 Capitalization.....................................................................................17
6.3 Authority..........................................................................................17
6.4 Consents and Approvals; No Violations..............................................................18
6.5 Reports and Financial Statements...................................................................18
6.6 Brokers............................................................................................18
6.7 Dispositions.......................................................................................18
7. Covenants of ProHealthCare, the Company and the Stockholders................................................19
7.1 Conduct of Business................................................................................19
7.2 No Solicitation....................................................................................20
7.3 Access and Information.............................................................................20
8. Covenant of Parent..........................................................................................21
9. Additional Agreements.......................................................................................21
9.1 Reasonable Best Efforts............................................................................21
9.2 Expenses...........................................................................................21
9.3 Public Announcements...............................................................................21
9.4 Supplemental Disclosure............................................................................21
9.5 Deposits of Certain Payments.......................................................................22
9.6 Leased Property....................................................................................22
9.7 Accounts Receivable................................................................................23
10. Conditions to Consummation of the Merger....................................................................23
10.1 Conditions to Each Party's Obligation to Effect the Merger.........................................23
10.2 Conditions to Obligations of Parent and Sub to Effect the Merger. .................................23
10.3 Conditions to Obligation of ProHealthCare and the Company to Effect the Merger. ...................26
11. Termination.................................................................................................27
11.1 Termination........................................................................................27
11.2 Effect of Termination..............................................................................27
12. Indemnification.............................................................................................28
12.1 Survival...........................................................................................28
12.2 Indemnification by the Stockholders................................................................28
12.3 Limitation on Indemnification......................................................................28
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C>
12.4 Indemnification by Parent..........................................................................29
12.5 Indemnification Procedures.........................................................................29
13. Miscellaneous...............................................................................................30
13.1 Amendment and Modification.........................................................................30
13.2 Waiver.............................................................................................30
13.3 Notices............................................................................................30
13.4 Headings...........................................................................................31
13.5 Entire Agreement; Assignment.......................................................................31
13.6 Governing Law......................................................................................32
13.7 Severability.......................................................................................32
13.8 Counterparts.......................................................................................32
</TABLE>
SCHEDULES
Schedule 2.4 -- Referral Sources
Schedule 3.1 -- Pre-Closing Liabilities
Schedule 3.5 -- Certain Intercompany Advances
Schedule 4.1 -- Tangible Property
Schedule 5.5 -- Consents
Schedule 5.6A -- Financial Statements
Schedule 5.6B -- Financial Statements - Exceptions
Schedule 5.7 -- Liabilities
Schedule 5.8 -- Certain Changes and Events
Schedule 5.9 -- Material Contracts
Schedule 5.10 -- Defaults
Schedule 5.12(a) -- Health Care Cost Reports, Submissions and Filings
Schedule 5.12(c) -- Agreements with Referral Sources, Etc.
Schedule 5.13 -- Litigation, Etc.
Schedule 5.15 -- Taxes
Schedule 5.16A -- Title to Properties
Schedule 5.16B -- Certain Property
Schedule 5.17 -- Proprietary Rights
Schedule 5.18 -- Employee Benefit Plans
Schedule 5.20 -- Brokers
Schedule 6.4 -- Consents
<PAGE>
EXHIBITS
Exhibit A -- Employment Agreement
Exhibit B -- Non-Competition Agreement
Exhibit C-1 -- Form of Release
Exhibit D -- Tax Provisions Agreement
Exhibit E-1 -- Form of Assignment and Assumption Agreement
Exhibit E-2 -- Form of Assignment and Assumption Agreement
Exhibit F -- Opinion of ProHealthCare's Counsel
Exhibit G -- Registration Rights Agreement
Exhibit H -- Opinion of Parent's Counsel
Exhibit 11
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended March 31
-------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding 1,400,423 1,273,276 1,410,153
Net effect of dilutive stock options - based on the
treasury method using average market price -- -- 62,701
--------- --------- ---------
Total 1,400,423 1,273,276 1,472,854
--------- --------- ---------
(Loss) income from continuing operations $ 126,731 $(778,332) $676,135
Redeemable preferred stock dividends and accretions 162,000 203,836 106,847
--------- --------- --------
(Loss) income from continuing operations applicable to
common stockholders ( 35,269) (982,168) 569,288
--------- --------- --------
(Loss) income before extraordinary item applicable to
common stockholders ( 35,269) (982,168) 290,555
Extraordinary item -- -- 60,000
--------- --------- --------
Net (loss) income applicable to common stockholders $( 35,269) $(982,168) $350,555
---------- ---------- --------
Per-share amount:
(Loss) income from continuing operations applicable to
common stockholders $(.03) $(.77) $.39
(Loss) income before extraordinary item applicable to
common stockholders $(.03) $(.77) $.20
Extraordinary item -- -- $.04
Net (loss) income applicable to common stockholders $(.03) $(.77) $.24
Fully Diluted(2)
Average shares outstanding 1,410,153
Net effect of dilutive stock options - based on the
treasury method using year-end market price, if higher
than average market price 88,153
Assumed conversion of 6% Cumulative convertible
preferred stock 395,685
---------
Total 1,893,991
---------
(Loss) income from continuing operations applicable to
common stockholders 676,135
---------
(Loss) income before extraordinary item applicable to
common stockholders 397,402
---------
Extraordinary item 60,000
---------
Net (loss) income applicable to common stockholders 350,555
Add preferred stock dividends and accretion 106,847
---------
Total $ 457,402
---------
Per share amount:
(Loss) income from continuing operations applicable to 36 common
stockholders $.36
(Loss) income before extraordinary item applicable to
common stockholders (1)
Extraordinary item $.03
Net (loss) income applicable to common stockholders $.24
(1) Anti-dilutive
(2) Fully diluted computations are not presented for Fiscal 1996 because the effect of the net loss applicable to
common stockholders is anti-dilutive.
</TABLE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
List of subsidiary corporations, each of which is wholly-owned by the
Registrant:
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
Midview Drug, Inc. New York
*Embee Drug, Inc. New York
*Riverview Pharmacy, Inc. New York
Citiview Drug, Inc. New York
*Westview Drug Corp., Inc. New York
*Eastview 87th Street, Inc. New York
*Brittany Chemists, Inc. New York
*Villageview Pharmacy, Inc. New York
Towerview, Inc. New York
Accuhealth Home Care, Inc. Delaware
</TABLE>
*Inactive
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> MAR-31-1997
<CASH> 31,548
<SECURITIES> 0
<RECEIVABLES> 5,596,369
<ALLOWANCES> (317,000)
<INVENTORY> 665,335
<CURRENT-ASSETS> 6,167,575
<PP&E> 4,598,261
<DEPRECIATION> (2,453,900)
<TOTAL-ASSETS> 8,500,165
<CURRENT-LIABILITIES> 6,104,243
<BONDS> 0
0
13,500
<COMMON> 17,876
<OTHER-SE> 6,168,364
<TOTAL-LIABILITY-AND-EQUITY> 8,500,165
<SALES> 16,369,376
<TOTAL-REVENUES> 16,369,376
<CGS> 9,599,256
<TOTAL-COSTS> 9,599,256
<OTHER-EXPENSES> 6,146,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 496,606
<INCOME-PRETAX> 623,337
<INCOME-TAX> 0
<INCOME-CONTINUING> 126,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,731
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
