FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-18902
Health Risk Management, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1407404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8000 West 78th Street, Minneapolis, Minnesota 55439
(Address of principal executive offices, Zip Code)
(612) 829-3500
(Registrant's telephone number, including area code)
------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of Common Stock par value $.01 per share, outstanding on
April 24, 1997 was 4,463,226.
<PAGE>
HEALTH RISK MANAGEMENT, INC.
INDEX
Part I. Financial Information Page Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- at March 31, 1997 and
June 30, 1996.......................................................3
Consolidated Statements of Net Income for the three months ended
March 31, 1997 and 1996 and the nine months
ended March 31, 1997 and 1996.......................................4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 1997 and 1996.......................................5
Notes to Consolidated Financial Statements..............................6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................9-13
Part II. Other Information
Item 2. Changes in Securities..........................................14
Item 6. Exhibits and Reports on Form 8-K...............................14
Signatures..................................................................15
Exhibit Index...............................................................16
<PAGE>
PART I. FINANCIAL INFORMATION
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31,
1997 June 30,
(Unaudited) 1996
----------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,442 $ 3,347
Accounts receivable-net of allowance for doubtful
accounts of $240 and $200 at March 31, 1997 and
June 30, 1996, respectively 4,623 5,134
Unbilled receivables 6,278 4,642
Deferred income taxes 310 235
Other 1,353 1,394
------ ------
Total current assets 18,006 14,752
Computer software and database development
costs, net of amortization of $12,797 and $9,816 at
March 31, 1997 and June 30, 1996, respectively 19,361 17,132
Property and equipment less accumulated
depreciation of $10,518 and $9,272 at March 31,
1997 and June 30, 1996, respectively 9,181 9,788
Contract rights, net of amortization of $870 and
$748 at March 31, 1997 and June 30, 1996,
respectively 934 1,030
Other assets 2,319 2,120
------ ------
$ 49,801 $ 44,822
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,558 $ 1,863
Accrued expenses 2,348 2,638
Unearned revenues 3,280 2,578
Current maturities of notes payable 1,198 1,076
Current portion of capitalized equipment leases 876 1,351
------ ------
Total current liabilities 9,260 9,506
Deferred income taxes 3,345 2,292
Long-term portion of notes payable 2,436 2,152
Long-term portion of capitalized equipment leases 1,479 2,398
Commitments
Shareholders' equity:
Undesignated shares, $.01 par value, 9,750,000
authorized, none issued
Common shares, $.01 par value, 20,000,000 shares authorized,
4,463,226 and 4,180,476 shares issued and outstanding at
March 31, 1997 and June 30, 1996, respectively 45 42
Additional paid-in capital 30,850 27,619
Retained earnings 2,386 813
------ ------
Total shareholders' equity 33,281 28,474
------ ------
$ 49,801 $ 44,822
====== ======
</TABLE>
<PAGE>
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------- -----------------------------------
1997 1996 1997 1996
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 16,058 $ 14,045 $ 46,050 $ 41,105
Operating expenses:
Cost of services 9,896 8,011 27,703 23,742
Depreciation and amor-
tization, principally
cost of services 1,898 1,785 5,475 5,049
Selling and marketing 1,784 1,637 5,640 4,771
Administration 1,278 1,201 3,991 3,996
Merger costs 390 -- 390 --
------ ------ ------ ------
Total operating expenses 15,246 12,634 43,199 37,558
Operating income 812 1,411 2,851 3,547
Other income (expense):
Interest income 42 41 117 105
Interest expense (140) (189) (402) (538)
------ ------ ------ ------
(expense) (98) (148) (285) (433)
------ ------ ------ ------
Income before income taxes 714 1,263 2,566 3,114
Provision for income taxes:
Current 5 9 15 22
Deferred 271 470 978 1,167
------ ------ ------ ------
Total income taxes 276 479 993 1,189
------ ------ ------ ------
Net income $ 438 $ 784 $ 1,573 $ 1,925
====== ====== ====== ======
Net income per common and common
equivalent share
$ 0.10 $ 0.18 $ 0.36 $ 0.46
====== ====== ====== ======
Weighted average common and common
equivalent shares
4,466,000 4,277,000 4,417,000 4,175,000
========= ========= ========= =========
</TABLE>
<PAGE>
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
----------------- ---------------
<S> <C> <C>
Cash flows from operating activities::
Net income $ 1,573 $ 1,925
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,006 2,068
Amortization 3,469 2,981
Provision for deferred income tax 978 1,167
Changes in operating assets and liabilities:
Accounts receivable 545 (1,741)
Unbilled receivables (1,636) 339
Other assets (343) (1,137)
Accounts payable (384) (61)
Accrued expenses (288) (482)
Unearned revenues 702 338
----- -----
Net cash provided by operating activities 6,622 5,397
Cash flows from investing activities:
Acquisition of assets, net of cash acquired (139) --
Property and equipment, net of disposals (1,984) (1,770)
Capitalized software and database development costs (5,210) (3,980)
----- -----
Net cash used in investing activities (7,333) (5,750)
Cash flows from financing activities:
Proceeds from notes payable 1,275 1,500
Principal payments on notes payable (944) (638)
Principal payments on capital leases (759) (858)
Issuance of common shares 3,234 996
----- -----
Net cash provided in financing activities 2,806 1,000
----- -----
Increase in cash 2,095 647
Cash and cash equivalents at beginning of period 3,347 3,348
----- -----
Cash and cash equivalents at end of period $ 5,442 $ 3,995
===== =====
Supplemental disclosures:
Interest paid $ 402 $ 538
Income taxes paid 12 21
Equipment acquired under capital lease 400 432
</TABLE>
<PAGE>
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. The accompanying interim financial
statements have been prepared under the presumption that users of the
interim financial information have either read or have access to the
audited financial statements for the latest fiscal year ended June 30,
1996. Accordingly, footnote disclosures which would substantially duplicate
the disclosures contained in the June 30, 1996 audited financial statements
have been omitted from these interim financial statements. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These interim financial statements should be read in
conjunction with the annual financial statements and the notes thereto.
2. Computer software and database development costs
<TABLE>
<CAPTION>
March 31,
1997 June 30,
(Unaudited) 1996
---------------- ----------------
(in thousands)
<S> <C> <C>
Computer software and database development
costs consist of the following:
Computer Software (AutoPILOTTM)
Cost $ 12,843 $ 10,347
Less accumulated amortization 5,575 4,307
------- -------
Net book value 7,268 6,040
Claim Administration Software
Cost 7,359 6,705
Less accumulated amortization 2,719 2,178
------- -------
Net book value 4,640 4,527
Guidelines, Protocols and Medical
Analysis Software
Cost 11,956 9,896
Less accumulated amortization 4,503 3,331
------- -------
Net book value 7,453 6,565
------- -------
Computer Software and Database
Development Costs $ 19,361 $ 17,132
====== ======
</TABLE>
<PAGE>
Amortization of these costs was as follows for the nine month period ended
March 31, 1997 and the year ended June 30, 1996.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1997 June 30,
(Unaudited) 1996
--------------------------- ---------------------
(in thousands)
<S> <C> <C>
Computer Software (AutoPILOTTM) $ 1,268 $ 1,485
Claim Administration Software 541 645
Guidelines, Protocols and Medical
Analysis Software 1,172 1,279
----- -----
Amortization Expense $ 2,981 $ 3,409
===== =====
</TABLE>
3. Merger Termination
On March 10, 1997, HRM and HealthPlan Services Corporation (HPS) announced
that the merger agreement dated September 12, 1996, had been terminated by
mutual arrangement and HPS purchased 200,000 unregistered shares of common
stock from HRM at a price of $2.5 million ($12.50 per share). The
consolidated net income for the three months and nine months ended March
31, 1997 includes a one-time charge of $390,000 ($0.05 per share, net of
tax benefit) for the write-off of costs related to the terminated merger
agreement with HPS.
4. Series A Preferred Stock
On April 4, 1997, the HRM Board of Directors created a series of preferred
stock, par value $.01 per share for the shareholder rights plan. The shares
of such series were designated as "Series A Preferred Stock". The number of
shares authorized and unissued constituting the Series A Preferred Stock is
300,000 shares, which were allocated from the undesignated shares of HRM.
5. Shareholder Rights Plan
On April 4, 1997, the HRM Board of Directors established a shareholder
rights plan which provides for a dividend distribution of one preferred
stock purchase right (a "Right") to be attached to each share of common
stock of HRM then outstanding or thereafter issued. The Rights are
currently not exercisable or transferable apart from the common stock. Each
Right entitles the holder to purchase from HRM one one-hundredth of a share
of Series A Preferred Stock of HRM at a price of $50.00 per one
one-hundredth of a preferred share, subject to adjustment. The Rights
become exercisable if a person or group acquires 15% or more of HRM common
stock or announces a tender offer for 15% or more of its common stock,
subject to certain exceptions. After the Rights become exercisable, each
Right entitles the holder (other than the 15% holder) to purchase HRM stock
having a market price of two times the Right's exercise price. Also, if
after a person acquires 15% without Board approval, HRM is acquired in a
merger or similar transaction, each right thereafter would entitle a holder
(other than the 15% holder) to acquire shares of the acquiring company or
an affiliate having a market price of two times the Right's exercise price.
Each Right is redeemable at $.001 at any time up to ten days after a person
acquires 15% of HRM's common stock. The Rights expire on April 4, 2007
unless earlier redeemed by HRM.
<PAGE>
6. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting basic and diluted earnings per share for financial
statements issued for periods ending after December 15, 1997. Basic and
diluted earnings per share under Statement No. 128 as compared to current
accounting standards would have been as follows:
<TABLE>
<CAPTION>
Current Standards
---------------------
FAS 128
Fully -------------------
Primary Diluted Basic Diluted
------- ------- ----- -------
<S> <C> <C> <C> <C>
Three months ended March 31,
1997 $0.10 $0.10 $0.10 $0.10
1996 $0.18 $0.18 $0.19 $0.18
Nine months ended March 31,
1997 $0.36 $0.35 $0.37 $0.36
1996 $0.46 $0.46 $0.48 $0.46
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
A majority of the Company's revenues consist of fees for services provided under
contracts obligating clients to pay a fixed monthly charge for each covered
employee or member based on anticipated case volume experience, a percentage of
savings, a transaction or case fee, or on an hourly basis. In addition, each new
client is typically charged a one-time set-up fee to cover the related set-up
costs incurred by the Company. Such revenue is recognized as services rendered
under each contract.
The Company's expenses are comprised of its cost of services (consisting
primarily of compensation of personnel, including nurses and physicians,
telephone expenses, rent, costs related to the Company's computer operations,
costs related to customer service, and costs related to the development of new
services), selling and marketing expenses (including sales commissions,
advertising and account management personnel), general and administration
expenses (including bad debts and compensation of personnel in the corporate,
finance, human resources, and general administration departments) and
depreciation and amortization (primarily capitalized leased equipment and
software costs).
Certain items in the financial statements ending March 31, 1996 have been
reclassified to conform to the presentation for March 31, 1997 financials.
<PAGE>
Results of Operations
The following table sets forth certain consolidated financial data as a
percentage of total revenue for the three months and the nine months ended March
31, 1997 and 1996 and the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
Three Months Nine Months Year
Ended Ended Ended
March 31, March 31, June 30,
------------------------ -------------------------- -------------
1997 1996 1997 1996 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Operating expenses:
Cost of services 61.6% 57.0% 60.2% 57.8% 58.3%
Depreciation and amortization,
principally cost of services 11.8% 12.7% 11.9% 12.3% 12.7%
Selling and marketing 11.1% 11.7% 12.2% 11.6% 12.4%
Administration 8.0% 8.6% 8.7% 9.7% 9.6%
Merger costs 2.4% 0.0% 0.8% 0.0% 0.0%
----- ----- ----- ----- -----
Total operating expenses: 94.9% 90.0% 93.8% 91.4% 93.0%
----- ----- ----- ----- -----
Operating income 5.1% 10.0% 6.2% 8.6% 7.0%
Other income (expense):
Interest income 0.2% 0.3% 0.3% 0.2% 0.3%
Interest expense (0.9)% (1.3)% (0.9)% (1.3)% (1.3)%
----- ----- ----- ----- -----
Total other income (expense) (0.7)% (1.0)% (0.6)% (1.1)% (1.0)%
Income before taxes 4.4% 9.0% 5.6% 7.5% 6.0%
Income taxes 1.7% 3.4% 2.2% 2.8% 2.3%
----- ----- ----- ----- -----
Net income 2.7% 5.6% 3.4% 4.7% 3.7%
===== ===== ===== ===== =====
</TABLE>
Revenues: Revenues for the three months and the nine months ended March 31, 1997
increased $2,013,000 (14%) and $4,945,000 (12%), respectively, over the
corresponding periods of the prior year. This increase is primarily attributable
to net increases in the number of clients and covered participants enrolled in
the Company's healthcare management services, sales of additional services to
existing clients, and increased sales of the QualityFIRST(R) healthcare practice
guidelines.
Following is the approximate breakout of revenue by class of similar service
categories:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, Change March 31, Change
------------------ ------------------ ------------------ ---------------
1997 1996 Amount % 1997 1996 Amount %
---- ---- ------ - ---- ---- ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Care review
and case
management $ 6,478 $ 5,392 $ 1,086 20% $ 18,369 $ 16,850 $ 1,519 9%
Price control 1,041 1,004 37 4% 3,281 2,952 329 11%
Claim administra-
tion services 6,590 6,218 372 6% 18,563 17,679 884 5%
Information
management 1,949 1,431 518 36% 5,837 3,624 2,213 61%
------ ------ ----- -- ------ ------ ----- --
$ 16,058 $ 14,045 $ 2,013 14% $ 46,050 $ 41,105 $ 4,945 12%
====== ====== ===== == ====== ====== ===== ==
</TABLE>
<PAGE>
There are variations in revenue by class because clients purchasing services may
choose all or a portion of these services, and this varies from client to client
and period to period.
Revenues for care review and case management services increased 20%, or
$1,086,000, from the third quarter of fiscal 1996 to fiscal 1997 (from
$5,392,000 to $6,478,000), and increased 9%, or $1,519,000, from the first nine
months of fiscal 1996 to fiscal 1997 (from $16,850,000 to $18,369,000). The
increase in fiscal 1997 was mainly the result of adding a large customer.
Revenues for price control services increased 4%, or $37,000, from the third
quarter of fiscal 1996 to fiscal 1997 (from $1,004,000 to $1,041,000), and
increased 11%, or $329,000, from the first nine months of fiscal 1996 to fiscal
1997 (from $2,952,000 to $3,281,000). The increase in fiscal 1997 was mainly the
result of an increase in the CarePASS(R) customer base.
Claim administration services increased 6%, or $372,000, from the third quarter
of fiscal 1996 to fiscal 1997 (from $6,218,000 to $6,590,000), and increased 5%,
or $884,000, from the first nine months of 1996 to fiscal 1997 (from $17,679,000
to $18,563,000) because of an increase in the customer base or claim volume.
Information management revenues increased 36%, or $518,000, from the third
quarter of fiscal 1996 to fiscal 1997 (from $1,431,000 to $1,949,000), and
increased 61%, or $2,213,000, from the first nine months of fiscal 1996 to 1997
(from $3,624,000 to $5,837,000). In fiscal 1994, fiscal 1995, fiscal 1996 and
the first nine months of fiscal 1996 and 1997, revenues of $1,363,000,
$2,628,000, $4,910,000, $3,290,000 and $5,357,000, respectively, were related to
QualityFIRST(R) software and system licensing.
Cost of Services: Cost of services increased 24% from the third quarter of
fiscal 1996 to fiscal 1997 (from $8,011,000 to $9,896,000) and increased as a
percentage of revenues from 57% to 62%. Cost of services increased 17% from the
first nine months of fiscal 1996 to fiscal 1997 (from $23,742,000 to
$27,703,000) and increased as a percentage of revenues from 58% to 60%. The
increases in cost of services are due to additional costs related to payroll and
expenses for increased business.
Depreciation and Amortization: Depreciation and amortization expenses increased
6% from the third quarter of fiscal 1996 to fiscal 1997 (from $1,785,000 to
$1,898,000), but decreased as a percentage of revenues from 13% to 12%.
Depreciation and amortization expenses increased 8% from the first nine months
of fiscal 1996 to 1997 (from $5,049,000 to $5,475,000), but remained unchanged
as a percentage of revenues at 12%. The increase was primarily the result of
depreciation on additional computer, telephone and office equipment, and
amortization of additional software and contract costs. Approximately 92% of
depreciation and amortization expenses are related to cost of services.
Selling and Marketing: Selling and marketing expenses increased 9% from the
third quarter of fiscal 1996 to fiscal 1997 (from $1,637,000 to $1,784,000) and
decreased as a percentage of revenues from 12% to 11%. Selling and marketing
expenses increased 18% from the first nine months of fiscal 1996 to fiscal 1997
(from $4,771,000 to $5,640,000) and remained unchanged as a percentage of
revenues at 12%. The increase in fiscal 1997 was due primarily to increased
marketing, sales and account management personnel, sales commissions and travel
expenses.
<PAGE>
Administration: Administration expenses increased 6% from the third quarter of
the fiscal 1996 to fiscal 1997 (from $1,201,000 to $1,278,000) and decreased as
a percentage of revenues from 9% to 8%. Administration expenses remained
unchanged from the first nine months of fiscal 1996 to 1997 (from $3,996,000 to
$3,991,000), and decreased as a percentage of revenues from 10% to 9%. The
administration expenses in fiscal 1996 and fiscal 1997 relate to staff and other
expenses, including salaries, bad debts, training programs and insurance.
Merger Costs: The third quarter of fiscal 1997 included a one-time charge of
$390,000 for the write-off of costs related to the termination of the merger
agreement with HealthPlan Services Corporation.
Interest: Interest income was $42,000 and $41,000 for the third quarter of
fiscal 1997 and fiscal 1996, respectively, and decreased as a percentage of
revenues from 0.3% to 0.2%. Interest income was $117,000 and $105,000 for the
first nine months of fiscal 1997 and fiscal 1996, respectively, and decreased as
a percentage of revenues from 0.3% to 0.2%. Interest income varies with funds
available to be invested in short-term investments.
Interest expense decreased 26% from the third quarter of fiscal 1996 to fiscal
1997 (from $189,000 to 140,000) and decreased as a percentage of revenues from
1.3% to 0.9%. Interest expense decreased 25% from the first nine months of
fiscal 1996 to fiscal 1997 (from $538,000 to $402,000) and decreased as a
percentage of revenues from 1.3% to 0.9%. Interest expense was impacted in
fiscal 1997 by lower average principal balances outstanding.
Income Taxes: Income taxes decreased in the third quarter of fiscal 1997 from
fiscal 1996 by $203,000, and decreased in the first nine months of fiscal 1997
from fiscal 1996 by $196,000. The decreases are due to lower income before
income taxes. It is expected that the fiscal year 1997 effective tax rate will
approximate the 39% rate of fiscal 1996.
Liquidity and Capital Resources
The Company's cash flow from operations was $5,397,000 and $6,622,000 for the
first nine months of fiscal 1996 and 1997, respectively. Cash flow from
operating activities was greater than net income because non-cash charges such
as depreciation, amortization and deferred income taxes exceeded the net changes
in operating assets and liabilities for the first nine months of fiscal 1996 and
fiscal 1997. Cash has been used to invest in software and program enhancements
($3,980,000 and $5,210,000 in the first nine months of fiscal 1996 and fiscal
1997, respectively). In addition, the Company acquired property and equipment,
including acquired assets, of $1,770,000 and $2,123,000 for the first nine
months of fiscal 1996 and 1997, respectively. The Company expects to continue
its expansion and will acquire property and equipment, enhance software and
products, and develop products.
<PAGE>
The Company had a net operating loss carryforward for income tax purposes in
excess of $13,000,000 as of June 30,1996, which can be used to reduce the cash
flow necessary to pay taxes.
The Company's cash position at March 31, 1997 was $5,442,000 as compared to
$3,347,000 at June 30, 1996. The Company also used approximately $1,496,000 and
$1,703,000 for the first nine months of fiscal 1996 and 1997, respectively, to
repay principal on notes payable and capital leases, but borrowed $1,500,000 and
$1,275,000, respectively. The Company received $996,000 and $3,234,000 during
the first nine months of fiscal 1996 and fiscal 1997, respectively, from stock
option exercises for common stock or from the sale of unregistered shares of
common stock. The Company's current ratio was approximately 1.9 and 1.6 at March
31, 1997 and June 30, 1996, respectively. The Company's working capital was
$8,746,000 and $5,246,000 at March 31, 1997 and June 30, 1996, respectively.
The Company believes that its cash and cash flow from operations, together with
credit facilities which the Company has obtained, will be sufficient to finance
the Company's anticipated, normal expansion in fiscal 1997. The Company has a
term loan (principal balance of $1,179,000 as of March 31, 1997) with its bank
due June 30, 1999 and a revolving credit facility expiring January 31, 1998,
under which the Company may borrow up to $3,750,000. The Company has a principal
balance of $2,336,000 as of March 31, 1997 under the revolving credit facility.
The revolving credit and term loan are secured by liens on the assets of the
Company.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(a) On April 4, 1997, the Company established a shareholder rights plan.
See Note 5 to the Financial Statements contained in this report for a more
complete description of the rights distributed under such plan.
(b) During the three months ended March 31, 1997, the Company made the
following sales of unregistered securities:
(i) Effective January 31, 1997, the Company sold 35,000 shares
of common stock to two option holders for total cash consideration of
$385,000.
(ii) Effective March 10, 1997, the Company sold to HealthPlan
Services Corporation 200,000 shares of Common stock for cash
consideration of $2,500,000.
Each of the above sales was deemed to be exempt from registration under the
Securities Act of 1933 by virtue of Section 4(2) thereof. The purchasers
represented their intention to acquire the shares for investment purposes only
and not with a view to the sale thereof. In addition, a restrictive legend has
been placed on the certificates representing the shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 3 -- Articles of Incorporation, as amended to date
Exhibit 11 -- Computation of Earnings Per Common Share
Exhibit 27 -- Financial Data Schedule (filed in electronic
format only)
(b) During the three months ended March 31, 1997, there was no report
filed on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Health Risk Management, Inc.
Dated: May 5, 1997 By: /s/Gary T. McIlroy
----------------------
Gary T. McIlroy, M.D.
Chief Executive Officer
Dated: May 5, 1997 By: /s/Thomas P. Clark
----------------------
Thomas P. Clark
Chief Financial Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX
to
FORM 10-Q
For Quarter Ended March 31, 1997
HEALTH RISK MANAGEMENT, INC.
(SEC File No. 0-18902)
------------------------------------------------------------------------------
Exhibit
Number Exhibit Description
- ------- -------------------
3 Articles of Incorporation, as amended to date
11 Computation of Earnings Per Share
27 Financial Data Schedule (filed in electronic format only)
EXHIBIT 3
AMENDMENT OF ARTICLES OF INCORPORATION
HEALTH RISK MANAGEMENT, INC.
The following amendments of articles or modifications to the statutory
requirements regulating the above corporation were adopted:
The Articles of Incorporation, as amended, were restated in accordance with
Exhibit A attached hereto.
The amendment restating the Articles correctly sets forth without change
the corresponding provisions of the Articles as previously amended.
This amendment has been approved pursuant to chapter 302A, Minnesota
Statues.
I certify that I am authorized to execute this amendment and I further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in section 609.48 as if I had signed this
amendment under oath.
/s/ Gary McIlroy
Gary T. McIlroy, Chief Executive Officer
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HEALTH RISK MANAGEMENT, INC.
ARTICLE 1
NAME
The name of the corporation is "Health Risk Management, Inc."
ARTICLE 2
NAME
The address of the registered office of the corporation in Minnesota is
Suite 270, 8000 West 78th Street, Edina, Minnesota 55435.
ARTICLE 3
AUTHORIZED SHARES
(a) The aggregate number of authorized shares of Common Stock of this
corporation, par value $.01 per share (the "Common Stock"), is 20,000,000.
(b) The aggregate number of authorized shares of 9-1/2% Convertible
Preferred Stock, par value $.01 per share (the "Preferred Stock"), is 250,000.
(c) The aggregate number of authorized shares of undesignated stock, par
value $.01 per share (the "Undesignated Stock") is 9,750,000.
(d) The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the Preferred Stock or the holders thereof are
as follows:
(i) Voting Rights. Each holder of Common Stock shall have one vote on
all matters submitted to the shareholders for each share of Common Stock
standing in the name of such holder on the books of this corporation.
(ii) Preemptive Rights. The shareholders of this corporation shall not
have preemptive rights to subscribe for or acquire securities or rights to
purchase securities of any kind, class or series of the corporation.
<PAGE>
(iii) Preferred Stock. Each share of Preferred Stock will, upon its
issuance: (A) entitle its holder to receive, out of any funds legally
available for such purpose, cash dividends at the rate of 9-1/2% per annum,
payable semi-annually, which dividends shall be cumulative from the date of
issuance and whether or not declared or earned (and no dividends will be
payable on any Common Stock or any other equity securities of the
corporation unless all accumulated and unpaid dividends on the Preferred
Stock have been paid in full); (B) entitle its holder to receive, in the
event of the liquidation or dissolution of the corporation, $9.00 in cash,
together with an amount in cash equal to the dividends accumulated and
unpaid thereon to the date of distribution, before any payment is made or
assets distributed to the holders of Common Stock or any other equity
securities of the corporation; (C) entitle its holder to convert such share
of Preferred Stock into one share of Common Stock; (D) be redeemable upon
60 days' advance written notice (subject to the holder's right to convert
during such period) in whole or in part, by the corporation for $9.00 in
cash, together with an amount in cash equal to the dividends accumulated
and unpaid thereon to the date of redemption (prorated for any partial
periods) at any time after the first date upon which the average aggregate
market value for the 30-day period preceding such date (based on the
closing or bid prices, as applicable, during such period) of the publicly
traded, unrestricted shares of Common Stock then outstanding and not held
by affiliates of the corporation is greater than an amount equal to
$4,429,611; and (E) entitle its holder to vote as if such holder held one
share of Common Stock (except that the Preferred Stock shall have class
voting rights on matters specified in Minn. Stat. ss.302A.137). The
conversion rate, liquidation rate, redemption price and voting rate per
share of the Preferred Stock shall be equitably adjusted in the event of a
stock split of or stock dividend on the Common Stock or Preferred Stock
after the date of adoption of this Amendment of Articles of Incorporation.
(iv) Cumulative Voting. There shall be no cumulative voting by the
shareholders of the corporation.
(e) The Board of Directors of the corporation is authorized to establish
from the Undesignated Stock, by resolution adopted and filed in the manner
provided by law, one or more classes or series of shares, to designate each such
class or series (which may include but is not limited to designation as
additional shares of Common Stock), and to fix the relative rights and
preferences of each such class or series. The resolution or resolutions
establishing the issue of Undesignated Stock shall specify the voting powers, if
any, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof,
including without limitation:
(i) The number of shares to constitute the class or series and
designations thereof;
(ii) The voting powers, full or partial, or no voting powers;
(iii) The redemption price or prices if any, and the terms and
conditions on which shares of such class or series shall be redeemable;
(iv) The rate of the distributions of any or all kinds, the conditions
on which and the times when such distributions are made; the preference to,
or the relation to, the payment of the distributions on any other class or
classes or any other series of stock;
(v) The rights of shares of such class or series upon the liquidation,
or dissolution or winding up of the assets of the corporation;
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<PAGE>
(vi) The rights, if any, of the holders of shares of such class or
series to convert such shares into, or to exchange such shares for, shares
of any other class or classes or of any other series of the same or any
other class or classes of stock of the corporation and the price or prices
or the rates of exchange and the adjustments at which such shares shall be
convertible or exchangeable, and any other terms and conditions of such
conversion or exchange; and
(vii) The sinking fund requirements, if any, to be applied to the
purchase or redemption of shares of such class or series including the
amount of such fund or funds and the manner of application.
(f) Upon redemption or conversion of any shares of Preferred Stock or any
class or series established by the Board from the Undesignated Stock pursuant to
paragraph (e), any shares so redeemed or converted shall constitute authorized
but unissued shares of that class or series; provided, however, when all shares
of any one class or series shall have been redeemed or converted, all shares of
such class or series shall thereupon constitute shares of Undesignated Stock.
ARTICLE 4
BOARD OF DIRECTORS
The terms of office of directors shall be classified by dividing them into
three classes, with each class being as nearly equal in number as possible. The
terms of office of the directors initially classified as Class A shall expire at
the annual meeting of shareholders to be held in 1986; the terms of those
classified as Class B shall expire at the annual meeting of shareholders to be
held in 1987; and the terms of those classified as Class C shall expire at the
annual meeting of shareholders to be held in 1988. At each annual meeting of
shareholders after such initial classification, directors of the class, the term
of which is expiring, shall be elected to hold office until the third succeeding
annual meeting of shareholders.
The vote required to amend or repeal all or any portion of this Article 4
shall be the affirmative vote of the holders of at least 75% of the outstanding
shares of capital stock entitled to vote generally in the election of directors
("Voting Stock") of the corporation unless the proposed amendment or repeal has
been recommended to the shareholders by the affirmative vote of two-thirds of
the entire Board of Directors, in which case such an amendment or repeal shall
require the affirmative vote of a majority of the holders of the outstanding
shares of Voting Stock of the corporation.
The Board of Directors is authorized, to the extent permitted by law, to
adopt, amend or repeal the Bylaws of this corporation, subject to the power of
the shareholders to adopt, amend or repeal such Bylaws. Bylaws fixing the number
of directors or their classifications, qualifications, or terms of office, or
prescribing procedures for removing directors or filling vacancies in the Board
may be adopted, amended or repealed only by the affirmative vote of the holders
of 75% of the outstanding shares of Voting Stock, unless the proposed amendment
or repeal has been recommended to the shareholders by the affirmative vote of
two-thirds of the entire Board of Directors, in which case such an amendment or
repeal shall require the affirmative vote of a majority of the holders of the
outstanding shares of Voting Stock of the corporation. For purposes of any vote
of holders of Voting Stock pursuant to this Article 4, all shares of Voting
Stock shall be considered as one class.
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<PAGE>
An action required or permitted to be taken at the meeting of the Board of
Directors of the corporation may be taken by a written action signed, or
counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
Board of Directors of the corporation at which all of the directors were
present.
ARTICLE 5
SPECIAL VOTING REQUIREMENTS
Except as otherwise expressly provided in this Article:
(i) any merger or consolidation of the corporation with or into any
other corporation;
(ii) any sale, lease, mortgage, exchange or other disposition of all
or any Substantial part of the assets of the corporation to or with any
other corporation, person, or other entity;
(iii) the issuance or transfer of a Substantial amount of any
securities of the corporation, in one transaction or a series of
transactions, to any other corporation, person or other entity in exchange
for assets, securities or cash or any combination thereof or otherwise
(except pursuant to stock dividends, stock splits, or similar transactions
which would not have the effect of increasing the voting power of any
shareholder);
(iv) any reclassification of securities or recapitalization of the
corporation which has the effect, directly or indirectly, of increasing the
proportionate share of any outstanding securities of the corporation held
by any other corporation, person or other entity;
shall require the affirmative vote of the holders of
(i) at least 75% of the Voting Stock, and
(ii) at least a majority of the outstanding shares of capital stock of
the corporation which are not beneficially owned by such corporation,
person or other entity,
if, as of the record date for the determination of stockholders entitled to
notice thereof and to vote thereon, such others corporation, person or entity is
the beneficial owner, directly or indirectly, of 5% or more of the Voting Stock.
Such affirmative vote shall be required notwithstanding the fact that no vote or
some lesser vote may be specified by law or in any agreement with any national
securities exchange.
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<PAGE>
(a) Exceptions. The provisions of this Article 5 shall not apply to any
transaction described herein (i) with another corporation if a majority, by
vote, of the outstanding shares of all classes of capital stock of such other
corporations entitled to vote generally in the election of directors, considered
for this purpose as one class is owned of record or beneficially by the
corporation; or (ii) with another corporation, person or other entity if the
Board of Directors of the corporation shall by resolution have approved a
memorandum of understanding with such other corporation, person or other entity
with respect to and substantially consistent with such transaction prior to the
time such other corporation, person or entity became the beneficial owner,
directly or indirectly, of 5% or more of the outstanding shares of capital stock
of the corporation entitled to vote generally in the election of directors.
(b) Definitions.
(1) Beneficial Ownership. For the purposes of this Article 5, a
corporation, person or other entity shall be deemed to be the beneficial
owner of any shares of Voting Stock of the corporation (i) which it has the
right to acquire pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise, or (ii) which are beneficially
owned, directly or indirectly (including shares deemed owned through
application of clause (i) above), by any other corporation, person or other
entity (a) which is its Affiliate or Associate, or (b) with which it or its
Affiliate or Associate has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of Voting Stock. For
the purposes of this Article 5, the outstanding shares of Voting Stock
shall include shares deemed owned through the application of clauses (i)
and (ii) of this Section (b)(1) but shall not include any other shares
which may be issuable pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise.
(2) Substantial means an amount equal to 30% or more of the fair
market value of the total assets of the corporation or of the total
outstanding securities of the corporation, as the context shall require.
(3) Affiliate of Associate mean such terms as defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934
as in effect on June 1, 1985.
(4) Voting Stock means the outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors,
considered for the purposes of this Article 5 as one class.
(c) Determination by Board of Directors. The Board of Directors of the
corporation shall have the power and duty to determine for the purposes of this
Article 5, on the basis of information then known to it, whether (i) any
corporation, person, or other entity beneficially owns, directly or indirectly,
5% or more of the Voting Stock, or is an Affiliate or an Associate of another,
(ii) any proposed sale, lease, mortgage, exchange or other disposition of a part
of the assets of the corporation involves a Substantial part of such assets,
(iii) the proposed issuance or transfer of securities of the corporation in
exchange for assets, securities or cash or any combination thereof or otherwise
is of a Substantial amount of such securities, and (iv) such other matter with
respect to which a determination is required under this Article 5. Any such
determination by the Board shall be conclusive and binding for all purposes of
this Article 5.
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<PAGE>
(d) Amendment. Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws (and in addition to any other vote that may be
required by law, these Articles of Incorporation or the Bylaws), there shall be
required to amend, alter, change, or repeal, directly or indirectly, this
Article 5 and the affirmative vote of (i) at least 75% of the Voting Stock and
(ii) at least a majority of the outstanding shares of Voting Stock of the
corporation which are not beneficially owned by such corporation, person or
entity which is, as of the record date for the determination of stockholders
entitled to notice of such amendment, alteration, change or repeal and to vote
thereon, the beneficial owner, directly or indirectly, of 5% or more of the
outstanding shares of Voting Stock.
ARTICLE 6
LIMITATION ON DIRECTORS' LIABILITY
Pursuant to and in accordance with Minnesota Statutes, 302A.251, Subd. 4,
the directors of this corporation shall have no personal liability to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty, except that nothing herein shall limit or eliminate any director's
liability with respect to any of the following:
(a) for any breach of the director's duty of loyalty to the corporation or
its shareholders;
(b) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
(c) for any illegal distributions as set forth in Minnesota Statutes,
302A.559, Subd. 1-4;
(d) for any act in violation of the regulation of securities under
Minnesota Statutes, 80A.22, Subd. 1-11;
(e) for any transaction from which the director derived an improper
personal benefit; or
(f) for any act or omission occurring prior to the date when the provision
in the articles eliminating or limiting liability becomes effective.
STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
SEP 27 1990
/s/ Joan Anderson Growe
Secretary of State
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<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
OF
HEALTH RISK MANAGEMENT, INC.
(Pursuant to Chapter 302A of the
Minnesota Business Corporation Act)
Health Risk Management, Inc., a corporation organized and existing under
the Minnesota Business Corporation Act (hereinafter called the "Company"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Company as required by Section 302A.239 of the Minnesota
Business Corporation Act at a meeting duly called and held on April 4, 1997:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors of the Company (hereinafter called the "Board of Directors"
or the "Board") in accordance with the provisions of the Amended and Restated
Articles of Incorporation, as amended to date (hereinafter called the "Articles
of Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Company and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock"), and
the number of shares constituting the Series A Preferred Stock shall be Three
Hundred Thousand (300,000). Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that, no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.
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<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
the Company or Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the holders
of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company, and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on the first day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times
(as adjusted, the "Dividend Multiple") the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series A Preferred Stock. In the event the Company shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into
a greater or lesser number of shares of Common Stock, then in each such
case the Dividend Multiple shall be adjusted by multiplying such amount by
a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Company shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the Common Stock (other
than a dividend payable in shares of Common Stock); provided, that, in the
event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share
on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
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<PAGE>
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than sixty (60) days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes (as adjusted, the "Vote Multiple") on all matters submitted to a
vote of the stockholders of the Company. In the event the Company shall at
any time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each
such case the Vote Multiple shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided in Section 10 hereof, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
the Company having general voting rights shall vote together as one class
on all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
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<PAGE>
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Company ranking junior (as to dividends and
upon dissolution, liquidation and winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution
or winding up) with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board) to all holders of such shares upon such terms as the
Board, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the Company unless
the Company could, under paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein, in the Articles of
Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Company, no distribution shall be made (A) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received the greater of (i) $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment, or (ii) subject to the provision for adjustment hereinafter set
forth, 100 times (as adjusted, the "Liquidation Preference Multiple") the
aggregate amount to be distributed per share to holders of shares of Common
Stock, or (B) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the Liquidation Preference
Multiple shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
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<PAGE>
Section 7. Consolidation, Merger, Etc. In case the Company shall enter into
any consolidation, merger, statutory exchange combination or other transaction
in which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly exchanged
or changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times (as adjusted, the "Exchange Multiple")
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Company shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
Exchange Multiple shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of Preferred Stock hereafter issued that specifically provide
that they shall rank senior to the Series A Preferred Stock.
Section 10. Amendment. If any proposed amendment to the Articles of
Incorporation or this Certificate of Designation would alter or change the
preferences, special rights or powers given to the Series A Preferred Stock so
as to affect the Series A Preferred Stock adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolutions or the distribution of assets that would be
superior to the preferences or rights of the Series A Preferred Stock, then the
holders of the Series A Preferred Stock shall be entitled to vote as a series
upon such amendment, and the affirmative vote of two-thirds of the outstanding
shares of Series A Preferred Stock shall be necessary to the adoption thereof,
in addition to such other vote as may be required by the Minnesota Business
Corporation Act.
Section 11. Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
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<PAGE>
I certify that I am authorized to execute this Certificate of Designations,
and I further certify that I understand that by signing this Certificate I am
subject to the penalties of perjury as set forth in Minnesota Statutes, Section
609.48, as if I had signed this Certificate under oath.
/s/ Marlene O. Travis
Marlene O. Travis, President
STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
APR O8 1997
/s/ Joan Anderson Growe
Secretary of State
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EXHIBIT 11
HEALTH RISK MANAGEMENT, INC.
COMPUTATION OF EARNINGS PER SHARE (EPS)
(Unaudited)
<TABLE>
<CAPTION>
Primary EPS Fully Diluted EPS
----------------------------------------- -----------------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
----------------- ----------------- ----------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
(in thousands)
Earnings for
period $ 438 $ 784 $ 1,573 $ 1,925 $ 438 $ 784 $ 1,573 $ 1,925
=== === ===== ===== === === ===== =====
indicated
Number of Shares:
Weighted average
number of
shares of
common stock
outstanding 4,295,521 4,083,919 4,233,434 4,048,117 4,295,521 4,083,919 4,233,434 4,048,117
Weighted
average
number of
shares of
common stock
equivalents 170,163 193,138 183,835 126,421 170,163 301,472 208,686 174,896
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Number of shares
included in per
share computa-
tion for the
period 4,465,684 4,277,057 4,417,269 4,174,538 4,465,684 4,385,391 4,442,120 4,223,013
========= ========= ========= ========= ========= ========= ========= =========
indicated
Net earnings
per share $ 0.10 $ 0.18 $ 0.36 $ 0.46 $ 0.10 $ 0.18 $ 0.35 $ 0.46
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Financial Statements from the Registrant's Form 10-Q for the quarter
ended 3/31/97 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,442
<SECURITIES> 0
<RECEIVABLES> 11,141
<ALLOWANCES> 240
<INVENTORY> 0
<CURRENT-ASSETS> 18,006
<PP&E> 28,542
<DEPRECIATION> 23,315
<TOTAL-ASSETS> 49,801
<CURRENT-LIABILITIES> 9,260
<BONDS> 3,915
0
0
<COMMON> 45
<OTHER-SE> 33,236
<TOTAL-LIABILITY-AND-EQUITY> 49,801
<SALES> 46,050
<TOTAL-REVENUES> 46,050
<CGS> 27,703
<TOTAL-COSTS> 27,703
<OTHER-EXPENSES> 15,496
<LOSS-PROVISION> 102
<INTEREST-EXPENSE> 402
<INCOME-PRETAX> 2,566
<INCOME-TAX> 993
<INCOME-CONTINUING> 1,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,573
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
