FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-11144
Regency Health Services, Inc.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 33-0210226
Regency Health Services, Inc.
2742 Dow Avenue
Tustin, California 92780
714-544-4443
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock 15,879,229
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<CAPTION>
June 30, December 31,
1997 1996
--------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 13,171 $ 22,875
Restricted cash...................................................... 6,308 4,425
Accounts receivable, net of allowances of $5,751 and $4,723 at
June 30, 1997 and December 31, 1996, respectively.................. 95,029 80,949
Estimated third party settlements.................................... 13,957 10,180
Notes and other receivables.......................................... 1,254 1,355
Deferred income taxes................................................ 6,897 6,898
Assets held for sale................................................. 6,770 6,915
Other current assets................................................. 8,578 7,819
-------- --------
Total current assets......................................... 151,964 141,416
-------- --------
PROPERTY AND EQUIPMENT:
Land................................................................. 24,439 21,207
Buildings and improvements........................................... 126,461 100,120
Leasehold interests.................................................. 19,629 19,629
Equipment............................................................ 48,635 38,054
-------- --------
219,164 179,010
Less accumulated depreciation and amortization....................... (49,905) (43,938)
-------- --------
Total property and equipment................................. 169,259 135,072
-------- --------
OTHER ASSETS:
Mortgage notes receivable, net of allowances of $1,352 at
June 30, 1997 and December 31, 1996............................... 528 1,014
Goodwill, net of accumulated amortization of $5,362 and $3,700 at
June 30, 1997 and December 31, 1996, respectively................. 59,466 53,753
Other assets, net of accumulated amortization of $6,253 and $3,736
at June 30, 1997 and December 31, 1996, respectively.............. 27,435 22,321
-------- --------
Total other assets........................................... 87,429 77,088
======== ========
$408,652 $353,576
======== ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except par value)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt................................ $ 5,959 $ 2,418
Accounts payable................................................. 22,701 24,958
Accrued expenses................................................. 10,608 8,290
Accrued compensation............................................. 28,955 26,253
Accrued workers' compensation.................................... 5,904 4,338
Deferred revenue................................................. 1,735 2,407
Accrued interest................................................. 5,508 5,578
-------- --------
Total current liabilities................................ 81,370 74,242
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION.............................. 222,927 182,490
OTHER LIABILITIES AND NONCURRENT RESERVES........................... 10,656 10,878
DEFERRED INCOME TAXES............................................... 7,055 5,018
-------- --------
Total liabilities........................................ 322,008 272,628
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized - 35,000 shares; 15,879
and 15,919 shares issued and outstanding at June 30, 1997 and
December 31, 1996, respectively, net of 1,008 and 862 shares
held in treasury, respectively................................ 169 168
Additional paid-in capital....................................... 51,050 52,031
Retained earnings................................................ 35,425 28,749
-------- --------
Total stockholders' equity............................... 86,644 80,948
======== ========
$408,652 $353,576
======== ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three months ended, Six months ended,
June 30, June 30,
----------------------- ----------------------
1997 1996 1997 1996
-------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET OPERATING REVENUE.......................... $163,191 $137,102 $322,638 $266,075
-------- -------- -------- --------
COSTS AND EXPENSES:
Operating expenses.......................... 129,667 109,577 257,352 216,036
Corporate general and administrative........ 9,186 8,607 17,891 14,337
Rent expense................................ 8,629 6,178 17,001 11,690
Depreciation and amortization............... 4,846 3,836 9,442 7,186
Interest expense, net....................... 5,178 3,664 10,170 6,826
-------- -------- -------- --------
Total costs and expenses................. 157,506 131,862 311,856 256,075
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST AND PROVISION
FOR INCOME TAXES............................ 5,685 5,240 10,782 10,000
MINORITY INTEREST.............................. (86) -- (163) --
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES....... 5,771 5,240 10,945 10,000
PROVISION FOR INCOME TAXES..................... 2,250 2,175 4,268 4,198
======== ======== ========= ========
NET INCOME..................................... $ 3,521 $ 3,065 $ 6,677 $ 5,802
======== ======== ======== ========
INCOME PER SHARE:
Primary................................... $ 0.22 $ 0.19 $ 0.42 $ 0.35
======== ======== ======== ========
Fully Diluted............................. $ 0.22 $ 0.18 $ 0.42 $ 0.33
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OF COMMON STOCK AND
EQUIVALENTS:
Primary................................... 15,997 16,382 15,929 16,617
======== ======== ======== ========
Fully Diluted............................. 16,160 20,341 16,020 20,573
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Six months ended
June 30,
-------------------------
1997 1996
------ ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 6,677 $ 5,802
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 9,442 7,186
Deferred income taxes and charge in lieu of taxes.......... 2,038 2,468
Other, net................................................. -- 296
Change in cash from changes in assets and liabilities,
excluding effect of acquisitions and dispositions:
Accounts receivable...................................... (8,541) (20,720)
Estimated third party settlements........................ (163) (7,160)
Other current assets..................................... (1,313) 335
Current and other liabilities............................ 1,062 3,203
------- --------
Net cash provided by (used in) operating activities...... 9,202 (8,590)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions.................................................. (44,989) (48,183)
Purchases of property and equipment........................... (6,216) (5,600)
Collection on mortgage notes receivable....................... 889 109
Changes in other assets, net.................................. 4,380 (3,271)
------- --------
Net cash used in investing activities.................... (45,936) (56,945)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.................................... (14,490) (4,898)
Proceeds from issuance of long-term debt...................... 49,000 48,582
Workers compensation trust funding............................ (6,500) (10,637)
Purchase of treasury stock.................................... (1,442) (5,082)
Proceeds from exercise of options............................. 462 232
------- --------
Net cash provided by financing activities................ 27,030 28,197
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................ (9,704) (37,338)
CASH AND CASH EQUIVALENTS, beginning of period................... 22,875 104,238
------- --------
CASH AND CASH EQUIVALENTS, end of period......................... $13,171 $ 66,900
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest...................... $11,190 $ 8,380
======= ========
Cash paid during the period for income taxes.................. $ 2,287 $ 1,360
======= ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
4
<PAGE>
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1997:
The Company issued a promissory note in the amount of $6.7
million in connection with the acquisition of four acute
rehabilitation hospitals, ten outpatient rehabilitation
clinics and six neurological treatment centers in California.
The Company acquired HHC Health Group, Inc., a home health and
infusion therapy provider and issued a note payable in the
amount of $.6 million.
The Company issued a promissory note in the amount of $.3
million in connection with the acquisition of Advanced
Physical Therapy, Inc.
The Company acquired Rainbow Medical LLC, a pharmacy located
in Las Vegas, Nevada and issued a note payable in the amount
of $.7 million.
The Company acquired Health Fitness Physical Therapy, Inc.,
and issued notes payable in the amount of $.7 million.
The Company issued a promissory note in the amount of $.2
million in connection with the acquisition of Peachwood
Physical Therapy, Inc.
The Company acquired Adams & Schmidt Sports Therapy, and
issued a note payable in the amount of $.4 million.
During the six months ended June 30, 1996:
The Company acquired Assist-A-Care Pharmacy in San Diego,
California and issued a promissory note in the amount of $2.6
million as part of the purchase price.
The Company issued a promissory note in the amount of $2.2
million in connection with the acquisition of 18 healthcare
facilities in Tennessee and North Carolina.
The Company acquired Executive Pharmacy and issued a
promissory note in the amount of $763,000.
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The unaudited consolidated financial statements and related notes have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have not been presented. The accompanying
unaudited financial statements and related notes should be read in conjunction
with the consolidated financial statements and related notes included in Regency
Health Services, Inc.'s ("Regency" or the "Company") 1996 Annual Report on Form
10-K.
In the opinion of the management of Regency, all material adjustments
necessary to present fairly the Company's financial condition, results of
operations, and changes in financial position have been made. All material
intercompany balances, profits, and transactions have been eliminated. The
consolidated results of operations presented are not necessarily indicative of
the consolidated results for a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts have been reclassified in the 1996 financial
statements to conform to the 1997 presentation.
2. Acquisitions
Effective January 1, 1997, the Company acquired four acute
rehabilitation hospitals, ten outpatient rehabilitation clinics and six
neurological treatment centers from Horizon/CMS Healthcare Corporation ("CMS").
The purchase price was $43.0 million, made up of a cash payment of $36.3 million
and notes payable totaling $6.7 million. The Company funded the acquisition with
borrowings against the Amended and Restated Credit Agreement dated December 20,
1996 with NationsBank of Texas, N.A. as agent for a group of banks (the
"NationsBank Credit Agreement"). Two of the acquired hospitals have joint
venture partners with 30% and 50% interests. Accordingly, the income statement
reflects minority interest related to the joint venture partners' share of the
revenues and expenses of the two hospitals. The purchase accounting for this
transaction has not yet been finalized.
On April 1, 1997, the Company acquired HHC Health Group, Inc., a home
health and infusion therapy provider with four locations in California, for $2.3
million, consisting of a cash payment of $1.7 million and a note payable of $.6
million.
On May 1, 1997, the Company acquired Asher Clinic, an outpatient clinic
in California, for $1.7 million in cash.
On May 1, 1997, the Company also acquired Advanced Physical Therapy,
Inc., which operates three outpatient clinics in California, for $1.7 million,
consisting of a cash payment of $1.4 million and a note payable of $.3 million.
On May 16, 1997, the Company acquired Rainbow Medical LLC, a pharmacy
located in Las Vegas, Nevada for $1.9 million, consisting of $1.2 million in
cash and a note payable of $.7 million.
6
<PAGE>
Effective June 1, 1997, the Company acquired Health Fitness Physical
Therapy, Inc., which operates seven outpatient clinics in California for $1.8
million, consisting of a cash payment of $1.1 million and notes payable of $.7
million.
Effective June 1, 1997, the Company acquired Peachwood Physical
Therapy, Inc., an outpatient clinic in California for $.7 million, $.5 million
in cash and a note payable for $.2 million.
Effective June 1, 1997, the Company acquired Adams & Schmidt Sports
Therapy, which operates four outpatient clinics in California for $1.2 million,
consisting of a cash payment of $.8 million and a note payable for $.4 million.
Effective June 12, 1997, the Company acquired Hospice of the Pacific, a
hospice provider in California for $.4 million in cash.
These transactions were accounted for using the purchase method of
accounting under generally accepted accounting principles. Revenues and expenses
are included in the accompanying financial statements subsequent to the
acquisition date.
The following unaudited pro forma condensed consolidated statements of
earnings present the summarized consolidated results of operations of the
Company after giving effect to the acquisition of the four acute rehabilitation
hospitals, ten outpatient rehabilitation clinics and six neurological treatment
centers for the six months ended June 30, 1997 and 1996, as if such acquisition
had been consummated on January 1, 1996. All other acquisitions are considered
immaterial and are not included in the pro forma condensed consolidated
statements of earnings.
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
1997 1996
-------- --------
(In thousands, except per share data)
(Unaudited)
<S> <C> <C>
Net operating revenue $322,638 $297,366
Total costs and expenses (including minority interest) 311,693 286,932
-------- --------
Income before provision for income taxes 10,945 10,434
Provision for income taxes 4,268 4,380
======== ========
Net income $ 6,677 $ 6,054
======== ========
Income per common share:
Primary $ 0.42 $ 0.36
======== ========
Fully Diluted $ 0.42 $ 0.34
======== ========
</TABLE>
The pro forma results are presented for informational purposes only and
are not necessarily indicative of what results of operations actually would have
been had such acquisitions been consummated at the beginning of such period or
of future operations or results.
3. Dispositions
In connection with the 13 facilities identified for disposition by the
Company during the fourth quarter of 1995, the Company disposed of an 81-bed
facility in Pomona, California effective January 1, 1997 for a nominal amount,
resulting in a $233,000 charge against the reserve established for such
dispositions.
7
<PAGE>
4. Workers' Compensation Claims Trust
In 1995, the Company established a revocable workers' compensation
claims trust ("Trust") to pre-fund its workers' compensation obligations. The
Trust was funded for fiscal 1995 in March 1996 with approximately $10.6 million
from available cash. In March 1997, the Company pre-funded its fiscal 1996
workers' compensation obligations with approximately $6.5 million from available
cash. Of the remaining $10.0 million in the Trust at June 30, 1997, $6.3 million
was classified as current restricted cash and $3.7 million was classified as
other long-term assets.
5. Subsequent Event
On July 1, 1997, the Company acquired Pacific Beach Physical Therapy,
Inc., an outpatient clinic in California, for $.6 million, $.5 million in cash
and a note payable for $.1 million. This transaction was accounted for under the
purchase method of accounting.
On July 26, 1997, the Company entered into an Agreement and Plan of
Merger with Sun Healthcare Group, Inc., a Delaware corporation ("Sun
Healthcare"), whereby Sun Healthcare will purchase all of the outstanding shares
of the Company through a tender offer of $22 per share. The transaction is
expected to close during fourth quarter 1997, however there are certain
conditions which must be satisfied for the transaction to be finalized.
6. Earnings per Share
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". This
statement is effective for both interim and annual reporting periods ending
after December 15, 1997. SFAS No. 128 replaces primary EPS with basic EPS and
fully diluted EPS with diluted EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding. Diluted EPS is computed in the
same way as fully diluted EPS, except that the calculation now uses the average
share price for the reporting period to compute dilution from options under the
treasury stock method. The Company will adopt the new standard in its reporting
for the year ending December 31, 1997. Management does not believe that adoption
of this standard will have a significant impact on earnings per share.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This statement is effective for annual
reporting periods beginning after December 15, 1997 and is required for interim
reporting periods beginning in the second year of application. SFAS No. 131
defines segments and requires disclosure of certain items, including revenues,
assets and profit and loss, related to each segment. The Company will adopt the
new standard in its reporting for the year ending December 31, 1998.
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q of Regency Health Services, Inc.
("the Company") contains statements which constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements appear in a number of places in this Quarterly Report
under the heading Management's Discussion and Analysis of Financial Condition
and Results of Operations. Such forward looking statements include the views,
opinions and expectations of the Company, its officers and directors with
respect to the matters there discussed, and as to the intent, belief and
anticipation of such persons expressed in this Quarterly Report. Readers are
cautioned that any such forward looking statements involve risks, uncertainties
and factors that may impact the actual results or activities of the Company.
These risks and items are discussed in greater detail in the portion of the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
entitled "Factors Which May Affect the Company".
Overview of Strategic Plan
On July 26, 1997, the Company announced that it has reached an
agreement with Sun Healthcare whereby Sun Healthcare will purchase all of the
outstanding shares of the Company's common stock through a tender offer of $22
per share. The transaction is expected to close during fourth quarter 1997,
pending the satisfaction of certain conditions. As there is some uncertainty
regarding the consummation and effective date of this transaction, and it is not
known at this time what portion of the Company's current strategy would be
continued by Sun Healthcare after the acquisition, the information under the
heading of Management's Discussion and Analysis of Financial Condition and
Results of Operations contained within this document has been prepared as if the
Company will continue as a going concern under its present management.
The healthcare industry continues to change as the government,
commercial payors and healthcare providers like the Company focus on rising
healthcare costs. It is the Company's belief, as well as that of the government
and commercial payors, that the most effective delivery system for reducing
costs is a regionally oriented market based model within the context of the
evolving managed care system. Presently, only 5.8% of the Company's revenues are
generated from managed care payors, however, management and other members of the
industry believe the Medicare system will be adopting a prospective pay system
in the coming years for skilled nursing facilities. Furthermore, the Company
believes more Medicare participants will be entering managed care plans as they
typically offer more services at a fixed price.
Considering the anticipated changes in the industry, the Company
believes that the most successful business strategy in the future will be to
provide both payors and patients, collectively the customers, cost effective
delivery of care with high customer satisfaction. This will mean significant
changes in the current delivery system. The Company believes its future delivery
system will need to have the following components:
o Focus on customers through a fully integrated delivery system which will
allow for "one-stop shopping." This means that the Company will need to
provide multiple low cost services across the continuum of care in each of
the regions in which it provides care. In the future, acquisitions will
focus on completing the continuum of care within the Company's various
regional markets.
o Name recognition as customers must be convinced that the Company provides
consistent service throughout the continuum of care.
o Regionally focused to ensure that diverse services are available in each
market and that those services are integrated rather than the traditional
focus on separate business lines.
o Focus on placing the patient in the most effective setting with the lowest
cost while demonstrating positive outcomes from the delivery of medicine
and care. Basically, the Company will strive to provide high quality
service across the continuum of care at a low cost.
o Focus on a low overhead cost structure. Reengineering to eliminate
non-value added services and investments in information technology will be
required in order to reduce costs and enable the Company to provide
consistent, integrated, low cost services. The investment in information
technology will also provide management critical information in a timely
manner to effectively manage its business in the managed care environment.
9
<PAGE>
During 1996 the Company developed and began to implement its strategic
plan to address these issues. In connection with this plan, on January 1, 1997,
the Company acquired four acute rehabilitation hospitals, ten outpatient
rehabilitation clinics and six neurological treatment centers (the
"Rehabilitation and Specialty Services Division Acquisition"). The purchase
price was $43.0 million, made up of a cash payment of $36.3 million and notes
payable totaling $6.7 million. This acquisition was one of many steps in the
Company's plan to complete the continuum of care in its various regional
markets. The Company has also hired two individuals with extensive experience in
acquisitions to focus on the acquisition of home health agencies and outpatient
clinics, primarily in our existing nursing operations markets to complete the
continuum of care in those markets. As a result of their efforts through July of
1997, the Company acquired a home health and infusion therapy provider with four
locations in California, a hospice provider in California, a pharmacy in Nevada
and 17 outpatient clinics ("Outpatient Clinic Acquisitions") in various
locations in California.
During the second quarter of 1997, the Company continued its progress
toward lowering its overhead cost structure primarily through reengineering the
corporate support structure in its nursing and subacute operations. Effective
April 1, 1997, the Company implemented the new corporate support model which
will provide the resources and incentives necessary for the nursing facilities
to operate in a relatively self-reliant environment, with anticipated lowered
operating costs. In addition, the Company has now completed and launched an
automated pharmacy which will service virtually all of the Company's customers
in California from a centralized location.
Another major component of the Company's strategy, in terms of
importance and cost, will involve integrating the Company's information systems
to allow for the integrated delivery of patient care across all service lines
within the continuum of care. The Company will therefore be making a significant
investment in information technology over the next five years. This investment
is anticipated to result in overall cost savings in the future. The first phase
of the investment in information technology will be investments in the
infrastructure such as a communications network and servers combined with
upgrades of the accounts payable software, the acquisition of Kronos time clocks
and other transaction systems, which are expected to be completed during 1997.
The wide area network has been implemented at 60 facilities and is expected to
be operational by the end of the third quarter. The upgrades to the accounts
payable software have been put in place at 25 facilities, and the rest are
expected to be completed by the end of the fourth quarter. Lotus Notes is in
place at six facilities, is underway at 19 more, and is anticipated to be
completely rolled out by the end of the fourth quarter. The second phase will be
the integration of the various computer systems used by the different divisions
of the Company to allow for a seamless transfer of patient care information
across the entire continuum of care. The integration of the various systems is
expected to begin during 1998.
The Company incurs certain costs and operating inefficiencies in
connection with acquisitions following such acquisition, relating to the
integration of such entity's financial and administrative systems, physical
plant and other aspects of its operations into those of the Company. In
addition, the introduction of a substantial portion of the Company's contract
rehabilitation therapy, pharmacy and other ancillary services to a new operation
may take as long as 12 months to fully implement. There can be no assurance that
each of the service providers the Company may acquire will be profitable. In
addition, there can be no assurance that new acquisitions that result in
significant integration costs and inefficiencies will not adversely affect the
Company's profitability.
General
In connection with the strategy and acquisitions discussed above, the
Company has created the Regency Rehabilitation and Specialty Services Division
which includes the four Acute Rehabilitation Hospitals, ten outpatient clinics
and six neurological treatment centers acquired on January 1, 1997, the Contract
Rehabilitation Therapy Operations of SCRS and Communicology, Inc. ("SCRS") and
the new Outpatient Clinic Division. The nine remaining outpatient clinics
affiliated with the four Acute Rehabilitation Hospitals discussed above will
continue to be reported as part of that group and all clinics purchased
subsequent to January 1, 1997 will be included in the Outpatient Clinic
Division.
10
<PAGE>
<TABLE>
The following table sets forth certain operating data for the Company on the dates indicated:
<CAPTION>
June 30,
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Facilities (healthcare providers):
Nursing and subacute.............................................. 106 112
Rehabilitation hospitals.......................................... 4 -
Neurological centers.............................................. 6 -
Outpatient clinics................................................ 26 -
Home health agencies.............................................. 23 29
Ancillary facilities served:
Contract rehabilitation:
Affiliated................................................... 70 49
Non-affiliated............................................... 132 86
=== ===
Total........................................................ 202 135
=== ===
Pharmacy:
Affiliated................................................... 79 60
Non-affiliated............................................... 85 76
=== ===
Total........................................................ 164 136
=== ===
Number of licensed beds:
Nursing and subacute.............................................. 11,148 11,541
Rehabilitation hospitals.......................................... 292 -
Neurological centers.............................................. 53 -
</TABLE>
Nursing and Subacute Operations
The Company's nursing and subacute operations derive net operating
revenue from the performance of routine and ancillary services at the Company's
facilities. Revenue from routine services is comprised of charges for room and
board and basic nursing services for the care of patients, including those in
the Company's subacute specialty units. Revenue from ancillary services is
comprised of charges for rehabilitative services, subacute specialty services,
and pharmaceutical products and services provided to patients at the Company's
facilities. Nursing and subacute operations derive most of its ancillary
services revenue from Medicare- and HMO-eligible patients. The Company has
classified revenue from nursing and subacute operations as either basic nursing
care revenue or subacute revenue. Basic nursing care revenue includes charges
for room and board for non-Medicare and non-HMO patients. Subacute revenue
includes room and board and basic nursing services for Medicare and HMO patients
and revenues from all ancillary services provided to patients at the Company's
facilities.
Effective February 1, 1996, the Company acquired 18 healthcare
facilities with 2,375 beds in Tennessee and North Carolina, accounted for under
the purchase method of accounting.
Effective April 1, 1996, the Company acquired a healthcare facility
with 64 nursing beds and 22 assisted living beds located in Lexington, North
Carolina, accounted for under the purchase method of accounting.
These two acquisitions are collectively referred to as the "1996
Nursing and Subacute Acquisitions".
11
<PAGE>
Home Health Operations
The Company's home health operations provide skilled nursing,
rehabilitation and other services in selected areas in California and Ohio. The
Company has positioned its home healthcare capabilities to serve its facilities'
home health needs. During January 1997, two of the home healthcare agencies were
consolidated for cost saving measures resulting in a reduction of one agency.
During the second quarter, several additional agencies were consolidated
resulting in a reduction of an additional 9 agencies.
On April 1, 1997, the Company acquired HHC Health Group, Inc., a home
health and infusion therapy provider with four locations in California, for $2.3
million, consisting of a cash payment of $1.7 million and notes payable of $.6
million (the "Home Health Acquisition"). This transaction was accounted for
under the purchase method of accounting.
Pharmacy Operations
The Company's pharmacy operations provide prescription services and
basic pharmaceutical dispensing programs to Company and third party healthcare
facilities. During the six months ended June 30, 1997 and 1996, 62.5% and 65.4%,
respectively, of revenues from pharmacy operations were derived from providing
services to non-affiliated healthcare providers and patients at Regency
facilities billed directly to third-party payors. In January and February of
1996, the Company acquired three additional pharmacy operations accounted for
under the purchase method of accounting. During May of 1997, the Company
acquired Rainbow Medical LLC, a pharmacy located in Las Vegas, Nevada for $1.9
million (the "Pharmacy Acquisition").
The 1996 Nursing and Subacute Acquisitions and the three pharmacy
acquisitions which took place in January and February of 1996 are collectively
referred to as the "1996 Acquisitions".
Rehabilitation and Specialty Services Division Operations
The Company's rehabilitation hospitals derive net operating revenue
from the provision of acute rehabilitation and subacute services. Revenues from
outpatient services are derived primarily from providing physical and
occupational therapy at the Company's outpatient clinics. Revenues from the
neurological treatment centers are derived from providing long-term residential
care to catastrophically injured patients.
SCRS provides physical, occupational and speech therapy services to
Company-operated and third party healthcare facilities, primarily nursing and
subacute centers, in 14 states in the West, Midwest, and Southeast. During the
six months ended June 30, 1997 and 1996, 70.6% and 68.0%, respectively, of SCRS
revenues were derived from providing services to non-affiliated healthcare
providers.
The Company's outpatient clinics derive net operating revenue primarily
from providing physical and occupational therapy to walk-in patients. During the
second quarter of 1997 the Company acquired 16 outpatient clinics throughout
California for a total purchase price of approximately $7.1 million (the
"Outpatient Clinic Acquisitions"). During the first week of July 1997, the
Company acquired one additional outpatient clinic.
12
<PAGE>
Results of Operations
<TABLE>
The following table sets forth the amounts of certain elements of net
operating revenue and the percentage of total net operating revenue for the
periods presented (dollars in thousands):
<CAPTION>
Three months ended June 30,
1997 1996
--------------------- ---------------------
(Unaudited)
<S> <C> <C> <C> <C>
Nursing and subacute operations - basic nursing... $ 70,547 43% $ 71,397 52%
Nursing and subacute operations - subacute........ 43,647 27 42,180 31
--------- ---- --------- ----
Subtotal nursing and subacute operations...... 114,194 70 113,577 83
--------- ---- --------- ----
Rehabilitation hospitals - acute.................. 7,196 4 -- --
Rehabilitation hospitals - subacute............... 4,986 3 -- --
Outpatient........................................ 1,456 1 -- --
--------- ---- --------- ----
Subtotal rehabilitation hospitals............. 13,638 8 -- --
--------- ---- --------- ----
Outpatient clinics................................ 976 1 -- --
Home healthcare operations........................ 10,220 6 8,856 6
Contract rehabilitation therapy operations to
non-affiliates (1)............................ 14,983 9 9,290 7
Pharmacy operations to non-affiliates (2)......... 7,236 5 5,379 4
Neurological treatment centers operations......... 1,944 1 -- --
========= ==== ========= ====
Total......................................... $ 163,191 100% $ 137,102 100%
========= ==== ========= ====
<FN>
(1) Net of intercompany billings of $6,797,000 and $4,962,000 for the three months ended June 30, 1997 and
1996, respectively.
(2) Net of intercompany billings of $4,174,000 and $2,880,000 for the three months ended June 30, 1997 and
1996, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
------------------- --------------------
(Unaudited)
<S> <C> <C> <C> <C>
Nursing and subacute operations - basic nursing... $139,954 44% $137,013 51%
Nursing and subacute operations - subacute........ 88,008 27 84,661 32
-------- ---- -------- ----
Subtotal nursing and subacute operations...... 227,962 71 221,674 83
-------- ---- -------- ----
Rehabilitation hospitals - acute.................. 14,365 4 -- --
Rehabilitation hospitals - subacute............... 10,196 3 -- --
Outpatient........................................ 2,699 1 -- --
-------- ---- -------- ----
Subtotal rehabilitation hospitals............. 27,260 8 -- --
-------- ---- -------- ----
Outpatient clinics................................ 976 1 -- --
Home healthcare operations........................ 19,087 6 17,548 7
Contract rehabilitation therapy operations to
non-affiliates (1)............................ 29,752 9 16,748 6
Pharmacy operations to non-affiliates (2)......... 13,666 4 10,105 4
Neurological treatment centers operations......... 3,935 1 -- --
======== ==== ======== ====
Total......................................... $322,638 100% $266,075 100%
======== ==== ======== ====
<FN>
(1) Net of intercompany billings of $12,379,000 and $7,890,000 for the six months ended June 30, 1997 and
1996, respectively.
(2) Net of intercompany billings of $8,235,000 and $5,352,000 for the six months ended June 30, 1997 and
1996, respectively.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
The following table sets forth certain operating data for the Company for the periods presented:
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- -----------------------
1997 1996 1997 1996
------- ------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Patient Days by Payor:
Medicare..................................... 90,059 79,733 181,639 156,060
Private/Other................................ 189,704 191,264 378,314 373,923
Managed Care................................. 30,939 27,593 65,688 59,643
Medicaid..................................... 591,450 635,352 1,175,614 1,202,522
------- ------- --------- ---------
Total................................... 902,152 933,942 1,801,255 1,792,148
======= ======= ========= =========
Statistics:
Nursing occupancy percentage................. 89.9% 91.7% 90.2% 91.5%
Rehabilitation hospitals occupancy
percentage................................ 61.5% -- 63.1% --
Rehabilitation hospitals average length of
stay...................................... 22.4 -- 22.0 --
Outpatient visits (Rehabilitation hospitals). 12,934 -- 25,413 --
Contract rehabilitation modules delivered.... 961,274 583,346 1,879,788 1,001,789
Home Health Visits (Medicare)................ 71,350 69,014 136,708 141,860
Home Health Hours (Non-Medicare)............. 105,338 109,171 211,623 215,050
Pharmacy beds serviced....................... 15,784 13,084 15,784 13,084
Revenue Mix:
Medicare..................................... 31.5% 30.0% 31.7% 30.5%
Private/Other................................ 27.3% 23.6% 26.7% 23.5%
Managed Care................................. 5.8% 5.0% 6.3% 5.6%
Medicaid..................................... 35.4% 41.4% 35.3% 40.4%
</TABLE>
<TABLE>
The following table presents the percentage of net operating revenue
represented by certain items reflected in the Company's Consolidated Statements
of Operations for the periods presented:
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET OPERATING REVENUE................................ 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
COSTS AND EXPENSES:
Operating expenses................................... 79.4 79.9 79.8 81.2
Corporate general and administrative................. 5.6 6.3 5.5 5.4
Rent expense......................................... 5.3 4.5 5.3 4.4
Depreciation and amortization........................ 3.0 2.8 2.9 2.7
Interest expense..................................... 3.2 2.7 3.2 2.5
------ ------ ------ ------
Total costs and expenses........................ 96.5 96.2 96.7 96.2
------ ------ ------ ------
INCOME BEFORE MINORITY INTEREST AND PROVISION FOR
INCOME TAXES......................................... 3.5% 3.8% 3.3% 3.8%
====== ====== ====== ======
</TABLE>
14
<PAGE>
Quarter Comparison 1997 to 1996
Net Operating Revenue
The Company's net operating revenue for the three months ended June 30,
1997 ("Second Quarter 1997") was $163.2 million compared to $137.1 million for
the three months ended June 30, 1996 ("Second Quarter 1996"). This is an
increase of $26.1 million or 19.0%, of which, $15.6 million was attributable to
the Rehabilitation and Specialty Services Division Acquisition, including $2.0
million of revenue related to the neurological treatment centers, $1 million was
attributable to the Outpatient Clinic Acquisitions and $1.2 million was
attributable to the Home Health Acquisition.
Net operating revenue from nursing and subacute operations increased
$.6 million, or .5%, to $114.2 million from $113.6 million primarily due to an
increase in same store revenues of approximately $2.9 million, partially offset
by the disposal of seven facilities. The increase in same store revenues is
primarily due to the increase in the average rate per patient day of 4.8% from
Second Quarter 1996 which was primarily due to an increase in the Medi-Cal
reimbursement rates and the Company recognizing revenue associated with the
elimination of the Medicare Routine Cost Limit (RCL) freeze, partially offset by
a decrease in patient days of 18,669.
Net operating revenue from pharmacy operations to non-affiliates
increased $1.9 million or 34.5% in Second Quarter 1997 over Second Quarter 1996,
primarily due to the start up of a joint venture pharmacy located in Ohio in
September 1996, the Pharmacy Acquisition and increased business at the other
pharmacy locations. Net operating revenue from contract rehabilitation therapy
operations to non-affiliates increased $5.7 million, or 61.3% in Second Quarter
1997 over Second Quarter 1996, primarily due to an increase in the number of
non-affiliated facilities served to 132 in Second Quarter 1997, from 86 in
Second Quarter 1996 and a corresponding increase in number of modules delivered
from 583,346 to 961,274.
Costs and Expenses
Total costs and expenses for Second Quarter 1997 increased $25.6
million, or 19.4%, to $157.5 million (96.5% of net operating revenue) from
$131.9 million (96.2% of net operating revenue) for Second Quarter 1996.
Operating expenses for Second Quarter 1997 increased $20.1 million, or
18.3%, to $129.7 million from $109.6 million. However, operating expenses as a
percentage of revenue dropped from 79.9% for Second Quarter 1996 to 79.4% for
Second Quarter 1997. The reduction in operating expenses as a percentage of
revenues was due primarily to the Rehabilitation and Specialty Services
Acquisition and growth in the SCRS operations, both of which are higher margin
businesses, as well as the rate increases discussed above.
Corporate general and administrative expense is the corporate and
divisional overhead costs related to the supervision of operations. The expense
increased 6.7%, from $8.6 million in the Second Quarter 1996 to $9.2 million in
the Second Quarter 1997 due primarily to the Rehabilitation and Specialty
Services Division Acquisition, the Company's investment in information
technology and growth in the Company's existing operations. This expense
decreased as a percentage of revenue from 6.3% in the Second Quarter 1996 to
5.6% in the Second Quarter 1997 primarily due to the reengineering of the
corporate support structure, partially offset by the investment in information
technology.
Rent expense as a percentage of net operating revenue increased to 5.3%
in Second Quarter 1997 from 4.5% in Second Quarter 1996 primarily due to the
Rehabilitation and Specialty Services Division Acquisition which has higher rent
expense as a percentage of revenue.
15
<PAGE>
Depreciation and amortization expense as a percentage of net operating
revenue increased to 3.0% in Second Quarter 1997 from 2.8% in Second Quarter
1996 primarily due to depreciation of buildings and equipment associated with
the Rehabilitation and Specialty Services Acquisition and the Company's
investment in information technology.
Interest expense as a percentage of net operating revenue increased to
3.2% in Second Quarter 1997 from 2.7% in Second Quarter 1996 due primarily to
$39 million of the Company's borrowing against the Amended and Restated Credit
Agreement dated December 20, 1996 with NationsBank of Texas, N.A. as agent for a
group of banks (the "NationsBank Credit Agreement") being outstanding during the
quarter. The original borrowing of $49 million was principally to fund the
Rehabilitation and Specialty Services Acquisition and the related working
capital. A portion of the increase is also due to the Company issuing 12-1/4%
Subordinated Notes in June 1996 in the aggregate amount of $50 million partially
offset by the redemption of the 6-1/2% Convertible Subordinated Debentures due
2003 in July 1996 in the amount of $48.9 million.
Six Months Comparison 1997 to 1996
Net Operating Revenue
The Company's net operating revenue for the six months ended June 30,
1997 ("Six Months 1997") was $322.6 million compared to $266.1 million for the
six months ended June 30, 1996 ("Six Months 1996"). This is an increase of $56.5
million or 21.3%, of which, $31.2 million was attributable to the Rehabilitation
and Specialty Services Division Acquisition, including $3.9 million of revenue
related to the neurological treatment centers, $1 million was attributable to
the Outpatient Clinic Acquisitions and $1.2 million was attributable to the Home
Health Acquisition.
Net operating revenue from nursing and subacute operations increased
$6.3 million, or 2.8%, to $228.0 million from $221.7 million primarily due to
January 1997 revenues from the 1996 Nursing and Subacute Acquisitions of
approximately $8.0 million and an increase in same store revenues of
approximately $4.0 million, partially offset by the disposal of seven
facilities. The increase in same store revenues is primarily due to the increase
in the average rate per patient day of 3.3% from Six Months 1996 which was
primarily due to an increase in the Medi-Cal reimbursement rates and the Company
recognizing revenue associated with the elimination of the Medicare Routine Cost
Limit (RCL) freeze, partially offset by a decrease in patient days of 33,788.
Net operating revenue from pharmacy operations to non-affiliates
increased $3.6 million or 35.2% in Six Months 1997 over Six Months 1996,
primarily due to the start up of a joint venture pharmacy located in Ohio in
September 1996, the Pharmacy Acquisition and increased business at the other
pharmacy locations. Net operating revenue from contract rehabilitation therapy
operations to non-affiliates increased $13.0 million, or 77.6% in Six Months
1997 over Six Months 1996, primarily due to an increase in the number of
non-affiliated facilities served to 132 in Six Months 1997, from 86 in Six
Months 1996 and an increase in the number of modules delivered from 1,001,789 to
1,879,788.
Costs and Expenses
Total costs and expenses for Six Months 1997 increased $55.8 million,
or 21.8%, to $311.9 million (96.7% of net operating revenue) from $256.1 million
(96.2% of net operating revenue) for Six Months 1996.
Operating expenses for Six Months 1997 increased $41.3 million, or
19.1%, to $257.3 million from $216.0 million. However, operating expenses as a
percentage of revenue dropped from 81.2% for Six Months 1996 to 79.8% for Six
Months 1997. The reduction in operating expenses as a percentage of revenues was
due primarily to the Rehabilitation and Specialty Services Acquisition and
growth in the SCRS operations, both of which are higher margin businesses as
well as the rate increases discussed above.
16
<PAGE>
Corporate general and administrative expense is the corporate and
divisional overhead costs related to the supervision of operations. The expense
increased from $14.3 million in the Six Months 1996 to $17.9 million in the Six
Months 1997 due primarily to the Rehabilitation and Specialty Services Division
Acquisition, the Company's investment in information technology and growth in
the Company's existing operations. This expense increased as a percentage of
revenue from 5.4% in the Six Months 1996 to 5.5% in the Six Months 1997
primarily due to the Company's investment in information technology and the
Rehabilitation and Specialty Services Division Acquisition.
Rent expense as a percentage of net operating revenue increased to 5.3%
in Six Months 1997 from 4.4% in Six Months 1996 primarily due to the
Rehabilitation and Specialty Services Division Acquisition which has higher rent
expense as a percentage of revenue.
Depreciation and amortization expense as a percentage of net operating
revenue increased to 2.9% in Six Months 1997 from 2.7% in Six Months 1996
primarily due to depreciation of buildings and equipment associated with the
Rehabilitation and Specialty Services Acquisition, goodwill amortization for the
month of January 1997 related to the acquisition of 18 healthcare facilities in
February 1996 and the Company's investment in information technology.
Interest expense as a percentage of net operating revenue increased to
3.2% in Six Months 1997 from 2.5% in Six Months 1996 due primarily to the
Company borrowing $49 million against the Amended and Restated Credit Agreement
dated December 20, 1996 with NationsBank of Texas, N.A. as agent for a group of
banks (the "NationsBank Credit Agreement") principally to fund the
Rehabilitation and Specialty Services Acquisition and the related working
capital, of which, $39 million remains outstanding. A portion of the increase is
also due to the Company issuing 12-1/4% Subordinated Notes in June 1996 in the
aggregate amount of $50 million partially offset by the redemption of the 6-1/2%
Convertible Subordinated Debentures due 2003 in July 1996 in the amount of $48.9
million.
Liquidity and Capital Resources
Working capital at June 30, 1997 increased $3.4 million to $70.6
million (including cash and cash equivalents of $13.2 million) from $67.2
million (including cash and cash equivalents of $22.9 million) at December 31,
1996. The increase was primarily attributable to an increase in receivables
primarily associated with the Rehabilitation and Specialty Services Acquisition.
In addition, the Company pre-funded an additional $6.5 million related to its
1996 worker's compensation obligations in March 1997 (see Note 4 to the
Consolidated Financial Statements).
During the first quarter of 1997, the Company borrowed $49 million
against the NationsBank Credit Agreement principally to fund the Rehabilitation
and Specialty Services Acquisition and related working capital. On April 10,
1997, the Company repaid $10 million of the borrowing, leaving a balance of $39
million. As of June 30, 1997, $13.8 million of standby letters of credit were
issued in connection with the Company's self-insured workers' compensation
programs and industrial revenue bonds.
The Company's major requirements for liquidity relate to funding
working capital, capital improvements, and debt service obligations. The Company
must also provide funding to cover potential delays, temporary cessations or
interruption in payments by third-party payors due to political or budgetary
constraints. In addition, as part of its strategic plan, the Company anticipates
investing approximately $40 million in information technology over the next five
years. A significant portion of this investment will be financed through
operating leases. Management believes that these liquidity needs can be met from
available cash, internally generated funds and existing borrowing capacity under
the NationsBank Credit Agreement.
17
<PAGE>
The Company's healthcare facilities require capital improvements for
renovations and improvements in physical appearance. Future capital improvements
may be required as a result of routine regulatory inspections. The Company's
capital expenditures for the six months ended June 30, 1997 and 1996 were
approximately $6.2 million and $5.6 million, respectively. These capital
expenditures have been financed through a combination of internally generated
funds and debt. The Company expects to spend an aggregate of approximately $14.0
million for capital expenditures during 1997 to be financed through borrowings
under the NationsBank Credit Agreement and funds generated from operations.
The Company has financed its acquisitions from a combination of
borrowings and funds generated by operations. The Company expects to finance
future acquisitions from a combination of existing cash, the NationsBank Credit
Agreement and alternative sources such as real estate investment trusts.
Depending on the numbers, size and timing of any such transactions, the Company
may in the future require additional financing in order to continue to make
acquisitions.
During 1996, the Company purchased 862,000 shares of Company common
stock at an average price of $9.56 per share. During First Quarter 1997, the
Company purchased an additional 146,000 shares at an average price of $9.82 per
share. These transactions, accounted for under the cost method, reduced
stockholders' equity by $9.7 million.
Seasonality
The Company's income from operations before fixed charges generally
fluctuates from quarter to quarter. The fluctuation is related to several
factors: the timing of Medicaid rate increases, seasonal census cycles, and the
number of calendar days in a given quarter. As a result, the Company's income
from operations before fixed charges tends to be higher in its third and fourth
quarters when compared to the first and second quarters.
Impact of Inflation
The healthcare industry is labor intensive. Wages and other labor costs
are especially sensitive to inflation. Increases in wages and other labor costs
as a result of inflation, or increases in federal or state minimum wages without
a corresponding increase in Medicare and Medicaid reimbursement rates, could
adversely impact the Company.
Reimbursement
The majority of the Company's net operating revenue is derived from
services provided under the Medicare and Medicaid programs. Numerous proposals
relating to healthcare reform have been or may be introduced in the United
States Congress, state legislatures or by governmental agencies who regulate the
Medicare and Medicaid programs. It is uncertain what reform will ultimately be
enacted by the federal government, any state government or governmental agencies
and therefore, the Company cannot predict at this time the impact on the Company
of any proposed reforms.
As discussed above, the Company provides contract rehabilitation and
pharmacy services to both Regency operated and non-affiliated facilities. Under
current Medicare regulations, reimbursement for these services provided to
Medicare eligible patients in Regency facilities is based upon the related
entity's cost to provide the services unless a significant portion of the
related entity's revenues are derived from non-affiliated facilities. If a
significant portion of the related entity's revenues are derived from
non-affiliated facilities, Medicare will reimburse the facility's cost, which
includes a profit paid to the related entity. During 1995 and prior years, the
Company was reimbursed by Medicare based on its pharmacy operation costs on
billings to Regency facilities, as it did not meet the significant portion
criteria. After the acquisition of Assist-A-Care Pharmacy and Executive Pharmacy
in 1996, the Company believes it meets the significant portion criteria and is
recording a profit on billings for pharmacy services provided to Medicare
eligible patients in Regency facilities. The Company believes it meets the
18
<PAGE>
significant portion criteria for its contract rehabilitation therapy operations
provided by SCRS, and therefore has recorded a profit on billings to Regency
facilities since the acquisition of SCRS. Medicare regulations do not define a
"significant portion," therefore, the Company's and Medicare's interpretations
could differ, which could result in retroactive adjustments related to the
profit on billings to Regency facilities for pharmacy and contract
rehabilitation services.
Further, the federal government has announced that it will be devoting
increased resources to investigating fraud or abuse in healthcare providers'
billings and business practices, and has publicly identified various large
healthcare providers as targets of such investigations, without, in some cases,
alleging any actual violations by these persons. In addition, the governmental
agency charged with prosecuting such alleged activities has on occasion asserted
that certain customary practices in the healthcare industry may, under certain
circumstances, constitute "fraud and abuse" although such positions have not
always been validated by the courts. While the Company believes that its
billings have been accurate and proper in all material respects, and that its
business practices, facilities and operations are in substantial compliance with
all applicable laws and regulations, it is unable to predict the consequences to
the Company were it to be identified publicly as a target of any such
investigation.
In the federal budget deficit reduction bill, various reimbursement
rules and regulations were adopted by the federal government that pertain to the
Company. The changes to regulations promulgated under OBRA, some of which expand
the remedies available to enforce regulations mandating minimum healthcare
standards, may have an adverse effect on the Company's operations. The Company
is unable to predict the particular effect on the Company until the manner in
which these regulations are implemented becomes known.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10.49 Employment Agreement between Regency Health Services,
Inc. and Harold Andrews dated as of June 1, 1997.
10.50 Employment Agreement between Regency Health Services,
Inc. and Julian Ahumada dated as of June 1, 1997.
10.51 Employment Agreement between Regency Health Services,
Inc. and Randy Robertson dated as of June 1, 1997.
10.52 Agreement and Plan of Merger dated as of July 26,
1997 among Sunreg Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Sun
Healthcare, Sun Healthcare and the Company
(Incorporated by reference to Regency Health
Services, Inc.'s Solicitation/Recommendation
Statement filed on Schedule 14D-9).
(b) Reports on Form 8-K
None.
20
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REGENCY HEALTH SERVICES, INC.
By: /S/ Bruce D. Broussard
----------------------
Bruce D. Broussard
Executive Vice President and Chief Financial Officer
Date: August 14, 1997
21
<PAGE>
Exhibit 10.49
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), entered into as of June 1,
1997 (the "Effective Date"), is entered into by and between Harold Andrews
("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish it right to the continued services of
Employee, in the capacity described below, on the terms and conditions and
subject to the rights of termination hereinafter set forth, and Employee is
willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth,
Employee and Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS VICE PRESIDENT - FINANCE OF THE COMPANY. Company does
hereby employ, engage, and hire Employee as Vice President - Finance of the
Company and Employee does hereby accept and agree to such hiring, engagement,
and employment. Employee's duties during the Employment Period (defined below)
shall be the executive, managerial and reporting duties set forth on Exhibit A
hereto and such other duties as the Board of Directors of the Company, or the
chief executive officer of Company shall from time to time prescribe and as
provided in the Bylaws of the Company. Employee shall devote his full time,
energy, and skill to the performance of his duties for Company and for the
benefit of Company, reasonable vacations authorized by Company's Board of
Directors and reasonable absences because of illness expected. Furthermore,
Employee shall exercise due diligence and care in the performance of his duties
to Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue of a period of one (1) year;
provided, however, that on the first and each succeeding anniversary of the
Effective Date, the Term shall automatically be extended for one year unless,
not later than thirty (30) days prior to any such anniversary date, either party
shall give written notice to the other that it does not wish to extend the term
of this Agreement. The period of time commencing on the Effective Date and
ending on the expiration of the Term, or, if earlier, the date of termination of
Employee's employment (the "Termination Date") under this or any successor
agreement shall be referred to as the "Employment Period."
3. COMPENSATION.
(a)......BASE SALARY. Company shall pay Employee, and Employee
agrees to accept from Company, in full payment for his services to Company, a
base salary at the rate of One Hundred Thirty-Eight Thousand Dollars
($138,000.00) per year ("Base Salary"), payable in equal biweekly installments
or at such other time or times as Employee and Company shall agree. Employee's
Base Salary shall be reviewed on a calendar year basis, at least annually, by
Company and may be increase as determined by Company's Board of Directors in its
sole and absolute discretion.
(b)......PERFORMANCE BONUS - BOARD OF DIRECTORS' DISCRETION.
Employee shall be eligible to receive an annual performance bonus of up to
twenty-eight percent (28%) of his annual Base Salary. Any such bonus awarded to
Employee shall be payable in the amount, in the manner, and at the time
determined by Company's Board of Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in any
benefit programs, adopted from time to time, by Company for the benefit of its
executive employees and Employee shall be entitled to receive such other fringe
benefits as may be granted to him from time to time by Company's Board of
Directors.
(a)......BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options, stock purchases,
pension, thrift, profit sharing, life and disability insurance, medical
coverage, executive medical coverage, education, or other retirement or employee
benefits available to other executive employees of Company, subject to any
restrictions (including waiting periods) specified in such plans.
(b)......VACATION. Employee shall be entitled to two (2) weeks
of paid vacation per calendar year after one year of employment by the Company,
three (3) weeks after five (5) years and four (4) weeks of paid vacation after
ten (10) years, with such vacation to be scheduled and taken in accordance with
the Company's standard vacation policies.
(c)......EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN.
Subject to the applicable waiting periods, Employee will be included in
Company's Executive Long-Term Disability Insurance Plan, as it may be modified
from time to time, at the Company's expense.
5. BUSINESS EXPENSES. Company shall reimburse Employee for any
and all necessary, customary, and usual expenses, properly receipted in
accordance with the policies of the Company, incurred by Employee on behalf of
Company, including reimbursement for use of Employee's personal vehicle for
business purposes.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a)......DEATH. If Employee dies while employed by Company,
his employment shall immediately terminate. Company's obligation to pay
Employee's Base Salary shall cease as of the date of Employee's death.
Thereafter, Employee's beneficiaries or his estate shall receive benefits in
accordance with Company's retirement, insurance, and other applicable programs
and plans then in effect.
(b)......DISABILITY. If, as a result of Employee's mental or
physical incapacity, Employee shall be unable to perform the services for
Company contemplated by this Agreement in the manner in which he previously
performed them during an aggregate of 120 business days in any consecutive seven
(7) month period ("Disability"), Employee's employment may be terminated by
Company for Disability. During any period prior to such termination during which
Employee is absent from the full-time performance of his duties with Company due
to Disability, Company shall continue to pay Employee his Base Salary at the
rate in effect at the commencement of such period of Disability. Any such
payments made to Employee shall be reduced by amounts received from disability
insurance obtained or provided by Company, and by the amounts of any benefits
payable to Employee, with respect to such period, under Company's Executive
Long-Term Disability Plan. Subsequent to the termination provided for in this
Section 6(b), Employee's benefits shall be determined under Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of such programs.
(c)......TERMINATION BY THE COMPANY FOR CAUSE. Company may
terminate Employee's employment under this Agreement for "Cause" at any time
prior to expiration of the Term of the Agreement, only upon the occurrence of
any one or more of the following events:
.........(i) The material breach of this Agreement by
Employee, including, without limitation, repeated neglect of Employee's duties
as set forth on Exhibit A hereto, Employee's lack of diligence and attention in
performing services as provided in this Agreement, or Employee's repeated
failure to implement or adhere to policies established by, or directives of,
Company's Board of Directors; or
.........(ii) Conduct of a criminal nature that may have
an adverse impact on Company's reputation and standing in the community; or
.........(iii) Fraudulent conduct in connection with the
business affairs of Company, regardless of whether said conduct is designed to
defraud the Company or others.
In the event of termination for Cause, Company's obligation to pay Employee's
Base Salary shall cease as of the Termination Date. If Employee's employment is
terminated for Cause, Employee's employment may be terminated immediately
without any advance written notice.
(d)......TERMINATION BY THE COMPANY WITHOUT CAUSE. Company
shall have the right to terminate the Agreement prior to the expiration of the
Term, at any time, without Cause. In the event Company shall so elect to
terminate this Agreement Employee shall receive compensation pursuant to the
Company's severance policies.
(e)......TERMINATION BY THE EMPLOYEE FOR GOOD REASON. Employee
shall have the right to terminate this Agreement for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean the occurrence, without Employee's
prior written consent, of any one or more of the following events:
.........(i) The assignment to Employee of any duties that are
materially inconsistent with, or reflect a material continuing reduction of the
powers and responsibilities, or a change of Employee's reporting
responsibilities, set forth on Exhibit A hereto, or a material improper
intervention by Company's Board of Directors in Employee's ability to materially
perform the duties and responsibilities set forth on Exhibit A hereto;
.........(ii) Company's material breach of any of the
provisions of this Agreement, or a material change in the conditions of
Employee's employment; or
.........(iii) The relocation of Company's principal executive
officers to a location outside of the Southern California area or the Company's
requiring Employee to be based anywhere other than Company's principal executive
offices, except for travel on the Company's business to an extent substantially
consistent with the Employee's position and responsibilities.
Employee agrees to provide Company thirty (30) days' prior written notice of any
termiantion for Good Reason, during which 30 day period Company shall have the
right to cure the circumstances giving rise to the Good Reason stated in such
notice. Except as set forth in Paragraph 7 below, in the event of termination
for Good Reason, Employee shall receive compensation pursuant to the provisions
of Company's severance policies.
7. MERGER OR OTHER CHANGE IN CONTROL. Employee shall have the right to
terminate this Agreement for Good Reason if at any time within ninety (90) days
after completion of (i) a merger of the Company with any other corporation as a
result of which the shareholders of the Company immediately prior to such merger
fail to win at least a majority of the voting securities of the surviving
corporation in such merger immediately after the merger, and members of the
Board of Directors of Company, elected by the stockholders of the Company or by
a majority of the directors of the Company who were elected by the stockholders
of the Company, fail to constitute a majority of the Board of Directors of the
surviving corporation following completion of the merger, or (ii) a sale of all
or substantially all of the assets of the Company to another corporation, if (x)
a majority of the directors of the ultimate parent of the purchase immediately
following the purchase and sale were not members of the Board of Directors of
the Company immediately prior to such sale and (y) shareholders of the Company
immediately prior to such sale do not hold a majority of the voting securities
of the ultimate parent of the purchasing corporation following completion of
such sale; or (iii) a purchase by another person, firm or corporation of a
majority of the voting securities of the Company, and following completion of
such sale, members of the Board of Directors of the Company elected by the
stockholders of the Company (other than such purchaser) fail to constitute a
majority of the Board of Directors of the Company. If Employee elects to
terminate this Agreement for Good Reason for the reasons set forth in this
Paragraph 7, then Employee shall be eligible to receive immediately, in a lump
sum, an amount equal to the Base Salary that would have been payable to Employee
pursuant to this Agreement had Employee continued to be employed for the twelve
(12) months immediately following the Termination Date (such Base Salary for
such period being equal to Employee's Base Salary as of the Termination Date)
plus an amount equal to the greater of (i) the total of any performance bonus or
bonuses paid to Employee pursuant to Section 3(b) hereof in the fiscal year of
the Company ended prior to the fiscal year in which the Termination Date occurs,
or (ii) the average of the annual performance bonuses paid to him by Company
with respect to the three fiscal years ended immediately prior to the fiscal
year in which the Termination Date occurs.
8. NONCOMPETITION PROVISIONS.
(a)......RIGHT TO COMPANY MATERIALS. Employee agrees that all
styles, designs, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Materials") used, prepared, or made
available to Employee, shall be and shall remain the property of the Company.
Upon the termination of employment or the expiration of this Agreement, all
Company Materials shall be returned immediately to Company, and Employee shall
not make or retain any copies thereof.
(b)......ANTISOLICITATION. Employee promises and agrees that
during the term of this Agreement he will not influence or attempt to influence
customers or suppliers of Company or any of its present or future subsidiaries
or affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of Company, or any subsidiary or affiliate of Company.
(c)......SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the Termination Date,
Employee promises and agrees that he will not directly or indirectly solicit any
of Company's employees to work for any business, individual, partnership, firm,
corporation or other entity then in competition with the business of Company or
any subsidiary or affiliate of Company.
9. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, California 92780
Attention: Chief Executive Officer
Phone: (714) 544-4443
Fax: (714) 544-4413
If to Employee: Harold Andrews
Either party may change such party's address for notices by notice duly given
pursuant hereto.
10. ATTORNEYS' FEES. In the event judicial or quasi-judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, Company and Employee shall each bear their own respective
attorneys' fees and costs associated with such dispute.
11. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation
of Employee by Company from and after the Effective Date.
12. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that, in the event of the merger, consolidation, transfer or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall, subject to the express provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of Company hereunder.
13. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
14. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in writing. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute apart of this
Agreement for any other purpose.
15. WAIVER, MODIFICATION. Failure to insist upon strict compliance with
any of the terms, covenants, or conditions hereof shall not be deemed a waiver
of such term, covenant, or condition, nor shall any waiver or relinquishment of,
or failure to insist upon strict compliance with, any right or power hereunder
at any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times. This Agreement shall not be modified in any
respect except by a writing executed by each party hereto.
16. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
17. INDEMNIFICATION. Company shall indemnify and hold Employee
harmless to the maximum extent permitted by Section 145 of the Delaware General
Corporation Law and the Bylaws of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto signed
this Agreement as of the date first above written.
COMPANY:
REGENCY HEALTH SERVICES, INC.
By:
Richard K. Matros, President/CEO
EMPLOYEE:
Harold Andrews
Exhibit 10.50
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), entered into as of June 1,
1997 (the "Effective Date"), is entered into by and between Julian Ahumada
("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish it right to the continued services of
Employee, in the capacity described below, on the terms and conditions and
subject to the rights of termination hereinafter set forth, and Employee is
willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth,
Employee and Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS VICE PRESIDENT - REIMBURSEMENT OF THE COMPANY. Company
does hereby employ, engage, and hire Employee as Vice President - Reimbursement
of the Company and Employee does hereby accept and agree to such hiring,
engagement, and employment. Employee's duties during the Employment Period
(defined below) shall be the executive, managerial and reporting duties set
forth on Exhibit A hereto and such other duties as the Board of Directors of the
Company, or the chief executive officer of Company shall from time to time
prescribe and as provided in the Bylaws of the Company. Employee shall devote
his full time, energy, and skill to the performance of his duties for Company
and for the benefit of Company, reasonable vacations authorized by Company's
Board of Directors and reasonable absences because of illness expected.
Furthermore, Employee shall exercise due diligence and care in the performance
of his duties to Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue of a period of one (1) year;
provided, however, that on the first and each succeeding anniversary of the
Effective Date, the Term shall automatically be extended for one year unless,
not later than thirty (30) days prior to any such anniversary date, either party
shall give written notice to the other that it does not wish to extend the term
of this Agreement. The period of time commencing on the Effective Date and
ending on the expiration of the Term, or, if earlier, the date of termination of
Employee's employment (the "Termination Date") under this or any successor
agreement shall be referred to as the "Employment Period."
3. COMPENSATION.
(a)......BASE SALARY. Company shall pay Employee, and Employee
agrees to accept from Company, in full payment for his services to Company, a
base salary at the rate of One Hundred Twenty-Two Thousand Dollars ($122,000.00)
per year ("Base Salary"), payable in equal biweekly installments or at such
other time or times as Employee and Company shall agree. Employee's Base Salary
shall be reviewed on a calendar year basis, at least annually, by Company and
may be increase as determined by Company's Board of Directors in its sole and
absolute discretion.
(b)......PERFORMANCE BONUS - BOARD OF DIRECTORS' DISCRETION.
Employee shall be eligible to receive an annual performance bonus of up to
thirty-five percent (35%) of his annual Base Salary. Any such bonus awarded to
Employee shall be payable in the amount, in the manner, and at the time
determined by Company's Board of Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in any
benefit programs, adopted from time to time, by Company for the benefit of its
executive employees and Employee shall be entitled to receive such other fringe
benefits as may be granted to him from time to time by Company's Board of
Directors.
(a)......BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options, stock purchases,
pension, thrift, profit sharing, life and disability insurance, medical
coverage, executive medical coverage, education, or other retirement or employee
benefits available to other executive employees of Company, subject to any
restrictions (including waiting periods) specified in such plans.
(b)......VACATION. Employee shall be entitled to two (2) weeks
of paid vacation per calendar year after one year of employment by the Company,
three (3) weeks after five (5) years and four (4) weeks of paid vacation after
ten (10) years, with such vacation to be scheduled and taken in accordance with
the Company's standard vacation policies.
(c)......EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN.
Subject to the applicable waiting periods, Employee will be included in
Company's Executive Long-Term Disability Insurance Plan, as it may be modified
from time to time, at the Company's expense.
5. BUSINESS EXPENSES. Company shall reimburse Employee for any
and all necessary, customary, and usual expenses, properly receipted in
accordance with the policies of the Company, incurred by Employee on behalf of
Company, including reimbursement for use of Employee's personal vehicle for
business purposes.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a)......DEATH. If Employee dies while employed by Company,
his employment shall immediately terminate. Company's obligation to pay
Employee's Base Salary shall cease as of the date of Employee's death.
Thereafter, Employee's beneficiaries or his estate shall receive benefits in
accordance with Company's retirement, insurance, and other applicable programs
and plans then in effect.
(b)......DISABILITY. If, as a result of Employee's mental or
physical incapacity, Employee shall be unable to perform the services for
Company contemplated by this Agreement in the manner in which he previously
performed them during an aggregate of 120 business days in any consecutive seven
(7) month period ("Disability"), Employee's employment may be terminated by
Company for Disability. During any period prior to such termination during which
Employee is absent from the full-time performance of his duties with Company due
to Disability, Company shall continue to pay Employee his Base Salary at the
rate in effect at the commencement of such period of Disability. Any such
payments made to Employee shall be reduced by amounts received from disability
insurance obtained or provided by Company, and by the amounts of any benefits
payable to Employee, with respect to such period, under Company's Executive
Long-Term Disability Plan. Subsequent to the termination provided for in this
Section 6(b), Employee's benefits shall be determined under Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of such programs.
(c)......TERMINATION BY THE COMPANY FOR CAUSE. Company may
terminate Employee's employment under this Agreement for "Cause" at any time
prior to expiration of the Term of the Agreement, only upon the occurrence of
any one or more of the following events:
.........(i) The material breach of this Agreement by
Employee, including, without limitation, repeated neglect of Employee's duties
as set forth on Exhibit A hereto, Employee's lack of diligence and attention in
performing services as provided in this Agreement, or Employee's repeated
failure to implement or adhere to policies established by, or directives of,
Company's Board of Directors; or
.........(ii) Conduct of a criminal nature that may have
an adverse impact on Company's reputation and standing in the community; or
.........(iii) Fraudulent conduct in connection with the
business affairs of Company, regardless of whether said conduct is designed to
defraud the Company or others.
In the event of termination for Cause, Company's obligation to pay Employee's
Base Salary shall cease as of the Termination Date. If Employee's employment is
terminated for Cause, Employee's employment may be terminated immediately
without any advance written notice.
(d)......TERMINATION BY THE COMPANY WITHOUT CAUSE. Company
shall have the right to terminate the Agreement prior to the expiration of the
Term, at any time, without Cause. In the event Company shall so elect to
terminate this Agreement Employee shall receive compensation pursuant to the
Company's severance policies.
(e)......TERMINATION BY THE EMPLOYEE FOR GOOD REASON. Employee
shall have the right to terminate this Agreement for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean the occurrence, without Employee's
prior written consent, of any one or more of the following events:
.........(i) The assignment to Employee of any duties that are
materially inconsistent with, or reflect a material continuing reduction of the
powers and responsibilities, or a change of Employee's reporting
responsibilities, set forth on Exhibit A hereto, or a material improper
intervention by Company's Board of Directors in Employee's ability to materially
perform the duties and responsibilities set forth on Exhibit A hereto;
.........(ii) Company's material breach of any of the
provisions of this Agreement, or a material change in the conditions of
Employee's employment; or
.........(iii) The relocation of Company's principal executive
officers to a location outside of the Southern California area or the Company's
requiring Employee to be based anywhere other than Company's principal executive
offices, except for travel on the Company's business to an extent substantially
consistent with the Employee's position and responsibilities.
Employee agrees to provide Company thirty (30) days' prior written notice of any
termiantion for Good Reason, during which 30 day period Company shall have the
right to cure the circumstances giving rise to the Good Reason stated in such
notice. Except as set forth in Paragraph 7 below, in the event of termination
for Good Reason, Employee shall receive compensation pursuant to the provisions
of Company's severance policies.
7. MERGER OR OTHER CHANGE IN CONTROL. Employee shall have the right to
terminate this Agreement for Good Reason if at any time within ninety (90) days
after completion of (i) a merger of the Company with any other corporation as a
result of which the shareholders of the Company immediately prior to such merger
fail to win at least a majority of the voting securities of the surviving
corporation in such merger immediately after the merger, and members of the
Board of Directors of Company, elected by the stockholders of the Company or by
a majority of the directors of the Company who were elected by the stockholders
of the Company, fail to constitute a majority of the Board of Directors of the
surviving corporation following completion of the merger, or (ii) a sale of all
or substantially all of the assets of the Company to another corporation, if (x)
a majority of the directors of the ultimate parent of the purchase immediately
following the purchase and sale were not members of the Board of Directors of
the Company immediately prior to such sale and (y) shareholders of the Company
immediately prior to such sale do not hold a majority of the voting securities
of the ultimate parent of the purchasing corporation following completion of
such sale; or (iii) a purchase by another person, firm or corporation of a
majority of the voting securities of the Company, and following completion of
such sale, members of the Board of Directors of the Company elected by the
stockholders of the Company (other than such purchaser) fail to constitute a
majority of the Board of Directors of the Company. If Employee elects to
terminate this Agreement for Good Reason for the reasons set forth in this
Paragraph 7, then Employee shall be eligible to receive immediately, in a lump
sum, an amount equal to the Base Salary that would have been payable to Employee
pursuant to this Agreement had Employee continued to be employed for the twelve
(12) months immediately following the Termination Date (such Base Salary for
such period being equal to Employee's Base Salary as of the Termination Date)
plus an amount equal to the greater of (i) the total of any performance bonus or
bonuses paid to Employee pursuant to Section 3(b) hereof in the fiscal year of
the Company ended prior to the fiscal year in which the Termination Date occurs,
or (ii) the average of the annual performance bonuses paid to him by Company
with respect to the three fiscal years ended immediately prior to the fiscal
year in which the Termination Date occurs.
8. NONCOMPETITION PROVISIONS.
(a)......RIGHT TO COMPANY MATERIALS. Employee agrees that all
styles, designs, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Materials") used, prepared, or made
available to Employee, shall be and shall remain the property of the Company.
Upon the termination of employment or the expiration of this Agreement, all
Company Materials shall be returned immediately to Company, and Employee shall
not make or retain any copies thereof.
(b)......ANTISOLICITATION. Employee promises and agrees that
during the term of this Agreement he will not influence or attempt to influence
customers or suppliers of Company or any of its present or future subsidiaries
or affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of Company, or any subsidiary or affiliate of Company.
(c)......SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the Termination Date,
Employee promises and agrees that he will not directly or indirectly solicit any
of Company's employees to work for any business, individual, partnership, firm,
corporation or other entity then in competition with the business of Company or
any subsidiary or affiliate of Company.
9. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, California 92780
Attention: Chief Executive Officer
Phone: (714) 544-4443
Fax: (714) 544-4413
If to Employee: Julian Ahumada
Either party may change such party's address for notices by notice duly given
pursuant hereto.
10. ATTORNEYS' FEES. In the event judicial or quasi-judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, Company and Employee shall each bear their own respective
attorneys' fees and costs associated with such dispute.
11. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation
of Employee by Company from and after the Effective Date.
12. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that, in the event of the merger, consolidation, transfer or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall, subject to the express provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of Company hereunder.
13. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
14. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in writing. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute apart of this
Agreement for any other purpose.
15. WAIVER, MODIFICATION. Failure to insist upon strict compliance with
any of the terms, covenants, or conditions hereof shall not be deemed a waiver
of such term, covenant, or condition, nor shall any waiver or relinquishment of,
or failure to insist upon strict compliance with, any right or power hereunder
at any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times. This Agreement shall not be modified in any
respect except by a writing executed by each party hereto.
16. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
17. INDEMNIFICATION. Company shall indemnify and hold Employee
harmless to the maximum extent permitted by Section 145 of the Delaware General
Corporation Law and the Bylaws of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto signed
this Agreement as of the date first above written.
COMPANY:
REGENCY HEALTH SERVICES, INC.
By:
Richard K. Matros, President/CEO
EMPLOYEE:
Julian Ahumada
Exhibit 10.51
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), entered into as of June 1,
1997 (the "Effective Date"), is entered into by and between Randy Robertson
("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish it right to the continued services of
Employee, in the capacity described below, on the terms and conditions and
subject to the rights of termination hereinafter set forth, and Employee is
willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth,
Employee and Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS VICE PRESIDENT - OUTPATIENT SERVICES OF THE COMPANY.
Company does hereby employ, engage, and hire Employee as Vice President -
Outpatient Services of the Company and Employee does hereby accept and agree to
such hiring, engagement, and employment. Employee's duties during the Employment
Period (defined below) shall be the executive, managerial and reporting duties
set forth on Exhibit A hereto and such other duties as the Board of Directors of
the Company, or the chief executive officer of Company shall from time to time
prescribe and as provided in the Bylaws of the Company. Employee shall devote
his full time, energy, and skill to the performance of his duties for Company
and for the benefit of Company, reasonable vacations authorized by Company's
Board of Directors and reasonable absences because of illness expected.
Furthermore, Employee shall exercise due diligence and care in the performance
of his duties to Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue of a period of one (1) year;
provided, however, that on the first and each succeeding anniversary of the
Effective Date, the Term shall automatically be extended for one year unless,
not later than thirty (30) days prior to any such anniversary date, either party
shall give written notice to the other that it does not wish to extend the term
of this Agreement. The period of time commencing on the Effective Date and
ending on the expiration of the Term, or, if earlier, the date of termination of
Employee's employment (the "Termination Date") under this or any successor
agreement shall be referred to as the "Employment Period."
3. COMPENSATION.
(a)......BASE SALARY. Company shall pay Employee, and Employee
agrees to accept from Company, in full payment for his services to Company, a
base salary at the rate of One Hundred Sixty-Five Thousand Dollars ($165,000.00)
per year ("Base Salary"), payable in equal biweekly installments or at such
other time or times as Employee and Company shall agree. Employee's Base Salary
shall be reviewed on a calendar year basis, at least annually, by Company and
may be increase as determined by Company's Board of Directors in its sole and
absolute discretion.
(b)......PERFORMANCE BONUS. Employee shall be eligible to
receive an annual performance bonus of according to the Company's Incentive
Bonus Program.
4. FRINGE BENEFITS. Employee shall be entitled to participate in any
benefit programs, adopted from time to time, by Company for the benefit of its
executive employees and Employee shall be entitled to receive such other fringe
benefits as may be granted to him from time to time by Company's Board of
Directors.
(a)......BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options, stock purchases,
pension, thrift, profit sharing, life and disability insurance, medical
coverage, executive medical coverage, education, or other retirement or employee
benefits available to other executive employees of Company, subject to any
restrictions (including waiting periods) specified in such plans.
(b)......VACATION. Employee shall be entitled to two (2) weeks
of paid vacation per calendar year after one year of employment by the Company,
three (3) weeks after five (5) years and four (4) weeks of paid vacation after
ten (10) years, with such vacation to be scheduled and taken in accordance with
the Company's standard vacation policies.
(c)......EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN.
Subject to the applicable waiting periods, Employee will be included in
Company's Executive Long-Term Disability Insurance Plan, as it may be modified
from time to time, at the Company's expense.
5. BUSINESS EXPENSES. Company shall reimburse Employee for any
and all necessary, customary, and usual expenses, properly receipted in
accordance with the policies of the Company, incurred by Employee on behalf
of Company, including reimbursement for use of Employee's personal vehicle for
business purposes.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a)......DEATH. If Employee dies while employed by Company,
his employment shall immediately terminate. Company's obligation to pay
Employee's Base Salary shall cease as of the date of Employee's death.
Thereafter, Employee's beneficiaries or his estate shall receive benefits in
accordance with Company's retirement, insurance, and other applicable programs
and plans then in effect.
(b)......DISABILITY. If, as a result of Employee's mental or
physical incapacity, Employee shall be unable to perform the services for
Company contemplated by this Agreement in the manner in which he previously
performed them during an aggregate of 120 business days in any consecutive seven
(7) month period ("Disability"), Employee's employment may be terminated by
Company for Disability. During any period prior to such termination during which
Employee is absent from the full-time performance of his duties with Company due
to Disability, Company shall continue to pay Employee his Base Salary at the
rate in effect at the commencement of such period of Disability. Any such
payments made to Employee shall be reduced by amounts received from disability
insurance obtained or provided by Company, and by the amounts of any benefits
payable to Employee, with respect to such period, under Company's Executive
Long-Term Disability Plan. Subsequent to the termination provided for in this
Section 6(b), Employee's benefits shall be determined under Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of such programs.
(c)......TERMINATION BY THE COMPANY FOR CAUSE. Company may
terminate Employee's employment under this Agreement for "Cause" at any time
prior to expiration of the Term of the Agreement, only upon the occurrence of
any one or more of the following events:
.........(i) The material breach of this Agreement by
Employee, including, without limitation, repeated neglect of Employee's duties
as set forth on Exhibit A hereto, Employee's lack of diligence and attention in
performing services as provided in this Agreement, or Employee's repeated
failure to implement or adhere to policies established by, or directives of,
Company's Board of Directors; or
.........(ii) Conduct of a criminal nature that may have
an adverse impact on Company's reputation and standing in the community; or
.........(iii) Fraudulent conduct in connection with the
business affairs of Company, regardless of whether said conduct is designed to
defraud the Company or others.
In the event of termination for Cause, Company's obligation to pay Employee's
Base Salary shall cease as of the Termination Date. If Employee's employment is
terminated for Cause, Employee's employment may be terminated immediately
without any advance written notice.
(d)......TERMINATION BY THE COMPANY WITHOUT CAUSE. Company
shall have the right to terminate the Agreement prior to the expiration of the
Term, at any time, without Cause. In the event Company shall so elect to
terminate this Agreement Employee shall receive compensation pursuant to the
Company's severance policies.
(e)......TERMINATION BY THE EMPLOYEE FOR GOOD REASON. Employee
shall have the right to terminate this Agreement for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean the occurrence, without Employee's
prior written consent, of any one or more of the following events:
.........(i) The assignment to Employee of any duties that are
materially inconsistent with, or reflect a material continuing reduction of the
powers and responsibilities, or a change of Employee's reporting
responsibilities, set forth on Exhibit A hereto, or a material improper
intervention by Company's Board of Directors in Employee's ability to materially
perform the duties and responsibilities set forth on Exhibit A hereto;
.........(ii) Company's material breach of any of the
provisions of this Agreement, or a material change in the conditions of
Employee's employment; or
.........(iii) The relocation of Company's principal executive
officers to a location outside of the Southern California area or the Company's
requiring Employee to be based anywhere other than Company's principal executive
offices, except for travel on the Company's business to an extent substantially
consistent with the Employee's position and responsibilities.
Employee agrees to provide Company thirty (30) days' prior written notice of any
termiantion for Good Reason, during which 30 day period Company shall have the
right to cure the circumstances giving rise to the Good Reason stated in such
notice. Except as set forth in Paragraph 7 below, in the event of termination
for Good Reason, Employee shall receive compensation pursuant to the provisions
of Company's severance policies.
7. MERGER OR OTHER CHANGE IN CONTROL. Employee shall have the right to
terminate this Agreement for Good Reason if at any time within ninety (90) days
after completion of (i) a merger of the Company with any other corporation as a
result of which the shareholders of the Company immediately prior to such merger
fail to win at least a majority of the voting securities of the surviving
corporation in such merger immediately after the merger, and members of the
Board of Directors of Company, elected by the stockholders of the Company or by
a majority of the directors of the Company who were elected by the stockholders
of the Company, fail to constitute a majority of the Board of Directors of the
surviving corporation following completion of the merger, or (ii) a sale of all
or substantially all of the assets of the Company to another corporation, if (x)
a majority of the directors of the ultimate parent of the purchase immediately
following the purchase and sale were not members of the Board of Directors of
the Company immediately prior to such sale and (y) shareholders of the Company
immediately prior to such sale do not hold a majority of the voting securities
of the ultimate parent of the purchasing corporation following completion of
such sale; or (iii) a purchase by another person, firm or corporation of a
majority of the voting securities of the Company, and following completion of
such sale, members of the Board of Directors of the Company elected by the
stockholders of the Company (other than such purchaser) fail to constitute a
majority of the Board of Directors of the Company. If Employee elects to
terminate this Agreement for Good Reason for the reasons set forth in this
Paragraph 7, then Employee shall be eligible to receive immediately, in a lump
sum, an amount equal to the Base Salary that would have been payable to Employee
pursuant to this Agreement had Employee continued to be employed for the nine
(9) months immediately following the Termination Date (such Base Salary for such
period being equal to Employee's Base Salary as of the Termination Date) plus an
amount equal to the greater of (i) the total of any performance bonus or bonuses
paid to Employee pursuant to Section 3(b) hereof in the fiscal year of the
Company ended prior to the fiscal year in which the Termination Date occurs, or
(ii) the average of the annual performance bonuses paid to him by Company with
respect to the three fiscal years ended immediately prior to the fiscal year in
which the Termination Date occurs.
8. NONCOMPETITION PROVISIONS.
(a)......RIGHT TO COMPANY MATERIALS. Employee agrees that all
styles, designs, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Materials") used, prepared, or made
available to Employee, shall be and shall remain the property of the Company.
Upon the termination of employment or the expiration of this Agreement, all
Company Materials shall be returned immediately to Company, and Employee shall
not make or retain any copies thereof.
(b)......ANTISOLICITATION. Employee promises and agrees that
during the term of this Agreement he will not influence or attempt to influence
customers or suppliers of Company or any of its present or future subsidiaries
or affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of Company, or any subsidiary or affiliate of Company.
(c)......SOLICITING EMPLOYEES. During the term of this
Agreement, Employee promises and agrees that he will not directly or indirectly
solicit any of Company's employees to work for any business, individual,
partnership, firm, corporation or other entity then in competition with the
business of Company or any subsidiary or affiliate of Company.
9. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, California 92780
Attention: Chief Executive Officer
Phone: (714) 544-4443
Fax: (714) 544-4413
If to Employee: Randy Robertson
Either party may change such party's address for notices by notice duly given
pursuant hereto.
10. ATTORNEYS' FEES. In the event judicial or quasi-judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, Company and Employee shall each bear their own respective
attorneys' fees and costs associated with such dispute.
11. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation
of Employee by Company from and after the Effective Date.
12. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that, in the event of the merger, consolidation, transfer or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall, subject to the express provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of Company hereunder.
13. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
14. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in writing. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute apart of this
Agreement for any other purpose.
15. WAIVER, MODIFICATION. Failure to insist upon strict compliance with
any of the terms, covenants, or conditions hereof shall not be deemed a waiver
of such term, covenant, or condition, nor shall any waiver or relinquishment of,
or failure to insist upon strict compliance with, any right or power hereunder
at any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times. This Agreement shall not be modified in any
respect except by a writing executed by each party hereto.
16. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
17. INDEMNIFICATION. Company shall indemnify and hold Employee
harmless to the maximum extent permitted by Section 145 of the Delaware General
Corporation Law and the Bylaws of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto signed
this Agreement as of the date first above written.
COMPANY:
REGENCY HEALTH SERVICES, INC.
By:
Richard K. Matros, President/CEO
EMPLOYEE:
Randy Robertson
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