SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended December 31, 1996
Commission file number 0-20594
COMPSCRIPT, INC.
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(Name of Small Business Issuer in Its Charter)
FLORIDA 65-0506539
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1225 BROKEN SOUND PARKWAY
BOCA RATON, FLORIDA 33481
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(Address of Principal Executive Offices)(Zip Code)
(561) 994-8585
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Securities Exchange Act of
1934:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE NONE
Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
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(Title of Class)
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Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [X]
State registrant's revenues for the year ended December 31, 1996: $20,049,771
State the aggregate market value of the voting stock held by non-affiliates of
the registrant on March 31, 1997 computed by reference to the closing bid price
of the CompScript, Inc. Common Stock as reported by THE WALL STREET JOURNAL on
that date: ($8.125) $72,860,767
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's Common Stock, par value
$.01 per share (the "Common Stock"), as of March 31, 1997, was 13,627,063.
DOCUMENTS INCORPORATED BY REFERENCE
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None.
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PART 1
THE COMPANY
Item 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
CompScript, Inc. (formerly Capital Brands, Inc.,) (the "Company" or
"Compscript") is a comprehensive provider of pharmacy management services
equipped to both lower costs and improve the quality of care to its customers.
CompScript offers a broad range of pharmacy, infusion therapy, consulting
services, mail order, and pharmacy benefit claim administration to managed care
networks, long-term and subacute care facilities, home health patients, and
recipients of managed care. CompScript's proprietary pharmacy management
capabilities combine sophisticated clinical tools with the latest technologies
in databases and drug profiles. CompScript's network of participating retail
pharmacies, along with its electronic on-line adjudication system and a mail
service dispensing facility, allow CompScript to offer a fully integrated
pharmacy benefit management program.
On April 26, 1996, CompScript, Inc. acquired approximately 93% of the
outstanding common stock of CompScript-Boca, Inc. (formerly CompScript, Inc.)
("CompScript-Boca"), a privately-held provider of pharmacy management services
by merger of the Company into CompScript-Boca in exchange for issuance of
7,394,982 shares of the Company's common stock. As a result of this transaction,
CompScript-Boca shareholders became the owners of approximately 80% of the
Company's then outstanding common stock and assumed 100% Control of the
Company's Board of Directors. Accordingly, the acquisition has been treated for
financial reporting purposes as a reverse acquisition. After completion of the
transaction, the Company became the owner of approximately 93% of the
outstanding common stock of CompScript-Boca and accordingly, recorded at the
time of the transaction a minority interest in the acquired subsidiary of
$222,628, representing approximately 7% of the net assets of the acquired
subsidiary on the date of acquisition.
Since May 1996, the Company has consummated four acquisitions of institutional
pharmacy providers located in Mobile, Alabama (May 1996), Miami, Florida
(January 1997), Metaire, Louisiana (February 1997) and Mentor, Ohio (March
1997). and one acquisition of a mail service dispensing pharmacy with its
principal operations in Cleveland, Ohio (August 1996). See Item 1 "Description
of Business Acquisition Strategy"
CompScript presently operates 7 institutional pharmacies that serve long-term
and subacute facilities in Florida, Alabama, Mississippi, Louisiana and Ohio.
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Capital Brands, Inc.'s ("Capital Brands") predecessor, Capital Acquisitions,
Inc. was incorporated in March 1988 as a Delaware corporation. Prior to
September, 1991, Capital Brands was principally engaged in organizational
activities, raising capital through a public offering and searching for and
investigating business opportunities. As a result of the share exchange with the
Company, Capital Brands, Inc. divested itself of its interest in all businesses
except for its ownership interest in QPQ Corporation. On July 26, 1996, the
Company sold its ownership interest in QPQ to the former Chairman of the Board
and Chief Executive Officer and President of Capital Brands in exchange for a
promissory note due in July 1997.
PRODUCTS AND SERVICES
INSTITUTIONAL PHARMACY. CompScript purchases, repackages and dispenses
prescription and non-prescription medication in accordance with physician orders
and delivers such prescriptions at least daily to the nursing facilities for
administration to individual patients by the facility's nursing staff.
CompScript typically services nursing homes within a 150-mile radius of its
pharmacy locations. CompScript maintains a 24-hour, on-call pharmacist service
365 days per year for emergency dispensing and delivery or for consultation with
the facility's staff or attending physician.
Compscript has established a joint commission on accreditation of health care
organizations ("JCAHO") in connection with the Company's long-term care
institutional pharmacy services. This accreditation was received in October
1996, for the Company's Boca Raton facility and the Company intends to attain
such accreditation for its other institutional pharmacy locations. The Company
believes this accreditation distinguishes the Company from many of its
competitors.
Upon receipt of a prescription, the relevant patient information is entered into
CompScript's computerized proprietary dispensing and billing systems. At that
time, the dispensing system will check the prescription for any potentially
adverse drug interactions or patient sensitivity. When required and/or
specifically requested by the physician or patient, branded drugs are dispensed;
generic drugs are substituted in accordance with applicable state and federal
laws and as requested by the physician or patient. The Company also provides
therapeutic interchange, with physician approval, in accordance with the
company's pharmaceutical care guidelines.
CompScript provides a "modified unit-dose" distribution system. Most of its
prescriptions are filled utilizing specialized unit-of-use packaging and
delivery systems. Maintenance medications are typically provided in 30-day
supplies utilizing either a box unit-dose system or unit-dose punch card system.
The unitdoses system, preferred over the bulk delivery systems employed by
retail pharmacies, improves control over drugs in the nursing facility and
improves patient compliance with drug therapy by increasing the accuracy and
timeliness of drug administration.
Integral to CompScript's drug distribution system is its proprietary
computerized medical records and documentation system. CompScript provides to
the facility computerized medication administration records and physician's
order sheets and treatment records for each patient. Data extracted from these
computerized records are also formulated into monthly management reports on
patient care and quality assurance. The computerized documentation system in
combination with the modified unit-dose drug delivery system results in greater
efficiency in nursing time, improved control, reduced drug waste in the facility
and lower error rates in both dispensing and administration. These benefits
improve drug efficacy and result in fewer drug-related failures and
hospitalizations.
CONSULTANT PHARMACIST SERVICES. Federal and state regulations mandate that
nursing facilities, in addition to providing a source of pharmaceuticals, retain
consultant pharmacist services to monitor and report on prescriptions drug
therapy in order to maintain and improve the quality of patient care. The
Omnibus Budget Reconciliation Act ("OBRA") implemented in 1990 seeks to further
upgrade and standardize care
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by setting forth more stringent standards relating to planning, monitoring and
reporting on the progress of prescription drug therapy as well as facility-wide
drug usage.
CompScript provides consultant pharmacist services which help clients comply
with such federal and state regulations applicable to nursing homes. Consultant
pharmacists work on a proprietary laptop program to offer institutions patient
specific clinical data. The services offered by CompScript's consultant
pharmacists include: (i) comprehensive, monthly drug regimen reviews for each
patient in the facility to assess the appropriateness and efficacy of drug
therapies, including a review of the patient's medical records, monitoring drug
reactions to other drugs or food, monitoring lab results and recommending
alternate therapies or discontinuing unnecessary drugs; (ii) participation on
the Pharmacy and Therapeutics, Quality Assurance and other committees of client
nursing facilities as well as periodic involvement in staff meetings; (iii)
monthly inspection of medication carts and storage rooms; (iv) monitoring and
monthly reporting on facility-wide drug usage and drug administration systems
and practices; (v) development and maintenance of pharmaceutical policy and
procedures manuals; and (vi) assistance to the nursing facility in complying
with state and federal regulations as they pertain to patient care.
Additionally, CompScript offers a specialized line of consulting services which
help nursing facilities to enhance care and reduce and contain costs as well as
to comply with state and federal regulations. Under this service line,
CompScript provides: (i) data required for OBRA and other regulatory purposes,
including reports on psychotropic drug usage (chemical restraints), antibiotic
usage (infection control) and other drug usage; (ii) Plan of Care programs which
assess each patient's state of health upon admission and monitor progress and
outcomes using data on drug usage as well as dietary, physical therapy and
social service inputs; (iii) counseling related to appropriate drug usage and
implementation of drug protocols; (iv) on-site educational seminars for the
nursing facility staff on topics such as drug information relating to clinical
indications, adverse drug reactions, drug protocols and special geriatric
considerations in drug therapy, and information and training on intravenous drug
therapy and updates on OBRA and other regulatory compliance issues; (v) mock
regulatory reviews for nursing staffs; and (vi) nurse consultant services and
consulting for dietary, social services and medical records.
ANCILLARY SERVICES. CompScript provides the following ancillary products and
services to nursing facilities:
Infusion Therapy Products and Services. With cost containment pressures in the
health care industry, nursing facilities are increasingly providing subacute
care as a means of treating moderately acute but stabilized patients more
cost-effectively than hospitals, provided that the nursing staff and pharmacy
are capable of supporting higher degrees of acuity. CompScript provides infusion
therapy support services for such residents in its client nursing facilities
and, to a lesser extent, hospice and home care patients. Infusion therapy
consists of the product (a nutrient, antibiotic, chemotherapy or other drugs in
solution) and the intravenous ("IV") administration of the product.
CompScript prepares the product to be administered using proper equipment in a
sterile environment and then delivers the product to the nursing home for
administration by the nursing staff. Proper administration of IV drug therapy
requires a highly trained nursing staff. CompScript's consultant pharmacists and
nurse consultants operate an education and certification program on IV therapy
to assure proper staff training and compliance with regulatory requirements in
client facilities offering an IV program.
By providing an infusion therapy program, CompScript enables its client nursing
facilities to admit and retain patients who otherwise would need to be cared for
in an acute-care facility. CompScript's proprietary computer system and
specialization in the subacute arena have been instrumental in new business
development and the reason over 65% of the facilities are considered subacute or
competent in IV therapy. The Company believes that by providing these high
acuity pharmacy services it has a competitive advantage
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over other pharmacy providers. The most common infusion therapies CompScript
provides in the nursing home environment are total parenteral nutrition,
antibiotic therapy, chemotherapy, pain management and hydration.
HOME INFUSION THERAPY SERVICES. CompScript has established a Joint Commission on
Accreditation of Healthcare Organization ("JCAHO") accredited home infusion
company to serve homebound patients. CompScript offers outcomes management with
an emphasis on diagnosis of level of severity, specialized management reporting,
and statewide coverage, which makes CompScript particularly attractive to
managed care companies. CompScript offers managed care companies a full
continuum of coverage for their clients, from hospitals to subacute units to
long-term care facilities to the patient's homes.
Infusion therapy services involve the administration of prescription drugs and
other products that are prescribed by a physician to a patient by catheter,
feeding tube or intravenously. The Company's managed care clients benefit from
outpatient infusion therapy services because the length of hospital stays can be
reduced. Rather than receiving infusion therapy in a hospital, the Company can
provide infusion therapy services to patients at home, in a physician's office
or in a free-standing center operated by a health maintenance organization
("HMO") or other entity. The Company provides antimicrobial, cardiovascular,
hematologic, nutritional, pain management, chemotherapeutic, hydration,
endocrine, respiratory and AIDS management treatments to patients.
PHARMACY BENEFIT MANAGEMENT SERVICES. The Company's pharmacy benefit management
("PBM") service is the systematic management of outpatient prescription drug
usage to foster high quality, cost-effective pharmaceutical care through the
application of managed care principles and development of information
technologies. PBM services consist of retail pharmacy network administration,
except in the Long-Term Care Pharmacy Network; formulary administration;
electronic point-of-sale claims processing, drug utilization review ("DUR");
mail pharmacy service; and benefit plan design consultation. Advanced PBM
services include the development of advanced formulary compliance and
therapeutic substitution programs; therapy management services such as prior
authorization, therapy guidelines, step therapy protocols, and disease
management interventions, and sophisticated management information reporting and
analytic services.
The Company contracts with retail pharmacies to provide prescription drugs to
members of the pharmacy benefit plans managed by the Company. These pharmacies
typically discount the price at which they will provide drugs to members in
return for designation as a network pharmacy. The Company manages a national
network that is responsive to various client needs related to cost containment
and convenience of access for members. The Company is a provider of PBM services
to the managed care industry, including several large U.S. HMOs.
LONG-TERM CARE PHARMACY NETWORK. In May of 1995, CompScript believes that it
formed the first of its kind, Long-Term Care Pharmacy Network. The network is
comprised of long-term care "closed-shop" institutional pharmacies. This network
is organized to provide full comprehensive services to the institutionalized
frail elderly population with the consistencies of one long-term care model
benefit. This network is being marketed to payers with both national and
regional interests as one pharmaceutical vendor for their long-term/chronic care
pharmaceutical care beneficiaries.
GROUP HEALTHCARE AND WORKERS' COMPENSATION NETWORKS. The Company uses on-line
electronic claims processing to provide effective pharmacy benefit management
services to its clients. All retail pharmacies in the Company's pharmacy network
communicate with the Company on-line and in real time to process
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prescription drug claims. When a member of a plan presents his or her
identification card at a network pharmacy, the network pharmacist sends the
specified claim data in an industry standard format to the Company which
processes the claim and responds to the pharmacy, typically within a few
seconds. The electronic processing of the claim involves confirming the member's
eligibility for benefits under the applicable health benefit plan and the
conditions to or limitations of coverage, such as the amount of copayments or
deductibles the member must pay; performing a concurrent DUR analysis and
alerting the pharmacist to possible drug interactions or other indications of
inappropriate prescription drug usage; updating the member's prescription drug
claim record; and, if the claim is accepted, confirming to the pharmacy that it
will receive payment for the drug dispensed.
The Company provides advanced PBM services to its clients which involve the
application of clinical expertise and sophisticated management information
systems to manage the pharmacy benefit. An important advanced PBM service
provided by the Company is the enhancement of formulary compliance. Formularies
are lists of drugs for which coverage is provided under the applicable plan;
they are widely used in managed health care plans and, increasingly, by other
healthcare risk managers. The Company administers a number of different
formularies for its clients that often identify preferred drugs whose use is
encouraged or required through various benefit design features. Historically,
many clients have selected a plan design which includes an open formulary in
which all drugs are covered by the plan and preferred drugs, if any, are merely
recommended. More advanced formularies consist of restricted formularies, in
which various financial or other disincentives exist to the selection of
non-preferred drugs, or closed formularies, in which benefits are available only
for drugs listed on the formulary. Formulary preferences can be encouraged by
restricting the formulary through plan design features such as tiered
copayments, which require the member to pay a higher amount for a nonpreferred
drug; through prescriber education programs, in which the Company or the managed
care client actively seek to educate the prescribers about the formulary
preferences; and through the Company's therapeutic substitution programs that
target certain high-cost therapy classes for concentrated formulary compliance
efforts.
The Company's electronic claims processing system also enables it to implement
sophisticated intervention programs to assist in managing prescription drug
utilization. The system can be used to alert the pharmacist to generic and
therapeutic substitution opportunities and formulary compliance issues, or to
administer prior authorization and therapy protocol programs at the time a claim
is submitted for processing. The Company's claims processing system also creates
a database of drug utilization information that can be accessed on a
retrospective basis to analyze utilization trends and prescribing patterns for
more intensive management of the drug benefit.
The Company is developing disease management programs to assist health plans in
managing the total health care costs associated with certain diseases, such as
diabetes and asthma, for which pharmaceutical therapy is a principal treatment
regimen. A disease management program may entail mailing information about the
disease to health plan members who have the disease. Additionally, the program
includes periodic reminders to encourage compliance with the therapy. High risk
or noncompliant members can be identified and contacted for individual
counseling, and physicians can be encouraged to follow the health plan's
specified therapy protocol for treating the disease. Disease management programs
that promote compliance with the drug regimen can both reduce complications from
the underlying disease and manage the severity of the disease so that more
expensive drugs or medical procedures can be avoided, thus helping to manage the
total health care cost of the disease.
MAIL SERVICE PHARMACY BENEFITS. The Company integrates its pharmacy network
benefits with its mail service pharmacy benefits provided to its clients. It
operates one mail service pharmacy in Florida that provides members with
convenient access to maintenance medications, and enables the Company and its
clients to control drug costs through purchasing efficiencies and other
economies of scale. In addition,
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through its mail service pharmacy, the Company is able to be directly involved
with the prescriber and member, and is generally able to achieve a higher level
of generic and therapeutic substitution than can be achieved through the retail
pharmacy network, which further reduces the client's costs.
On December 1, 1996, the Company entered into a Master Services Agreement for
administration of Pharmacy Gold, Inc.'s mail service prescription drug plan.
Pharmacy Gold, Inc. ("PGI"), is an affiliate of Blue Cross and Blue Shield of
Minnesota and provides pharmacy benefit management services throughout the
United States and its territories. Under the agreement, CompScript has agreed
that in the performance of its mail order pharmacy functions it will achieve
certain clinical, operational and service requirements including, but not
limited to, dispensing of pharmaceuticals in compliance with PGI's designated
drug formulary; achievement of certain agreed generic replacement efficiency;
assistance in developing educational enrollment materials for PGI and its
clients; filling prescriptions and mailing of such prescriptions to participants
in the plan within a designated number of days after request. The Agreement is
for a five year term expiring November 30, 2001. In order to continue the growth
and expansion of the Company's mail service operations, on January 9, 1997, the
Company entered into a Independent Consulting Agreement ("Consulting Agreement")
with Gerard Altieri, ("Altieri"), a former director of the Company, and Ronald
J. Reith ("Reith"), a former officer of the Company (the "Consultants"). The
Consultants will work with the Company on securing new mail order and related
business for the Company and also work with the Company in connection with its
Agreement with "PGI". The Consulting Agreement provides that for the one year
period through January, 1998 the Consultants shall receive a payment of $50,000
per month which payments shall be extended for an additional 12 month period if
gross revenues (less adjustments) attributable to all PGI business exceed
certain targeted amounts. The Consultants shall provide the Company with
reasonable detailed monthly reports of their activity including the status of
the PGI business and new business. The Consultants shall devote such time as
reasonably necessary to perform services under the Consulting Agreement,
including maintaining and developing the present and future PGI business. In
addition, the Consultants shall receive commissions on gross revenues earned by
the Company each and every year from a customer contract procured by the
Consultants.
ACQUISITION STRATEGY
The Company believes that through consolidation of other companies engaged in
the pharmacy management services it can provide a broad array of high quality
pharmacy and related services in a cost effective manner. Acquisition and
effective integration can result in efficiencies in service delivery,
management, marketing, information systems, administrative functions and
increases in purchasing leverage.
The Company targets acquisition candidates with strong management, a
demonstrated capacity for growth and opportunities to realize efficiencies
through consolidation and integration. The Company identifies acquisition
candidates with management who intend to continue to participate in the
operation of the business but believe that there are more substantial
opportunities in being involved in a larger, stronger organization. The Company
has historically issued equity in CompScript as the purchase price for an
acquired company in order to align the interests of the acquired company's
management with those of CompScript.
On May 31, 1996, in a transaction accounted for as a pooling of interests, the
Company acquired Delta Pharmacy Services, Inc., (Delta). In connection with the
transaction, the Company exchanged 666,350 shares of the Company's Common Stock
for all of the outstanding common stock of Delta. Delta is in the business of
supplying prescription pharmaceuticals, consulting and enteral and parental
therapies to long-term and alternate care providers in Alabama and Northern
Florida.
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On August 19, 1996, in a transaction accounted for as a pooling of interests,
the Company acquired SECURx, Inc., ("SECURx"). In connection with the
transaction, the Company exchanged 187,500 shares of the Company's Common Stock
for all of the outstanding common stock, of SECURx. SECURx is in the business of
selling and distributing prescription drugs through mail order distribution to
the general public through corporate sponsored benefit plans of employers
located in the Northeastern United States.
On January 10, 1997, in a transaction accounted for as a pooling of interests,
the Company acquired Medical Services Consortium, Inc. ("MSC"). In connection
with the transaction, the Company exchanged 1.4 million shares of the Company's
Common Stock for all of the outstanding common stock of MSC. MSC is in the
business of supplying prescription pharmaceuticals, consulting and enteral and
parental therapies to long-term and alternate care providers in South Florida.
On February 28, 1997, in a transaction accounted for as a pooling of interests,
the Company acquired Campo Medical Pharmacy, Inc. ("Campo"). In connection with
the transaction, the Company exchanged 375,000 shares of the Company's Common
Stock for all of the outstanding common stock of Campo. Campo is in the business
of supplying prescription pharmaceuticals, and consulting services to long-term
and alternate care providers in Louisiana.
On March 26, 1997, in a transaction accounted for as a pooling of interests, the
Company acquired Hytree Pharmacy, Inc. ("Hytree"). In connection with the
transaction, the Company exchanged 850,000 shares of the Company's Common Stock
for all of the outstanding common stock of Hytree. Hytree is in the business of
providing institutional pharmacy services, home care, distribution of durable
medical equipment and supplies in Ohio.
In connection with the Company's acquisition strategy, on October 1, 1996, the
Company entered into a five year Consulting and Acquisition Management
Agreement with Shulman & Associates Inc. ("Shulman"), pursuant to which Shulman
would assist CompScript in identifying, evaluating, structuring, negotiating,
and closing business acquisitions, including, but not limited to, asset
purchases, consolidations, mergers, joint ventures and strategic alliances. In
connection with such agreement, Shulman will receive a fee of 15,000 shares of
the Company's Common Stock if the "aggregate market value" (defined in such
agreement) of the acquisition transaction is up to $5,000,000, 30,000 shares if
the aggregate market value of the acquisition transaction is between $5,000,000,
but less than $10,000,000, and 45,000 shares of the aggregate market value if
the acquisition transaction is in excess of $10,000,000. In the event the
Company consummates a merger or consolidation involving itself or 50% or more of
its voting stock or a substantial portion of its assets is acquired in any one
transaction by way of tender or exchange offer, negotiated purchase or
otherwise, Shulman shall be paid a fee for 3% of the aggregate market value of
the business combination with a minimum of $1,000,000 and a maximum of
$3,000,000, provided, that if Shulman introduces the transaction to the Company
there shall be no maximum fee limitation.
SUPPLIERS
The Company's inventory in its pharmacies includes over 3,000 brand and generic
pharmaceuticals. If a pharmaceutical is not in its inventory, the Company can
generally obtain it from a supplier within one to two business days. The Company
purchases its pharmaceuticals primarily through wholesale distributors. Generic
pharmaceuticals are generally purchased directly from manufacturers or through
wholesale distributors. The Company believes that alternative sources of supply
for most generic and brand name pharmaceuticals are readily available.
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COMPETITION
The Long Term-Care industry is highly fragmented but experiencing significant
consolidation. There are a large number of small companies offering long-term
care pharmacy services. Most of these are smaller than the Company. By its
nature, the long-term care pharmacy business is highly regionalized and, within
a given geographic region of operations, highly competitive. In the geographic
regions it serves, CompScript competes with numerous local retail pharmacies,
local and regional institutional pharmacies and pharmacies owned by long-term
care facilities. CompScript competes in this market on the basis of quality,
cost-effectiveness and the increasingly comprehensive and specialized nature of
its services along with the clinical expertise, pharmaceutical technology and
professional support it offers. In its program of acquiring institutional
pharmacy providers, the Company competes with several other companies with
similar acquisition strategies, some of which have greater resources than the
Company. No individual customer or market group is critical to the total sales
of the Company's long-term care pharmacy business.
The Company believes that the primary competitive factors in each of its
businesses are price, quality of service and breadth of available services.
CompScript also believes that its larger competitors offer limited core pharmacy
management services that lack the depth and breadth of diversification offered
by the Company, and that most of the Company's smaller competitors offer even
more limited services with greater financial limitations. The Company considers
its principal competitive advantages to be independence from nursing home
owner/operators and drug manufacturers strong managed care knowledge and
experience which supports the development of advanced services, and its
commitment to providing flexible and distinctive service to its customers.
There are a large number of companies offering PBM services in the U.S. Most of
these companies are smaller than the Company and offer their services on a local
or regional basis. As a full service, national pharmacy benefit manager, the
Company competes with a number of larger, national companies, as well as
numerous insurance and Blue Cross/Blue Shield plans, certain HMOs and retail
drug chains which have their own pharmacy benefit management capabilities. Many
of these larger companies have greater financial and marketing resources than
the Company.
Consolidation is a critical factor in the pharmaceutical industry generally.
Horizontal and vertical merger and acquisition activity in the manufacturing
segment has been robust, with significant resultant movements in market share.
Competitors that are owned by nursing home owners/operators and manufacturers
may have pricing advantages that are unavailable to the Company and other
independent companies.
With respect to infusion therapy services, the Company competes with a number of
regional and large national companies.
GOVERNMENT REGULATION
LTC PHARMACY
Institutional pharmacies, as well as the long-term care facilities they serve,
are subject to extensive federal, state and local regulation. These regulations
cover required qualifications, day-to-day operations, reimbursement and the
documentation of activities. CompScript continuously monitors the effects of
regulatory activity on its operations.
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LICENSURE, CERTIFICATION AND REGULATION. States generally require that companies
operating a pharmacy within the state be licensed by the state board of
pharmacy. The Company currently has pharmacy licenses in each state in which it
operates a pharmacy. In addition, CompScript's pharmacies are registered with
the appropriate state and federal authorities pursuant to statutes governing the
regulation of controlled substances.
Client nursing facilities are also separately required to be licensed in the
states in which they operate and, if serving Medicare or Medicaid patients, must
be certified to be in compliance with applicable program participation
requirements. Client nursing facilities are also subject to the nursing home
reforms of the Omnibus Budget Reconciliation Act of 1987, which imposed strict
compliance standards relating to quality of care for nursing home operations,
including vastly increased documentation and reporting requirements. In
addition, pharmacists, nurses and other health care professionals who provide
services on the Company's behalf are, in most cases, required to obtain and
maintain professional licenses and are subject to state regulations regarding
professional standards of conduct.
MEDICARE AND MEDICAID. The nursing home pharmacy business has long operated
under regulatory and cost containment pressures from state and federal
legislation primarily affecting Medicaid and, to a lesser extent, Medicare.
As is the case for nursing home services generally, CompScript receives
reimbursement from the Medicaid programs, directly from individual residents
(private pay), and from other payors such as third-party insurers. The Company
believes that its reimbursement mix is in line with nursing home expenditures
nationally. For the year ended December 31, 1996, CompScript's payor mix was
approximately as follows: 38% private pay and nursing homes, 29% Medicaid, 27%
Medicare and 6% insurance and other private sources.
For those patients who are not covered by government-sponsored programs or
private insurance, CompScript generally directly bills the patient or the
patient's responsible party on a monthly basis. Depending upon local market
practices, CompScript may alternatively bill private patients through the
nursing facility. Pricing for private pay patients is based on prevailing
regional market rates or "usual and customary" charges.
The Medicaid program is a cooperative federal-state program designed to enable
states to provide medical assistance to aged, blind, or disabled individuals, or
members of families with dependent children whose income and resources are
insufficient to meet the costs of necessary medical services. State
participation in the Medicaid program is voluntary. To become eligible to
receive federal funds, a state must submit a Medicaid "state plan" to the
Secretary of the Department of Health and Human Services ("HHS") for approval.
The federal Medicaid statute specifies a variety of requirements which the state
plan must meet, including requirements relating to eligibility, coverage of
services, payment and administration.
Federal law and regulations contain a variety of requirements relating to the
furnishing of prescription drugs under Medicaid. States are given broad
authority, subject to certain standards, to limit or specify conditions to the
coverage of particular drugs. Federal Medicaid law establishes standards
affecting pharmacy practice. These standards include general requirements
relating to patient counseling and drug utilization review and more specific
requirements for nursing facilities relating to drug regiment reviews for
Medicaid patients in such facilities. Recent regulations clarify that, under
federal law, a pharmacy is not required to meet the general standards for drugs
dispensed to nursing facility residents if the nursing facility complies with
the drug regimen review requirements. However, the regulations indicate that
states may nevertheless require pharmacies to comply with the general standards,
regardless of whether the nursing
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<PAGE>
facility satisfies the drug regimen review requirement, and the states in which
the Company operates currently do require its pharmacies to comply therewith.
Federal regulations impose certain requirements relating to reimbursement for
prescription drugs furnished to Medicaid patients. In addition to requirements
imposed by federal law, states have substantial discretion to determine
administrative, coverage, eligibility and payment policies under their state
Medicaid programs which may affect the Company's operations. For example, some
states have enacted "freedom of choice" requirements which may prohibit a
nursing facility from requiring its residents to purchase pharmacy or other
ancillary medical services or supplies from particular providers that deal with
the nursing home. Such limitations may increase the competition which the
Company faces in providing services to nursing facility patients.
The Medicare program is a federally funded and administered health insurance
program for individuals age 65 and over or who are disabled. The Medicare
program consists of two parts: Part A, which covers, among other things,
inpatient hospital, skilled nursing facility, home health care and certain other
types of health care services; and Medicare Part B, which covers physicians'
services, outpatient services, and certain items and services provided by
medical suppliers. Medicare Part B also covers a limited number of specifically
designated prescription drugs. The Medicare program establishes certain
requirements for participation of providers and suppliers in the Medicare
program. Pharmacies are not subject to such certification requirements. Skilled
nursing facilities and suppliers of medical equipment and supplies, however, are
subject to specified standards. Failure to comply with these requirements and
standards may adversely affect an entity's ability to participate in the
Medicare program and receive reimbursement for services provided to Medicare
beneficiaries.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings,
and freezes and funding reductions, all of which may adversely affect the
Company's business. There can be no assurance that payments for pharmaceutical
supplies and services under governmental reimbursement programs will continue to
be based on the current methodology or remain comparable to present levels. In
this regard, the Company may be subject to rate reductions as a result of
federal budgetary legislation related to the Medicare and Medicaid programs. In
addition, various state Medicaid programs periodically experience budgetary
shortfalls which may result in Medicaid payment delays to the Company. To date,
the Company has not experienced any material adverse effect due to any such
budgetary shortfall. In addition, the failure, even if inadvertent, of
CompScript and/or its client institutions to comply with applicable
reimbursement regulations could adversely affect CompScript's business.
Additionally, changes in such reimbursement programs or in regulations related
thereto, such as reductions in the allowable reimbursement levels, modifications
in the timing or processing of payments and other changes intended to limit or
decrease the growth of Medicaid and Medicare expenditures, could adversely
affect the Company's business.
REFERRAL RESTRICTIONS. The Company is subject to federal and state laws which
govern financial and other arrangements between health care providers. These
laws include the federal anti-kickback statute, which was originally enacted in
1977 and amended in 1987, and which prohibits, among other things, knowingly and
willfully soliciting, receiving, offering or paying any remuneration directly or
indirectly in return for or to induce the referral of an individual to a person
for the furnishing of any item or service for which payment may be made in whole
or in part under Medicare or Medicaid. Many states have enacted similar statutes
which are not necessarily limited to items and services for which payment is
made by Medicare or Medicaid. Violations of these laws may result in fines,
imprisonment, and exclusion from the Medicare and Medicaid programs or other
state-funded programs. Federal and state court decisions interpreting these
statutes are limited, but have generally construed the statutes to apply if "one
purpose" of remuneration is to induce referrals or other conduct within the
statute.
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Federal regulations establish "safe harbors," which give immunity from criminal
or civil penalties to parties in good faith compliance. While the failure to
satisfy all criteria for a safe harbor does not mean that an arrangement
violates the statute, it may subject the arrangement to review by the Office of
Inspector General ("OIG"), which is charged with administering the federal
anti-kickback statute. There are no procedures for obtaining binding
interpretations or advisory opinions from the OIG on the application of the
federal anti-kickback statute to an arrangement or its qualification for a safe
harbor upon which the Company can rely.
The OIG issues "Fraud Alerts" identifying certain questionable arrangements and
practices which it believes may implicate the federal anti-kickback statute. The
OIG has issued a Fraud Alert providing its views on certain joint venture and
contractual arrangements between health care providers. The OIG also issued a
Fraud Alert concerning prescription drug marketing practices that could
potentially violate the federal statute. Pharmaceutical marketing activities may
implicate the federal anti-kickback statute because drugs are often reimbursed
under the Medicaid program. According to the Fraud Alert, examples of practices
that may implicate the statute include certain arrangements under which
remuneration is made to pharmacists to recommend the use of a particular
pharmaceutical product.
In addition, a number of states have recently undertaken enforcement actions
against pharmaceutical manufacturers involving pharmaceutical marketing
programs, including programs containing incentives to pharmacists to dispense
one particular product rather than another. These enforcement actions arose
under state consumer protection laws which generally prohibit false advertising,
deceptive trade practices, and the like.
The Company believes its contractual arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
HEALTH CARE REFORM AND FEDERAL BUDGET LEGISLATION. The Clinton administration
and members of Congress have proposed plans to reform the health care system.
Currently, Congress is considering such reforms in the context of federal budget
reconciliation legislation. This legislation could result in significant
reductions in payments to providers under the Medicare program and a complete
restructuring and reduced payments to providers under the Medicare program. With
respect to Medicare, proposals include establishment of a prospective payment
system for Skilled Nursing Facilities ("SNFs"); limits on payments to Medicare
SNFs for certain non-routine services, including, among others, prescription
drugs, diagnostic services, and physical therapy and other rehabilitative
services; requiring consolidated billing by a SNF for all Part A and B claims
for SNF residents; and other limits on reimbursement of costs for Medicare SNF
services. If enacted, there can be no assurance that such proposals could not
have a material effect on the business of CompScript. While budget negotiations
are continuing, the future of any reform proposals in Congress is unknown.
In addition, a number of states have enacted and are considering various health
care reforms, including reforms through Medicaid demonstration projects. Federal
law allows HHS to authorize waivers of federal Medicaid program requirements,
including requirements relating to coverage, free choice of providers and
payment for health care services, in connection with state demonstration
projects that promote Medicaid program objectives. HHS published procedures and
public notice requirements designed to open the waiver approval process to
public comment and to expedite processing. Legal actions have been initiated
challenging the waiver process and the authority of HHS to approve waivers for
broad-based Medicaid managed care programs. The federal budget legislation
restructuring the Medicaid program would effectively eliminate Medicaid managed
care demonstration projects.
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<PAGE>
Several state Medicaid programs have established mandatory statewide managed
care programs for Medicaid beneficiaries to control costs through negotiated or
capitated rates, as opposed to traditional cost-based reimbursement for Medicaid
services, and propose to use savings achieved through these programs to expand
coverage to those not previously eligible for Medicaid. HHS has approved waivers
for statewide managed care demonstration projects in several states, and are
pending for several other states. These demonstration projects generally exempt
institutionalized care, including nursing facility services, from the programs,
and the Company's operations have not been adversely affected with a managed
care demonstration project in effect. The Company is unable to predict what
impact, if any, future projects might have on the Company's operations. Because
there are currently various reform proposals under consideration at the federal
and state levels, it is uncertain at this time what health care reform
initiatives, if any, will be implemented, or whether there will be other changes
in the administration of governmental health care programs or interpretations or
governmental policies or other changes affecting the health care system. There
can be no assurance that future health care or budget legislation or other
changes will not have an adverse effect on the business of the Company.
Various aspects of the Company's businesses are governed by federal and state
laws and regulations. Since sanctions may be imposed for violations of these
laws, compliance is a significant operational requirement for the Company. The
Company believes that it is in substantial compliance with all existing legal
requirements material to the operation of its businesses.
PHARMACY BENEFITS MANAGEMENT REGULATION:
Certain federal and related state laws and regulations affect aspects of the
Company's pharmacy benefit management business. Among these are the following:
FDA REGULATION. The FDA generally has authority to regulate drug promotional
materials that are disseminated "by or on behalf of" a drug manufacturer. In
October 1995, the FDA held hearings to determine whether and to what extent the
activities of pharmacy benefit management companies should be subject to FDA
regulations. At this hearing, FDA officials expressed concern about the efforts
of pharmacy benefit managers (PBMs) that are owned by drug manufacturers to
engage in therapeutic switching programs and about the criteria used by such
PBMs that govern the inclusion and exclusion of particular drugs in formularies.
Various parties, including the Company, have submitted written comments to the
FDA regarding the basis for FDA regulation of PBM activities. It is the
Company's position that, while the FDA may have jurisdiction to regulate PBMs
that are owned by drug manufacturers, the prescription drug benefit programs
developed and implemented by independent PBMs do not constitute the distribution
of materials that promote particular drugs "on behalf of" any pharmaceutical
manufacturers, and therefore, these programs are not subject o FDA regulation.
The FDA has not published any proposed rules to date on the regulation of PBMs,
and there can be no assurance that the FDA will not seek to regulate certain
aspects of the Company's PBM.
ANTI-REMUNERATION LAWS. Medicare and Medicaid law prohibits, among other things,
an entity from paying or receiving, subject to certain exceptions and "safe
harbors," any remuneration to induce the referral of Medicare or Medicaid
beneficiaries or the purchase (or the arranging for or recommending of the
purchase) of items or service for which payment may be made under Medicare,
Medicaid, or other federally-funded state health care programs. Several states
also have similar laws which are not limited to services for which Medicare or
Medicaid payment may be made. State laws vary and have been infrequently
interpreted by courts or regulatory agencies. Sanctions for violating these
federal and state anti-remuneration laws may include imprisonment, criminal and
civil fines, and exclusion from participation in the Medicare and Medicaid
programs.
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<PAGE>
The federal statute has been interpreted broadly by courts, the OIG within the
HHS, and administrative bodies. Because of the federal statute's broad scope,
federal regulations establish certain "safe harbors" from liability. Safe
harbors exist for certain properly reported discounts received from vendors,
certain investment interests, and certain properly disclosed payments made by
vendors to group purchasing organizations. A practice that does not fall within
a safe harbor is not necessarily unlawful, but may be subject to scrutiny and
challenge. In the absence of an applicable exception or safe harbor, a violation
of the statute may occur even if only one purpose of a payment arrangement is to
induce patient referrals or purchases. Among the practices that have been
identified by the OIG as potentially improper under the statute are certain
"product conversion programs" in which benefits are given by drug manufacturers
to pharmacists or physicians for changing a prescription (or recommending or
requesting such a change) from one drug to another. Such laws have been cited as
a partial basis, along with state consumer protection laws discussed below, for
investigations and multi-state settlements relating to financial incentives
provided by drug manufacturers to retail pharmacies in connection with such
programs.
To the Company's knowledge, these anti-remuneration laws have not been applied
to prohibit PBMs from receiving discounts from drug manufacturers in connection
with drug purchasing and formulary management programs, to therapeutic
substitution programs conducted by independent PBMs, or to the contractual
relationships such as those the Company has with certain of its customers. The
Company believes that it is in substantial compliance with the legal
requirements imposed by such laws and regulations, and the Company believes that
there are material differences between drug-switching programs that have been
challenged under these laws and the programs offered by the Company to its
customers. However, there can be no assurance that the Company will not be
subject to scrutiny or challenge under such laws or regulations, or that any
such challenge would not have a material effect upon the Company.
ERISA REGULATIONS. The Employee Retirement Income Security Act of 1974 ("ERISA")
regulates certain aspects of employee pension and health benefit plans,
including self-funded corporate health plans with which the Company has
agreements to provide PBM services. The Company believes that the conduct of its
business is not subject to the fiduciary obligations of ERISA, but there can be
no assurance that the U.S. Department of Labor, which is the agency that
enforces ERISA, would not assert that the fiduciary obligations imposed by the
statute apply to certain aspects of the Company's operations.
Numerous state laws and regulations also affect aspects of the Company's
pharmacy benefit management business. Among these are the following:
CONSUMER PROTECTION LAWS. Most states have consumer protection laws that have
been the basis for investigations and multi-state settlements relating to
financial incentives provided by drug manufacturers to retail pharmacies in
connection with drug switching program features that have been viewed by
enforcement authorities as problematic in recent settlement agreements. However,
no assurance can be given that the Company will not be subject to scrutiny or
challenge under one or more of these laws.
NETWORK ACCESS LEGISLATION. A majority of states now have some form of
legislation affecting the ability of the Company to limit access to a pharmacy
provider network or from removing network providers. Such legislation may
require the Company or its client to admit any retail pharmacy willing to meet
the plan's price and other terms for network participation ("any willing
provider" legislation); or providing that a provider may not be removed from a
network except in compliance with certain procedures ("due process"
legislation). The Company has not been materially affected by these statutes
because it maintains a large network of over 46,000 retail pharmacies and will
admit any licensed pharmacy that meets the Company's credentialing criteria,
involving such matters as adequate insurance coverage, minimum hours of
operation, and the absence of disciplinary actions by the relevant state
agencies.
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LEGISLATION IMPOSING PLAN DESIGN RESTRICTIONS. Some states have legislation that
prohibits the plan sponsor from implementing certain restrictive design
features. For example, some states provide that members of the plan may not be
required to use network providers, but must also be provided with benefits even
if they choose to use non-network providers ("freedom of choice" legislation).
Other states mandate coverage of certain benefits or conditions. Such
legislation does not generally apply to the Company, but it may apply to certain
of the Company's customers (HMOs and insurers). If such legislation were to
become widespread and broad in scope, it could have the effect of limiting the
economic benefits achievable through pharmacy benefit management.
LEGISLATION AFFECTING DRUG PRICES. Some states have adopted legislation
providing that a pharmacy participating in the state Medicaid program must give
the state the best price that the pharmacy makes available to any third party
plan ("most favored nation" legislation). Such legislation may adversely affect
the Company's ability to negotiate discounts in the future from network
pharmacies. Other states have enacted "unitary pricing' legislation, which
mandates that all wholesale purchasers of drugs within the state be given access
to the same discounts and incentives. Such legislation, if enacted in either
state, could adversely affect the Company's ability to negotiate discounts on
its prescription drugs to be dispensed by its mail service pharmacies.
MAIL PHARMACY REGULATION. The Company's mail service pharmacy is located in
Florida and the Company is licensed to do business as a pharmacy in that state.
Many of the states into which the Company delivers pharmaceuticals have laws and
regulations that require out-of-state mail service pharmacies to register with,
or be licensed by, the board of pharmacy or similar regulatory body in the
state. These states generally permit the mail service pharmacy to follow the
laws of the state within which the mail service pharmacy is located, although
one state also requires that the Company employ a pharmacist licensed in that
state. The Company has registered in every state in which, to the Company's
knowledge, such registration is required.
Other statutes and regulations impact the Company's mail service operations.
Federal statutes and regulations govern the labeling, packaging, advertising and
adulteration of prescription drugs and the dispensing of controlled substances.
The Federal Trade Commission requires mail order sellers of goods generally to
engage in truthful advertising, to stock a reasonable supply of the product to
be sold, to fill mail orders within thirty days, and to provide customers with
refunds when appropriate. The Company believes it is in compliance with all
requirements of the Federal Trade Commission.
REGULATION OF INFUSION THERAPY SERVICES. The Company's infusion therapy services
business is subject to many of the same or similar state laws and regulations
affecting the Company's pharmacy management business. In addition, some states
require that providers of infusion therapy services be licensed. The Company is
licensed as a home health agency , infusion pharmacy and pharmacy in Florida.
The Company is licensed as a pharmacy only, in Alabama. The Company believes
that it is in substantial compliance with such licensing requirements.
JCAHO, a non-profit, private organization, has established written standards for
health care organizations and home care services, including standards for
services provided by home infusion therapy companies. The Company's Florida
facility has received JCAHO accreditation. When accredited by JCAHO, the Company
can market infusion therapy services to Medicare and Medicaid programs. If the
Company expands its home infusion therapy services to other states or to
Medicaid programs, it may be required to comply with other applicable laws and
regulations.
FUTURE REGULATION. The Company is unable to predict accurately what additional
federal or state legislation or regulatory initiatives may be enacted in the
future relating to the businesses of the Company or the health
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care industry in general, or what effect any such legislation or regulations
might have on the Company. There can be no assurance that federal or state
governments will not impose additional restrictions or adopt interpretations of
existing laws that could have a material adverse effect on the Company's
business or financial position.
SERVICEMARKS AND TRADEMARKS
The Company has registered the servicemark "CompScript" with the United States
Patent and Trademark Office. The Company's rights to this servicemark will
continue so long as the Company complies with the usage, renewal filing and
other legal requirements relating to the renewal of service marks. The Company
is in the process of applying for registration of several other trademarks and
servicemarks. If the Company is unable to obtain any additional registrations,
the Company believes there would be no material adverse effect on the Company.
INSURANCE
The dispensing of pharmaceutical products by the Company's pharmacies, and the
products and services provided in connection with the Company's infusion therapy
programs (including the associated nursing services) may subject the Company to
litigation and liability for damages. The Company believes that its insurance
protection is adequate for its present business operations, but there can be no
assurance that the Company will be able to maintain its professional and general
liability insurance coverage in the future or that such insurance coverage will
be available on acceptable terms or be adequate to cover any or all potential
product or professional liability claims. A successful product or professional
liability claim in excess of the Company's insurance coverage could have a
material adverse effect upon the Company.
EMPLOYEES
As of March 31, 1997, the Company and its subsidiaries employed a total of 332
employees.
PRODUCT AND MARKET DEVELOPMENT
CompScript's pharmacy business engages in a continuing program for the
development of new services and the marketing thereof. While new service and new
market development are important factors for the growth of this business,
CompScript does not expect that any new service or marketing effort, including
those in the developmental stage, will require the investment of a material
portion of CompScript's assets.
MATERIALS/SUPPLIES
CompScript purchases pharmaceuticals through a wholesale distributor with whom
it has a prime vendor contract and, on an increasing basis, under contracts
negotiated directly with pharmaceutical manufacturers. The Company also is a
member of industry buying groups which contract with manufacturers for
discounted prices. The Company has numerous sources of supply available to it
and has not experienced any difficulty in obtaining pharmaceuticals or other
products and supplies used in the conduct of its business.
INVENTORIES
CompScript's pharmacies maintain adequate on-site inventories of pharmaceuticals
and supplies to ensure prompt delivery service to its customers. Inventories on
hand are not considered to be high beyond industry standards. The Company's
primary wholesale distributor also maintains local warehousing in most major
geographic markets in which the Company operates.
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ENVIRONMENTAL MATTERS
In operating its facilities, CompScript makes every effort to comply with
pollution control laws. No major difficulties have been encountered in effecting
compliance. No material capital expenditures for environmental control
facilities are expected. While CompScript cannot predict the effect which any
future legislation, regulations, or interpretations may have upon its
operations, it does not anticipate any changes that would have a material
adverse impact on its operations.
Item 2. DESCRIPTION OF PROPERTIES
The Company's principal offices, mail order pharmacy operations and
largest institutional pharmacy are located in leased facilities in Boca Raton,
Florida. The Company has leased 20,000 square feet under a lease which expires
in December 2002 and has an annual average rental of $147,000 plus common area
charges. The chart listed below sets forth the approximate square footage,
annual lease cost (exclusive of common area charges) and the lease termination
date for each institutional pharmacy maintained by the Company, exclusive of the
institutional pharmacy at the Company's principal offices.
SQUARE TERMINATION
LOCATION FOOTAGE ANNUAL COST DATE
- -------- ------- ----------- ------------
Mobile, Alabama 4,200 $ 24,000 May 1997
Tampa, Florida 2,520 16,900 December 1999
Miami, Florida 17,000 121,000 December 2001
Metarie, Louisiana 4,400 45,600 July 2001
Jackson, Mississippi 2,831 23,300 December 1999
Mentor, Ohio 20,000 120,000 August 2000
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock, $.0001 par value, is traded on the NASDAQ
SmallCap Market under the symbol "CPRX." The following sets forth the range of
high and low closing bid prices for the Common Stock as reported on the NASDAQ
during each of the quarters presented. The quotations set forth below are
inter-dealer quotations, without retail mark-ups, mark-downs or commissions and
may not necessarily represent actual transactions. The quotations have been
adjusted for the Company's 1 to 8 reverse stock split on April 26, 1996.
High Low
------ ------
1994
First Quarter................................... $30.00 $26.00
Second Quarter.................................. 26.00 21.00
Third Quarter................................... 23.00 21.00
Fourth Quarter.................................. 23.00 16.00
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1995
First Quarter................................... 20.25 11.00
Second Quarter.................................. 20.50 6.50
Third Quarter................................... 7.25 3.50
Fourth Quarter.................................. 6.50 3.00
1996
First Quarter................................... 8.75 3.00
Second Quarter.................................. 9.00 5.75
Third Quarter................................... 7.25 4.13
Fourth Quarter.................................. 10.25 5.75
- -----
The Company believes that as of March 31, 1997, there were over 300
record holders of the Company's Common Stock. The Company believes that there
are in excess of 300 beneficial holders of the Company's Common Stock.
The Company has not paid any cash dividends on its common stock and
currently intends to declare or pay cash dividends in the foreseeable future.
The Company presently intends to retain any earnings that may be generated to
provide funds for the operation of business.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
CompScript, Inc. (CompScript or the Company, f/k/a Capital Brands,
Inc.) is a comprehensive provider of pharmacy management services including
institutional pharmacy, infusion therapy, mail order and consultant pharmacist
services as well as pharmacy benefit claim administration to managed care
networks, long-term and subacute care facilities, home health patients and
recipients of managed care. The company is the successor to CompScript-Boca,
Inc. (Boca, f/k/a CompScript, Inc. which was f/k/a Aldencare, Inc.), which was
incorporated under the laws of the State of Florida on October 3, 1991.
On April 26, 1996, shareholders who previously owned approximately 93% of Boca
exchanged their shares of Boca's Common Stock for 7,394,982 common shares
(representing an 80% interest) of Capital Brands, Inc. (Capital), a
publicly-held company involved in the development of consumer-based businesses
in the Republic of Poland (the Acquisition). This exchange was structured as a
tax-free reorganization. The Acquisition was accounted for as a reverse
acquisition of Capital by Boca pursuant to which Boca was recapitalized to
include the assets and liabilities of Capital revalued to reflect the market
value of Capital's net tangible assets at the date of the Acquisition,
consisting of cash and marketable equity securities. The Company incurred
acquisition costs of approximately $1,889,000, all of which was charged to
additional paid-in capital. As Capital had no operations as of the Acquisition
date, no pro forma financial information is presented related to this
transaction. Effective July 5, 1996, Capital changed its name to CompScript,
Inc. The remaining 7% of Boca is accounted for as a minority interest in a
consolidated subsidiary on the Company's December 31, 1996 balance sheet.
RESULTS OF OPERATIONS
On May 31, 1996, the Company issued 666,350 shares of its Common Stock
for all the outstanding common stock of Delta Pharmacy Services, Inc. (Delta).
The acquisition of Delta enhanced the Company's institutional pharmacy services
for long-term care into Alabama, Mississippi, and Northern Florida. On August
19, 1996, the Company issued 187,500 shares of its Common Stock for all the
outstanding stock of Securx, Inc. (Securx). The acquisition of Securx enabled
the Company to strengthen its
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overall pharmacy benefit management program and become a nationally recognized
full service on line adjudicated mail order dispensing pharmacy.
These acquisitions were accounted for as pooling of interests and,
accordingly, the Company's consolidated financial statements have been restated
for all periods presented. (See note 1 to the Consolidated Financial
Statements.) In accordance with accounting rules for pooling of interests
transactions, charges to operating income for acquisition, related expenses of
approximately $875,000 were recorded during the year.
The Company also incurred significant costs (which the Company believes
are nonrecurring) associated with the start up and reorganization of its mail
order pharmacy ("Mail Order") operations during 1996. As a result of the Company
incurring dual operating costs while moving the operations from Ohio to Florida;
installing an entirely new proprietary order entry, customer service, dispensing
and on-line adjudication software system; incurring ramp up costs in the area of
customer service and dispensing personnel to handle new contracts which began in
January of 1997, the Company incurred a loss of approximately $1,100,000 related
to Mail Order operations during the fourth quarter of 1996.
The Company believes that as a result of the Mail Order operations
nonrecurring costs incurred during the fourth quarter of 1996, it has put into
place the infrastructure to support anticipated future growth associated with
further development of its Mail Order operations. While the results of the Mail
Order operations cannot be predicted and is dependent, in large part, on the
Company's success in implementing its marketing and business strategy,
management believes the additional personnel and increased administrative and
operational expenses will be partially offset by increased growth in the Mail
Order operations.
During the year ended December 31, 1995, the Company recognized a
goodwill impairment charge of $3,636,362 with no associated tax benefit, related
to the Company's 1994 acquisition of CompScript, Inc., which became the Ohio
Division. (See Note 4 to the Consolidated Financial Statements.) The Ohio
Division was purchased to be the Company's entry into the workers' compensation,
pharmacy benefits management (PBM) line of business. During the year ended
December 31, 1995, the contracts attributed to
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the Ohio Division generated minimal revenue due in part to the nonexclusive
nature of the contracts. In addition, the inability of the Ohio Division to
convert existing relationships with prospective clients into new PBM contracts
or to secure new prospective clients contributed to significant operating losses
and negative cash flows relative to the Ohio Division in 1995.
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The following table presents the Company's results of operations
excluding the certain items previously discussed ("the Adjustments"):
YEAR ENDED DECEMBER 31,
1995 1996
----------- ----------
Net loss, as reported ($3,848,645) ($1,998,342)
Merger costs--pooling of interests -- 875,223
Mail order pharmacy--nonrecurring costs -- 1,100,000
Goodwill impairment charge 3,636,362 --
Tax effect [A] -- (350,000)
----------- -----------
Net loss excluding the Adjustments ($ 212,283) ($ 373,119)
=========== ===========
Net loss per share:
Net loss per share, as reported ($ .44) ($ .20)
Merger costs - pooling of interests -- .09
Mail order pharmacy--nonrecurring costs -- .11
Goodwill impairment charge .42 --
Tax effect [A] -- ( .04)
----------- ----------
Net loss per share, excluding the Adjustments ($ .02) ($ .04)
=========== ==========
[A] Represents the tax effect relating to the Mail Order nonrecurring costs at
the Company's 1996 effective tax rate. No tax effect was computed relating to
the 1996 merger costs or the 1995 goodwill impairment charges as such charges
were recorded with no associated tax benefit.
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Net loss for the year ended December 31, 1996, excluding the Adjustments was
$373,119 compared to net loss excluding the Adjustments of $212,283 in 1995.
Loss per share excluding the Adjustments was ($0.04) compared to ($0.02) in
1995. Net loss as reported was $1,998,342, or ($0.20) per share for the year
ended December 31, 1996, compared to a net loss of $3,848,645, or ($0.44) in
1995.
Revenues for the year ended December 31, 1996 increased 28.8% to
$20,049,771 from $15,571,030 for the year ended December 31, 1995. The strong
increase in revenues is primarily attributed to the Company's steady internal
growth of its existing and acquired businesses resulting from marketing efforts
to new and existing clients and the integration of new and existing products and
services.
Gross profits increased to $7,203,658 in 1996 from $6,786,722 in 1995,
an increase of $416,936 or 6.1%. Gross profit margins decreased to 35.9% in 1996
from 43.6% in 1995 primarily as a result of higher costs associated with the
Company's Mail Order operations during the fourth quarter (as previously
discussed) when compared to the Company's other operations. Gross profit as a
percentage of sales for all operations excluding Mail Order decreased slightly
to 48.0% in 1996 compared to 49.5% in 1995. This decrease is attributable to a
change in revenue mix during the fourth quarter of 1996 as a result of reduced
infusion revenues.
Selling general and administration expenses as a percentage of revenues
for 1996 and 1995 were 39.8% and 42.8% respectively. This decrease is
attributable to the increase in revenues during 1996, as well as the continued
efforts to leverage corporate overhead over a larger revenue base. The Company
believes its acquisition strategy will enable it to continue to reduce these
expenses as a percentage of revenues in the future, as the Company believes it
has developed the infrastructure necessary to absorb additional acquisitions
without corresponding percentage increases in selling, general and
administrative expenses. During the year ended December 31, 1996, the Company
incurred additional general and administrative costs associated with increased
payroll costs from the addition of new executives, as well as increased legal
and professional fees relating to the Company's acquisitions along with costs
associated with becoming a public company during 1996.
23
<PAGE>
The Company's provision for doubtful accounts increased approximately
$500,000 in the year ended December 31, 1996, primarily due to a charge of
approximately $345,000 relating to the Company's Mail Order operations during
the fourth quarter of 1996. The balance of the increase was a result of
historical reserves based on increased revenue volume.
Interest and other income decreased $41,957 to $29,462 during 1996,
compared to 1995, as interest on temporary cash investments fluctuated depending
upon the amount of excess cash available for investment.
Interest expense for the year ended December 31, 1996 increased to
$113,759 from $96,115 during 1995, primarily due to higher levels of borrowings
outstanding.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operating requirements to date primarily
through operations, the private sale of equity securities (prior to the reverse
acquisition on April 26, 1996), and the exercise of options and warrants and
borrowings under its existing line of credit agreement. As of December 31, 1996,
the Company had cash and cash equivalents of $440,328, accounts receivable of
$2,227,477, working capital of $2,227,457, a current ratio of 1.70 to 1.00, and
available funds under its revolving credit facility of approximately $75,000.
Net cash used in operating activities for the year ended 1996 was
$1,173,865 compared to net cash provided by operations during 1995 of $118,315.
The increase in cash used in operating activities of $1,292,180 during 1996 was
primarily attributable to the operating loss incurred during the year ended
December 31, 1996, along with increases in accounts receivable and inventory to
support the 28.8% increase in revenues at a greater rate than the corresponding
increase in accounts payable.
Investing activities comprised mainly of the net purchase of property
and equipment of $589,170 related to the Company's additions to its Boca Raton
office and new mail order facility, along with new and enhanced management
information systems in its mail order and long-term care operations,
respectively. Total additions to property and equipment were $226,430 in 1995.
Investment activities also provided for $403,808 of net cash acquired in
connection with the reverse acquisition during 1996.
Financing activities provided $1,483,790 in cash in 1996 compared to
$153,521 in 1995 primarily as a result of $1,163,376 relating to the exercise of
options and warrants and net advances under the Company's credit line of
$469,946.
The Company's future capital requirements for operations include
financing the growth of working capital items such as accounts receivable and
inventory, purchasing equipment and upgrading management information and
inventory control systems. Based upon the continuation of the Company's business
development, the Company believes that cash flow from operations, the exercise
of stock options (which is subject to market conditions) and borrowings under
its credit facility will provide sufficient cash to fund its
25
<PAGE>
operations and meet current obligations for the year ending December 31, 1997.
The Company is attempting to improve cash flows from operations and maintain
flexibility in financing both interim and long-term working capital requirements
by reducing inventory levels, as a result of the utilization of its inventory
control system which will improve the scheduling and timing of purchases. In the
event the Company dramatically expands its operations or makes acquisitions that
would require funds in addition to its existing liquid assets and cash flows, it
would have to seek additional debt or equity financing. There can be no
assurance that the Company could obtain such financing or that such financing
would be available on terms acceptable to the Company.
On January 3, 1997, the Company amended its financing agreement with
its primary lender, to increase its revolving line of credit agreement to allow
for borrowings up to $5,000,000 from the $750,000 limit previously in effect.
The primary reason for the increase was to provide additional working capital
for operations and fund the Company's acquisition activity.
The credit facility is collateralized by all of the Company's accounts
receivable, inventory, fixed assets and other assets, and consists of a term
loan due on April 30, 1998. Interest, which is paid monthly on the credit
facility, accrues at the lessor of the prime rate or the three-month London
Interbank Offered Rate, plus two hundred fifty (250) basis points (effective
rate 8.06% at March 31, 1997). The credit facility requires the Company to
maintain at all times, certain net worth, debt coverage and working capital
levels and restricts acquisitions and dispositions of property, and limits
additional borrowings from other lenders. At March 31, 1997, the Company had an
outstanding balance of $4,665,466 under the credit facility.
In connection with the credit facility on January 3, 1997, the Company
also entered into a $500,000 promissory note with the same lender to fund the
company's office and Mail Order expansion, which was completed in the first
quarter of 1997. The principal sum of the promissory note shall be paid in
monthly installments of $8,333.33 plus interest at 9.0% for 60 months beginning
on February 1, 1997. Collateral and debt covenants are the same as those of the
Company's $5,000,000 revolving credit line facility.
26
<PAGE>
On March 19, 1997, the Company entered into an additional $750,000
promissory note with its existing lender, primarily for working capital
purposes. Such loan matures on July 26, 1997, and bears interest at prime. This
loan is cross collateralized with all other borrowings previously discussed. In
addition to the collateral previously discussed, this note is collateralized by
the 1,125,00 shares of Q.P.Q. Corporation common stock which also collateralizes
the $1,125,000 note receivable recorded on the Company's balance sheet at
December 31, 1996.
Except for the historical information contained herein, the matters set
forth in this Form 10-KSB are forward looking and involve a number of risks and
uncertainties that could cause actual results to differ materially from these
statements and trends. Such factors include, but are not limited to: the effect
of changes in governmental regulation, reimbursement policies and federal and
state healthcare funding; the continued availability of suitable acquisition
candidates; significant changes to general economic conditions; strengthened
competition in the Company's geographic markets; the failure of the Company to
obtain or maintain required regulatory licenses and approvals or the loss of key
personnel.
27
<PAGE>
Item 7. FINANCIAL STATEMENTS
See "Index to Financial Statements" for the financial statements
included in this Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 12, 1996, Coopers & Lybrand was replaced by current Company
auditors Ernst & Young, LLP. During the two most recent fiscal years and interim
period subsequent to December 31, 1995, there have been no disagreements with
Coopers & Lybrand on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure or any reportable events.
The report of Coopers & Lybrand for the fiscal years ended December 31, 1995 and
December 31, 1994 did not contain an adverse opinion, disclaimer of opinion,
qualification, or modification as to uncertainty, audit scope or accounting
principles.
28
<PAGE>
Part III
Item 9. DIRECTOR'S, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information concerning the
current directors and the executive officers of the Company:
NAME AGE TITLE
- -------------------------------------------------------------------------------
Brian A. Kahan ........... 45 Chairman of the Board, Chief Executive
Officer and President of the Company
John F. Chiste ........... 40 Chief Financial Officer
Robert Gardner ........... 41 Vice President and Director
Robert Edelheit .......... 57 Director
Paul H. Heimberg ......... 46 Director
Malcolm Leonard .......... 54 Director
BRIAN A. KAHAN has been a Chairman, Chief Executive Officer and
President of the Company since April 1996. In October 1991, Mr. Kahan founded
Aldencare and served as its Chief Executive Officer and became Chief Executive
Officer of CompScript when it merged with Aldencare in 1994. Mr. Kahan has a
B.S. in Pharmacy from the University of Maryland, School of Pharmacy. Mr. Kahan
is currently President of the American Society of Consultant Pharmacists and
serves on the LTC Commission for the State of Florida. Mr. Kahan is presently a
clinical instructor for the University of Florida and Nova Southeastern College
of Pharmacy and is a trustee for the Florida Pharmacy Foundation.
JOHN F. CHISTE has served as the Chief Financial Officer of the Company
since January 1997. From 1992 to December 1996 Mr.Chiste served as Chief
Financial Officer, Treasurer and Secretary of Computer Integration Corp., a
publicly held reseller of micro-computer work stations and related products.
From 1983 to 1992 and 1978 to 1981 Mr. Chiste was employed by the accounting
firm of Ernst & Young, LLP. Mr. Chiste is a certified public accountant with an
accounting degree from Florida Atlantic University and is a member of the
American Institute of Certified Public Accountants.
ROBERT J. GARDNER has been Vice President and Director of the Company
since August 1996. From July 1995 to August 1996 Mr. Gardner was group leader of
infusion therapy services for Olsten Kimberly Quality Care. From May 1994 to
July 1995 Mr. Gardner served as a healthcare consultant. From August 1992 to
April 1994 Mr. Gardner served as President of Abbey Pharmaceutical Services, a
nationwide provider of institutional and subacute pharmacy services, and, as
Western Area Vice President for Abbey Home Healthcare. From 1986 to 1992 Mr.
Gardner held a variety of positions with Pharmacy Corporation of America
including Vice President of Operations. Mr. Gardner has a Doctor of Pharmacy
Degree from the University of Pacific and a Master of Business Administration
from the University of Washington.
ROBERT EDELHEIT has served as a Director of the Company since April
1996. Mr. Edelheit is President of United Group Programs, employee benefit sales
and consulting firm with offices in Boca Raton, Atlanta and Philadelphia. Mr.
Edelheit received his B.S. in Business from the State University of New York.
Mr. Edelheit is editor and publisher of the newsletter, SYNOPSIS, a fax digest
with an emphasis on
29
<PAGE>
employee benefits. Mr. Edelheit has been an Associate Professor at Florida
Atlantic University in Boca Raton, Florida and speaks nationally on employee
benefits.
PAUL H. HEIMBERG has served as Director of the Company since April
1996. Mr. Heimberg is a partner with the law firm of Heimberg & Lumer, in Boca
Raton, Florida since November 1995. Previously Mr. Heimberg was a partner with
the firm of Heimberg, Heimberg, Rader & Levenstein, P.A. from 1990 to 1995. Mr.
Heimberg received his B.A. from the University of Wisconsin and his J.D. from
Boston University Law School.
MALCOLM LEONARD has served as a Director of the Company since April
1996. Mr. Leonard is a Certified Public Accountant and has been the managing
partner of Leonard & Danzinger, CPA's since 1975. Mr. Leonard is a member of the
American Institute of Certified Public Accountants and the Florida Institute of
Certified Public Accountants. Mr. Leonard received a B.S. from Farleigh
Dickinson University.
The Company's officers are elected annually by the Company's Board of
Directors and serve at the discretion of the Company's Board of Directors. The
Company reimburses directors for their expenses in connection with their
activities as directors of the Company. Directors of the Company do not receive
additional compensation for their services as directors. Historically, the
Company has granted option to its Directors as compensation for services
granted.
Item 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid to Brian
A. Kahan (the "Named Executive Officer") by the Company. None of the other
executive officers of the Company, were paid a total annual salary and bonus for
the fiscal year ended December 31, 1996 which was $100,000 or more.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
OTHER NUMBER OF
FISCAL ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION GRANTED COMPENSATION
- --------------------------- ------ ------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Brian A. Kahan, 1996 $270,000 none 121,017 $5,075(1)
Chief Executive Officer 1995 $180,000 $52,000 None 4,393(1)
</TABLE>
(1) Represents auto lease payments of $5,075 and $4,393 in 1996 and 1995
respectively.
The Company entered into an agreement with Mr. Kahan, amended and
restated on August 19, 1996, which provides that he shall serve as Chief
Executive Officer and Chairman of the Board of Directors for an initial term of
five (5) years, which may be extended for up to three (3) additional one (1)
year terms. Mr. Kahan's annual salary for the first year shall be $300,000
subject to annual increases equal to the greater of the percentage increase in
the consumer price index or six percent (6%) of the executive's previous year's
base salary. Pursuant to the Employment Agreement, Mr. Kahan is required to
devote substantially all his business time and attention to the business and
affairs of the Company. Mr. Kahan is entitled to a bonus equal to ten percent
(10%) of the Company's pre-tax profits for each year of the Agreement. Mr. Kahan
was granted 121,017 options exercisable at $5.13 per share. Mr. Kahan is
entitled to certain fringe benefits including an automobile allowance and
reimbursements for charitable donations or contributions in an amount not to
exceed $25,000. No such donations or contributions were made during 1996. In the
event that Mr. Kahan's
30
<PAGE>
employment is terminated by the Company other than for cause, he shall receive
either a lump sum equal to his total compensation and benefits for the remaining
balance of the term of the agreement, reduced to present value or such payments
on a monthly basis.
The Company entered into an agreement with Mr. Gardner which provides
that Mr. Gardner will serve as Vice President for a two year term beginning June
19, 1996. Mr. Gardner's current annual salary is $150,000, subject to an
increase to $200,000 on January 1, 1998. Mr. Gardner is entitled to receive an
annual cash bonus equal to $15,000 per year, and an additional cash bonus of an
amount not less than $10,000 a year based upon an agreed upon formula. Mr.
Gardner was granted fully vested options to purchase 140,000 shares at a price
of $5.13 per share. Mr. Gardner is entitled to certain fringe benefits including
an automobile allowance. In the event that within twelve (12) months of any
change of control of the Company or attempted change of control of the Company
(as such terms are defined in the Employment Agreement), the Company terminates
the employment of Mr. Gardner under the Employment Agreement, for any reason, or
Mr. Gardner's employment is constructively terminated, then in any such event
Mr. Gardner shall be entitled to receive the balance of the consideration due
under the Employment Agreement.
The Company entered into an Agreement with Mr. Chiste which provides that Mr.
Chiste serve as the Company's Chief Financial Officer for a three-year period
beginning January 1, 1997. Mr. Chiste's annual salary is $120,000 and shall be
increased by 5% per year beginning January 1, 1998. Mr. Chiste is entitled to
receive a minimum bonus equal to 10% of his base salary per year, and
discretionary bonus election at the Company's Chief Executive Officer. Mr.
Chiste was granted fully vested options to purchase 80,000 shares at a price of
$5.13 per share. Mr. Chiste is entitled to certain fringe benefits including an
automobile allowance. If Mr. Chiste is terminated without cause, or any event
occurs which results in a change of control of the Company, the Company shall be
obligated to pay him his compensation from the date of termination, of his
employment agreement including any bonus compensation, plus continued
compensation for the remainder of the term of his employment agreement. If such
termination or change of control occurs after December 31, 1998, an additional
$200,000 within ten days of such action is also due.
OPTION SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock
options granted to the Named Executive Officer during the year ended December
31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS/SARS
UNDERLYING OPTIONS/SARS GRANTED TO EMPLOYEES EXERCISE OR EXPIRATION
GRANTED IN FISCAL YEAR BASE PRICE DATE
----------------------- -------------------- ----------- ----------
<S> <C> <C>
Brian A. Kahan, CEO 121,017 28.4% $5.13 8/27/06
</TABLE>
AGGREGATED FISCAL YEAR ENDED OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised stock
options held by the Named Executive officer as of December 31, 1996. No stock
options were exercised by the Named Executive Officer during the period ended
December 31, 1996. No stock appreciation rights were granted or are outstanding.
31
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN THE MONEY
HELD AT DECEMBER 31, 1996 OPTIONS AT DECEMBER 31, 1996(1)
------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Brian A. Kahan, CFO 121,017 0 $453,209 $ - 0 -
</TABLE>
(1) Dollar values are calculated based on the difference between the
option exercise price and $8.875, the closing price on December 31, 1996 as
reported by NASDAQ.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director and nominee for director, (iii) each executive
officer, and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) SHARES OWNED(2)
- --------------------------------------- ---------------------- ---------------
<S> <C> <C>
Brian A. Kahan......................... 4,553,470 (3) 33.1%
F.B.W. Holdings........................ 1,070,000 (4) 7.9%
John F. Chiste......................... 80,000 (5) *
Robert J. Gardner...................... 141,025 (6) 1.0%
Malcolm Leonard........................ 35,086 (7) *
Robert Edelheit........................ 107,206 (8) *
Paul H. Heimberg....................... 239,749 (9) 1.7%
All directors and executive officers
as a group (six persons)............... 5,156,536 (10) 36.5%
</TABLE>
- ----------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified is 1225 Broken Sound Parkway, N.W., Suite
A, Boca Raton, Florida 33451. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all the shares of Common Stock
beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Proxy
Statement upon the exercise of warrants or options. Each beneficial
owner's percentage ownership is determined by assuming that warrants or
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date of this
Proxy Statement have been exercised.
32
<PAGE>
(3) Includes 4,307,453 shares of Common Stock held in AldenCare Limited
Partnership, of which Mr. Kahan is the general partner and 125,000 held
by Mr. Kahan's wife.. Includes options to purchase 121,017 shares
exercisable at $5.13 per share. (4) Includes an option to purchase
745,003 shares of Common Stock from a third party.
(5) Includes options to purchase 80,000 shares exercisable at $5.13 per
share.
(6) Includes options to purchase 140,000 shares exercisable at $5.13 per
share.
(7) Includes 3,898 shares of Common Stock held by Mr. Leonard in a Joint
Tenancy with a Right of Survivorship ("JTWROS") with his sister Corinne
Leonard, 5,848 shares of Common Stock held by Mr. Leonard in a JTWROS
with his daughter Jennifer Gottlieb and 5,848 shares of Common Stock
held by Mr. Leonard in a JTWROS with his daughter Shari Leonard and
options to purchase 19,492 shares exercisable at $5.13 per shares.
(8) Includes options to purchase 58,476 shares exercisable at $5.13 per
share.
(9) Includes 3,898 shares of Common Stock held by Mr. Heimberg's wife,
Denise Heimberg and options to purchase 77,967 shares exercisable at
$5.13 per share.
(10) See notes 3 and 5-9 above.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have been
complied with except
- ------------------------------------------------------------------------------.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Leonard & Danzinger, an accounting firm, of which Malcolm Leonard, a
Director of the Company is a principal provided financial services to the
Company. In connection for such services, Mr. Leonard's firm received $12,000
during fiscal 1996.
Robert Edelheit, a Director of the Company served as the agent in
connection with the Company's placement of certain of its employee insurance
programs. The transaction was an arms length transaction and the policies
entered into by the Company were no less favorable than could be obtained from
other third parties. Mr. Edelheit received an agent's commission from the
insuring company in connection with such policies. The Company paid no
consideration to Mr. Edelheit for his services.
See Item 1. Description of Business - Mail Service Pharmacy Benefits, for
discussion of a consulting agreement with a former officer and a director of the
Company.
33
<PAGE>
<TABLE>
<CAPTION>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS:
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
3.1 CompScript's Articles of Incorporation (1)
3.2 Amendments to CompScript's Articles of Incorporation dated
April 24, 1996, and July 3, 1996 (3.2)(10)
3.3 CompScript's Bylaws(1)
4.1 Form of CompScript's Common Stock Certificate (2)
10.1 CompScript 1996 Stock Option Plan (4)
10.2 Share Exchange Agreement, dated February 29, 1996, among
Capital Brands, CompScript, Inc. and certain shareholders of
CompScript, Inc. (10.1)(5)
10.3 Employment Agreement dated August 19, 1996 between
CompScript and Brian A. Kahan (10.3)(10)
10.4 Stock Purchase Agreement dated May 31, 1996 between
CompScript and the Shareholders of Delta Pharmacy Services,
Inc.(10.1)(6)
10.5 Stock Purchase Agreement dated August 19, 1996 between
CompScript and the Shareholders of SecurX, Inc.(10.1)(7)
10.6 Stock Purchase Agreement dated January 10, 1997 between
CompScript and the Shareholders of Medical Services
Consortium, Inc. (8)
10.8 Employment Agreement dated June 19, 1996 between
CompScript and Robert J. Gardner*
10.9 Employment Agreement dated October 14, 1996 between
CompScript and John Chiste*
10.10 Revolving Loan Agreement dated January 3, 1997 between
CompScript and SunTrust Bank South Florida N.A.*
10.11 Independent Consulting Agreement dated January 9, 1997
between Compscript, Gerard Altieri, Ronald J. Reith and
Comprehensive Formulary Management*
10.12 Management Consulting Agreement dated October, 1996
between Compscript and Shulman & Associates, Inc.(4.1)(9)
10.13 Merger Agreement dated March 26, 1997 between
Compscript, Compscript Acquisition Subsidiary, Hytree
Pharmacy, Inc. and the shareholders of Hytree Pharmacy, Inc.
(10.1)(11)
10.16 Letter on change in certifying of accountants (12)
22.1 CompScript's Subsidiaries*
27 Financial Data Schedule*
</TABLE>
34
<PAGE>
_______________________
(1) Incorporated by reference to the exhibit of the same number
filed with CompScript's Form 8-B dated September 2, 1994.
(2) Incorporated by reference to the exhibit of the same number
filed with CompScript's Form 10- KSB for the year ended
December 31, 1994.
(4) Incorporated by reference to Appendix B of CompScript's Proxy
Statement for the year ended December 31, 1995.
(5) Incorporated by reference to the exhibit of the number
indicated filed with CompScript's Form 8-K dated March 14,
1996.
(6) Incorporated by reference to the exhibit of the number
indicated filed with CompScript's 8-K dated June 14, 1996.
(7) Incorporated by reference to the exhibit of the number
indicated filed with CompScript's 8-K dated August 30, 1996.
(8) Incorporated by reference to the exhibit of the number
indicated filed with CompScript's 8-K dated January 10, 1997.
(9) Incorporated by reference to the exhibit of the number
indicated filed with CompScript's Registration Statement Form
S-8 dated December 24, 1996.
(10) Incorporated by reference to the exhibit of the number
indicated filed with CompScript's Transition Report on 10-K
for the transition period from September 30, 1995 to December
31, 1995.
(11) Incorporated by reference to the exhibit of the number
indicated filed with Compscript's 8-K dated March 26, 1997.
(12) Incorporated by reference to CompScript's 8-K/A dated
June 24, 1996.
* Filed herewith.
B. REPORTS ON FORM 8-K:
None
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPSCRIPT, INC.
DATE: April 15, 1997 By: /s/ BRIAN A. KAHAN
-------------------------------------------------------
Brian A. Kahan, Chairman of the Board, Chief Executive
Officer [Principal Executive Officer]
DATE: April 15, 1997 By: /s/ JOHN F. CHISTE
-------------------------------------------------------
John F. Chiste, Chief Financial Officer
[Principal Financial and Accounting Officer]
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
DATE: April 15, 1997 By: /s/ BRIAN A. KAHAN
---------------
Brian A. Kahan, Director
DATE: April 15, 1997 By: /s/ ROBERT J. GARDNER
------------------
Robert J. Gardner, Director
DATE: April 15, 1997 By: /s/ PAUL H. HEIMBERG
-------------------
Paul H. Heimberg, Director
DATE: April 15, 1997 By: /s/ ROBERT EDELHEIT
----------------
Robert Edelheit, Director
DATE: April 15, 1997 By: /s/ MALCOLM LEONARD
----------------
Malcolm Leonard, Director
36
<PAGE>
Form 10-KSB-Item 7
List of Financial Statements
The following consolidated financial statements of CompScript, Inc. and
Subsidiaries are included in Item 7:
Consolidated Balance Sheets--December 31, 1996 and Supplemental December 31,
1996 (Unaudited)
Consolidated Statements of Operations--Years ended December 31, 1995 (As
Restated) and 1996 and Supplemental year ended December 31, 1996 (Unaudited)
Consolidated Statements of Shareholders' Equity--Years ended December 31,
1995 and 1996
Consolidated Statements of Cash Flows--Years ended December 31, 1995 (As
Restated) and 1996
Notes to Consolidated Financial Statements--December 31, 1996
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors
and Shareholders
CompScript, Inc.
We have audited the consolidated balance sheet of CompScript, Inc. and
Subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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
CompScript, Inc. and Subsidiaries at December 31, 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
March 31, 1997
West Palm Beach, Florida
F-1
<PAGE>
<TABLE>
<CAPTION>
COMPSCRIPT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SUPPLEMENTAL
DECEMBER 31, 1996
DECEMBER 31, 1996 (SEE NOTE 1)
----------------- -----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 440,328 $ 857,740
Accounts receivable, net of allowances of $431,646
and $634,848 historical and supplemental, respectively 2,179,749 6,369,720
Inventory 1,091,264 2,467,639
Note receivable 1,125,000 1,150,788
Income taxes receivable 525,623 267,812
Prepaid and other receivables 65,353 112,487
----------- ----------
Total current assets 5,427,317 11,226,186
Property and equipment, net 1,438,369 2,231,495
Other assets:
Costs in excess of net assets acquired, less accumulated
amortization of $61,359 143,171 143,171
Other 602,982 854,222
----------- -----------
Total other assets 746,153 997,393
----------- -----------
Total assets $7,611,839 $14,455,074
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,296,317 $ 3,502,436
Accrued salaries and benefits 188,110 762,405
Accrued expenses 598,379 850,382
Accrued pharmaceuticals dispensed by third parties 164,935 164,935
Line of credit 674,693 674,693
Notes payable to shareholder 227,600 843,737
Current portion of notes payable 13,466 197,734
Current portion of capital lease obligations 36,360 84,064
----------- -----------
Total current liabilities 3,199,860 7,080,386
Long-term debt:
Notes payable 12,225 1,841,538
Capital lease obligations 20,356 56,360
----------- -----------
Total long-term debt 32,581 1,897,898
----------- -----------
Total liabilities 3,232,441 8,978,284
Minority interest 222,628 222,628
Shareholders' equity:
Common stock, $.0001 par value--50,000,000 shares
authorized 10,908,132 and
13,533,132 shares issued and outstanding
historical and supplemental, respectively 1,091 1,353
Additional paid-in capital 8,855,393 8,908,583
Accumulated deficit (4,699,714) (3,655,774)
----------- -----------
Total shareholders' equity 4,156,770 5,254,162
----------- -----------
Total liabilities and shareholders' equity $7,611,839 $14,455,074
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
<TABLE>
<CAPTION>
COMPSCRIPT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SUPPLEMENTAL
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1995 1996 1996
(SEE NOTE 1)
---------------------------------------------------
(AS RESTATED) (UNAUDITED)
SEE NOTE 2
<S> <C> <C> <C>
Sales $15,571,030 $20,049,771 $42,716,356
Cost of sales 8,784,308 12,846,113 25,656,536
-----------------------------------------------
Gross profit 6,786,722 7,203,658 17,059,820
Selling, general and administrative expenses 6,671,694 7,984,824 15,953,914
Provision for doubtful accounts 153,708 657,656 931,941
Merger costs - 875,223 934,223
Goodwill impairment charge 3,636,362 - -
-----------------------------------------------
Total operating expenses 10,461,764 9,517,703 17,820,078
-----------------------------------------------
Operating loss (3,675,042) (2,314,045) (760,258)
Other:
Interest and other income 71,419 29,462 58,331
Interest expense (96,115) (113,759) (359,298)
-----------------------------------------------
Loss before provision for income taxes (3,699,738) (2,398,342) (1,061,225)
Income tax provision (benefit) 148,907 (400,000) (4,633)
-----------------------------------------------
Net loss $(3,848,645) $(1,998,342) $(1,056,592)
===============================================
Net loss per share $ (0.44) $ (0.20) $ (0.08)
===============================================
Weighted average shares outstanding 8,714,469 9,841,648 12,466,648
===============================================
Pro forma data (unaudited):
Historical loss before provision for income taxes $(3,699,738) $(2,398,342)
Pro forma tax (benefit) expense 96,259 (350,000)
--------------------------------
Pro forma net loss $(3,795,997) $(2,048,344)
================================
Pro forma loss per share $ (0.44) $ (0.21)
================================
</TABLE>
F-3
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
COMPSCRIPT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
----------------------- PAID-IN (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 2,210,770 $5,499,171 $ 9,982 $ 883,273 $6,392,426
Common shares issued upon inception of
SECURx, Inc. 48,097 5 74,995 - 75,000
Net loss - - - (3,848,645) (3,848,645)
-----------------------------------------------------------------
Balance at December 31, 1995 2,258,867 5,499,176 84,977 (2,965,372) 2,618,781
Reverse acquisition of Capital Brands, Inc.:
Acquisition of Capital Brands, Inc.'s
common shares, net of acquisition
costs of $1,888,807 1,806,750 181 261,012 - 261,193
Issuance of Capital Brands, Inc. Common
Stock to CompScript-Boca, Inc.
shareholders 7,394,982 739 5,498,414 - 5,499,153
Receipt of CompScript-Boca, Inc. Common
Stock and recording of minority
interest in CompScript-Boca, Inc. (2,039,840) (5,499,153) (384,941) 162,313 (5,721,781)
Common shares issued to Delta and SECURx
reflect recapitalization of CompScript-Boca,
Inc. as a result of the
reverse acquisition of Capital Brands, Inc. 634,823 63 (63) - -
Transfer of acquired entity's (Delta's) accumulated
deficit to additional paid-in
capital upon conversion from an S to a
C corporation - - (101,687) 101,687 -
Exercise of warrants 102,550 10 538,366 - 538,376
Exercise of stock options 625,000 62 624,938 - 625,000
Fair market value of stock options issued
to nonemployees - - 1,411,250 - 1,411,250
Common shares issued to consultants 125,000 13 923,127 - 923,140
Net loss - - - (1,998,342) (1,998,342)
=================================================================
Balance at December 31, 1996 10,908,132 $ 1,091 $8,855,393 $(4,699,714) $4,156,770
=================================================================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
COMPSCRIPT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1996
-----------------------------
(AS RESTATED
SEE NOTE 2)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,848,645) $(1,998,342)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization of leasehold improvements 277,661 309,035
Gain on sale of property and equipment (2,270) -
Amortization 219,037 43,815
Noncash merger costs - 739,492
Goodwill impairment charge 3,636,362 -
Provision for doubtful accounts 153,708 657,656
Changes in operating assets and liabilities:
Accounts receivable (412,441) (670,401)
Inventory (333,574) (318,656)
Income tax refund receivable - (525,623)
Prepaid and other receivables (43,562) 49,295
Other assets (21,901) (20,281)
Accounts payable and accrued expenses 357,573 661,085
Payable to affiliated entities 136,367 (100,940)
-----------------------------
Net cash provided (used) by operating activities 118,315 (1,173,865)
INVESTING ACTIVITIES
Purchase of property and equipment (226,430) (660,386)
Proceeds from sale of equipment - 71,216
Acquisition, net of cash acquired (115,000) 403,808
-----------------------------
Net cash used in investing activities (341,430) (185,362)
FINANCING ACTIVITIES
Exercise of options and warrants - 1,163,376
Proceeds from sale of common stock 75,000 -
Proceeds from lines of credit 129,717 800,000
Repayment of lines of credit (148,895) (330,054)
Proceeds from notes payable to shareholder 228,600 50,000
Repayments of notes payable to shareholder - (103,800)
Proceeds from notes payable 10,207 -
Repayment of notes and leases payable (113,608) (95,732)
Payment of deferred acquisition costs (27,500) -
-----------------------------
Net cash provided by financing activities 153,521 1,483,790
-----------------------------
Net (decrease) increase in cash and cash equivalents (69,594) 124,563
Cash and cash equivalents at beginning of year 385,359 315,765
-----------------------------
Cash and cash equivalents at end of year $ 315,765 $ 440,328
=============================
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
COMPSCRIPT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31
1995 1996
------------------------------
(AS RESTATED
SEE NOTE 2)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes $ 272,444 $ 115,838
==============================
Cash paid for interest $ 54,499 $ 68,506
==============================
SCHEDULE OF NONCASH INVESTING ACTIVITIES
Stock options issued in exchange for prepaid consulting fees $ - $ 302,285
==============================
Fixed assets acquired pursuant to capital lease obligations and notes payable
$ 54,550 $ 19,671
==============================
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. THE COMPANY
CompScript, Inc. (CompScript or the Company, f/k/a Capital Brands, Inc.) is a
comprehensive provider of pharmacy management services including institutional
pharmacy, infusion therapy, mail order and consultant pharmacist services as
well as pharmacy benefit claim administration to managed care networks,
long-term and subacute care facilities, home health patients and recipients of
managed care. The Company is the successor to CompScript-Boca, Inc. (Boca, f/k/a
CompScript, Inc. which was f/k/a Aldencare, Inc.), which was incorporated under
the laws of the State of Florida on October 3, 1991.
On April 26, 1996, shareholders who previously owned approximately 93% of Boca
exchanged their shares of Boca's Common Stock for 7,394,982 common shares
(representing an 80% interest) of Capital Brands, Inc. (Capital), a
publicly-held company involved in the development of consumer-based businesses
in the Republic of Poland (the Acquisition). This exchange was structured as a
tax-free reorganization. The Acquisition was accounted for as a reverse purchase
of Capital by Boca pursuant to which Boca was recapitalized to include the
assets and liabilities of Capital revalued to reflect the market value of
Capital's net tangible assets at the date of the Acquisition, consisting of cash
and marketable equity securities. The Company incurred acquisition costs of
approximately $1,888,807, all of which was charged to additional paid-in
capital. As Capital had no operations as of the Acquisition date, no pro forma
financial information is presented. On July 5, 1996, Capital changed its name to
CompScript, Inc. The remaining 7% of Boca is accounted for as a minority
interest in a consolidated subsidiary on the Company's December 31, 1996
consolidated balance sheet.
On May 31, 1996, in a transaction accounted for as a pooling-of-interests, the
Company acquired Delta Pharmacy Services, Inc. (Delta). As a result, the
accompanying consolidated financial statements include the accounts and results
of operations of Delta for all periods presented. In connection with the
transaction, the Company exchanged 666,350 shares of the Company's Common Stock
for all of the outstanding common stock of Delta. Delta is in the business of
supplying prescription pharmaceuticals, consulting services and enteral and
parental therapies to long-term and alternate care providers in Alabama and
Northern Florida.
On August 19, 1996, in a transaction accounted for as a pooling-of-interests,
the Company acquired SECURx, Inc. (SECURx). As a result, the accompanying
financial statements include the accounts and results of operations of SECURx
for all periods presented. In connection with the transaction, the Company
exchanged 187,500 shares of the Company's Common Stock for all of the
outstanding common stock of SECURx. SECURx is in the business of selling and
F-7
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. THE COMPANY (CONTINUED)
distributing prescription drugs to the general public through corporate
sponsored benefit plans of employers located in the northeastern United States.
The following unaudited pro forma summary presents the consolidated results of
operations as if the pooling-of-interest transactions with Delta and SECURx had
occurred on January 1, 1995. The pro forma financial information does not
purport to be indicative of the results of operations that would have occurred
had the transactions taken place at the beginning of the periods presented or of
future results of operations.
<TABLE>
<CAPTION>
COMPSCRIPT DELTA SECURX CONSOLIDATED
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Total sales $10,940,526 $2,163,253 $2,467,251 $15,571,030
===========================================================================
Net loss $(3,686,619) $ (26,607) $ (135,419) $(3,848,645)
===========================================================================
YEAR ENDED DECEMBER 31, 1996
Total sales $15,469,263 $1,173,945 (1) $3,406,563 (2) $20,049,771
===========================================================================
Net (loss) income $(1,937,123) $ 165,479 (1) $ (226,698) (2) $(1,998,342)
===========================================================================
</TABLE>
(1) Represents results of operations for Delta from January 1, 1996 to the
date of its acquisition.
(2) Represents results of operations for SECURx from January 1, 1996 to the
date of its acquisition.
On January 10, 1997, in a transaction accounted for as a pooling-of-interests,
the Company acquired Medical Services Consortium, Inc. (MSC). In connection with
the transaction, the Company exchanged 1.4 million shares of the Company's
Common Stock for all of the outstanding common stock of MSC. MSC is in the
business of supplying prescription pharmaceuticals, consulting services and
enteral and parental therapies to long-term and alternate care providers in
South Florida.
On February 28, 1997, in a transaction accounted for as a pooling-of-interests,
the Company acquired Campo Medical Pharmacy, Inc. (Campo). In connection with
the transaction, the Company exchanged 375,000 shares of the Company's Common
Stock for all of the outstanding common stock of Campo. Campo is in the business
of supplying prescription pharmaceuticals and consulting services to long-term
and alternate care providers in Louisiana.
F-8
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. THE COMPANY (CONTINUED)
On March 26, 1997, in a transaction accounted for as a pooling-of-interests, the
Company acquired Hytree Pharmacy, Inc. (Hytree). In connection with the
transaction, the Company exchanged 850,000 shares of the Company's Common Stock
for all of the outstanding common stock of Hytree. Hytree is in the business of
supplying prescription pharmaceuticals, respiratory and consulting services to
long-term and alternate care providers along with home care and sales and
rentals of durable medical equipment and supplies within the Ohio market.
Hytree's fiscal year end is March 31.
The unaudited supplemental balance sheet and statement of operations as of and
for the year ended December 31, 1996 and the following unaudited pro forma
summary presents the consolidated financial position and results of operations,
respectively, as if the pooling-of-interest transactions with MSC, Campo and
Hytree had occurred on December 31, 1996. The supplemental and pro forma
financial information does not purport to be indicative of the financial
position and results of operations that would have occurred had the transactions
taken place on December 31, 1996 or of future results of operations.
<TABLE>
<CAPTION>
COMPSCRIPT MSC CAMPO HYTREE (1) CONSOLIDATED
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Total sales $15,571,030 $6,558,177 $2,723,028 $10,004,455 $34,856,690
===============================================================================
Net (loss) income $(3,848,645) $($542,494) $ 54,595 $ 93,009 $(4,243,535)
===============================================================================
Loss per share $ (0.44) $ (0.37)
============== ============
YEAR ENDED DECEMBER 31, 1996
Total sales $20,049,771 $8,577,551 $3,181,263 $10,907,771 $42,716,356
===============================================================================
Net (loss) income $ (1,998,342) $ 477,874 $ 100,975 $ 362,901 $(1,056,592)
===============================================================================
Loss per share $ (0.20) $ (0.08)
================ =============
</TABLE>
(1) Pro forma results for Hytree for the year ended December 31, 1995 represent
Hytree's actual results for the year ended March 31, 1996, as Hytree's year
end was March 31. Hytree's pro forma results for the year ended December
31, 1996 have been restated to conform to the Company's year end.
F-9
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
Effective June 29, 1996, the Company elected to change its year end from
September 30 to December 31. The Company's historical consolidated financial
statements have been restated to conform with this change in year end.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and Boca, of which the Company owns
approximately 92%. All significant intercompany balances and transactions have
been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less, when acquired, to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company's customers are primarily long-term and alternate care providers in
Florida and Alabama and corporate sponsored benefit plans of employers in the
Northeastern United States. The Company directly bills its customers or
third-party payers, which are primarily Medicaid and private insurers. Credit is
extended based on an evaluation of the customer's financial condition, and
collateral is not required. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined by the
first-in, first-out method, and market represents the lower of replacement cost
or estimated net realizable value.
F-10
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets.
Furniture and equipment and vehicles are depreciated over a five to seven year
period. Leasehold improvements and assets under capital lease are amortized over
the useful lives of the underlying assets or the term of the lease, whichever is
shorter. Expenditures for maintenance and repairs are charged to expense as
incurred.
COSTS IN EXCESS OF NET ASSETS ACQUIRED
In July 1995, SECURx recorded approximately $205,000 of costs in excess of net
assets acquired in connection with the acquisition of substantially all of the
assets and liabilities of a predecessor company of the same name. Costs in
excess of net assets acquired are amortized on a straight-line basis over five
years.
The Company periodically evaluates the recovery of the carrying amount of costs
in excess of net assets acquired by determining if any impairment indicators are
present. These indicators include duplication of resources resulting from
acquisitions, income derived from businesses acquired, the estimated
undiscounted cash flows of the entity over the remaining amortization period and
other factors.
REVENUE RECOGNITION
Revenue and the related cost of sales are recognized when services are provided
or products are delivered.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion (APB) No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related Interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under Financial Accounting Standards Board (FASB)
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the use of
option valuation models that were not developed for use in valuing employee
stock options. No compensation expense is typically recognized under APB No. 25,
as the exercise price of the Company's employee stock options generally equals
or exceeds the market price of the underlying stock on the date of grant.
F-11
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company accounts for equity awards issued to nonemployee consultants,
attorneys and other vendors at fair market value based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable on the date of grant. The fair value of
equity instruments issued to a nonemployee is measured as of the date that the
parties come to a mutual understanding of the terms of the arrangement and agree
to a binding contract.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense totaled
approximately $33,909 and $37,042 in 1995 and 1996, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. Under this method, deferred income taxes at the end
of each period are determined based on the differences between the financial
statement and tax basis of assets and liabilities using the enacted tax rates
for the years in which the taxes are expected to be paid or recovered.
The Company files a consolidated income tax return with its majority-owned
subsidiaries which includes the taxable income or loss of each subsidiary from
its acquisition date through the end of the Company's tax year. Each entity is
required to file a separate income tax return prior to becoming a member of the
Company's consolidated income tax return. Prior to its acquisition by the
Company on May 31, 1996, Delta was taxed under the provisions of Subchapter S of
the Internal Revenue Code (IRC). Concurrent with the acquisition of Delta, Delta
converted to C corporation status with respect to federal income taxes and, for
those states that recognize such tax election, state income taxes. As a result,
the accompanying consolidated financial statements include no provision
(benefit) for income taxes related to Delta's income (loss) prior to its
acquisition by the Company. Accordingly, the consolidated statements of
operations for the years ended December 31, 1995 and 1996 include pro forma
adjustments (unaudited) for income tax expense which would have been recorded
had Delta been a taxable corporation and had the Company been able to file a
consolidated income tax return with Delta and SECURx based on the tax laws in
effect during the years presented.
F-12
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Net loss per share is calculated using the weighted average number of common
shares outstanding as the effect of the Company's outstanding Common Stock
equivalents was antidilutive for all periods presented. Weighted average common
shares outstanding reflect the exchange ratio of 3.898373 shares of the
Company's Common Stock for each share of Boca's Common Stock outstanding prior
to the Acquisition for all periods presented.
Pro forma net loss per share (unaudited) reflects the pro forma income tax
adjustments described above. There is no difference between historical and pro
forma weighted average shares.
LONG-LIVED ASSETS
FASB No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. The Company adopted FASB No.
121 during 1996 and, based on current circumstances, does not believe that any
impairment indicators are present relative to its long-lived assets.
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.
Estimates also affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-13
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consists of the following:
Furniture and equipment $1,677,864
Vehicles 146,052
Leasehold improvements 218,707
Assets under capital leases 295,880
----------
2,338,503
Less accumulated depreciation (900,134)
----------
$1,438,369
==========
4. GOODWILL IMPAIRMENT
At December 31, 1995, the Company recognized a goodwill impairment charge of
approximately $3.6 million, with no associated tax benefit, related to
Aldencare, Inc.'s 1994 acquisition of substantially all of the assets of
CompScript, Inc., which became the Company's Ohio Division. The Ohio Division
was purchased to be the Company's entry into the workers' compensation, pharmacy
benefits management (PBM) line of business. During the year ended December 31,
1995, the contracts attributed to the Ohio Division generated minimal revenue
due in part to the nonexclusive nature of the contracts. In addition, the
inability of the Ohio Division to convert existing relationships with
prospective clients into new PBM contracts or to secure new prospective clients
contributed to significant operating losses and negative cash flows relative to
the Ohio Division. Based on the poor financial results and the failure to obtain
new contracts, the Company believed that the PBM business acquired with the Ohio
Division would not generate positive cash flows in the foreseeable future and
the strategy to implement this line of business within the Ohio Division would
no longer be a priority of the Company. Therefore, the Company wrote off the
unamortized carrying value of the goodwill of approximately $3.6 million on
December 31, 1995.
5. LINE OF CREDIT
In May 1995, the Company entered into a line-of-credit agreement which permits
borrowings up to $750,000. The line of credit is due upon demand and is secured
by substantially all of the assets of the Company. Interest is payable monthly
at prime plus .25% (8.50% at December 31, 1996) with a .25% fee on the unused
portion of the line.
Approximately $675,000 is outstanding at December 31, 1996.
F-14
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LINE OF CREDIT (CONTINUED)
On January 3, 1997, the Company amended its financing agreement with its primary
lender to increase its revolving line-of-credit agreement to allow for
borrowings up to $5 million from the $750,000 previously in effect (the New
Credit Facility). The primary reason for the increase was to provide additional
working capital for operations and fund the Company's acquisition activity.
Through March 31, 1997, the Company borrowed approximately $4.7 million under
the New Credit Facility.
The New Credit Facility is collateralized by all of the Company's accounts
receivable, inventory, fixed assets and other assets, and consists of a term
loan due on April 30, 1998. Interest, which is paid monthly on the credit
facility, accrues at the lessor of the prime rate or the three-month London
Interbank Offered Rate, plus 250 basis points. The credit facility requires the
Company to maintain at all times, certain net worth, debt coverage and working
capital levels, and restricts acquisitions and dispositions of property and
limits additional borrowings from other lendors.
In connection with the New Credit Facility, on January 3, 1997, the Company also
entered into a $500,000 promissory note with the same lendor, the proceeds of
which were used to fund the Company's office and mail order space expansion,
which was completed in the first quarter of 1997. The principle sum of the
promissory note shall be paid in monthly installments of approximately $8,333
plus interest at 9.0% for 60 months beginning on February 1, 1997. Collateral
and debt covenants are the same as those of the New Credit Facility.
On March 19, 1997, the Company entered into an additional $750,000 promissory
note with its existing lender, primarily for working capital purposes. Such loan
matures on July 26, 1997 and bears interest at prime. This loan is cross
collateralized with all other borrowings previously discussed. In addition to
the collateral previously discussed, this note is collateralized by the
$1,125,000 note receivable recorded on the Company's consolidated balance sheet
at December 31, 1996 and the collateral underlying the note receivable
consisting of marketable equity securities.
6. NOTES PAYABLE AND NOTES PAYABLE TO SHAREHOLDER
The Company has entered into various notes payable to financing companies
bearing interest at rates ranging from 6% to 10% and expiring at various dates
through 1999. The notes payable arose in connection with the purchase of certain
vehicles and are collateralized by vehicles with an aggregate carrying value of
approximately $58,500.
F-15
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. NOTES PAYABLE AND NOTES PAYABLE TO SHAREHOLDER (CONTINUED)
The notes payable to shareholder are due upon demand, bear interest at 10% and
are collateralized by the receivables, inventories and equipment of SECURx, the
aggregate carrying value of which exceeds the outstanding aggregate balance of
the notes payable to shareholder at December 31, 1996.
At December 31, 1996, annual payments on notes payable, including notes payable
to shareholder are as follows:
1997 $241,066
1998 9,045
1999 3,180
--------
$253,291
========
7. CAPITAL LEASES
The Company leases certain equipment under long-term capital leases. Future
obligations are as follows:
Year ending December 31,
1997 $42,744
1998 19,758
1999 1,752
--------
64,254
Less amounts representing interest (7,538)
--------
$56,716
========
8. MINORITY INTEREST
On October 3, 1996, Boca issued an additional 27,000 shares of its Common Stock
to a shareholder of the Company, increasing the minority interest's aggregate
ownership interest in Boca to approximately 8%.
The Company intends to exchange the shares of Boca's Common Stock held by the
minority interest for the Company's Common Stock during 1997 at the same
exchange ratio used in the Acquisition. The minority interest's share of Boca's
1996 results of operations is not significant.
F-16
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY
EQUITY INSTRUMENTS ISSUED TO NONEMPLOYEES
During 1996, the Company granted 625,000 stock options at an exercise price of
$1 per share to certain consultants, 100,000 stock options at $6 per share to an
investment banking firm and 75,000 stock options at an exercise price of $6 and
9,000 shares of Common Stock to a law firm as consideration for services
rendered in connection with the Acquisition. The stock options were fully vested
on the date of grant. Included in the costs of the Acquisition, all of which
were charged against additional paid-in capital attributed to the Acquisition,
is an aggregate $1,292,000 related to the issuance of these equity instruments.
The consultants exercised the 625,000 stock options prior to December 31, 1996.
Subsequent to December 31, 1996, the 75,000 stock options referred to above were
exercised. The remaining 100,000 stock options will expire on April 1, 1999.
During 1996, the Company issued 90,000 shares of Common Stock to certain
consultants and 11,000 shares of Common Stock to a law firm as consideration for
services rendered in connection with the Company's acquisitions of Delta, SECURx
and MSC. The Company recorded an aggregate $740,000 related to the issuance of
these common shares, all of which is included in merger costs on the
consolidated statement of operations.
On May 1, 1996, the Company granted 200,000 stock options (100,000 options at an
exercise price of $8 and 100,000 options an exercise price of $10) to an
investment banking firm as consideration for a two-year consulting agreement
commencing on December 31, 1996. The stock options were fully vested on the date
of grant. In connection with the stock options granted, the Company recorded a
prepaid consulting fee of $144,000 as of December 31, 1996. This amount is
included in other assets on the December 31, 1996 consolidated balance sheet.
On July 2, 1996, the Company granted 75,000 stock options exerciseable at $7 per
share to a public relations firm in connection with a two-year contract. The
stock options were fully vested on the date of grant. In addition, the Company
agreed to issue an additional 75,000 options on July 2, 1997 and pay $30,000 per
year in connection with this contract. In connection with the stock options
granted, the Company recorded a prepaid expense of $20,000 at December 31, 1996.
The stock options expire five years from their respective dates of grant.
F-17
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY (CONTINUED)
On December 27, 1996, the Company issued 15,000 of its common shares to certain
consultants as consideration for consulting services rendered in connection with
the Company obtaining a five-year agreement to provide mail order pharmacy
services to an insurer. The Company recorded a prepaid expense of approximately
$138,000 for these fees, which is included in other assets on the December 31,
1996 consolidated balance sheet, and intends to amortize these costs over the
life of the agreement.
COMMON STOCK WARRANTS
During 1996, the Company issued 102,550 common shares in connection with the
exercise of the Company's Class A and Class B warrants at a weighted average
exercise price of $5.25. On December 31, 1996, the remaining 96,950 outstanding
warrants expired unexercised.
STOCK OPTION PLANS
In October 1994, Boca adopted a stock option plan (the Boca Plan). The Boca Plan
provides for the granting of both incentive stock options and nonqualified stock
options for the purchase of up to 200,000 shares of Boca's Common Stock. Under
the Boca Plan, incentive stock options were granted on October 1, 1994 to
purchase 19,100 shares of Boca's Common Stock for a period of eight years from
October 1996 at an exercise price of $10 per share (the Boca Options). All of
the outstanding Boca Options were rescinded during 1996. The Company does not
intend to grant any additional stock options under the Boca Plan.
In May 1996, the Company adopted a stock option plan (the 1996 Plan). The 1996
Plan provides for the granting of both incentive stock options and nonqualified
stock options for the purchase of up to 900,000 shares of the Company's Common
Stock. The exercise price and vesting schedule of each stock option is
determined by the Compensation Committee of the Company. Stock options granted
under the 1996 Plan expire after ten years from the date of grant.
F-18
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY (CONTINUED)
In October 1995, the FASB issued FASB No. 123, which provides an alternative to
APB No. 25. FASB No. 123 allows for a fair value based method of accounting for
stock options. However, for companies that continue to account for stock-based
compensation arrangements under APB No. 25, such as the Company, FASB No. 123
requires disclosure of the pro forma effect on net loss and loss per share of
its fair value based accounting for those arrangements. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1996: risk
free interest rate of 6.49%, dividend yield of 0%, volatility factor of the
expected market price of the Company's Common Stock of .47 and a
weighted-average expected life of the options of 4.09 years. As of December 31,
1996, the weighted average remaining contractual life of all options outstanding
was 9.7 years.
The following unaudited pro forma summary presents the Company's net income and
earnings per share as if the estimated fair value of the options were amortized
to expense over the options' vesting period. FASB No. 123 does not apply to
stock option grants prior to the year ended December 31, 1995 and no stock
options were granted in fiscal 1995, therefore, FASB No. 123 has no pro forma
effect on the 1995 net loss and net loss per share as reported in the
consolidated statement of operations.
YEAR ENDED 1996
----------------------------------
Supplemental
(SEE NOTE 1)
Pro forma net loss $(3,718,803) $(2,777,053)
==================================
Pro forma net loss per share $ (0.38) $ (0.22)
============== ===================
The pro forma effect of compensation expense from stock option awards on pro
forma net income reflects the vesting of 1996 option awards in 1996, in
accordance with FASB No. 123. Because pro forma compensation expense associated
with a stock option award is recognized over the vesting period, the initial
impact of applying FASB No. 123 may not be indicative of pro forma compensation
expense in future years, when the effect of multiple awards will be reflected in
pro forma net income.
F-19
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity and related information for the
year ended December 31, 1996 relative to the Company's employee/director and
nonemployee stock options is as follows:
<TABLE>
<CAPTION>
EMPLOYEE/DIRECTOR STOCK NONEMPLOYEE STOCK
OPTIONS OPTIONS
-------------------------------- --------------------------------
WEIGHTED WEIGHTED
OPTIONS FOR AVERAGE OPTIONS FOR AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 - $ - - $ -
Granted 882,500 5.17 1,075,000 3.72
Exercised - - 625,000 1.00
Forfeited - - - -
--------- ----------
Outstanding at December 31, 1996 882,500 5.17 450,000 7.50
========= ==========
Exercisable at end of year 800,867 450,000
========= ==========
Weighted-average fair value of options
granted during the year $2.23 $1.31
========= ==========
</TABLE>
The exercise prices of the employee/director stock options granted during 1996
were greater than the Company's stock prices on the dates of grant.
F-20
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY (CONTINUED)
Options outstanding and exercisable at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL LIFE EXERCISE OPTIONS EXERCISE
RANGE OF OPTION PRICES OUTSTANDING PRICE EXERCISABLE PRICE
- ----------------------------------------- -------------- ----------------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Employees $ 5.13--$6.08 882,500 9.7 years $ 5.17 800,867 $ 5.13
======== ========
Nonemployees $ 6.00--$8.00 275,000 2.9 years $ 7.00 275,000 $ 7.00
$ 10.00 100,000 2.3 years $ 10.00 100,000 $ 10.00
$ 6.00 75,000 Unlimited $ 6.00 75,000 $ 6.00
--------
========
450,000 450,000
======== ========
At December 31, 1996, there are 17,500 options available for grant under the
1996 Plan.
COMMON STOCK
The following shares of Common Stock have been reserved for future issuance as
of December 31, 1996:
<S> <C>
Upon the closing of the acquisition of MSC 1,400,000
Upon the conversion of the minority interest 662,341
Upon the exercise of stock options outstanding or available for
grant 1,350,000
==========
3,412,341
==========
</TABLE>
F-21
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the consolidated
balance sheet for cash and cash equivalents approximates its fair value.
NOTE RECEIVABLE: The fair value of the Company's note receivable is estimated
using discounted cash flow analysis, based on discount rates at which similar
notes would be made under current conditions, commensurate with the credit and
interest rate risks involved.
LINE OF CREDIT, NOTES PAYABLE, AND NOTES PAYABLE TO SHAREHOLDERS: The fair
values of the Company's line of credit, notes payable and notes payable to
shareholders are estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.
The carrying and fair values of the Company's financial instruments at December
31, 1996 approximate their carrying values.
11. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
YEAR ENDED DECEMBER 31,
1995 1996
------------------------------
Current:
Federal $ 95,408 $(400,000)
State 16,010 -
------------------------------
111,418 (400,000)
Deferred 37,489 -
==============================
Total $148,907 $(400,000)
==============================
F-22
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred income taxes are as follows:
DECEMBER 31,
1995 1996
-------------------------
Deferred tax assets:
Net operating loss carryforwards $46,564 $ 46,564
Tax credits - 25,377
Allowance for uncollectible accounts 26,095 162,428
Costs in excess of net assets acquired 5,131 15,393
--------------------------
77,790 249,762
Less valuation allowance (77,790) (249,762)
==========================
Net deferred tax assets $ - $ -
==========================
FASB No. 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a $249,762 valuation allowance is necessary at December 31,
1996. At December 31, 1996, the Company has available net operating loss
carryforwards of $123,741 which expire in 2010. In addition, the Company had tax
credits of $25,377 that have no expiration date.
F-23
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
The differences between the provision for income taxes and the amount which
results from applying the federal and state statutory tax rates to income before
income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996
---------------------------
<S> <C> <C> <C>
Income tax benefit at statutory rate $(1,257,911) $(815,436)
State income tax benefit, net (134,300) (87,060)
Merger costs, not deductible for tax purposes - 329,345
Taxes on Delta's loss incurred (income earned) prior to
revocation of Subchapter S election 10,012 (62,270)
Goodwill amortization not deductible for tax purposes 74,300 -
Goodwill impairment charge not deductible for tax purposes 1,368,363 -
Meals and entertainment not deductible for tax purposes 6,443 7,133
Officer's life insurance premiums not deductible for tax
purposes 4,210 4,210
Reduction in net operating loss carryback benefit - 52,105
Change in valuation allowance 77,790 171,973
----------------------------
$ 148,907 $(400,000)
============================
</TABLE>
12. LEASE COMMITMENTS
The Company has various operating leases, primarily relating to branch offices
and warehouse facilities. The leases have various renewal options and escalation
clauses and often require the Company to make additional payments for
maintenance costs. Total rent expense for the years ended December 31, 1995 and
1996 amounted to $132,739 and $181,229, respectively.
F-24
<PAGE>
CompScript, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. LEASE COMMITMENTS (CONTINUED)
Approximate future minimum annual rentals under noncancelable operating leases
with initial or remaining terms in excess of one year are:
1997 $ 198,197
1998 214,314
1999 204,628
2000 158,017
2001 151,644
Thereafter 165,528
-----------
$1,092,328
===========
13. PROFIT SHARING PLAN
In 1993, the Company established a profit sharing savings plan (the Plan) that
covers substantially all of its employees and that qualifies as a cash or
deferred arrangement under Section 401(k) of the IRC. Under the Plan,
participating employees may defer up to 20% of their pre-tax salary before
reduction, but not more than approximately $9,500 per plan year. The Company may
make matching or other contributions to the Plan. There were no Company
contributions to the Plan for the fiscal years ended December 31, 1995 and 1996.
14. SUBSEQUENT EVENT
On January 9, 1997, the Company entered into a five-year agreement with two
shareholders (each of which has less than a 5% beneficial ownership interest in
the Company) of the Company pursuant to which the shareholders will assist the
Company with the maintenance of existing pharmacy benefits management contracts
as well as secure new contracts for the Company. The Company agreed to pay the
shareholders $50,000 per month for the first year of the contract, as well as
commission ranging from 1/2% to 1% of net revenues generated by new contacts
obtained by the shareholders. The Company may cancel the contract at the end of
the first year if the shareholders have not met certain performance criteria.
F-25
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
10.8 Employment Agreement dated June 19, 1996 between CompScript and Robert
J. Gardner
10.9 Employment Agreement dated October 14, 1996 between CompScript and John
Chiste
10.10 Revolving Loan Agreement dated January 3, 1997 between CompScript and
SunTrust Bank South Florida N.A.
10.11 Independent Consulting Agreement dated January 9, 1997 between
Compscript, Gerard Altieri, Ronald J. Reith and Comprehensive Formulary
Management
22.1 CompScript's Subsidiaries*
27 Financial Data Schedule*
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 19th day of
June, 1997, by and between COMPSCRIPT, INC. (the "Company"), and ROBERT J.
GARDNER (the "Employee").
RECITALS
WHEREAS, the Company is engaged on a nationwide and international basis
in the business of wholesale distribution, exportation of pharmaceuticals, and
providing without limitation, support, durable medical equipment sale and
rental, laboratory testing, x-ray, speech, physical therapy, and consulting
services to the Long Term Care, Institutional Care, and Alternate Care markets
and provides mail service pharmaceuticals and pharmacy benefits management for
others; (the "Business") and
WHEREAS, the Employee desires to be employed by the Company, and the
Company is willing to employ the Employee upon the terms and conditions
hereafter stated, in which employment the Employee may become familiar with many
trade secrets, plans, programs, processes, procedures and manner of operation,
computer systems, customized software, management information systems,
departmental manuals, customers, customer lists, client prospects, financial,
statistical and accounting data, methods and type of client solicitation,
methods of service preferred by clients, ideas, marketing programs, fees paid by
clients, fees, salaries and bonuses to employees and independent contractors and
capabilities of officers and employees, documents, agreements, and independent
contractors and capabilities of officers and employees, documents, agreements,
contracts and other arrangement, personnel information, matters of internal
organization and other confidential information, in each case, of the Company
(collectively, "Trade Secrets");
WHEREAS, the Company exercises substantial efforts to maintain the
secrecy of the Trade Secrets as the Trade Secrets derive independent economic
value from not being generally known and readily ascertainable by proper means
by others who can obtain economic value from their disclosure or use;
WHEREAS, the Trade Secrets are original and proprietary to the Company,
its founders and/or shareholders and have been developed and obtained only after
grate effort and expense by the foregoing;
WHEREAS, great loss and damage would be sustained by the Company, if
during the term of this Agreement or following its termination, the Employee
were to make any of the Trade Secrets learned or obtained during the term of
employment available to other persons engaged in competition with the Company or
use the same in competition with the Company; and
<PAGE>
WHEREAS, the parties desire to define the duties and responsibilities
of each of the parties hereto, and the Company desires to employ the Employee
only upon the terms and conditions hereafter stated.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, the parties hereto do hereby agree as follows:
1. EXCLUSIVE EMPLOYMENT; DUTIES; COMPENSATION. The Company hereby
agrees to employ the Employee in its business pursuant to the terms and
conditions set forth herein and the Employee agrees to devote substantially all
of the Employee's time, attention and skill to the business of the Company. The
Employee's duties with the Company shall be commensurate with the Employee's
skills and experience. The Company agrees that the Employee's position, base
salary, moving/relocation reimbursement, bonus compensation, deferred
compensation, additional compensation and benefits, severance pay, and
termination payments following a change of control are those set forth in the
Addendum to this Employment Agreement. The Company agrees to provide the
Employee with a suitable office, secretarial assistance, a computer, and the use
of or access to all facilities and equipment adequate for performance of
Employee's duties. The Employee agrees not to accept other employment that would
prevent Employee from performing the duties prescribed by the Company during the
term of this Agreement except with the written consent of the Company. The
Company may from time to time, direct that the Employee perform work for others,
commensurate with Employee's skills and experience, such work being performed,
however, as an employee of the Company. The Employee's compensation hereunder
may be increased from time to time by the Company. The Employee shall be
entitled to participate in only those employee benefit plans and other benefits
and incentives as the Company shall determine in its sole discretion.
2. MANNER OF PERFORMANCE OF EMPLOYEE'S DUTIES. Employee shall at all
times faithfully, industriously and to the best of Employee's ability,
experience and talent perform all duties that may be required of and from him
pursuant to the terms hereof. Such duties shall be rendered at such places as
the Company shall in good faith require or as the interests, needs, business and
opportunities of the Company shall require or make advisable; however, the
Company will not change the Employee's principal office to a location outside
the Palm Beach, Broward County, Florida area.
3. RESTRICTIONS ON EMPLOYEE AUTHORITY. Employee shall not have any
authority to make, enter or agree to make or enter into any contracts,
commitments or obligations on behalf of the Company without the Company's prior
written consent.
4. ASSIGNMENT OF CERTAIN RIGHTS. In consideration of employment and
other benefits of value, the Employee, on the Employee's behalf and on behalf of
the Employee's heirs and representatives, agrees to assign and transfer and
hereby assigns and transfers to the Company, its successors and assigns, as
applicable, all of the
2
<PAGE>
Employee's right, title and interest in any and all inventions, discoveries,
developments, improvements, techniques, designs, data, processes, procedures,
systems and all other work products, whether tangible or intangible, that the
Employee, either solely or jointly with others, has conceived, made, acquires,
suggested, reduced to practice, or otherwise created during employment with the
Company, and which relate in any manner to any of the business, services or
products, techniques, processes or procedures, products, designs, data or
systems of the Company. The Employee further agrees that upon the termination of
the employment of the Employee for any reason, to immediately return to the
Company any tangible items relating to any such inventions, discoveries,
developments, improvements, techniques, designs, data, processes, procedures,
systems and all other work products, whether tangible or intangible.
5. TRADE SECRETS; CONFIDENTIALITY.
(a) The Employee hereby acknowledges that the Trade Secrets,
all of which are original or proprietary with the Company, its founders or
shareholders, regardless of whether such information is considered to be
confidential or proprietary by third parties, were developed only after great
effort and expense by the Company, its founders and/or shareholders, are
considered by them to be confidential and substantially affect the effective and
successful conduct of the business and goodwill of the Company. The Company
exercises substantial efforts to maintain the secrecy of the Trade Secrets,
which derive independent economic value from not being generally known or
readily ascertainable by proper means by others who can obtain economic value
from their disclosure or use.
(b) The Employee shall not, both during the term of this
Agreement or at any time after its termination (regardless of the manner or
validity of termination), at any time or in any form, manner or fashion either
directly or indirectly, disseminate, divulge, disclose, use or communicate any
Trade Secrets to any person, firm, corporation, association, entity or
organization (collectively, "Organization"). No business conducted by Employee
or any Organization of which Employee, directly or indirectly, is an owner,
officer, director, partner, shareholder, employee, agent, advisor or consultant
in any state or country in which the Company and/or any of its affiliates
conduct business shall use any name, designation or logo which is substantially
similar to that used by the Company. Upon the termination of Employee's
employment with the Company, the Employee (regardless of the manner or validity
of termination) shall immediately return to the Company any and Trade Secrets
and other tangible information and property obtained from or relating to the
Company or to which the Employee has access in good condition, normal wear and
tear excepted.
(c) The Employee shall not, both during the term hereof or for
a period of two (2) years thereafter, discuss the terms of this Agreement or the
Employee's compensation with the Company, with any other employee of the Company
or any person whom the Employee reasonably believes would directly or indirectly
communicate
3
<PAGE>
such information to any other employee of the Company. The Employee further
agrees not to at any time remove any Trade Secrets from the Company's premises
without the prior written approval of the President of the Company.
6. NON-COMPETE. The Employee agrees that the Employee is or shall be
employed by the Company as Vice President and a member of the Executive
Committee, or such other positions as the Company shall from time to time direct
commensurate with Employee's skills and experience, and has or will become
familiar with the Company's business.
The Employee further agrees that during the term of this
Agreement and for a period of two (2) years following its termination
(regardless of the manner o or validity of termination), the Employee will not,
directly, become or remain interested in, associated with, employed by, an
owner, officer, director, partner, shareholder, employee, agent, advisor or
consultant in or indebted to any organization that is engaged in the business or
any other business similar to that of the Company's, excluding a retail or
hospital pharmacy not engaged in competition with CompScript, Inc. that is
operating in any form, manner or fashion, directly within one hundred (100)
miles of any office of the Company.l
The Employee acknowledges that because of the Employee's
access to the Company's Trade Secrets and other confidential information, a
violation of this covenant will cause irreparable injury to the Company and its
affiliates.
7. NON-SOLICITATION OF CUSTOMERS OR CLIENTS. Notwithstanding any other
provisions hereof, the Employee shall not, during the term of this Agreement and
no longer than the same period of time actively employed, not to exceed 18
months following its termination (regardless of the manner or validity of
termination), at any time or in any manner, either directly or indirectly, for
the Employee's own behalf or, for or on behalf of any Organization (other than
the Company), solicit or attempt to solicit any business similar to the business
from any customers or clients of the Company. A "customer" or "client" shall
mean any Organization with which the Company has dealt with or provided services
to, regardless of whether such organization was solicited or provided services
by the Employee at any time during such employment, whether during the usual
hours of employment or otherwise.
8. NON-SOLICITATION OF EMPLOYEES. Notwithstanding any other provision
of this Agreement the Employee agrees that during the term of this Agreement and
for a period of two (2) years following its termination (regardless of the
manner or validity of termination) at any time or in any manner, either on the
Employee's own behalf or for or on behalf of any Organization (other than the
Company), directly or indirectly, solicit, divert or otherwise encourage or
attempt to solicit, divert or otherwise encourage employees or agents of the
Company (including without limitation Pharmacists, Nurses, Therapists and
Pharmacy Technicians) to enter into any employment, consulting or
4
<PAGE>
advisory arrangement or contract with or to perform any services for or on
behalf of the Employee or any organization (other than the Company), or to
enter into any kind of business, including without limitation the Business or
any similar business unless such employee or former employee has not been
employed by the Company for a period in excess of twelve (12) months.
9. FINANCIAL OR OTHER INTEREST. The Company shall be entitled to all
benefits and profits arising from or incident to any and all work, services and
advice provided by Employee to Company while employed by the Company. The
Employee agrees that while employed by the Company the Employee will not have a
direct or indirect financial or other interest in a privately-owned
Organization, or a direct or indirect substantial financial or other interest in
a Publicly-Owned Organization, either of which is a current or potential
supplier of goods or services, a customer or client, or a competitor of the
Company, unless the circumstances are fully disclosed in writing to the
President of the Company and written approval is obtained from such officer. A
"substantial" interest in a Publicly-Owned Organization means an ownership
interest having a market value of $100,000.00 or more, or a one percent or
greater ownership interest in such organization, whichever is less.
10. GIFTS AND ENTERTAINMENT. The Employee agrees that while employed by
the Company the Employee will not accept, directly or indirectly, any loan,
gift, gratuity, favor or entertainment of more than normal value from any
persons with whom the Company has an existing or a potential relationship as a
supplier of goods or services, a customer or competitor if the Employee is
offered anything with a value of more than $50.00, the Employee must immediately
report such offer to the Employee's immediate supervisor.
11. USE OF COMPANY PROPERTY. The Employee agrees that while employed by
the Company the Employee shall (i) protect and conserve Company property
including equipment, supplies and any other property entrusted to the Employee;
and (ii) not directly or indirectly, use, or allow the use of, Company property
of any kind (including property leased to the Company), for other than Company
activities, except with the authorization of a director of the Company.
12. SENSITIVE PAYMENTS. The Employee agrees that while employed by the
Company, the Employee will not for any purpose accept any kickback or payment of
cash or other consideration which may be deemed to be illegal.
13. FINANCIAL AND OTHER BOOKS AND RECORDS. If the Employee is
responsible for the completeness and correctness of financial and other books
and records, the Employee is required to enter all assets, liabilities, payments
and disbursements on such books in accordance with generally accepted accounting
principles, as well as with the established practices and policies of the
Company, and in a manner that will reflect the nature and purpose as well as the
amount thereof. In this connection, the Employee
5
<PAGE>
shall not knowingly bypass established internal control procedures, or knowingly
make any false entries in the books and records for any reason, and the Employee
shall not knowingly participate in any procedures that result in such prohibited
acts.
14. PRIOR AGREEMENTS. The Employee hereby represents that the Employee
is not aware of any restrictions imposed by any prior agreement(s) with any
other party or parties which would, in any way, conflict with or prevent the
execution of the responsibilities that pertain to the Employee's position with
the Company.
15. DISABILITIES/LIMITATIONS. The Employee hereby attests that the
Employee does not know of any physical, mental or medical impairments which
would interfere with the Employee's ability to perform the job for which the
Employee was hired.
16. INDEMNIFICATION. The Company shall indemnify the Employee for all
losses and expenses of any kind sustained by the Employee by reason of the fact
that he is or was employed by the Company, including without limitation
reasonable attorneys' fees and costs incurred by the Employee, regardless
whether such fees and costs are incurred in an action or proceeding by or
against the Employee, and regardless whether such fees and costs are incurred in
any action or proceeding by or against the Company.
17. TERMINATION. The Company and the Employee hereby agree to notify
the other immediately in the event either party elects to terminate this
Agreement. The parties further agree that such notice shall contain a
description of the termination as one "for cause" or " other than for cause" as
defined below.
(a) Termination for Cause: The Company may terminate this
Agreement only "for cause." For purpose of this Agreement, "cause" shall mean
(i) an act or acts of dishonesty intended to cause substantial enrichment of the
Employee at the Company's expense; or (ii) repeated, willful and deliberate
breaches of this Agreement. If the Company believes that the Employee has acted
or failed to act in a manner that warrants termination"for cause," the Company
shall provide 2 weeks written notice to the Employee specifying such acts or
omissions. If the Employee fails to correct such actions or omissions within 30
days of written notice, the Company may elect to terminate the Employee "for
cause" by immediately paying the Employee all compensation, including but not
limited to salary, bonuses, and deferred compensation to which he would have
been entitled had the Company not terminated this Agreement prior to the
conclusion of its two-year term. The Company shall also maintain until the last
day of the two-year term, at its sole expense, all health insurance, life
insurance and other coverages held by the Employee at the time of the "for
cause" termination.
The Employee may terminate this Agreement "for cause" if any
representative of the Company causes the Employee's working conditions to vary
in any material respect from those agreed to herein. In the event of such
termination, the Employee shall be entitled to payment as set forth in the
preceding paragraph.
6
<PAGE>
(b) Termination other than for Cause: The Company may not
terminate this Agreement "other than for cause." This Agreement and all aspects
of the Employee's relationship with the Company -- including all titles, duties
and functions -- may be terminated or discontinued only "for cause" as that
phrase is defined in subparagraph (a) above.
The Employee is free at anytime to terminate this Agreement and his
relationship with the Company "other than for cause." In the event of such
termination, the Company shall have no recourse against the Employee under this
Agreement.
18. MISCELLANEOUS.
(a) Employee has carefully read and considered the provisions
of this Agreement and, having done so agrees that the restrictions set forth
herein (including without limitation, the time period of restriction and the
geographical areas of restriction set forth in Sections 6, 7 and 8 hereof) are
fair and reasonable and are reasonably required for the protection of the
interests of the Company, its founders, directors, officers and other employees
and to prevent irreparable harm to the foregoing.
(b) The parties agree that the covenants of the Employee
herein are material parts of the consideration received by the Company for
entering into this Agreement and employing the Employee and conditions to such
employment and that any breach of Sections 3-13 of this Agreement by the
Employee will result in irreparable injury to the Company. For that reason and
because the actual damages that might be sustained by the Company might be
difficult, if not impossible, to ascertain and may not be adequate to redress
any injuries, the Company shall, in addition to any and all other remedies
provided by law or otherwise, be entitled to an injunction to prevent a breach
or contemplated breach of any covenant of the Employee contained herein.
(c) Each of the covenants is independent and severable. Each
such covenant shall remain in full force and effect regardless of the
enforceability of any other covenant herein, or of the breach thereof by either
party. If it shall be determined at any time by any court of competent
jurisdiction that any provision of this Agreement or any portion thereof is
unenforceable, or that any provision relating to time period or area of
restriction exceeds the maximum time period or areas such court deems
reasonable, then such portions as shall have been determined to be unreasonably
restrictive or unenforceable or to exceed the maximum reasonable time period or
area of restriction shall thereupon be deemed to be so amended as to make such
restrictions reasonable in the determination of such court or to become and
thereafter be the maximum time period and/or areas which such court deems
reasonable and enforceable and the provision, as so amended, shall be
enforceable between the parties to the same extent as if such amendment had been
made prior to the date of any alleged breach of such provision.
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<PAGE>
(d) Employee shall not delegate the Employee's employment
obligation pursuant to this Agreement to any other person. Employee agrees to
perform all acts necessary to enable the Company to learn of and protect the
rights it received under this Agreement, including without limitation making
full and immediate disclosure to the Company and assisting in the preparation
and execution of all documents required to acquire and convey to the Company the
rights obtained hereunder and under applicable law.
(e) This Agreement and accompanying Addendum contains the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements and understanding between the Employee and
the Company with respect thereto. No understandings exist between the parties
other than as expressed herein. This Agreement and accompanying Addendum may be
amended or modified only by written agreement executed by all of the parties
hereto. The provisions of the Agreement and accompanying Addendum shall survive
the termination of this Agreement and accompanying Addendum.
(f) This Agreement is to be considered an agreement entered
into and delivered in the State of Florida. The validity, interpretation,
construction, effect and enforcement of this Agreement shall be governed by the
laws of the State of Florida. The Employee (1) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in Dade, Broward and Palm Beach Counties, Florida, (2)
waives any objection that the Employee may have now or hereafter to the venue of
any such suit, action or proceeding, and (3) irrevocably consents to the
jurisdiction of the Florida state courts located in Dade, Broward or Palm Beach
Counties, and the United States District Court for the Southern District of
Florida in any such suit, action or proceeding. In the event of the commencement
of suit to enforce any of the terms of this Agreement, the prevailing party in
such litigation shall be entitled to recover reasonable attorneys' fees.
(g) If either party waives a breach of this Agreement or fails
to exercise any right under this Agreement, such waiver of failure to exercise
rights shall not be construed as a waiver of any subsequent breach of right
under this Agreement, or affect the party's rights thereafter to exercise such
rights.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.
WITNESSED: COMPANY:
COMPSCRIPT, INC.
- --------------------------------
- -------------------------------- By: /S/ BRIAN A. KAHAN
---------------------
Brian A. Kahan, CEO
8
<PAGE>
EMPLOYEE:
- --------------------------------
- --------------------------------- /S/ ROBERT J. GARDNER
--------------------
Robert J. Gardner
9
<PAGE>
ADDENDUM TO EMPLOYMENT CONTRACT
I. POSITION
Vice President, Member of the Executive Committee
Employment contract for two (2) years
II. BASE SALARY
$120,000 annually to start, changing to $150,000 annually on Jan. 1,
1997 and $200,000 annually on Jan. 1, 1998.
III. MOVING/RELOCATION REIMBURSEMENT
The Company agrees to provide to the Employee the following within
seven calendar days from the date that the Company executes this Addendum.
A. Net of taxes $25,000 cash sign on bonus.
B. Non-qualified Stock Options representing 140,000 shares of
CompScript's Common Stock with an exercise price of $5.13 per
share as priced on August 22, 1996, which are deemed FULLY
vested.
C. Selling assistance for three (3) months for duplicate living
expenses.
IV. CASH BONUS
1. A guaranteed $15,000 cash bonus at the end of year one (1)(12
months from the date that the Employment Agreement is
executed) and a guaranteed $15,000 cash bonus at the end of
year two (2) (24 months from the date that the Employment
Agreement is executed).
2. An additional cash bonus at the end of year one and at the end
of year two to be based on Revenue and Operating Income in an
amount not less than $10,000 each year. It is understood that
a mutually agreed upon plan will be developed.
V. N/A
Car allowance of $750 per month:
Gas credit card for corporate use only;
Corporate credit card for corporate use only;
Company health and dental benefit according to COMPScript policy;
<PAGE>
Company to pay COBRA benefits until company insurance commences;
Laptop computer and cellular phone (ownership remains with company);
Company paid life insurance plus additional $750,000 term life policy;
Four (4) weeks vacation per year; Employee may not carry over paid
vacation accrued in one year to the following year;
Employee shall be entitled to the following paid holidays: New Year's
Day, Margin Luther King Day, President's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and the day after, and
Christmas Day;
Employee shall be entitled to ten paid sick days per year;
If Employee becomes unable to perform his duties under this Agreement
due to illness, physical or mental disability or other incapacity, the
Company shall continue to pay Employee his full salary and benefits for
a period of three (3) consecutive months;
In the event of the death of a close family member, Employee is
entitled to three (3) paid days of bereavement leave.
VI. SEVERANCE PAY
In the event of termination of employment or constructive termination
of employment, prior to the completion of the two (2) year term of
employment, the Employee will receive severance pay as set forth in
Section 17 of the Employment Agreement.
VII. TERMINATION FOLLOWING A CHANGE OF CONTROL
For purposes of this Agreement, a "Change in Control" of the Company
shall mean a change in control (a) as set forth in Section 280G of the
Internal Revenue Code, a (b) of a nature that would be required to be
reported in response to Item 1 of the current report of Form 8K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); provided that,
without limitation, such a change in control shall be deemed to have
occurred at such time as:
(1) any "person," other than the Employee, (as such term is used in
Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the
<PAGE>
Company's outstanding securities then having the right to vote at elections of
directors; or,
(2) the individuals who at the commencement date of the Agreement
constitute the Board of Directors cease for any reason to constitute a majority
thereof unless the election, or nomination for election, of each new director
was approved by a vote of at least two thirds of the directors then in office
who were directors at the commencement of the Agreement; or
(3) there is a failure to elect four or more (or such number of
directors as would constitute a majority of the Board of Directors) candidates
nominated by management of the Company to the Board of Directors; or
(4) The business of the Company for which the Employee's services are
principally performed is disposed of by the Company pursuant to a partial or
complete liquidation of the Company, a sale of assets (including stock of a
subsidiary of the Company) or otherwise.
Anything herein to the contrary notwithstanding, will not apply where
the Employee gives the Employee's explicit written waiver stating that for the
purposes of this Section a Change of Control shall not be deemed to have
occurred. The Employee's participating in any negotiations or other matters in
relation to a Change in Control shall in no way constitute such a waiver which
can only be given by an explicit written waiver as provided in the preceding
sentence.
An "Attempted Change in control" shall be deemed to have occurred if
any substantial attempt, accompanied by significant work efforts and
expenditures of money, is made to accomplish a Change in Control, as described
in subparagraphs (1), (2), (3), (4) above, whether or not such attempt is made
with the approval of a majority of the then current members of the Board of
Directors.
B. In the event that, within twelve (12) months of any Change in
Control of the Company or any Attempted Change in Control of the Company, the
Company terminates the Employment of the Employee under this Agreement, for any
reason other than for cause, or the Employee's employment is constructively
terminated, then, in any such event, such termination shall be deemed to be a
Termination by the Company other than for cause and the Employee shall be
entitled to such compensation and benefits as set forth in this Agreement.
C. For purposes of this Section, the Employee's employment shall be
deemed constructively terminated in the event one or more of the following
events occurs without the express written consent of the Employee:
<PAGE>
(i) Significant change in the nature or scope of the
authorities, powers, functions, duties or responsibilities attached to
Employee's position; or
(ii) A five percent (5%) reduction in the Employee's salary
below the salary in effect immediately prior to such reduction or a reduction in
the target bonus participation; or
(iii) Material breach of the Agreement by the Company; or
(iv) Material reduction of the Employee's benefits under any
employee benefit plan, program or arrangement (for Employee individually or as
part of a group) of the Company as then in effect or as in effect on the
effective date or the Agreement, which reduction shall not be effectuated for
similarly situated employees of the Company; or
(v) Failure by a successor company to assume the obligations
under the Agreement; or
(vi) Change in the Employee's principal office to a location
outside the Palm Beach-Broward County, Florida area.
D. Anything in this Section to the contrary notwithstanding, in no vent
will any action or non-action by the Employee at any time prior to the first
anniversary date of the applicable Change in Control or Attempted Change in
Control (including any action or non-action prior to the effective date of this
Agreement) be deemed consent to any of the events described in this Section.
E. Anything herein to the contrary notwithstanding, in the event the
circumstances giving rise to an Attempted Change in Control are included in
those circumstances giving rise to an actual Change in Control, the twelve (12)
month period under this Section will be deemed to have recommenced on the date
the actual Change in Control occurred.
Addendum acknowledged by the undersigned as of the date specified.
Employee: /S/ ROBERT GARDNER Date: /S/ 6/19/96
-------------------------- --------------------
COMPANY:
COMPSCRIPT, INC.
By: /S/ BRIAN KAHAN Date: /S/ 6/19/96
-------------------------------- -------------------
Brian A. Kahan, CEO
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made the 14TH day of OCTOBER , 1996, by and between
COMPSCRIPT, INC., a Florida corporation, with its principal office at 1225 N.W.
Broken Sound Parkway, Suite A, Boca Raton, Florida 33487 (the "Company") and
JOHN CHISTE, whose residence address is 9194 Marquis Court, Boynton Beach,
Florida (the "Executive").
The Company and the Executive hereby agree as follows with respect to
the Executive's employment with the Company.
1. EMPLOYMENT. The Company shall employ the executive and the
executive shall be employed with the Company, on the terms and conditions
hereafter set forth, for a period commencing January 1, 1997 and ending December
31, 1999, (the "Employment Period"), except as hereinafter provided. During his
employment hereunder, the Executive shall be the Company's Chief Financial
Officer, under the direction of the Chief Executive officer. The Executive's
principal place of employment shall be Boca Raton, Florida.
2. EXCLUSIVE EFFORTS. The Executive shall devote his best efforts,
skills and attention exclusively to the business and affairs of the Company,
shall serve the Company faithfully and competently and shall, at all times, act
in the Company's best interest. The services to be rendered by Executive during
the Employment Period shall be the normal duties of a person employed as a Chief
Financial Officer by a corporation in the Company's business, subject at all
times to the direction and control of the Company's Chief Executive Officer.
During his employment by the Company, the Executive shall not, either directly
or indirectly, (a) represent or be employed by any other person, firm or
corporation; (b) have any interest in or involvement with any person, firm or
corporation the business of which is competitive with any aspect of the business
of the Company; provided, however, that nothing herein shall be construed to
prevent Executive from investing his personal assets in other entities which do
not compete with the Company where the form and manner of such investment will
not require service on the part of Employee in the operation of the affairs of
the business in which such investments are made and in which his participation
is solely that of a passive investor; and further providing nothing herein shall
prevent Executive from consulting with Computer Integration Corp. during the
period ending February 28, 1997.
3. BASE COMPENSATIONS.
(a) The Company shall pay to the Executive, and the Executive
agrees to accept, minimum base compensation of One Hundred Twenty Thousand
Dollars ($120,000.00) per year, which base compensation shall increase by five
percent (5%) per year beginning January 1, 1998.
<PAGE>
(b) The compensation provided for in Paragraph 3(a) shall be
in addition to any pension or retirement benefits, life insurance, hospital and
medical, disability, and other benefits made generally available by the Company,
in its sole discretion, if any, to its executive offices and other employees.
4. BONUS COMPENSATION.
(a) Executive shall be entitled to receive a minimum bonus
equal to 10% of the base salary of the Executive for each year during the term
hereof. Such minimum bonus may be increased from time to time at the discretion
of the Chief Executive Officer.
(b) In addition to the minimum bonus provided in Paragraph
4(a), the Executive shall also be entitled to receive discretionary bonuses from
time to time at the discretion of the Chief Executive Officer, relating to the
Executive's role in acquisitions, financing and equity transactions.
5. STOCK OPTIONS. Executive shall receive, upon execution of this
Employment Agreement, non-qualified stock options, which options will vest
immediately, for 80,000 shares of CompScript common stock at an exercise price
of $5.13 per share as recorded on the day of the beginning of this employment
negotiation.
6. BENEFIT PLANS. The Executive shall be entitled to participate, to
the extent eligible, in medical, dental, hospital, group life insurance and
other fringe benefit programs from time to time made available to the Company's
executives.
(a) Beginning on January 1, 1998, the Company will subsidize
75% of the cost of providing medical and dental insurance for the Executive and
his family.
(b) Reimbursement for all professional, education and license
fees.
7. BUSINESS EXPENSE. The Executive shall be reimbursed for all
usual expenses incurred on behalf of the Company, in accordance with Company
practices and procedures, provided that:
(a) Each such expenditure is of an nature qualifying it as a
proper deduction on the federal and state income tax returns of the Company as a
business expense and not as deductible compensation to Executive; and
(b) Executive furnished the Company with adequate documentary
evidence required by federal and state statutes and regulations for the
substantiation of such expenditures as deductible business expenses of the
Company and not as deductible compensation to Executive.
2
<PAGE>
8. AUTOMOBILE EXPENSE. During the Employment period, Executive shall be
entitled to reimbursement by the Company for Executive's monthly automobile
allowance in the amount of $500 per month, commencing January 1, 1998.
Automobile expenses including gas, oil and tolls shall be reimbursed commencing
January 1, 1997.
9. VACATION. Employee shall be entitled to a paid vacation of three (3)
calendar weeks per year for the duration of the Employment Period. Any unused
vocation time for each calendar year of the Employment Period shall be forfeited
by Executive if not used during such year. Executive shall also be entitled to
all paid holidays made generally available by the Company to its executive
officers.
10. DEATH OR DISABILITY. Notwithstanding anything to the contrary
contained in Paragraph 1 above, if, while the Executive is employed by the
Company,he dies or suffers a physical or mental disability which prevents him,
for a period of three (3) consecutive months, from performing his duties
hereunder in a satisfactory manner, his employment shall terminate effective the
date of death or the end of such three 93) month period, as applicable. In the
event of such termination, the Executive's compensation and fringe benefits (to
the extent practicable) shall be continued for a period of six (6) months after
such termination, and shall be paid to the Executive if he is alive, or to his
spouse, if deceased.
11. TERMINATION.
(a) This Agreement may be immediately terminated by the
Company at anytime during the Employment Period for cause.
(b) This Agreement may be terminated by either the Company,
without cause, or the Executive upon sixty (60) days written notice to the
other party.
(c) In the event of termination by the Company for cause or at
the election of the Executive, the Company shall be obligated only to continue
to pay to Executive his compensation, including any bonus compensation to which
Executive may be entitled to pursuant to Paragraph 4 hereof, earned up to the
date of termination under Paragraph 3. In addition, Company shall pay any vested
benefits, if any, owed to Executive under any plan provided for Executive under
Paragraph 6 hereof in accordance with the terms of such plan as in effect on the
date of termination of employment under this Paragraph 11.
(d) In the event of termination by the Company without cause,
the Company shall be obligated to continue to pay Executive his compensation
earned up to the date of termination, including any bonus compensation to which
executive may be entitled to pursuant to Paragraph 4 hereof, plus continued
compensation for the remainder of the employment period, at the times and in the
manner as if such termination had not occurred. If such termination occurs after
December 31, 1998, the
3
<PAGE>
Executive is to receive an additional amount of $200,000 within ten days of such
termination.
(e) For purpose of the Agreement, "cause" shall mean any act
involving gross negligence, gross misfeasance, gross malfeasance, willful
misconduct, or breach of any provision of this Agreement.
12. SUCCESSORS; BINDING AGREEMENT. The Company will require any
successor (whether direct or indirect, friendly or hostile, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to compensate the Executive on the same terms as he would
be entitled to hereunder if he was terminated without cause under Paragraph
11(b) and (d), except that for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.
13. RESTRICTIVE COVENANTS.
(a) Executive recognizes that he has acquired knowledge of
certain trade secrets, information, data, know-how and knowledge (including, but
not limited to, trade secrets, information, date, know-how and knowledge
relating to customers, suppliers, sales market programs, costs, products,
apparatus, equipment, processes, manufacturing methods, compositions, designs,
plans and employees) belonging to, or relating to the affairs of the Company
(collectively referred to as "Trade Secrets"). Accordingly, during the
Employment Period and at all times thereafter, Executive agrees not to divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any Confidential Information or Trade
Secrets relating to the Company and its business, Executive acknowledges and
agrees that any information or data he has acquired on any of these matters or
items was received in confidence and as a fiduciary of the Company.
(b) all times during the Employment Period and thereafter,
Executive shall not, directly or indirectly, induce, influence, combine or
conspire with, or attempt to induct, influence, combine or conspire with, any of
the officers, employees, or consultants of the Company to terminate their
employment with or compete against the Company or any future subsidiaries,
parents or affiliates of the Company in the business of wholesale distribution,
exportation of pharmaceuticals, and providing without limitation, support,
durable medical equipment sale and rental, laboratory testing, x-ray speech,
physical therapy, and consulting services to the Long Term Care, Institutional
Care, and Alternate Care markets and provides mail service pharmaceuticals and
pharmacy benefits management for others (the "Business").
4
<PAGE>
(c) Executive acknowledges that his services and
responsibilities are unique in character and are of particular significance to
the Company, that the Company is a competitive business with a worldwide market
and Executive's continued and exclusive service to the Company under this
Agreement is of a high degree of importance to the Company. Therefore, during
the Employment Period and, if Executive is either terminated for cause or
voluntarily terminates his employment with the Company, for an additional period
of two (2) years following the date Executive is terminated or voluntarily
terminates his employment with the Company (the "Noncompete Period"), for any
reason whatsoever, Executive shall not, directly or indirectly, engage in the
business, except as an employee or agent of the Company, and shall not, directly
or indirectly, as owner, partner, joint venturer, employee, broker, agent,
corporate officer, principal, licensor, shareholder (unless as owner of no more
than five percent (5%) of the issued and outstanding capital stock of such
entity if such stock is traded on a major securities exchange or otherwise as a
purely passive shareholder) or in any other capacity whatsoever, engage in or
have any connection with any business which is competitive with the Business,
and which operates anywhere in the world. In the event Executive is terminated
by the Company without cause prior to the expiration of the Employment Period,
the Noncompete Period shall be modified such that it expires on the date of such
involuntary termination.
(d) If, in any judicial proceeding, a court shall refuse to enforce any
of the covenants included in this Paragraph 13, then such enforceable covenant
shall be amended to relate to such lesser period or geographical area as shall
be enforceable. In the event the Company or Purchaser should bring any legal
action or other proceeding against Executive for enforcement of this Agreement,
the calculation of the Noncompete Period, if any, shall not include the period
of time commencing with the filing of legal action or other proceeding to
enforce this Agreement through the date of final judgment or final resolution,
including all appeals, if any, of such legal action or other proceeding unless
the Company is receiving the practical benefits of this Paragraph 13 during such
time. The existence of any claim or cause of action by Executive against the
Company predicated on this Agreement shall not constitute a defense to the
enforcement by the Company of these covenants.
(e) Executive hereby acknowledges that the restrictions on his activity
as contained in this Agreement are required for the Company's reasonable
protection and is a material inducement to the Company to enter into this
Agreement. executive hereby agrees that in the event of the violation by him of
any of the provisions of this Agreement, the Company will be entitled to
institute and prosecute proceedings at law or in equity to obtain damages with
respect to such violation or to enforce the specific performance of this
Agreement by Executive or to enjoin Executive from engaging in any activity in
violation hereof.
5
<PAGE>
14. BINDING EFFECT. Except as herein otherwise provided, this Agreement
shall inure to the benefit of and shall be binding upon the parties hereto,
their personal representatives, successors, heirs and assigns.
15. SEVERABILITY. Invalidity or unenforceability of any provision
hereof shall in no way affect the validity of enforceability of any other
provisions.
16. TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural and vice versa. Titles of
paragraphs are for convenience only, and neither limit nor amplify the
provisions of the Agreement itself.
17. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the law of the State of Florida.
18. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties and may not be changed or modified except by an agreement in
writing signed by all the parties.
19. NOTICE. Any notice requiring or permitted to be delivered hereunder
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the parties at addresses first stated herein, or to such other
address as either party hereto shall from time to time designate to the other
party by notice in writing as provided herein.
20. OTHER INSTRUMENTS. The parties hereby covenant and agree that they
will execute such other and further instruments and documents as are or may
become necessary or convenient to effectuate and carry out the terms of this
Agreement.
21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed an
original.
22. ASSIGNABILITY. This Agreement shall not be assigned by either
party, except with the written consent of the other.
23. ATTORNEYS' FEES. In any litigation arising out of this Agreement,
the prevailing party shall be entitled to all costs and expenses, including
reasonable attorneys' fees.
6
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly signed by the
Executive and on behalf of the Company on the day and year first above written.
COMPSCRIPT, INC. EXECUTIVE
By: /S/ BRIAN KAHAN /S/ JOHN CHISTE
-------------------------- ----------------------
Brian A. Kahan John Chiste
Chief Executive Officer
7
EXHIBIT 10.10
REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT is made and entered into as of the 3RD
day of January, 1997, by and between COMPSCRIPT, INC., a Florida corporation,
whose address is 1225 Broken Sound Parkway, N.W., Suite A, Boca Raton, Florida
33487 (hereinafter referred to as "Borrower"), and SUNTRUST BANK, SOUTH FLORIDA,
N.A., a national banking association, whose address is 501 East Las Olas
Boulevard, Fort Lauderdale, Florida (hereinafter referred to as "Lender").
W I T N E S S E T H:
WHEREAS, Borrower is a Florida corporation and desires to obtain
extensions of credit of up to Five Million and No/100 Dollars ($5,000,000.00)
from Lender in order to provide working capital for Borrower's operations; and
WHEREAS, Lender is willing to extend such credit to Borrower of up to
such amount upon the terms and conditions set forth herein (the "Loan"); and
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the loans
or extensions of credit heretofore now or hereafter made or to be made for the
benefit of Borrower by Lender, the parties do hereby agree as follows:
ARTICLE 1
RECITALS AND DEFINITIONS
1.1 RECITALS. The foregoing recitals are acknowledged by the parties to
be true and correct, and are incorporated herein by reference.
1.2 DEFINITIONS. As used in this Agreement, the terms listed below
shall have the following meanings:
(a) "ACCOUNT DEBTOR": A party obligated to pay an account
receivable to Borrower.
(b) "ADVANCE": A disbursement by Lender of a portion of the
Loan proceeds to provide working capital for the operations of Borrower or for
general corporate purposes in accordance with the terms and provisions of this
Agreement.
(c) "AGREEMENT" or "LOAN AGREEMENT": This Revolving Loan
Agreement.
<PAGE>
(d) "BORROWER": COMPSCRIPT, INC., a Florida corporation, whose
address is 1225 Broken Sound Parkway, N.W., Suite A, Boca Raton, Florida 33487.
(e) "BORROWER'S COUNSEL OPINION LETTER": A letter from
Borrower's Counsel, in form and substance reasonably satisfactory to Lender and
Lender's Counsel, opining as to certain matters concerning the Loan.
(f) "BUSINESS DAYS": Days upon which Lender is open for normal
business.
(g) "CLOSING": The time of the execution and delivery of this
Agreement and all other Loan Documents by Borrower, Co-Borrower, Guarantors and
Lender.
(h) "CODE": The Internal Revenue Code of 1986, as amended from
time to time, and applicable Department of Treasury regulations thereunder.
(i) "ELIGIBLE ACCOUNTS RECEIVABLE": Accounts receivable of
Borrower and which are less than ninety (90) days past due, less retainages and
excluding Medicaid Pending, Medicaid Over the Cap, retail, employee, private
insurance (from nursing homes, assisted care living facilities and home health
agencies) and related company receivables; provided, however, that: (i) if ten
percent (10%) or more of the accounts receivable for an Account Debtor shall be
more than ninety (90) days past due, then all accounts receivable for such
Account Debtor shall be excluded from Eligible Accounts Receivable; and (ii)
eligible Medicaid receivables will be discounted by twenty-five percent (25%)
before applying the formula stated above.
(j) "ELIGIBLE INVENTORY": Inventory of Borrower purchased from
Bergen Brunswig Drug Company ("Bergen"), subject to the continuing commitment by
Bergen to accept returns on merchandise as stated in that certain letter dated
September 10, 1996, from Bill Harper, Division Manager of Bergen, to Gary
Splain, Comptroller of Borrower. Lender reserves the right to have the inventory
of Borrower examined at the expense of Borrower at reasonable intervals in order
to determine the amount of Bergen inventory which meets return specifications.
(k) "EVENT OF DEFAULT": The occurrence of any one or more of
the Events of Default described in Article 9 hereof.
(l) "FINANCING STATEMENTS": Financing Statements from Borrower
and Co-Borrower to Lender to perfect Lender's security interest in the property
described in the Security Agreements.
(m) "GOVERNMENTAL AUTHORITY": Any federal, state, county,
municipal or other governmental department, commission,
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board, bureau, court, agency, or any instrumentality of any other
governmental entity.
(n) "GOVERNMENTAL REQUIREMENTS": Any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, writ, injunction,
franchise, permit, certificate, license, authorization, or other direction or
requirement of any Governmental Authority now existing or hereafter enacted,
adopted, promulgated, entered or issued applicable to the Loan or to Borrower,
Co-Borrower or Guarantors.
(o) "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" OR "GAAP":
Those principles of accounting set forth in opinions of the Financial Accounting
Standards Board of the American Institute of Public Accounts or which have other
substantial authoritative support and are applicable in the circumstances as of
the date of any report required herein or as of the date of an application of
such principles as required herein.
(p) "GUARANTOR": Any subsidiary, holding company or corporate
affiliate of Borrower which may hereafter be formed which shall, upon formation,
guarantee repayment of the Loan.
(q) "INDEBTEDNESS": Collectively, all of Borrower's presently
existing or hereafter created or assumed obligations for borrowed money, notes
payable and drafts accepted representing extensions of credit (whether or not
representing obligations for borrowed money), obligations representing the Loan,
indebtedness, whether or not assumed, secured or unsecured, or payable out of
the proceeds or production from property now or hereafter owned or acquired by
Borrower and all other Indebtedness now or hereafter owed by Borrower to Lender.
(r) "INITIAL ADVANCE": The first Advance of the Loan proceeds.
(s) "LANDLORD'S SUBORDINATION OF LIEN AGREEMENTS":
Subordination Agreements from landlords where Borrower leases business
properties subordinating the Landlord's lien at that location to the lien and
effect of the Loan.
(t) "LEASES: Leases for all locations where Borrower leases
property in connection with its business operations.
(u) "MATURITY DATE": The Loan shall be due April 30, 1998,
with the provision that Lender shall have the right to accelerate the maturity
of the Loan, in Lender's sole and absolute discretion, after Lender's review of
Borrower's financial statements for fiscal year 1996 (which must be received not
later than April 30, 1997). Lender shall exercise this right by delivering
written notice to Borrower within thirty (30) days after Lender's receipt of
Borrower's financial statements for fiscal year
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1996. Acceleration shall be effective forty five (45) days after delivery of
notice as aforesaid.
(v) "NOTE": A Revolving Credit Promissory Note in the amount
of Five Million and No/100 Dollars ($5,000,000.00) from Borrower to Lender of
even date herewith evidencing the Loan.
(w) "PERSON": As the case may be, any corporation, natural
person, firm, joint venture, partnership, trust, unincorporated organization and
government, or any department or agency of any government.
(x) "SECURITY AGREEMENT": The Security Agreement of even date
herewith from Borrower to Lender securing the Note and all other indebtedness of
Borrower to Lender, and granting a valid first lien on the personal property
identified in the Security Agreement.
(y) "SUBORDINATION AGREEMENTS": Collectively, those
Subordination Agreements of even date herewith, if any, whereunder all related
and shareholder debt obligations of Borrower, if any, are subordinated in full
to the Indebtedness.
1.3 OTHER DEFINITIONAL PROVISIONS. (a) The terms "material" and
"materially" shall have the meanings ascribed to such terms under Generally
Accepted Accounting Principles as such would be applied to the business of
Borrower, except as the context shall clearly otherwise set forth; (b) all of
the terms defined in this Agreement shall have such defined meanings when used
in other documents issued under, or delivered pursuant to, this Agreement,
unless the context shall otherwise require; (c) all terms defined in this
Agreement in the singular shall have comparable meanings when used in the
plural, and vice versa; (d) accounting terms to the extent not otherwise defined
shall have the respective meanings given them under, and shall be construed in
accordance with Generally Accepted Accounting Principles; (e) the words
"hereby", "hereto", "hereof", "herein", "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; (f) the masculine and neuter genders
are used herein and whenever used shall include the masculine, feminine and
neuter a well; and (g) whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include their heirs, personal
representatives, successors and assigns of such parties unless the context shall
expressly provide otherwise.
ARTICLE 2
THE LOAN
2.1 Provided there does not exist an Event of Default and subject to
the terms and provisions of this Agreement, Lender will lend or advance for the
account of Borrower from time to time, and Borrower may borrow and re-borrow
under the Note such amounts as
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may be required to provide working capital for Borrower's operations. The
aggregate amounts advanced under the Note at any one time for working capital
shall not, however, exceed the lesser of (a) Five Million and No/100 Dollars
($5,000,000.00), or (b) an amount equal to seventy-five percent (75%) of
Borrower's Eligible Accounts Receivable PLUS an amount equal to fifty percent
(50%) of Borrower's Eligible Inventory.
2.2 Borrower's obligation to repay the Loan is evidenced by the Note of
even date herewith which sets forth the method for payment, rates of interest,
and such further terms as are therein set forth.
2.3 The repayment of the Note and the Indebtedness is to be secured by
the following documentation, which documents Borrower shall deliver, or cause to
be delivered, to Lender simultaneously with the delivery of the Note:
(a) The Security Agreement, in form and substance satisfactory
to Lender and Lender's counsel, granting Lender a first security interest in all
of Borrower's accounts, inventory, chattel papers, general intangibles,
fixtures, furniture, instruments, equipment and personal property now owned or
hereafter acquired by Borrower and all proceeds of the foregoing.
(b) Financing statements filed in such public offices as
Lender and Lender's counsel may deem necessary to perfect a security interest in
any of the items referred to in Section 2.3(a).
(c) The Subordination Agreements, in form and substance
acceptable to Lender and Lender's counsel, subordinating all related and
shareholder debt obligations of Borrower to the Indebtedness, to the extent that
related or shareholder debt exists.
2.4 Borrower shall also deliver, or cause to be delivered to Lender
simultaneously with the delivery of the Note, the following documents:
(a) Borrower's Counsel Opinion Letter, in form and substance
reasonably satisfactory to Lender and Lender's Counsel, opining as to certain
matters concerning the Loan.
(b) Such original policies of liability insurance, worker's
compensation insurance and hazard insurance (with fire extended coverage,
vandalism and mischief protection) as Lender may reasonably request (or
certificates thereof, if acceptable to Lender), naming Lender as certificate
holder under the policies of liability insurance and as loss payee under the
policies of hazard insurance.
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(c) Incumbency Certificate and Corporate Borrowing Resolutions
of the directors of Borrower authorizing the Loan.
(d) Certificate of Good Standing evidencing that Borrower is
in good standing under the laws of the State of Florida.
(e) Certified copy of Articles of Incorporation and By- Laws
of Borrower.
(f) Certified copies of the Leases in connection with all
leased premises of Borrower.
(g) Landlord's Subordination of Lien Agreement(s) executed by
all landlords at business locations of Borrower subordinating the landlord's
lien to the lien and effect of the Loan (except as waived in writing by Lender).
(h) Such other documentation as may be required by Lender or
Lender's Counsel.
2.5 The documents set forth in Sections 2.2, 2.3 and 2.4 above, this
Agreement and all other documents relating hereto, shall collectively referred
to as the "Loan Documents".
ARTICLE 3
MANNER OF MAKING LOAN ADVANCES
3.1 Each Advance to Borrower for working capital shall be made by
Lender not later than the next business day following delivery to Lender of
proper written request of Borrower stating the principal amount of the Advance
requested and all required supporting documentation. Any notice delivered under
this section shall be irrevocable and bind Borrower to consummate the Advance.
3.2 The proceeds of any Advance to Borrower shall, on the date of such
Advance, be deposited in immediately available funds in Borrower's demand
deposit account with Lender or in such other account with Lender as Borrower
may, from time to time, designate in writing to Lender.
ARTICLE 4
INTEREST
All interest under the Loan shall be computed on the basis of a year
containing three hundred sixty (360) days for the actual number of days elapsed.
Interest shall be due and payable in accordance with the terms and provisions of
the Note, and interest shall accrue at the rate of interest provided in the Note
for each Advance thereunder.
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ARTICLE 5
CONDITIONS PRECEDENT TO ADVANCE
5.1 The obligations of Lender to make the Initial Advance and all
additional Advances under the Loan are subject to the following conditions
precedent:
(a) REPRESENTATIONS AND WARRANTIES. The representations,
covenants and warranties made by Borrower in this Agreement shall be true and
correct on and as of the date of such Advance.
(b) NO DEFAULT. There shall be no default, and no event which
with notice or lapse of time or both would become such an Event of Default,
under this Agreement, the Note, the Security Agreement, or any other Loan
Document.
(c) DELIVERY OF LOAN DOCUMENTS. All of the Loan Documents
shall have been duly executed and delivered to Lender, and the Financing
Statements shall have been recorded in the appropriate public offices.
(d) DELIVERY OF OTHER DOCUMENTS. Borrower shall have
delivered, or caused to be delivered to Lender all other certification or
documentation to be executed by Borrower as may be required hereunder or under
the Loan Documents or reasonably required by Lender or Lender's counsel pursuant
to Lender's rights hereunder or under the other Loan Documents.
ARTICLE 6
USE OF LOAN PROCEEDS; MARGIN STOCK
The proceeds of the Loan shall be used for Borrower's general corporate
purposes. Borrower does not own any margin securities and no portion of any
Advance will be used for the purpose of reducing or retiring any indebtedness
which was originally incurred by Borrower to purchase any margin securities, and
neither the making of any and all loans and Advances nor the use of the proceeds
thereof will violate or be inconsistent with the provisions of Regulations G or
U of the Board of Governors of the Federal Reserve Systems of the United States.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Borrower represents and warrants to Lender that, so long as credit
remains available to Borrower or there is any outstanding balance due under the
Note as secured by the Loan Documents:
(a) Borrower has the power to engage in all the transactions
contemplated by this Agreement and have full corporate power, authority and
legal right to execute and deliver, and to comply with its obligations under the
Loan Documents, which
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documents constitute the legally binding obligations of Borrower enforceable
against Borrower in accordance with its terms.
(b) To the best of Borrower's knowledge and belief, there are
no suits, actions, or proceedings pending or threatened against or affecting
Borrower before or by any court, administrative agency or other Governmental
Authority which bring into question the validity of the transactions
contemplated hereby or would interfere with the ability of Borrower to comply
with the terms hereof.
(c) Each of Borrower and Guarantors is in good standing within
the State in which it is incorporated and is fully qualified and authorized to
do business in such other states as it does business, except where the failure
to so qualify would not have a material, adverse effect on the business of
Borrower or such Guarantor.
(d) Neither the execution nor delivery of any of the Loan
Documents, nor any other document relating hereto, will conflict with or result
in a breach of any of the provisions of the Articles of Incorporation or By-Laws
of Borrower or of any applicable law, judgment, order, writ, injunction, decree,
rule or regulation of any court, administrative agency or other Governmental
Authority, or of any material agreement or other material instrument to which
Borrower is a party or by which Borrower is bound or constitute a default under
any thereof, or result in the creation or imposition of any lien, charge or
encumbrance upon any property of Borrower other than those created under this
transaction in favor of Lender.
(e) No consent, approval or other authorization of or by any
Governmental Authority is required in connection with the execution or delivery
by Borrower of the Loan Documents, or compliance with the provisions hereof or
thereof.
(f) Subject to any limitation stated thereon, all balance
sheets, earnings statements and other financial data which have been or shall
hereafter be furnished to Lender to induce it to enter into this Agreement or
otherwise in connection herewith, do or will fairly represent the financial
condition of Borrower as of the dates thereof, and the results of its operations
for the period for which the same are furnished to Lender, and have been or will
be prepared in accordance with Lender's reasonable requirements, and that all
other information, reports and other papers and data furnished to Lender are or
will be, at the time the same are so furnished, accurate and correct in all
material respects and complete insofar as completeness may be necessary to give
Lender a true and accurate knowledge of the subject matter. There are no
material liabilities of any kind of Borrower as of the date of the most recent
financial statements which are not reflected therein. There have been no
materially adverse changes in the financial
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condition or operation of Borrower since the date of such financial
statements.
(g) There exists no default on the part of Borrower
under this Agreement, the Note, the Security Agreement, or any of the Loan
Documents.
(h) Borrower has not dealt with any broker or finder in
connection with the Loan, and Borrower hereby agrees to indemnify Lender and to
hold Lender harmless of and from any and all claims for broker's or finder's
fees or commissions in connection with this Loan, and agree to pay all expenses
(including but not limited to attorney's fees and expenses) incurred by Lender
in connection with the defense of any action or proceeding brought to collect
any such fees and commissions, or otherwise relating to any such broker's claims
resulting from or arising out of any claim that Borrower consulted, dealt or
negotiated with the person or entity making such brokerage claim.
(i) Borrower has filed or caused to be filed all tax returns,
which to the knowledge of Borrower such entity is required to file, and has
fully paid all taxes shown to be due and payable on said returns or any
assessments made against it or its property, and all other taxes, fees, or other
charges imposed on it or any of its property by any Governmental Authority. No
tax liens have been filed and, to the knowledge of Borrower no claims are being
made or may hereafter be asserted with respect to any such taxes, fees or other
charges except for (i) those, the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of Borrower;
and (ii) such failures to file or pay such tax liens or claims as could not, in
the aggregate, reasonably be expected to have a material adverse effect on the
business operations, property or financial or other condition of Borrower, and
cannot reasonably be expected to have an adverse effect on the ability of
Borrower to perform any of its respective obligations in any material respect
under this Agreement, the other Loan Documents, or under any other contractual
obligation.
(j) All copies of all documents and reports heretofore
furnished by or on behalf of Borrower in connection with this Agreement to
Lender, are, and those delivered subsequent to the date hereof will be, true and
correct copies of the originals of such documents and reports. All matters
stated or certified in any written statement, certificate, report or other
writing heretofore furnished pursuant to this Agreement by or on behalf of
Borrower to Lender are, and all matters stated or certified subsequent to the
date hereof will be, true and correct in all material respects as of the date
stated or certified. All such documents, reports, statements, writings and
certifications shall be in form and detail satisfactory to Lender.
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ARTICLE 8
COVENANTS OF BORROWER
8.1 Borrower shall do, or cause to be done, all of the things necessary
to preserve, renew and keep in full force and effect, its corporate existence
and its rights, material licenses and material permits shall comply with all
laws applicable to it, operate its business in a proper and efficient manner,
and substantially as presently operated or proposed to be operated, and at all
times shall maintain, preserve and protect all franchises and trade names and
preserve all property used or useful in the conduct of its business, and keep
the same in good repair, working order and condition, and from time to time make
or cause to be made such needed and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may be properly conducted at all times. Nothing herein
shall be construed as prohibiting the disposal or replacement by Borrower of
property used or useful in the conduct of its business where such disposal or
replacement is dictated by sound business judgment exercised in the ordinary
course of business.
8.2 Borrower shall maintain true and correct books and records and
shall keep its books and records in accordance with GAAP, and shall furnish, and
shall have each Guarantor furnish Lender, with such financial statements and
records as may be required by Lender on a yearly and interim basis as set forth
in this Article and other parts of this Agreement.
8.3 Borrower shall properly pay and discharge (a) all taxes,
assessments and governmental charges upon or against Borrower or its assets,
prior to the date on which penalties are attached thereto, unless, and to the
extent, such taxes are being diligently contested in good faith by appropriate
proceedings and appropriate reserves therefor have been established; and (b) all
lawful claims for labor, materials, supplies, services or anything else which
might or could, if unpaid, become a lien or charge upon the properties or assets
of Borrower, unless and to the extent only that the same are transferred to
bond, being diligently contested in good faith, and by appropriate proceedings
and appropriate reserves therefor have been established.
8.4 Borrower shall, at its expense, comply with all of the insurance
requirements set forth in this Agreement and the Security Agreements throughout
the term of the Loan.
8.5 Borrower shall indemnify and hold harmless Lender from any and all
loss or damage of whatsoever kind and from any suits, claims, or demands,
including, without limitation, Lender's reasonable legal fees and expenses, at
all trial and appellate levels, on account of any matter or thing arising out of
this Agreement or in connection herewith, or on account of any act or omission
to act by Borrower in connection with this Agreement or the Loan. Such indemnity
shall not extend to claims or demands
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resulting from the improper action or inaction of Lender. Borrower agrees to pay
any and all taxes (other than taxes on or measured by net income of Lender)
incurred or payable in connection with the execution and delivery of this
Agreement and the Loan, as well as all costs and expenses (including such
attorneys' fees as the court deems reasonable and just) incurred by Lender in
enforcing this Agreement. Such obligation shall survive repayment of the Loan.
8.6 Borrower, prior to closing, will deliver to Lender: (i) resolutions
certified as true by the Secretary of Borrower authorizing Borrower's
participation in connection with the transaction contemplated herein and
execution and performance of the Note, (ii) an incumbency certificate of
Borrower, (iii) a certificate as to the shareholder interests held in Borrower;
(iv) a certified copy of the Articles of Incorporation and Bylaws of Borrower,
and (v) Corporate Certificate of Good Standing of Borrower.
8.7 Borrower shall: (i) make full and timely payments of the principal
and interest due and owing under the Note and the Indebtedness of Borrower to
Lender, whether now existing or hereafter arising; (ii) duly comply with all of
the terms and covenants contained in each of the Loan Documents; and (iii) at
all times maintain the liens and security interest provided for under or
pursuant to this Agreement as valid and perfected liens and security interests
on the property intended to be covered thereby.
8.8 Borrower shall promptly notify Lender upon the commencement of any
action, suit or claim or counter-claim or proceeding against, or investigation
of, Borrower or any Guarantor. Where such action, suit, claim, counterclaim,
proceeding or investigation could reasonably be anticipated to have a material
adverse effect on the business of Borrower or such Guarantor.
8.9 Borrower shall promptly notify Lender in writing of (i) any
material assessments by any taxing authorities for unpaid taxes as soon as
Borrower has knowledge thereof; and, (ii) any alleged default by Borrower in the
performance of, or any modification of, any of the terms and conditions
contained in any material agreement, mortgage or indenture or instrument to
which Borrower is a party, or which is binding upon Borrower and upon any
default by Borrower in the payment of any of its indebtedness.
8.10 Borrower shall provide to Lender monthly aging schedules for
Borrower's accounts receivable. Such aging schedules shall be in form and
substance acceptable to Lender and shall be provided within twenty (20) days
following the month for which they are prepared. The following accounts
receivable shall be broken out separately: (i) all receivables for which payment
is the responsibility of a long term care facility or home healthcare; (ii) all
Medicaid related receivables (excluding Medicaid Pending and Medicaid Over the
Cap); (iii) all private patient receivables for which payment is the
responsibility of the individual private
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patients; (iv) all receivables related to mail order operations which are due
from third party administrators or insurance companies; and (v) all ineligible
accounts receivable (including Medicaid Pending and Medicaid Over the Cap).
8.11 Borrower shall provide to Lender aging schedules for Borrower's
accounts payable as Lender may reasonably request from time to time.
8.12 Borrower shall provide to Lender monthly inventory certifications
for Borrower's inventory. Such certifications shall be in form and substance
reasonably acceptable to Lender, shall break out month end inventory purchased
from Bergen and shall be provided within twenty (20) days following the month
for which they are prepared. Borrower shall promptly provide to Lender such
other schedules of inventory as Lender may reasonably request from time to time.
8.13 Borrower shall provide to Lender quarterly 10Q Reports and
quarterly financial statements of Borrower during the term of the Loan. The
quarterly financial statements shall be prepared on an internal basis in
accordance with GAAP. The quarterly 10Q Reports and financial statements shall
be provided to Lender simultaneously with the filing of the 10Q Reports with the
Securities and Exchange Commission, but in no event more than fifty-five (55)
days following the end of each fiscal quarter of Borrower.
8.14 Borrower shall provide to Lender annual 10K Reports and audited
annual financial statements of Borrower during the term of the Loan. Such
financial statements shall be prepared in accordance with GAAP by a certified
public accountant(s) acceptable to Lender. The annual 10K Reports and Financial
statements shall be provided to Lender within four (4) months following the end
of each fiscal year of Borrower. Borrower acknowledges that Borrower's fiscal
year ends December 31. Borrower shall also provide supporting schedules to the
audited financial statements as requested by Lender. Lender acknowledges that
Ernst & Young, the firm of certified public accountants which currently prepares
Borrower's financial statements, is acceptable to Lender.
8.15 Borrower shall provide or cause to be provided to Lender such
proforma financial statements and other financial information requested by
Lender from time to time during the term of the Loan.
8.16 Borrower shall cause those schedules, financial statements and
other financial information to be supplied pursuant to Sections 8.11 through
8.15 to be certified by the Chief Executive Officer, the Chief Financial Officer
or the Secretary/Treasurer of the Borrower as being true and correct.
8.17 Borrower shall allow Lender, or Lender's designated agent, to
enter upon Borrower's premises and inspect Borrower's
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property at reasonable intervals and times. Lender shall provide Borrower with
twenty-four (24) hours written notice, except where Borrower is in default under
the Loan. All such inspections shall be at Borrower's sole cost and expense.
8.18 Borrower shall maintain demand deposit operating account(s) with
Lender during the term of the Loan, into which funds advanced under the Loan
will be deposited.
8.19 Borrower shall maintain all of its business, company and
depository accounts with Lender during the term of the Loan.
8.20 The ratio of Borrower's debt to tangible net worth shall not
exceed 1.50 to 1.00 at any time during the term of the Loan. The ratio of
Borrower's debt to tangible net worth shall be calculated by dividing Borrower's
total debt by Borrower's net worth less all intangible assets, all calculated in
accordance with GAAP.
8.21 Borrower shall maintain a minimum working capital of not less than
Two Million and No/100 ($2,000,000.00) at all times during the term of the Loan.
Borrower's working capital shall be calculated by subtracting Borrower's current
liabilities from Borrower's current assets, all calculated in accordance with
GAAP.
8.22 The Borrower shall maintain a current ratio of not less than 1.25
to 1.00 at all times during the term of the Loan. Borrower's current ratio shall
be calculated by dividing Borrower's current assets by Borrower's current
liabilities, all calculated in accordance with GAAP.
8.23 Borrower shall achieve a debt service coverage ratio of not less
than 1.00 to 1.00 by December 31, 1996, and shall thereafter maintain a debt
service coverage ratio of not less than 1.35 to 1.00 at all times during the
term of the Loan. Borrower's debt service coverage ratio shall be calculated by
dividing the sum of Borrower's net income, non-cash charges (including, but not
limited to depreciation and amortization), non recurring and reasonable one time
acquisition costs, and interest expense by the sum of interest expense, the
current portion of long-term debt and the current portion of capital lease
obligations, all as calculated in accordance with GAAP.
8.24 Borrower shall not sell or convey any of its assets, except in the
normal and ordinary course of business, including any merger, consolidation or
reorganization unless consented to in writing by Lender.
8.25 Borrower shall not incur any additional indebtedness (other than
trade indebtedness incurred in the ordinary course of business and capital
leases permitted under the following section) in excess of One Hundred Thousand
and No/100 Dollars ($100,000.00) in the aggregate on an annual basis or have
more than One Hundred
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Thousand and No/100 Dollars ($100,000.00) of additional debt outstanding at any
one time during the term of the Loan, or guaranty the obligations of others,
except indebtedness to Lender, unless agreed to in writing by Lender.
8.26 Borrower shall not enter into capital leases aggregating in excess
of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) annually without
the prior written consent of Lender. No portion of the stated aggregate annual
maximum may be carried over from one year to the following year.
8.27 Borrower acknowledges that the ratios and balances set forth in
Sections 8.20 through 8.23, inclusive, and Sections 8.25 and 8.26, shall be
tested quarter annually, commencing December 31, 1996.
8.28 There shall be no loans from Borrower to any shareholders,
officers or directors, affiliates, subsidiaries or holding companies of Borrower
during the term of the Loan unless agreed to in writing by Lender. Any such
loans to which Lender may agree shall be subordinate in full to Borrower's
obligations to Lender under the Note and other Loan Documents.
8.29 Borrower will, within ten (10) days after written request from
Lender, furnish a written statement in form satisfactory to Lender, duly
acknowledged: (i) setting forth the unpaid principal balance of, and the
interest and other sums due on, the indebtedness evidenced by the Note and/or
secured by any of the other Loan Documents; (ii) stating whether or not any
offsets or defenses exist against the payments due under the Note or any of the
other Loan Documents; and (iii) setting forth such other information as Lender
may request from time to time.
8.30 Borrower will notify Lender immediately of any change in the name
of Borrower, the principal place of business of Borrower, the office where the
books and records of Borrower are kept, or any change in the registered agent of
Borrower for the purpose of service of process.
8.31 Borrower shall use the funds borrowed by Borrower under this
Agreement solely for Borrower's general corporate purposes.
8.32 Borrower shall cause any subsidiary, holding company or affiliate
of Borrower which may hereafter be formed to guarantee the payment and
performance of the obligations of the Borrower under the Note and the other Loan
Documents by causing such entity to execute and deliver to Lender a continuing
and unconditional guaranty ("Guaranty") in form and substance acceptable to
Lender, upon formation of such entity.
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ARTICLE 9
HAZARDOUS WASTES
Borrower expressly represents to Lender that, to the best of Borrower's
knowledge, the real property upon which Borrower's business is located, and the
improvements thereon, have not in the past been used, are not presently being
used, and will not in the future be used for the handling, storage,
transportation, or disposal of hazardous or toxic materials. Borrower agrees to
indemnify, defend, and hold Lender harmless from and against any loss to Lender,
including without limitation, reasonable attorneys' fees incurred by Lender as a
result of such past, present or future use, handling, storage, transportation,
or disposal of hazardous or toxic materials. Lender, at Lender's sole option,
may obtain, at Borrower's expense, a report from a reputable environmental
consultant of Lender's choice as to whether the real property and the
improvements have been or are presently being used for the handling, storage,
transportation, or disposal of hazardous or toxic materials. If the report
indicates such past or present use, handling, storage, transportation, or
disposal, Lender may require that all violations of law with respect to
hazardous or toxic materials be corrected and/or that Borrower obtain all
necessary environmental permits before Lender shall fund any Advance under the
Loan.
ARTICLE 10
EVENTS OF DEFAULT
Each of the following is an Event of Default:
(a) Failure by Borrower to pay any installment of interest or
principal under the Note or any other obligation, liability or claim secured by
the Security Agreement, as and when the same shall become due;
(b) The occurrence of any default under any other term
of this Agreement, the Note, the Security Agreement, or any of the other Loan
Documents relating hereto or thereto;
(c) If any representation or warranty of Borrower hereunder
shall prove to be incorrect in any material respect and Borrower knew or should
have known such representation or warranty was incorrect at the time it was
made;
(d) The commencement of levy, execution or attachment
proceedings against Borrower or any Guarantor, or the application for or
appointment of a liquidator, receiver, custodian, sequester, conservator,
trustee, or other similar judicial officer (and such appointment continues for a
period of thirty (30) days), or the insolvency, in the bankruptcy or equity
sense, of Borrower or any Guarantor;
15
<PAGE>
(e) The assignment for the benefit of creditors, or the
admission in writing of any inability to pay any debts generally as they become
due, or ordering the winding up or liquidation of its affairs, by Borrower or
any Guarantor, or the commencement of a case by or against Borrower or any
Guarantor, under any insolvency, bankruptcy, creditor adjustment, debtor
rehabilitation or similar law, state or federal;
(f) The determination by Borrower or any Guarantor to request
relief under any insolvency, bankruptcy, creditor adjustment, debtor
rehabilitation or similar proceeding, state or federal, including without
limitation the consent by any of them to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar
official for it or for any of its respective property or assets;
(g) The entry against Borrower or any Guarantor of one or more
final non-appealable judgments or decrees aggregating more than One Hundred
Thousand and No/100 Dollars ($100,000.00), in amount;
(h) The occurrence of a default by Borrower or any
Guarantor in the performance of its obligations under any other loan with
Lender and/or any other lender.
(i) The occurrence of any change or event which, in Lender's
reasonable judgment, impairs any security for the Loan, increases Lender's risk
in connection with the Loan or indicates that Borrower or any Guarantor of the
Loan may be unable to perform his, her or its material obligations under any
Loan Document.
(j) The dissolution (either voluntary or involuntary),
termination, or liquidation of Borrower or any Guarantor or the merger or
consolidation of Borrower or any Guarantor into any other entity without the
prior written consent of Lender. The foregoing shall not prohibit a transaction
whereunder Compscript-Boca, Inc. shall become a wholly-owned subsidiary of
Borrower (as opposed to a majority owned subsidiary), when such transaction
could not reasonably be anticipated as having a material adverse effect on the
business of Borrower.
(k) If Brian A. Kahan should cease to be actively involved in
the operations of Borrower as the Chief Executive Officer and Chairman of
Borrower without the prior written consent of Lender.
ARTICLE 11
SET-OFFS
In addition to any other rights Lender may have at law or in equity, if
Borrower becomes insolvent, howsoever evidenced, or any Event of Default occurs
and is continuing, any Indebtedness from Lender to Borrower and any other
accounts or property of Borrower
16
<PAGE>
held by Lender, may be set-off and applied towards the payment of the
Indebtedness of Borrower under this Agreement (including, but not limited to all
Indebtedness evidenced by the Note) to Lender, including, without limitation,
any note payable to Lender, whether or not such Indebtedness of Borrower to
Lender or any part thereof shall then be due.
ARTICLE 12
LENDER'S REMEDIES IN EVENT OF DEFAULT
12.1 Upon any Event of Default, subject only to any notice requirement
and grace period expressly provided in the Note or Security Agreement, Lender
shall be entitled to all of its rights or remedies hereunder, at law or in
equity and under the Note, the Security Agreement and any other Loan Document,
including, without limitation, the right to declare the outstanding principal
balance of the Note, the accrued interest thereon, and all other obligations of
Borrower to Lender under this Agreement to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, anything in this Agreement or in the Note to the
contrary notwithstanding, and Lender's obligation to make any additional
Advances hereunder shall be permanently terminated.
12.2 Lender may proceed directly against any Guarantor, with or without
exercising its rights against Borrower and obtain judgment against any such
Guarantor, which liability shall be joint and several if there be more than one
Guarantor.
12.3 All of the remedies herein given to Lender or otherwise available
to it shall be cumulative and may be exercised concurrently. Failure to exercise
any of the remedies herein provided shall not constitute a waiver thereof by
Lender, nor shall use of any such remedies prevent the subsequent or concurrent
resort to any other remedy or remedies which shall be vested in Lender by this
Agreement or at law or in equity. To be effective, any waiver by Lender must be
in writing and such waiver shall be limited in its effect to the condition or
default specified therein; but no such waiver shall extend to any subsequent
condition or default or impair any right consequent thereon.
ARTICLE 13
MISCELLANEOUS
13.1 Any condition of this Agreement which requires the submission of
evidence of the existence or non-existence of a specified fact or facts implies
as a condition the existence or non-existence, as the case may be, of such fact
or facts, and Lender shall, at all times, be free independently to establish to
its satisfaction and in its absolute discretion such existence or non-existence.
17
<PAGE>
13.2 No part of the Loan will be, at any time, subject or liable to
attachment or levy at the suit of any creditor of Borrower or of any other
interested party, or at the suit of any contractor, subcontractor,
sub-subcontractors or materialman, or any of their creditors.
13.3 If performance of any provision hereof or any transaction related
hereto is limited by law, then the obligation to be performed shall be reduced
accordingly, and if any clause or provision herein contained operates or would
operate to invalidate this Agreement in part, then the invalid part of said
clause or provisions only shall be held for naught as though not contained
herein, and the remainder of this Agreement shall remain operative and in full
force and effect.
13.4 If Lender shall waive any provisions of the Loan Documents, or
shall fail to enforce any of the conditions or provisions of this Agreement,
such waiver shall not be deemed to be a continuing waiver, and shall never be
construed as such, and Lender shall thereafter have the right to insist upon the
enforcement of such conditions or provisions. Furthermore, no provision of this
Agreement shall be amended, waived, modified, discharged or terminated except by
instrument in writing, signed by the parties hereto.
13.5 This Agreement and the documents expressly referred to herein
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to the subject matter. This Agreement may be changed,
waived, discharged, or terminated only by an instrument in writing duly executed
by the party against which enforcement of such change, waiver, discharge, or
termination is sought.
13.6 All notices given hereunder shall be in writing and
addressed as follows:
(a) Lender: SUNTRUST BANK, SOUTH FLORIDA,
N.A.
501 East Las Olas Boulevard
Seventh Floor
Fort Lauderdale, FL 33301
Attention: David K. Ross
with copy to: Lawrence C. Callaway, III, Esq.
BERGER & DAVIS, P.A.
100 N.E. Third Avenue, Suite 400
Fort Lauderdale, Florida 33301
(b) Borrower: COMPSCRIPT, INC.
1125 Broken Sound Parkway, N.W.
Suite A
Boca Raton, Florida 33487
18
<PAGE>
with copy to: Joel D. Mayersohn, Esq.
Atlas, Pearlman, Trop &
Borkson, P.A.
New River Center, Suite 1900
200 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
13.7 This Agreement, the Loan Documents and all other documents
relating hereto or thereto may be reproduced by Lender, and, Lender may destroy
any original documents so reproduced. Borrower agrees and stipulates that any
such reproduction shall be admissible in evidence as the original itself in any
jurisdiction or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by Lender in the regular
course of business) and that any enlargement, facsimile, or further reproduction
of said document shall likewise be admissible in evidence.
13.8 In no event, shall Lender's rights hereunder or under any of the
Loan Documents, grant Lender the right to or be deemed to indicate that Lender
is in control of the business, management or properties of Borrower, or has
power over the daily management functions and operating decisions made by
Borrower. Lender is the lender only and shall not be considered a shareholder,
joint venturer or partner of Borrower.
13.9 The headings preceding the text of the sections of this Agreement
are used solely for convenience of reference and shall not affect the meaning,
construction, or effect of this Agreement.
13.10 Lender shall have the right at any time to convey or assign the
Loan or any portion thereof, and, additionally, shall have the right to sell a
participation in the Loan to another lending institution at any time that the
Loan is outstanding, in any amount as solely determined by Lender.
13.11 Borrower shall not assign this Agreement without the prior
written consent of Lender, and any assignment in violation hereof shall be of no
force and effect and shall constitute an Event of Default herein. Any assignment
of this Agreement shall be in Lender's sole discretion. Subject to the previous
sentence, this Agreement shall extend to and bind the parties hereto, and their
respective successors and assigns.
13.12 The Loan and the Five Hundred Thousand and No/100 Dollar
($500,000.00) term loan (the "Term Loan") of even date herewith extended by
Lender to Borrower are "all inclusive," meaning that, unless Lender should agree
to the contrary (a) the acceptance of the Term Loan shall require the acceptance
of the Loan and (b) the payment in full of the Loan shall require the payment in
full of the Term Loan.
19
<PAGE>
13.13 This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
LENDER AND BORROWER HEREBY KNOWINGLY VOLUNTARILY AND INTENTIONALLY
WAIVE ALL RIGHT TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT
AND ANY AGREEMENT CONTEMPLATED OR TO BE EXECUTED IN CONJUNCTION
HEREWITH, UNDER ANY OF THE LOAN DOCUMENTS, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF
EITHER PARTY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Signed, sealed and delivered in
the presence of: BORROWER:
COMPSCRIPT, INC., a Florida
corporation
By: /S/ BRIAN A. KAHAN
----------------------------
Name: BRIAN A. KAHAN
--------------------------
Title: PRESIDENT/CEO
-------------------------
[CORPORATE SEAL]
LENDER:
SUNTRUST BANK, SOUTH FLORIDA,
N.A., a national banking
association
By: /S/ DAVID ROSS
----------------------------
Name: DAVID ROSS
--------------------------
Title: ASSISTANT VP
-------------------------
[CORPORATE SEAL]
20
<PAGE>
__________ OF _________ )
) SS:
__________ OF ________ )
The foregoing instrument was acknowledged before me this
________ day of ____________, 1997, by , the
of COMPSCRIPT, INC., a Florida corporation,
on behalf of the corporation, who is personally known to me or who
has produced as identification.
NOTARY PUBLIC
Sign:
Print:
My Commission Expires: (SEAL)
_________ OF _________ )
) SS:
_________ OF _________ )
The foregoing instrument was acknowledged before me this
________ day of ____________, 1997, by , the
of SUNTRUST BANK, SOUTH FLORIDA, N.A., a
national banking association, on behalf of the corporation, who is
personally known to me or who has produced
as identification.
NOTARY PUBLIC
Sign:
Print:
My Commission Expires: (SEAL)
R\FE276920.RLA
4/11/97
97/4787.100/78115
21
<PAGE>
REVOLVING CREDIT PROMISSORY NOTE
$5,000,000.00 January 3, 1997
FOR VALUE RECEIVED, the undersigned, COMPSCRIPT, INC., a Florida
corporation (hereafter called "Borrower") with its permanent post office address
at 1225 Broken Sound Parkway, N.W., Suite A, Boca Raton, Florida 33487, promises
to pay to the order of SUNTRUST BANK, SOUTH FLORIDA, N.A., a national banking
association organized and existing under the laws of the United States of
America, having its principal place of business at 501 East Las Olas Boulevard,
Fort Lauderdale, Florida 33301 (hereafter called "Lender"), at the office of
Lender set forth above, or such other place as Lender may direct in writing, the
principal sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or such part
thereof as shall have been advanced or disbursed to the undersigned and remain
unpaid, together with interest as hereinafter provided.
Interest shall accrue on the outstanding principal balance from the
date of each advance hereunder until this Note is paid in full. Unless changed
by election hereinafter described, interest shall be a percentage of outstanding
principal at an annual rate equal to the "Prime Rate" as announced from time to
time by SUNTRUST BANKS OF FLORIDA, INC. Each change in the interest rate shall
be effective as of the date upon which the "Prime Rate" is changed. Borrower
acknowledges that the Prime Rate is not necessarily the best or lowest rate
charged by Lender, but is a reference rate used by Lender in its sole discretion
in calculating interest rates to be charged to its customers. Unless changed by
election hereinafter described, the rate of interest at the inception hereof
shall be eight and one quarter percent (8.25%) per annum. After default,
interest shall accrue at the highest rate permitted by law.
Borrower may, from time to time, elect to change the interest rate
accruing under this Note from the Prime Rate to the Adjusted LIBOR Rate (as
hereinafter defined). Written notice of such election by Borrower must be
delivered to Lender stating date on which interest should begin to accrue at the
Adjusted LIBOR Rate (which may not be earlier than the next banking day
following the delivery to Lender of Borrower's notice of election). Banking days
are Monday through Friday, not including holidays. The date on which interest
shall begin to accrue at the Adjusted LIBOR Rate pursuant to Borrower's notice
of election is hereinafter referred to as a "Change Date". The change in
interest rate shall be effective for the ensuing Interest Period (hereinafter
defined) and shall be effective for each succeeding Interest Period unless and
until Borrower shall deliver written notice to Lender, at least one
<PAGE>
(1) banking day prior to the expiration of an Interest Period, that, upon the
expiration of the Interest Period, the interest rate accruing under this Note
should be the Prime Rate. If Borrower should give Lender such notice, then, upon
expiration of the Interest Period, interest shall again accrue at an annual rate
of interest equal to the Prime Rate as announced from time to time by SUNTRUST
BANKS OF FLORIDA, INC.
"Interest Period", as used in the Note, shall mean each period of
ninety (90) consecutive calendar days following a Change Date, with the first
Interest Period commencing on the Change Date.
"Adjusted LIBOR Rate", as used in this Note, shall mean, for a
particular Interest Period, the applicable LIBOR Rate (as hereinafter defined)
plus Two Hundred Fifty (250) basis points.
"LIBOR Rate", as used in the Note, shall mean the rate of interest per
annum equal to the three (3) month London Interbank Offered Rate as published in
the "Money Rates" section of The Wall Street Journal. The LIBOR Rate used in
determining the Adjusted LIBOR Rate for a particular Interest Period shall be
the first three (3) month London Interbank Offered Rate so published during the
Interest Period.
Throughout the term of this Note: (a) interest shall be computed on the
basis of a three hundred sixty (360) day year and be paid on the basis of the
actual number of days elapsed, as a daily rate, on the principal balance from
time to time outstanding; (b) each determination of the interest rate shall be
made by the Lender and shall be conclusive, absent manifest error; and (c) the
interest rate shall never exceed the Maximum Rate (hereinafter defined).
The outstanding principal balance as of any day shall be the
outstanding principal balance as of the beginning of the day, plus any advances
made pursuant to the loan charged to the account on that day (exclusive of
interest) and less any payments of principal credited to the account on that
day.
All payments, whether of principal or interest or other sums, received
at or prior to 2:00 p.m. on any banking day shall be credited as of that day.
All payments, whether of principal or interest or other sums, received after
2:00 p.m. on any banking day, or at any time on any non-banking day, shall be
credited as of the next banking day. All payments must be identified by loan
number.
Items deposited with Lender, regardless of whether drawn on Lender or
anyone else, do not constitute available funds until the banking day after
either final settlement is actually received by the Lender or the time allowed
for revocation of any provisional settlement for the item has expired. Failure
to have sufficient
2
<PAGE>
funds available to cover such payment shall be deemed to be a failure to make a
payment when due.
Interest payments shall be due on the first (1st) day of each
consecutive calendar month so long as there is any unpaid indebtedness under
this Note, commencing on the first (1st) day of the first (1st) month following
the month in which this Note is executed. The total unpaid balance (principal,
interest and charges) shall be due April 30, 1998, with the provision that
Lender shall have the right to accelerate the maturity of the Loan, in Lender's
sole and absolute discretion, after Lender's review of Borrower's financial
statements for fiscal year 1996 (which must be received not later than April 30,
1997). Lender may exercise this right by delivering written notice to Borrower
within thirty (30) days after Lender's receipt of Borrower's financial status
for fiscal year 1996. Acceleration of maturity shall be effective forty five
(45) days after delivery of notice to Borrower as aforesaid.
Provided there exists no default under the Note, or the Revolving Loan
Agreement between Borrower and Lender of even date herewith, the Security
Agreement between Borrower and Lender of even date herewith, or any of the other
Loan Documents (as defined in the Revolving Loan Agreement), and subject to the
terms and provisions of the Revolving Loan Agreement, Lender will lend or
advance for the account of Borrower from time to time, and Borrower may borrow
and reborrow under the Note, and in accordance with the terms of the Revolving
Loan Agreement, such amounts as may be required for Borrower's general corporate
purposes. The aggregate amounts advanced and outstanding at any one time under
the Note shall not, however, exceed the lesser of (a) FIVE MILLION and NO/100
DOLLARS ($5,000,000.00); or (b) an amount equal to seventy five percent (75%) of
Borrower's Eligible Accounts Receivable (as defined in the Revolving Loan
Agreement) plus an amount equal to fifty percent (50%) of Borrower's Eligible
Inventory (as defined in the Revolving Loan Agreement).
The payment and performance of this Note is secured by a first security
interest in all assets of Borrower, as more particularly set forth in Exhibit
"A" to this Note, granted pursuant to the Security Agreement between Borrower
and Lender of even date herewith.
Any payments of principal shall be applied to the reduction of
principal, unless the indebtedness evidenced by this Note shall be in default,
in which event, all payments received, of whatever nature, shall be first
applied to incurred and unpaid charges and fees, then to accrued and unpaid
interest, and then to the payment of unpaid principal in such manner as Lender
shall elect.
Borrower shall pay to Lender quarterly, in arrears, at the time and
place for payment of interest, a loan fee calculated at one eighth of one
percent (.125%) per annum on the unused portion
3
<PAGE>
of the loan evidenced by the Note, as such unused portion shall change from time
to time. Such loan fee shall be calculated on a 360 day year for the accrued
number of days elapsed.
Anything herein to the contrary notwithstanding, the maximum amount of
charges, fees or other payments which may be deemed to be interest to be paid by
Borrower shall not exceed the maximum rate permitted by the laws of the State of
Florida, as amended from time to time, or by applicable federal law or
regulation governing Lender, as amended from time to time, whichever may be
greater for any interest payment period (the "Maximum Rate"). All sums in excess
of the Maximum Rate shall be applied to the reduction of principal without
further agreement or notice. Lender and Borrower have agreed that such sums
shall be accepted as a penalty-free prepayment of principal, unless Lender at
any time elects by notice in writing to waive or limit collection of any sums in
excess of the Maximum Rate, rather than accept those sums as prepayment of
principal. Upon demand for payment, any unlawful interest on the payment shall
be eliminated.
This note or any portion thereof may be paid at any time without
penalty.
Time is of the essence hereof. If any payment of principal or of
interest on this Note or any other sum due hereunder is not paid as and when the
same becomes due, or if any other default shall occur hereunder and such default
shall remain uncured after ten (10) days written notice to Borrower (provided
that if the default may not reasonably be cured within ten (10) days, and
Borrower has promptly commenced cure after notice and diligently pursued such
cure, Borrower shall have a greater period of time after notice, not to exceed
thirty (30) days, within which to effect cure), or if any default should occur
under the Revolving Loan Agreement or any of the other Loan Documents (as
defined in the Revolving Loan Agreement), and such default shall continue beyond
any applicable cure period provided therein, then the Lender, at its option and
without further notice, demand or presentment for payment to the undersigned or
others, may declare immediately due and payable the outstanding principal
balance of this Note together with all accrued and unpaid interest thereon to
the date of default and together with interest thereafter at the Maximum Rate,
provided that the default interest rate shall not exceed twenty-five percent
(25%) per annum, together with all costs and fees, including reasonable attorney
fees and court costs (through and including any and all collection, trial,
appellate and administrative procedures) incurred by the Lender in collecting or
enforcing payment thereof, and all other sums due hereunder or under the Loan
Documents, anything herein or in the Loan Documents to the contrary
notwithstanding, all without any relief whatever from any valuation or
appraisement laws (to the full extent permitted by law), and payment thereof may
be enforced and recovered in whole or in part at any time by one or more of the
remedies provided to the Lender in this Note or in the Loan Documents.
4
<PAGE>
Borrower shall pay to the Lender a late charge of five percent (5%) of
any installment or portion thereof (principal, interest or otherwise) not
received in full by the Lender within ten (10) days after the same shall be due
to cover the extra expense involved in handling delinquent payments.
Any notice that must be given Borrower under this Note will be given by
hand delivery, nationally recognized overnight courier service, or by mailing
same to the Borrower by certified mail, return receipt requested, postage
prepaid. All notices will be addressed to Borrower at the addresses set forth in
the introductory paragraph of this Note unless Lender is given written notice of
a different address given as herein provided.
Any notice that must be given to the Lender under this Note will be
given by hand delivery, nationally recognized overnight courier service, or by
mailing it by certified mail, return receipt requested, postage prepaid. All
notices will be addressed to the Lender at the address set forth in the
introductory paragraph of this Note, unless Borrower is given written notice of
a different address as herein provided.
Borrower and all endorsers, sureties or guarantors hereof (hereafter
called "Obligors") waive presentment for payment, demand, notice of dishonor,
nonpayment or other default, notice of protest and protest of this note, and do
hereby consent to any number of extensions of time, renewals, waivers,
modifications, substitutions or releases of collateral, or releases of
endorsers, sureties or guarantors hereof, that may be made or granted by Lender
with respect to the payment or performance of the provisions of this Note, and
consents to the inclusion of additional guarantors, sureties or accommodation
parties as Obligors hereunder.
In the event of default, Borrower and all Obligors agree to pay all
costs of collection, including all court costs, other legal expenses, and
reasonable attorneys' fees and paralegals' fees, incurred by Lender in
consultation or in conjunction with judicial, administrative or arbitration
proceedings, through and including any and all collection, trial, appellate and
administrative proceedings.
No delay or omission by Lender in exercising any right shall operate as
a waiver of such right or any other right hereunder.
This note shall be construed under and controlled and governed by the
laws of the State of Florida and/or by any laws or regulations of the United
States which may be applicable to Lender, if any.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
(INCLUDING, BUT NOT LIMITED TO, ANY CLAIMS,
5
<PAGE>
CROSS-CLAIMS AND THIRD-PARTY CLAIMS) ARISING IN CONNECTION WITH THIS NOTE, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED THEREIN, AND ALL AND ANY
COMBINATION OF THE FOREGOING. BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE
OR AGENT OF THE LENDER NOR THE LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO
ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. BORROWER ACKNOWLEDGES THAT
THE LENDER HAS BEEN INDUCED TO ENTER INTO THIS LOAN, INCLUDING THIS NOTE, BY,
INTER ALIA, THE PROVISIONS OF THIS PARAGRAPH.
IN WITNESS WHEREOF, this note has been duly executed and delivered on
the date first above written.
COMPSCRIPT, INC., a Florida
corporation
By: /S/ BRIAN A. KAHAN
----------------------------
Name: BRIAN A. KAHAN
-------------------------
Title: PRESIDENT/CEO
-------------------------
6
EXHIBIT 10.11
INDEPENDENT CONSULTING AGREEMENT
THIS AGREEMENT is made as of the 9TH day of January, 1997, by and
between COMPSCRIPT, INC., which together with its legal successors and assigns
is herein referred to as "COMPANY", and GERARD N. ALTIERI, who with his heirs,
successors and assigns is herein called "ALTIERI", and RONALD J. RIETH, who with
his heirs, successors and assigns is herein called "RIETH", and COMPREHENSIVE
FORMULARY MANAGEMENT, INC., or another corporate assignee through which the
services of ALTIERI and RIETH are rendered, which together with its legal
successors and assigns is herein called "CONSULTANT" (in the event there is no
such corporate assignee, ALTIERI and RIETH collectively shall be defined as
CONSULTANT). COMPANY, ALTIERI, RIETH and CONSULTANT are herein collectively
referred to as the "Parties". MICHAEL CHRISTIE ("Christie") is also executing
this Agreement for the limited purposes referred to in Sections 6 through 13(a).
WITNESSETH:
WHEREAS, COMPANY and ALTIERI and RIETH have entered into an employment
agreement on June 1, 1994, wherein each was employed by COMPANY as an executive
officer (the "Employment Agreement"); and
WHEREAS, COMPANY has contracted with Pharmacy Gold, Inc. (or any
successor) (hereinafter referred to as "PGI") pursuant to which a significant
new block of mail order and related business will be provided to COMPANY by PGI
and its affiliates (the "PGI Business"); and
WHEREAS, COMPANY desires to assure a smooth transition for the PGI
Business and, to that end, desires ALTIERI and RIETH to assume a new work
relationship with COMPANY to service the PGI Business and otherwise desires to
terminate the Employment Agreement; and
WHEREAS, ALTIERI and RIETH desire to assure retention of the PGI
Business with COMPANY and otherwise desire to terminate the Employment
Agreement; and
WHEREAS, CONSULTANT desires to procure new business for the COMPANY;
WHEREAS, COMPANY further desires to generally utilize certain of the
services of ALTIERI and RIETH, and ALTIERI and RIETH are desirous of offering
their services, as delineated under Section 11, to COMPANY on an exclusive
basis.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and promises made in this Agreement and for other valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the Parties hereby agree as follows:
1. SERVICES. CONSULTANT agrees to perform for COMPANY the Consulting
Services specified in Exhibit A.
<PAGE>
2. COMPENSATION. As compensation for CONSULTANT's Consulting Services,
COMPANY shall pay CONSULTANT the consulting fees specified in Exhibit A.
3. CONSULTANT STATUS. It is understood and agreed that CONSULTANT (and
any persons employed by CONSULTANT) shall perform the Consulting Services as an
independent contractor and not as an employee of COMPANY. COMPANY will make no
deductions from any of the payments due to CONSULTANT hereunder for state or
federal tax purposes, including, but not limited to, social security, income tax
withholding, disability and other payroll tax requirements. CONSULTANT agrees
that CONSULTANT shall be personally responsible for any and all taxes and other
payments due on payments received by CONSULTANT from COMPANY hereunder. This
Agreement shall not be construed as authority from either Party to act for the
other Party in any agreement or other capacity or to make commitments of any
kind of the account of or on behalf of the other except to the extent and the
purposes expressly provided for herein.
4. TERM. Except as specifically noted otherwise, this Agreement will
continue for a term of five (5) years from the date hereof.
5. EXPENSES.
(a) GENERAL EXPENSES. Except as noted in paragraph (b) of
this Section 5, CONSULTANT will bear any and all expenses attributable to the
rendition of services under this Agreement.
(b) CERTAIN EXPENSES TO BE PAID BY COMPANY. The COMPANY agrees
to pay Fifty Thousand Dollars ($50,000.00) on the first day of each month for
each month from February 1997 through January of 1998. Furthermore, the COMPANY
will continue the Fifty Thousand Dollar ($50,000.00) a month payments for an
additional year (through January 1999) to the extent that any of the following
revenue goals have been met: either (i) as of February 1, 1998, for the
immediately proceeding twelve (12) month period, COMPANY gross revenues (less
returns, allowances or like adjustments allowed as credits per the underlying
PGI contract(s)) attributable to all PGI Business for which CONSULTANT is
compensated on Exhibit A are at or above Eight Million Dollars ($8,000,000.00)
(the "Targeted Amount"), or (ii) as of February 1, 1998, monthly revenues for
the PGI Business have reached a One Million Dollar ($1,000,000.00) per month or
greater average run rate for the immediately preceding three (3) month period,
or (iii) if by the end of the quarter beginning February 1, 1998 and ending May
1, 1998, the revenue run rate for the PGI business has reached an average of One
Million Dollars ($1,000,000.00) per month for such quarter, then COMPANY shall
continue such Fifty Thousand Dollar ($50,000.00) a month payments through
January 1999. In the event (x) the Targeted Amount is less than Eight Million
Dollars ($8,000,000), but greater than Six Million Dollars ($6,000,000), or (y)
as of February 1, 1998 monthly revenues have reached a Seven Hundred
Fifty-Thousand Dollars ($750,000) per month, but less than One Million Dollars
($1,000,000) per month average run rate for the immediately preceding three (3)
month period, or (z) if by the end of the quarter beginning February
2
<PAGE>
1, 1998, and ending May 1, 1998, the revenue run rate for the PGI business has
reached an average of less than One Million Dollars ($1,000,000.00) per month
but greater than Seven Hundred Fifty Thousand Dollars ($750,000.00) per month
for such quarter, then CONSULTANT's payments pursuant to this Section 5(b) shall
be reduced to Twenty-Five Thousand Dollars ($25,000) per month for the twelve
(12) month period beginning February, 1998. In the event of (iii) or (z) being
the triggering event, Fifty Thousand Dollars ($50,000.00) or Twenty-Five
Thousand Dollars ($25,000), respectively per month will also be paid
retroactively to February 1, 1998.
6. PROTECTION OF TRADE SECRETS. CONSULTANT hereby acknowledges that
certain "Confidential Information" are valuable trade secrets of COMPANY and
CONSULTANT hereby agrees to maintain and to protect them in the strictest
confidence. For purposes of this Agreement, "Confidential Information" as
described hereinafter includes trade secrets, methodology, schematics, models,
business descriptions, private or secret processes, methods and ideas, as they
exist from time to time, customer lists and information concerning the COMPANY's
products, services, business records and plans associated with the COMPANY's
operations, product design information, price structure and pricing, discounts,
costs, computer programs and listings, copyright, trademark, proprietary
information, formulae, protocols, forms, procedures, training methods, technical
information, know-how, show-how, new product and service development, past,
present and future marketing, activities and procedures, method for operating
the COMPANY's business, credit and financial data concerning the COMPANY, sales
strategies, sales presentations, research information, practices and plans and
information which is embodied in written or otherwise recorded form, and other
information of a confidential nature not known publicly (the "Confidential
Information"). Confidential Information shall not only include information which
is embodied in written or otherwise recorded form, but it shall also include
information which is mental, not physical. Notwithstanding anything herein to
the contrary, CONSULTANT shall not be under any restriction in connection with
the use of Confidential Information in connection with the performance of
services hereunder for the benefit of the Company.
7. NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION. CONSULTANT
acknowledges that it has no rights, title or interest in the Confidential
Information. CONSULTANT further agrees during the term of this Agreement and
thereafter (a) to receive and hold in trust the Confidential Information
obtained directly or constructively from the COMPANY, (b) not to use such
Confidential Information for any purpose without the prior consent of the
COMPANY, and (c) not to disclose such Confidential Information to anyone without
the COMPANY's prior consent.
The foregoing obligations not to use or disclose the
Confidential Information shall not apply to (a) information which is or becomes
generally available to the public, except by breach of this Agreement, (b)
information which CONSULTANT can establish by written records was in
CONSULTANT's possession at the time of disclosure and was not previously
acquired directly or indirectly from the COMPANY, and (c) information was
evidenced by CONSULTANT's written records which CONSULTANT received from a third
party not obligated to the COMPANY. The foregoing exceptions shall apply only
from and after the date that the information becomes available to the public or
is
3
<PAGE>
disclosed to CONSULTANT by a third party, respectively. Specific Confidential
Information shall not be considered to be within the foregoing exceptions merely
because it is embraced by more general information in the public domain.
Additionally, any combination of features shall not be considered to be within
the foregoing exceptions merely because individual features are in the public
domain. If CONSULTANT intends to avail itself of any of the foregoing
exceptions, CONSULTANT shall notify the COMPANY in writing of its intention to
do so and the basis for claiming the exception.
8. COVENANT NOT TO EMPLOY. Without the written consent of COMPANY,
except for Michael Christie, until CONSULTANT no longer receives compensation
under this Agreement, and for a period of one year thereafter at any time or in
any manner, CONSULTANT agrees that CONSULTANT will not, either on CONSULTANT's
own behalf of, or any behalf of any person, firm, corporation, association,
affiliate, entity or organization (collectively "Organization") employ, solicit,
divert or otherwise encourage or attempt to solicit, divert or otherwise
encourage the employment of any COMPANY employee or agent employed by COMPANY at
any time during such period. Christie agrees to the terms and conditions of
Sections 6 through 11 hereof, namely, agreeing to protect trade secrets, keep
information confidential and not compete as provided in such Sections.
9. NON-SOLICITATION OF CUSTOMERS OR CLIENTS. Except as permitted under
Section 11 or in performing services under this Agreement, CONSULTANT shall not,
until CONSULTANT no longer receives compensation under this Agreement and for a
one year period of time thereafter, at any time or in any manner, either
directly or indirectly, for the CONSULTANT's own behalf or on behalf of any
Organization, directly or indirectly solicit or attempt to solicit any Business
(defined below) from any customers or clients of the COMPANY. A "customer" or
"client" shall mean any Organization with which the COMPANY and its agents or
representatives is receiving revenue from, is in the current process of
contracting with or to whom substantive discussions or negotiations have
occurred in the last 180 days regardless of whether such Organization was
solicited or provided services by the CONSULTANT at any time during the term of
this Agreement.
10. CONSULTANT. CONSULTANT shall take appropriate measures to insure
that any of CONSULTANT's employees who assist CONSULTANT in the performance of
Consulting Services are competent to do so and that they agree that they will
not disclose or inappropriately use Confidential Information per the terms of
this Agreement.
11. NON-COMPETITION AGREEMENT. Until CONSULTANT no longer receives
compensation pursuant to this Agreement, including, but not limited to Exhibit A
and for a one year period thereafter, with regard to the sale of (i) mail order
prescription drug programs, (ii) home IV therapy, (iii) pharmaceutical services
to long-term institutional care facilities, (iv) pharmacy benefit management
services (as defined below), (v) any product or service of any other
pharmaceutical business which product or service contributes revenues equal to
5% or more of COMPANY's gross revenues, in each of such cases (i) through (v) as
conducted at the date hereof by any of the COMPANY, Medical Services Corporation
and Hytree, Inc. (cases (i) through (v) herein called the
4
<PAGE>
"Business"). CONSULTANT shall not solicit, or directly or intentionally impair,
disrupt or interfere with any past, present or prospective contractual
relationship, between COMPANY and a customer of COMPANY. For purposes of this
Agreement, pharmaceutical benefits management services shall mean (i) electronic
claims adjudication; (ii) mail service; (iii) management of and a provision for
national retail network drug card program; (iv) contracting with manufacturers
to provide rebate formulary management; and (v) clinical programs.
During such restricted period CONSULTANT will not individually
or in conjunction with others, directly or indirectly engage in any Business,
whether as an officer, director, proprietor, employer, partner, independent
contractor, investor (except for the ownership of stock in a publicly held
corporation not exceeding 5% of the outstanding stock thereof), consultant,
advisor, agent or otherwise.
Notwithstanding the foregoing, CONSULTANT may engage in the
marketing and sale of pharmaceutical benefits management business on behalf of
PGI provided that CONSULTANT also markets the COMPANY's mail order prescription
drug component with any such business and until CONSULTANT no longer receives
compensation pursuant to this Agreement, including, but not limited to Exhibit A
and for a one year period thereafter. CONSULTANT shall only place such business
with PGI if COMPANY receives and accepts the mail order component thereof, if a
mail order component is available in connection with such business.
Additionally, during the restricted period, CONSULTANT may engage in the
marketing and sale of other Business (other than pharmaceutical benefit
management) on behalf of PGI provided that CONSULTANT cause such other Business
to be placed with COMPANY if COMPANY receives and accepts such other Business.
The COMPANY shall have the absolute right, in its sole discretion to refuse any
contracts submitted by CONSULTANT. After such restricted period, CONSULTANT
shall be free to place Business with COMPANY, or elsewhere, in CONSULTANT's
discretion.
COMPANY agrees to devote such time and resources as is
reasonably necessary to perform the services called for by customers developed
by CONSULTANT hereunder including to maintain and develop the present and future
PGI Business. In the event that COMPANY within seventy-five (75) days of a
letter of intent or memorandum of understanding for new business between the
COMPANY and the prospective customer has signified that it cannot provide mail
order or other services due to insufficient resources or capacity, or in the
event that COMPANY's mail order or other services to customers developed by
CONSULTANT are repeatedly and seriously deficient such that these customers
terminate their contracts with the COMPANY due to breaches by the COMPANY of a
repeated and material nature, as evidenced by 25% or more of the number of mail
order plan participants being terminated (or COMPANY, after all applicable cure
remedies have lapsed, being advised that such accounts will be terminated) AND,
after all mail service gross revenues have reached a $ 1 million monthly run
rate, such mail service revenues to COMPANY decline by 25% or more of the
average monthly run rate for the previous three month period, then CONSULTANT
shall be permitted to place mail order or other services with other mail order
and service providers.
5
<PAGE>
The parties further agree that CONSULTANT shall be permitted
to assist PGI in connection with other services (other than mail service) where
COMPANY has contractually agreed with PGI not to provide such services.
If PGI so requests, COMPANY acknowledges that CONSULTANT shall
be the exclusive marketing arm for PGI and its affiliates and members so long as
CONSULTANT performs in accordance with the terms hereof and after notice and an
opportunity to cure in the event of any failure to perform by CONSULTANT
hereunder.
12. REMEDIES.
(a) The CONSULTANT acknowledges and agrees that the COMPANY's
remedy at law for a breach of any of the provisions of Section 7 (Trade Secrets;
Confidentiality), Section 11 (Non-Compete), Section 9 (Non-solicitation of
Customers or Clients), Section 8 (Non-solicitation of Employees) would be
inadequate and a breach thereof will cause irreparable harm to the COMPANY. In
recognition of this fact, in the event of a breach by the CONSULTANT of any of
the provisions of the above-referenced Sections, the CONSULTANT agrees that, in
addition to any remedy at law available to the COMPANY, including, but not
limited to monetary damages, the COMPANY, without posting any bond, shall be
entitled to request equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available to the COMPANY.
(b) The CONSULTANT acknowledges that the granting of a
temporary injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Sections 6 through 11 and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting any form of competition with the COMPANY. Nothing herein contained
shall be construed as prohibiting the COMPANY from pursuing any other remedies
available to it for such breach or threatened breach.
13. CONSULTANT TO TERMINATE. If a contract for which CONSULTANT is
receiving compensation pursuant to this Agreement is terminated by a party other
than Compscript "for cause" (as defined in such contract) CONSULTANT shall have
the right to terminate this Agreement provided that all compensation due
CONSULTANT shall immediately terminate and CONSULTANT shall continue to be bound
by the provisions of Sections 6 through 11 herewith.
14. JURISDICTION AND VENUE. This Agreement is signed, executed and
consummated in the City of Boca Raton, State of Florida, and Florida's laws
shall govern all disputes, controversies and litigation arising hereunder. Venue
with respect to any litigation shall be Palm Beach County, Florida.
15. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between
the Parties and Christie and all prior written or oral negotiations,
representations, arrangements
6
<PAGE>
and/or agreements between any or all of the Parties or Christie herein are
merged into and superseded by this Agreement. The Parties and Christie release
each other from any claims, known or unknown, arising prior to the date of this
Agreement, including, but not limited to, any and all claims arising out of the
Employment Agreement, except as otherwise contemplated by this Agreement.
(b) All provisions of this Agreement are severable and no
provision hereof shall be affected by the invalidity of any other such
provision.
(c) No action by one of the Parties and no refusal or neglect
of one of the Parties to exercise any right hereunder or to enforce compliance
with the terms of this Agreement shall constitute a waiver of any provision
herein with respect to any violations, actions or omissions hereunder, unless
such waiver is expressed in writing by the waiving party.
(d) COMPANY and CONSULTANT shall at reasonable times, upon
written request, provide reasonable access to each other during normal business
hours for inspection of the books and records relating to the performance of
this Agreement as they specifically relate to the compensation addressed in
Exhibit A. Such access shall be subject to Section 7.
(e) For purposes of this Agreement, the singular includes the
plural and VICE-VERSA and the feminine, masculine and neuter include each other.
(f) This Agreement may be amended, altered or changed only
through a written document signed by the Parties.
7
<PAGE>
(g) Each of the corporate parties to this Agreement have
received all necessary corporate approval.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date set forth above.
COMPANY:
COMPSCRIPT, INC.
By: /S/ BRIAN A. KAHAN
---------------------------
Title: PRESIDENT/CEO
---------------------------
ALTIERI:
/S/ GERARD N. ALTIERI
--------------------------------
Gerard N. Altieri
RIETH:
/S/ RONALD J. RIETH
------------------------------
Ronald J. Rieth
CONSULTANT:
COMPREHENSIVE FORMULARY
MANAGEMENT, INC.
By: /S/ GERARD N. ALTIERI
------------------------------
Title: PRESIDENT
------------------------------
CHRISTIE:
/S/ MICHAEL CHRISTIE
------------------------------
Michael Christie
8
<PAGE>
EXHIBIT A
SCOPE OF SERVICES
1. CONSULTING SERVICES. CONSULTANT will solicit and develop business
for COMPANY, including, but not limited to, the PGI Business. CONSULTANT will
provide the COMPANY reasonably detailed monthly reports of CONSULTANT's
activities including the status of the PGI Business and new business. CONSULTANT
shall devote such time as is reasonably necessary to perform the services
hereunder including maintaining and developing the present and future PGI
Business.
2. COMPENSATION.
(a) CONSULTANT shall receive compensation for all business
currently under contract between COMPANY and PGI, and from future contracts with
PGI and any and all other customers, as a result of CONSULTANT's services for
COMPANY under this Agreement.
(b) CONSULTANT shall receive commissions for new business on
those sales made by the COMPANY which directly and substantially result from
services hereunder by the CONSULTANT under contracts approved by the COMPANY in
writing.
(c) CONSULTANT shall receive a commission (within 30 days of
receipt by COMPANY) on gross revenue (less returns, allowances, or like
adjustments allowed as credits per the underlying customer contract) earned by
COMPANY each and every year from a customer contract referred to in this Exhibit
through the term of such customer contract (including renewals) except as
otherwise provided in this Agreement as follows:
(i) mail order prescription drug programs-- 1%
(1/2% on PGI Business for 1997 and 1%
thereafter); provided, however, that direct
and indirect rebates on such contracts
received (and retained) by CONSULTANT will
be a credit against such compensation and
CONSULTANT will timely notify COMPANY of
such retained rebates;
(ii) home IV therapy--the COMPANY's standard
commission agreement rate unless otherwise
negotiated by the Parties;
(iii) pharmaceutical services to long-term
institutional care facilities --the
COMPANY's standard commission agreement rate
unless otherwise negotiated by the Parties;
and
(iv) other services as may be mutually agreed.
9
<PAGE>
3. TERMINATION OF COMPENSATION. The payment of compensation to
CONSULTANT under this Exhibit shall continue beyond the general five (5) year
term of the Agreement and shall terminate in the event of CONSULTANT's breach of
the Section 11 non-compete covenants except as otherwise provided in the
Agreement.
COMPANY:
COMPSCRIPT, INC.
/S/ GERARD N. ALTIERI By: /S/ BRIAN A. KAHAN
- ----------------------------- ------------------------------
Gerard N. Altieri Title: PRESIDENT/CEO
--------------------------
CONSULTANT:
COMPREHENSIVE FORMULARY
MANAGEMENT, INC.
/S/ RONALD J. RIETH By: /S/ GERARD N. ALTIERI
- ----------------------------- ------------------------------
Ronald J. Rieth Title: PRESIDENT
--------------------------
10
EXHIBIT 22.1
SUBSIDIARIES OF COMPSCRIPT, INC.
1. CompScript-Boca, Inc.
2. CompScript-Mobile, Inc.
3. Securx, Inc.
4. Medical Services Consortium, Inc.
5. Hytree Pharmacy, Inc.
6. Campo's Medical Pharmacy, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 440,328
<SECURITIES> 0
<RECEIVABLES> 2,611,395
<ALLOWANCES> (431,646)
<INVENTORY> 1,091,264
<CURRENT-ASSETS> 5,427,317
<PP&E> 2,338,503
<DEPRECIATION> (900,134)
<TOTAL-ASSETS> 7,611,839
<CURRENT-LIABILITIES> 3,199,860
<BONDS> 0
0
0
<COMMON> 1,091
<OTHER-SE> 4,155,679
<TOTAL-LIABILITY-AND-EQUITY> 7,611,839
<SALES> 20,049,771
<TOTAL-REVENUES> 20,049,771
<CGS> 12,846,113
<TOTAL-COSTS> 12,846,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 657,656
<INTEREST-EXPENSE> 113,759
<INCOME-PRETAX> (2,398,342)
<INCOME-TAX> (400,000)
<INCOME-CONTINUING> (1,998,342)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,998,342)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
