<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1996
REGISTRATION NO. 33-80731
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHYSICIAN SUPPORT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7374 13-3624081
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ROUTE 230 AND EBY-CHIQUES ROAD
MT. JOY, PENNSYLVANIA 17552
(717) 653-5340
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
HAMILTON F. POTTER III
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING AND FINANCIAL OFFICER
P.O. BOX 127
LANDISVILLE, PENNSYLVANIA 17538
(717) 653-5340
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
SCOTT F. SMITH, ESQ. JOHN J. SCHUSTER, ESQ.
HOWARD, DARBY & LEVIN CAHILL GORDON & REINDEL
1330 AVENUE OF THE AMERICAS 80 PINE STREET
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10005
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLES OF EACH CLASS OF SECURITIES PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED AMOUNT TO BE REGISTERED PER SHARE(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (par value $.001 per share)........... 3,450,000(1) $ 11 $ 37,950,000 $ 13,086
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933, as amended.
(3) The registrant previously paid a filing fee of $11,778 with respect to the
registration of 3,105,000 shares of Common Stock. The registrant is paying
an additional filing fee of $1,308.00 to register an additional 345,000
shares of Common Stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------------------------- --------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page of
Prospectus........................................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed
Charges.............................................................. Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds........................................................ Use of Proceeds; Business --
Acquisitions
5. Determination of Offering Price........................................ Underwriting
6. Dilution............................................................... Dilution
7. Selling Security Holders............................................... *
8. Plan of Distribution................................................... Underwriting
9. Description of Securities to be Registered............................. Outside Front Cover Page of
Prospectus; Description of Capital
Stock
10. Interests of Named Experts and Counsel................................. *
11. Information with Respect to the Registrant............................. Outside Front Cover Page; The Company;
Risk Factors; Dividend Policy;
Capitalization; Selected Financial
and Pro Forma Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal
Stockholders; Certain Transactions;
Description of Capital Stock; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.......................................................... *
</TABLE>
- ------------
* Item is inapplicable or response thereto is in the negative.
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 16, 1996
3,000,000 SHARES
PHYSICIAN SUPPORT SYSTEMS, INC.
COMMON STOCK
[LOGO]
------------------------
All of the 3,000,000 shares of Common Stock offered hereby are being
offered by Physician Support Systems, Inc. (together with its wholly owned
subsidiaries 'PSS' or the 'Company'). Prior to this offering (the 'Offering'),
there has been no public market for the Common Stock of the Company. It is
currently anticipated that the initial public offering price of the Common Stock
will be between $9.00 and $11.00 per share. See 'Underwriting' for a discussion
of the factors to be considered in determining the initial public offering
price. The Common Stock has been approved for quotation, subject to official
notice of issuance, on the Nasdaq National Market under the symbol 'PHSS.'
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE 'RISK FACTORS' ON PAGES 6-8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses, payable by the Company, estimated at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase an
aggregate of up to 450,000 additional shares of Common Stock on the same
terms and conditions as set forth above solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See 'Underwriting.'
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Volpe, Welty & Company, One Maritime Plaza, San Francisco,
California, on or about , 1996.
<PAGE>
<PAGE>
VOLPE, WELTY & COMPANY
The date of this Prospectus is , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
[Logo]
[MAP]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Prospective investors should consider
carefully the information discussed under 'Risk Factors.' Except as set forth in
the Consolidated Financial Statements and unless otherwise indicated, all
information in this Prospectus (i) has been adjusted to give effect to an
increase in the number of authorized shares of common stock from 5,000 to
100,000,000 and a change in the par value of common stock from $.01 to $.001 per
share (the 'Common Stock'), to be effective prior to the completion of the
Offering, (ii) has been adjusted to reflect the 1,400-for-one stock split with
respect to the Common Stock that will occur prior to completion of the Offering
and (iii) assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
PSS is a leading provider of business management services to
hospital-affiliated physicians in an array of practice settings, including solo
and group practices, independent practice associations ('IPAs'), specialty
networks and other affiliated-physician groups (such physicians and groups being
referred to in this Prospectus as 'Physicians'). The Company offers its clients
a broad variety of business management services, ranging from accounts
receivable management to financial, administrative and strategic support, data
management and information systems support. In addition, the Company employs its
proprietary technology and extensive financial and patient encounter databases
to provide a comprehensive range of managed care services to its clients,
including contract review and negotiation, implementation and administration,
thereby enhancing their ability to profitably participate in managed care
systems. The Company's services enable Physicians to maintain their independence
and clinical autonomy while maximizing their reimbursement and cashflow. The
Company believes that it is one of the largest providers of business management
services to Physicians.
Physicians continue to experience increasing pressure on fees coupled with
a growing complexity in obtaining reimbursement from third party payors. In
addition, the growth of managed care has fostered the need by Physicians for
reliable health care resource utilization data, which is critical in every phase
of the physician-payor relationship. Given these and other market forces, the
Company believes that there is an increasing need among Physicians for
sophisticated business management services and information systems provided on
an outsourced basis. The Company believes that the business management services
industry is highly fragmented, with services often provided to physicians by
smaller accounts receivable management companies. These organizations are unable
to provide the broad range of services provided by the Company due to their
limited capital and management resources and their less comprehensive patient
encounter databases. The Company believes that, as managed care becomes more
prevalent, and as physicians continue to demand greater sophistication, broader
product lines and higher service levels, these smaller service providers will
find it increasingly difficult to compete.
The Company currently provides service to over 2,000 physicians, including
radiologists, anesthesiologists, pathologists and emergency room physicians, as
well as other specialists, many of whom are affiliated with some form of group
practice, IPA or other specialty network. The Company intends to continue
utilizing its experience in working with Physicians in a number of different
practice settings by acquiring and managing various types of specialty networks.
For example, the Company manages what it believes is the oldest and largest IPA
in the United States, with over 340 physicians. In addition, with its
acquisition of a Cleveland-based company, planned to occur simultaneously with
the Offering, the Company believes that it will become a leader in the
formation, development and management of management service organizations
('MSOs'). For its services, the Company generally is compensated with a
management fee based upon a percentage of its clients' net collections, which
percentage is determined after considering a broad range of factors, including
the medical specialty of the client and the nature of the services to be
provided. As of November 30, 1995, the Company experienced client retention (as
measured by the continuation of written contracts in existence at the end of
1994) of approximately 95% of those clients to which it provided services at the
end of 1994.
3
<PAGE>
<PAGE>
The Company's strategy is to build upon its reputation and expertise in
providing a broad range of cost-effective, value-added business management
services to Physicians through internal growth and by acquisition. The specific
elements of the Company's strategy include (i) providing a high level of
customer service on a local level while utilizing cost-effective centralized
processing centers, (ii) offering an increasingly
broad array of value-added services, such as IPA and MSO services, that address
the changing health care environment, (iii) continuing to focus on technological
means of increasing Physician revenue by expanding and developing proprietary
software systems, patient encounter databases, statistical reporting systems and
electronic data interfaces, (iv) expanding geographically through acquisition
opportunities in the consolidating physician business management services
industry and (v) cross-selling its services to other medical specialties.
The Company has entered into agreements to acquire (the 'Acquisitions')
simultaneously with the Offering, three businesses, one of which consists of
three affiliated companies (all of such businesses being referred to
collectively as the 'Acquired Businesses'), currently providing business
management services to Physicians. After giving effect to the Acquisitions, the
total number of physicians served by the Company will increase to over 2,500.
PSS believes that each of the Acquired Businesses operates in a manner
consistent with the Company's core business strategy and gives it the
opportunity to provide its services to Physicians in other regions of the United
States.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 3,000,000 shares(1)
Common Stock to be outstanding after the
Offering......................................... 5,240,000 shares(1)(2)
Use of proceeds.................................... Pending and future acquisitions; repayment of debt; redemption of
preferred stock; working capital and other general corporate
purposes.
Proposed Nasdaq National Market symbol............. PHSS
</TABLE>
- ------------
(1) Does not include up to an aggregate 450,000 shares of Common Stock that may
be sold by the Company pursuant to the Underwriters' over-allotment option.
See 'Underwriting.'
(2) Excludes 853,500 shares of Common Stock reserved for future issuance under
the Company's proposed stock option plan. It is anticipated that options to
purchase up to 85,350 shares of Common Stock will be granted as of the
completion of the Offering. See 'Management -- Stock Option Plan.'
4
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND PRO FORMA INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1992 1993(1) 1994 1994(2) 1994 1995 1995(2)
------ -------- -------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue....................................... $ 8,123 $ 13,080 $ 18,773 $26,897 $ 14,789 $ 14,631 $20,841
Operating expenses:
Salaries and wages....................... 3,101 5,898 8,866 12,214 6,552 7,234 10,076
General and administrative............... 2,021 4,291 6,723 9,349 5,121 5,020 6,748
Depreciation and amortization............ 1,781 2,566 3,349 4,134 2,522 2,549 3,126
------ -------- -------- ----------- -------- -------- ---------
Total operating expenses............ 6,903 12,755 18,938 25,697 14,196 14,802 19,950
------ -------- -------- ----------- -------- -------- ---------
Income (loss) from operations................. 1,221 325 (165) 1,200 593 (171) 891
Net income (loss)............................. $ 16 $ (672) $ (1,067) $ (363) $ (942)
------ -------- -------- -------- --------
------ -------- -------- -------- --------
Net (loss) per share......................... $(114.98) $(553.63) $(811.27) $(331.66) $(713.30)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average shares outstanding.......... . 1,600 1,600 1,600 1,600 1,600
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Pro forma net income.......................... $ 373 $ 96
----------- ---------
----------- ---------
Pro forma net income per share................ $ .07 $ .02
----------- ---------
----------- ---------
Pro forma weighted average shares
outstanding(3).............................. 5,240,000 5,240,000
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-----------------------
ACTUAL PRO FORMA(2)
------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency).................................................................. $(1,351) $ 4,296
Total assets.................................................................................. 21,618 38,404
Long-term liabilities, net of current portion................................................. 15,463 6,749
Redeemable preferred stock.................................................................... 2,382 --
Stockholder equity (deficiency)............................................................... (3,429) 23,671
</TABLE>
- ------------
(1) The results for the year ended December 31, 1993 include the results of
Spring Anesthesia Group from the date of acquisition, August 1, 1993,
through December 31, 1993.
(2) The pro forma data gives effect to: (a) the acquisition of the Acquired
Businesses (NCHC Group, MM Support and DPS) and (b) the sale of the shares
of Common Stock offered hereby and the application of the net proceeds
thereof as described in 'Use of Proceeds' as if each had occurred at the
beginning of the periods presented. In addition, the pro forma information
is based on available information and certain assumptions and adjustments.
See Notes 1 and 2 to the Pro Forma Financial Information.
(3) Weighted average common shares outstanding includes (a) 2,240,000 shares
outstanding prior to the offering after adjustment to reflect the
1,400-for-one stock split which will occur prior to completion of the
offering and (b) 3,000,000 shares being sold in connection with this
Offering. Weighted average common shares outstanding do not include any
shares reserved for future issuance under the Company's proposed stock
option plan.
5
<PAGE>
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information in this Prospectus before purchasing the shares of Common
Stock offered hereby.
Absence of Combined Operating History and Future Combined Operating
Results. Simultaneously with the completion of the Offering, the Company will
purchase the Acquired Businesses. Although each of the Acquired Businesses and
the Company have been in business for some time, there can be no assurance that
the Company will be able to successfully integrate the businesses, operations or
assets of the Acquired Businesses or of any other businesses it may subsequently
acquire. See 'Business -- Acquired Businesses.' Furthermore, there can be no
assurance that any acquisitions will not have an adverse effect upon the
Company's operating results, particularly in the fiscal quarters immediately
following the consummation of the acquisitions, while the operations of the
acquired businesses are being integrated into the Companys operations. There can
be no assurance that, following any acquisition, the Company will be able to
operate the acquired business on a profitable basis or that the Company will be
able to recover the excess of the purchase price of the businesses acquired over
their tangible book value.
Governmental Regulation; Billing Practices. Existing governmental
regulation can adversely affect PSS's business through, among other things, its
potential to reduce the amount of reimbursement received by PSS's clients for
health care services. Substantially all of the Company's revenue is derived from
management fees that are based upon a percentage of net collections of health
care receivables. During the past decade, federal and state governments have
implemented legislation designed to stimulate a reduction in the increase in
health care costs and it is anticipated that such legislative initiatives will
continue. There can be no assurance that current or future government
regulations will not have a material adverse effect upon the Company's business.
PSS may also be subject to applicable federal and state billing and credit
collection agency laws and regulations. In general, these laws provide for
various fines, penalties, damages and other assessments for violations,
including possible exclusion from Medicare, Medicaid and certain other federal
and state health care programs. Since the beginning of 1995, governmental
agencies have instituted investigations of, and actions against, at least two
industry participants for improper billing practices. Although the Company
believes that its billing practices are in material compliance with applicable
laws and government regulations, given the highly technical nature of this area,
there can be no assurance that a change in government regulations, industry
practice or an increased focus by governmental agencies on billing practices
would not have a material adverse effect on the industry and the Company.
Health Care Reform. Health care system reform and concerns over rising
Medicare and Medicaid costs continue to be high priorities for the federal and
certain state governments. Although no comprehensive health care, Medicare or
Medicaid reform legislation has yet been implemented, pressures to contain costs
and the active discussion and issues raised by the Clinton Administration,
Congress and various other groups have impacted the health care delivery system.
In October 1995, both the U.S. House of Representatives and the U.S. Senate
approved bills that would reshape the Medicare and Medicaid programs. These
complex bills as currently passed propose significant reductions in the overall
rate of Medicare and Medicaid spending growth. There is active discussion
concerning these bills, and the form of any final legislation signed into law
could differ significantly from the current bills. The impact of currently
proposed legislation on the Company is not readily determinable. However, in
their current form, such legislation and proposals could have a material adverse
effect on the Company.
Acquisitions; Need for Capital. The Company's expansion strategy involves
both acquisitions and internal growth. There can be no assurance that suitable
acquisition candidates will be found, that acquisitions will be consummated on
favorable terms or that any such acquisitions will be successfully integrated
into the Company's operations. The Company intends to finance future
acquisitions by using cash and debt or equity securities, including shares of
its Common Stock. The Company will need additional debt or equity financing to
implement its acquisition strategy. There can be no assurance that the Company
will be able to obtain financing for such purposes on terms acceptable to the
Company. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources.'
Certain Industry and Market Changes. Certain market changes are occurring
in the health care market that may continue regardless of whether comprehensive
federal or state health care reform legislation is adopted and implemented and
that could adversely affect the accounts receivable
6
<PAGE>
<PAGE>
management services provided by PSS. These market reforms include certain
employer initiatives, such as creating purchasing cooperatives and contracting
for health care services for employees through managed care companies (including
health maintenance organizations), certain provider initiatives, such as
risk-sharing among health care providers and managed care companies through
capitated contracts and integration of hospitals and physicians into
comprehensive delivery systems, and certain payor initiatives, such as new
alliances between health care providers and third party payors in which the
health care providers are employed by such third party payors. These changes may
result in fixed fee schedules or capitation payment arrangements lower than
standard charges. Some of these changes may affect the viability of certain
billing and collection operations. Because the Company derives its revenue
largely based on the fees charged by its Physician clients, reductions in
payments to Physicians could have an adverse affect on the Company's operations.
Competition. The physician business management services business is highly
competitive. PSS competes with national, regional and local physician business
management services organizations and Physicians that provide their own practice
management services. At least one of the Company's competitors has substantially
greater resources than PSS.
Dependence on Senior Management. The Company's success depends upon the
continued contributions of its senior management. PSS enters into
confidentiality, noncompete and non-solicitation agreements with its key
employees. In general, these agreements contain certain covenants on the part of
the key employees concerning confidential and proprietary information of PSS and
preclude the key employees from soliciting customers or employees of PSS or
competing with PSS during a period, typically two years, following termination
of employment. The Company maintains 'key man' life insurance policies on the
lives of two of its executive officers. These policies provide benefits of $1.0
million upon the deaths of any insured executive officer and name the Company as
sole beneficiary. Nevertheless, the loss of services of either of these
officers, or other employees of PSS, could have a material adverse effect upon
the Company's business.
Shares Eligible for Future Sale. The 3,000,000 shares being sold in the
Offering (without giving effect to any exercise of the over-allotment option)
will be freely tradeable unless acquired by affiliates of the Company. The
market price of the Common Stock could be adversely affected by the sale of
substantial amounts of the Common Stock in the public market following this
Offering. Holders of approximately 42.1% of the shares of Common Stock to be
outstanding immediately following completion of this Offering (or 38.8% if the
over-allotment option is exercised in full) have agreed with the Company and the
Underwriters not to sell or otherwise dispose of any such shares of Common Stock
or securities convertible into or exercisable for shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the Representative of the Underwriters. Upon expiration of this
period, all such shares may be sold subject to the limitations of and in
accordance with Rule 144 under the Securities Act. In addition, holders of
approximately 42.7% of the shares of Common Stock to be outstanding immediately
following completion of the Offering (or 39.4% if the over-allotment option is
exercised in full) have the right to include their shares in certain other
registrations of the Company's capital stock. See 'Description of Capital
Stock -- Registration Rights.' The Company expects that it will issue shares of
Common Stock in connection with future acquisitions. Additional shares of Common
Stock, including shares issuable upon exercise of options, will also become
eligible for sale in the public market from time to time in the future.
Control by Existing Stockholders; Benefits of Offering to Existing
Stockholders. Following this Offering, the Company's directors, officers and
principal stockholders, and certain of their affiliates, will beneficially own
approximately 41.6% of the outstanding shares of Common Stock (or 38.3% if the
over-allotment option is exercised in full), not including shares issuable upon
the exercise of options. As a result of such ownership, these stockholders will
be able to control the election of all directors and other actions submitted to
a vote of the Company's stockholders. The completion of the Offering will
benefit the current stockholders of the Company, including its directors and
executive officers, by, among other things, creating a public market for the
Company's Common Stock and thereby increasing the market value of such
stockholders investment in the Company. See 'Dilution' and 'Principal
Stockholders.'
Effect of Anti-takeover Provisions. Certain provisions of the Company's
Certificate of Incorporation (the 'Certificate of Incorporation') and the Bylaws
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could limit the price that certain investors might be
willing to pay in the
7
<PAGE>
<PAGE>
future for shares of the Common Stock. Certain of these provisions allow the
Company to issue preferred stock with rights senior to those of the Common Stock
without any further vote or action by the stockholders. These provisions could
also have the effect of delaying or preventing a change in control of the
Company. The issuance of preferred stock could decrease the amount of earnings
and assets available for distribution to the holders of Common Stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the Common Stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the Common Stock. The Company has no
current plans to issue shares of preferred stock. In addition, Section 203 of
the Delaware General Corporation Law restricts certain business combinations
with any 'interested stockholder' as defined by such statute. The statute may
have the effect of delaying, deferring or preventing a change in control of the
Company. See 'Description of Capital Stock.'
Pursuant to the Company's proposed 1996 Stock Option Plan, options
outstanding thereunder become immediately exercisable upon a 'change in
control,' including certain mergers or reorganizations, of PSS. These terms of
the Stock Option Plan could adversely affect the likelihood of a change in
control of the Company. See 'Management -- Stock Option Plan.'
No Prior Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Common Stock and there can be
no assurance that an active public market for the Common Stock will develop or
continue after this Offering or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price of the Common Stock was determined by negotiations between the Company and
the Representative of the Underwriters, and may not be indicative of the market
price for the Common Stock after this Offering. See 'Underwriting' for factors
to be considered in determining the initial public offering price. From time to
time after this Offering, there may be significant volatility in the market
price of the Common Stock. Quarterly operating results of the Company, changes
in general conditions in the economy or the health care industry, or other
developments affecting the Company or its competitors, could cause the market
price of the Common Stock to fluctuate substantially. The equity markets have,
on occasion, experienced significant price and volume fluctuations that have
affected the market prices for many companies' securities and that have often
been unrelated to the operating performance of these companies. Concern about
the potential effects of health care reform measures has contributed to the
volatility of stock prices of companies in health care and related industries
and may similarly affect the price of the Common Stock following this Offering.
Any such fluctuations that occur following completion of this Offering may
adversely affect the market price of the Common Stock.
Immediate and Substantial Dilution. The purchasers of the shares of Common
Stock offered by this Prospectus will experience immediate and substantial
dilution in the net tangible book value of their shares of Common Stock. See
'Dilution.' In the event that the Company issues additional Common Stock in the
future, including shares that may be issued in connection with future
acquisitions, purchasers of Common Stock in this Offering may experience further
dilution in the net tangible book value per share of the Common Stock.
Dividend Policy. For the foreseeable future, it is expected that earnings,
if any, which may be generated from PSS's operations will be used to finance the
growth of PSS, and that cash dividends will not be paid to holders of Common
Stock. See 'Dividend Policy.' The Company's existing loan agreement, which will
be terminated upon completion of the Offering, restricts the Company's ability
to pay dividends. In addition, under the terms of the Company's 10% Preferred
Stock, Series A and Series B, which will be redeemed upon completion of the
Offering, the Company is prohibited from declaring or paying any dividend on the
Common Stock as long as any shares of such preferred stock are outstanding. The
Company currently is engaged in negotiations with certain banks, including its
existing bank lender, to provide a line of credit primarily for acquisitions.
Although there can be no assurance that such an agreement will be entered into,
the Company anticipates that any such agreement will restrict its ability to pay
dividends.
THE COMPANY
PSS was formed in 1991 as the successor to a business founded in 1983. The
Company's principal executive offices are located at Route 230 and Eby-Chiques
Road, Mt. Joy, Pennsylvania 17552 and its telephone number is (717) 653-5340.
8
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by this Prospectus, after deducting estimated underwriting discounts and
expenses payable by the Company in connection with this Offering, are estimated
to be approximately $27,100,000 ($31,285,000 if the Underwriters' over-allotment
option is exercised in full) assuming an initial public offering price of $10.00
per share.
Simultaneously with the Offering, the Company will purchase the Acquired
Businesses for an aggregate consideration of $11,500,000. Of that amount,
$9,500,000 is payable upon the completion of the Acquisitions. The Company
intends to apply $9,500,000 of the net proceeds of the Offering to pay the
initial amount of the purchase price for the Acquired Businesses and apply an
aggregate of $2,000,000 of the net proceeds of the Offering to payments due in
connection with the acquisition of one of the Acquired Businesses during the
first 12 months following consummation of the Offering. An additional $150,000
may be payable on the second anniversary of the Acquisitions in connection with
the purchase of one of the Acquired Businesses, subject to the retention of
clients. For a further description of the Acquired Businesses and the
consideration being given for them, see 'Business -- Acquired Businesses.'
Approximately $11,100,000 of the net proceeds will be used to retire short-
and long-term debt outstanding of PSS. Such debt currently bears interest at
rates ranging from 6.64% to 13%, with a weighted average rate of 9.03% per annum
and otherwise would mature between August 31, 1997 and August 31, 1998.
Approximately $2,932,000 of the net proceeds will be used to redeem the
Company's 10% Preferred Stock, Series A and Series B.
The remaining net proceeds of $1,568,000 will be used for working capital
and other general corporate purposes, which are expected to include future
acquisitions. In addition, the Company currently is engaged in negotiations with
certain banks, including its existing bank lender, to provide a line of credit
to be used primarily for acquisitions. However, there can be no assurance that
such a line of credit will be made available to the Company or made available on
favorable terms. Although PSS currently is engaged in discussions with several
acquisition candidates, no acquisition, other than the Acquisitions, currently
is pending. Other than the Acquisitions, no portion of the proceeds of this
Offering have been allocated for any acquisition. Pending such uses, the Company
intends to invest the net proceeds of this Offering in short-term, interest
bearing, investment grade securities.
DIVIDEND POLICY
For the foreseeable future, it is expected that earnings, if any, which may
be generated from the Company's operations will be used to finance the growth of
PSS, and that cash dividends will not be paid to holders of Common Stock. The
Company's existing loan agreement (which will be terminated upon completion of
the Offering) also restricts the Company's ability to pay dividends. In
addition, under the terms of the Company's 10% Preferred Stock, Series A and
Series B (which will be redeemed upon completion of the Offering), the Company
is prohibited from declaring or paying any dividend on the Common Stock as long
as any shares of such preferred stock are outstanding. Any future determination
to pay cash dividends on Common Stock will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant. The Company currently is engaged in negotiations with
certain banks, including its existing bank lender, to provide a line of credit
primarily for acquisitions. See 'Business -- Acquisitions.' Although there can
be no assurance that such an agreement will be entered into, the Company
anticipates that any such agreement will restrict its ability to pay dividends.
9
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1995, (i) on an actual basis and (ii) on a pro forma basis to
reflect (A) the repayment of approximately $11,100,000 of debt of PSS, (B) the
redemption of approximately $2,382,000 in the Company's 10% Preferred Stock,
Series A and Series B (which excludes the redemption of an additional $550,000
in the Company's Preferred Stock, Series A, that was issued in December 1995),
and (C) the sale by the Company of 3,000,000 shares of Common Stock in the
Offering (at an assumed initial public offering price of $10.00 per share) and
the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------
ACTUAL PRO FORMA
------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt............................................. $ 1,995 $ --
NCHC Deferred Purchase Payment -- Current(1).................................. -- 2,000
Bank debt..................................................................... 3,894 --
Subordinated notes............................................................ 10,331 5,500
------- ---------
Total long-term debt(2)..................................................... 14,225 5,500
Redeemable Preferred Stock:
10% Preferred Stock, Series A, $.01 par value, 4,700 shares authorized and
2,382.032 shares outstanding prior to Offering(3)........................... 1,191 --
10% Preferred Stock, Series B, $.01 par value, 3,200 shares authorized and
2,382.032 shares outstanding prior to Offering.............................. 1,191 --
Stockholders' Equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized after Offering
and no shares outstanding................................................... -- --
Common Stock, $.001 par value, 100,000,000 shares authorized, 2,240,000 shares
outstanding, 5,240,000 shares outstanding Pro Forma(4)...................... 2 5
Additional paid-in capital.................................................... 126 27,223
Retained earnings/(Deficit)................................................... (3,557) (3,557)
------- ---------
Total stockholders' equity.................................................... (3,429) 23,671
------- ---------
Total capitalization.......................................................... $15,173 $31,170
------- ---------
------- ---------
</TABLE>
- ------------
(1) Represents the balance of the purchase price for the NCHC Group, payable in
12 monthly installments after consummation of the Offering.
(2) Following completion of the Offering, the Company's long-term debt will
consist of a 7.1% subordinated note due 2003.
(3) Excludes 1,100 shares of 10% Preferred Stock, Series A, issued in December
1995 to Hillside Capital Incorporated, a record holder of more than 5% of
the Common Stock, in consideration for an aggregate of $550,000 in cash.
Such shares will be redeemed for approximately $550,000 with a portion of
the net proceeds of the Offering.
(4) Excludes 853,500 shares of Common Stock reserved for future issuance under
the Company's proposed stock option plan. It is anticipated that options to
purchase up to 85,350 shares of Common Stock will be granted as of
completion of the Offering. See 'Management -- Stock Option Plan.'
10
<PAGE>
<PAGE>
DILUTION
The net tangible book value of the Company at September 30, 1995 was a
deficiency of approximately $(15,917,286), or $(7.11) per share of Common Stock.
Net tangible book value per share represents the amount of the Company's net
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding at that date. After giving effect to the sale of the 3,000,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $10.00 per share, and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, the
Company's pro forma net tangible book value at September 30, 1995 would have
been $1,218,714 or $0.23 per share. This represents an immediate increase in the
net tangible book value of $7.34 per share to existing stockholders and an
immediate dilution of $9.77 per share to new investors purchasing shares in this
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $10.00
Net tangible book deficiency per share at September 30,
1995..................................................... $(7.11)
------
Increase per share attributable to new investors........... $ 7.34
Pro forma net tangible book value per share after the
Offering................................................. 0.23
------
Net tangible book value dilution per share to new
investors................................................ $ 9.77
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1995, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and by the new investors at an assumed initial public offering
price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Stockholders... 2,240,000 42.7% $ 128,000 0.4% $ 0.06
New Investors.... 3,000,000 57.3 30,000,000 99.6 10.00
--------- ------- ----------- -------
Total............ 5,240,000 100.0% $30,128,000 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
11
<PAGE>
<PAGE>
SELECTED FINANCIAL AND PRO FORMA DATA
The Company was formed in August 1991. Financial statements for the
Company's predecessor are not available for periods or as of dates before August
1991. The Selected Financial Data for each of the periods and as of each period
end in the three-year period ended December 31, 1994 and nine-month period ended
September 30, 1995 have been derived from the consolidated financial statements
of the Company audited by Deloitte & Touche LLP, independent auditors, which
appear elsewhere in this Prospectus. The Selected Financial Data for the nine
months ended September 30, 1994 have been derived from unaudited financial
statements of the Company included elsewhere in this Prospectus. The Selected
Financial Data for the four months ended and as of December 31, 1991 have been
derived from unaudited financial statements of the Company not included
elsewhere in this Prospectus. These unaudited statements have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented. Operating results for the
nine months ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the entire year.
The selected unaudited pro forma financial data give effect to (i) the
acquisitions by the Company of the Acquired Businesses (North Coast Health Care
Management, Inc., North Coast Account Systems, Inc. and Medical Dental Invoicing
Services, Inc. (collectively, the 'NCHC Group'), Medical Management Support,
Inc. ('MM Support') and Data Processing Systems, Inc. ('DPS')) effective upon
the completion of this Offering and (ii) the sale of 3,000,000 shares of Common
Stock offered by the Company at an assumed initial public offering price of
$10.00 per share and the application of the estimated net proceeds therefrom as
described under 'Use of Proceeds'. The acquisitions of the NCHC Group, MM
Support and DPS will be accounted for as purchases. The unaudited pro forma
financial information is derived from the historical financial statements of the
Company, the NCHC Group, MM Support and DPS and estimates and assumptions set
forth in the unaudited Pro Forma Financial Information and notes thereto
included elsewhere in this Prospectus.
The unaudited pro forma balance sheet data gives effect to the acquisitions
by the Company of the NCHC Group, MM Support and DPS as if such acquisitions had
occurred on September 30, 1995. Such pro forma balance sheet data is derived
from the audited consolidated balance sheet data of the Company as of September
30, 1995, included elsewhere in this Prospectus, as well as the audited balance
sheets of the NCHC Group and MM Support as of September 30, 1995, included
elsewhere in this Prospectus, and the unaudited balance sheet of DPS as of
September 30, 1995.
The unaudited pro forma income statement data present unaudited pro forma
results of operations for the year ended December 31, 1994 and nine months ended
September 30, 1995. For purposes of the unaudited pro forma income statement
data, the acquisitions by the Company of the Acquired Businesses are included as
if such acquisitions had occurred on January 1, 1994. The unaudited pro forma
income statement data for the year ended December 31, 1994 is derived from the
audited consolidated statement of operations of the Company for the year ended
December 31, 1994 and the audited statements of operations of NCHC Group and MM
Support for the year ended December 31, 1994 included elsewhere in this
Prospectus, as well as the unaudited statements of operations of DPS for the
year ended December 31, 1994. The unaudited pro forma income statement data for
the nine months ended September 30, 1995 is derived from the audited
consolidated income statement data of the Company for the nine months ended
September 30, 1995 and the audited statements of operations of NCHC Group and MM
Support for the nine months ended September 30, 1995 included elsewhere in this
Prospectus and the unaudited statement of operations of DPS for the nine months
ended September 30, 1995.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma financial data presented herein are not necessarily
indicative of the results the Company would have obtained had such events
occurred at the beginning of the period, as assumed, or of the future results of
the Company. The selected unaudited pro forma financial data should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
12
<PAGE>
<PAGE>
SELECTED FINANCIAL AND PRO FORMA DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOUR MONTHS YEAR ENDED DECEMBER 31, SEPTEMBER 30,
ENDED --------------------------------------------- ---------------------------------
DECEMBER 31, PRO FORMA PRO FORMA
1991 1992 1993(1) 1994 1994(2) 1994 1995 1995(2)
------------ ------ -------- -------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income statement
data:
Revenue............. $2,474 $ 8,123 $ 13,080 $ 18,773 $26,897 $ 14,789 $ 14,631 $20,841
Operating expenses:
Salaries and
wages........ 909 3,101 5,898 8,866 12,214 6,552 7,234 10,076
General and
administrative.. 597 2,021 4,291 6,723 9,349 5,121 5,020 6,748
Depreciation
and
amortization... 562 1,781 2,566 3,349 4,134 2,522 2,549 3,126
------------ ------ -------- -------- ----------- -------- -------- ---------
Total
operating
expenses... 2,068 6,903 12,755 18,938 25,697 14,196 14,802 19,950
------------ ------ -------- -------- ----------- -------- -------- ---------
Income (loss) from
operations........ 406 1,221 325 (165) 1,200 593 (171) 891
Other expenses:
Interest
expense...... 370 1,043 1,262 1,526 502 1,149 1,059 357
Other, net..... -- (10) 38 186 176 189 (3) 34
------------ ------ -------- -------- ----------- -------- -------- ---------
Total
other
expenses... 370 1,033 1,300 1,712 678 1,338 1,056 391
------------ ------ -------- -------- ----------- -------- -------- ---------
Income (loss) before
income taxes
(benefit)......... 36 187 (975) (1,877) 522 (745) (1,227) 500
Income taxes
(benefit)......... 40 171 (303) (810) 149 (382) (286) 404
------------ ------ -------- -------- ----------- -------- -------- ---------
Net income (loss)... $ (4) $ 16 $ (672) $ (1,067) $ (363) $ (942)
------------ ------ -------- -------- -------- --------
------------ ------ -------- -------- -------- --------
Net (loss)
per share......... $(114.98) (553.63) $(811.27) $(331.66) $(713.30)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average
shares
outstanding....... 1,600 1,600 1,600 1,600 1,600
------ -------- -------- -------- --------
------ -------- -------- -------- --------
Pro forma net income
(loss)............ $ 373 $ 96
----------- ---------
----------- ---------
Pro forma net income
(loss) per
share............. $ .07 $ .02
----------- ---------
----------- ---------
Pro forma weighted
average shares
outstanding(3).... 5,240,000 5,240,000
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1995
-------------------------------------------- ---------------------------
1991 1992 1993 1994 ACTUAL PRO FORMA(2)
----------- ------- ------- ------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Working
capital...... $ 484 $ 362 $ 305 $ (218) $(1,351) $ 4,296
Property and
equipment,
net.......... 2,134 1,952 3,512 2,983 2,578 2,965
Total assets... 13,688 13,951 25,768 22,733 21,618 38,404
Long-term
liabilities,
net of
current
portion...... 9,125 9,001 19,394 17,143 15,463 6,749
Redeemable
preferred
stock........ 2,000 2,000 2,000 2,120 2,382 --
Stockholder
equity
(deficiency)... 124 (60) (932) (2,226) (3,429) 23,671
</TABLE>
- ------------
(1) The results for the year ended December 31, 1993 include the results of
Spring Anesthesia Group from the date of acquisition, August 1, 1993,
through December 31, 1993.
(2) The pro forma data gives effect to: (a) the acquisition of NCHC Group, MM
Support and DPS and (b) the sale of the shares of Common Stock offered
hereby and the application of the net proceeds thereof as described in 'Use
of Proceeds' as if each had occurred at the beginning of the periods
presented. In addition, the pro forma information is based on available
information and certain assumptions and adjustments. See Notes 1 and 2 to
the Pro Forma Financial Statements.
(3) Weighted average common shares outstanding includes (a) 2,240,000 shares
outstanding prior to the offering after adjustment to reflect the
1,400-for-one stock split which will occur prior to completion of the
offering and (b) 3,000,000 shares being sold in connection with this
offering. Weighted average common shares outstanding do not include any
shares reserved for future issuance under the Company's proposed stock
option plan.
13
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
unaudited pro forma financial information and the audited financial statements
and the notes thereto included elsewhere in this Prospectus.
OVERVIEW
The Company is a leading provider of business management services to
hospital-affiliated physicians. The Company was incorporated in August 1991 for
the purpose of acquiring substantially all of the assets of a business founded
in 1983. In August 1993, the Company purchased the stock of Spring Anesthesia
Group, Inc. ('Spring'), a provider of business management services to physicians
primarily in California and Arizona. The Company generally is compensated with a
management fee based upon a percentage of its clients' net collections.
The Company has entered into agreements to acquire the Acquired Businesses
simultaneously with the completion of the Offering. The pro forma financial
statements give effect to (i) the Acquisitions by the Company of the Acquired
Businesses, (ii) the sale of shares of Common Stock offered hereby and (iii) the
application of the proceeds therefrom as described under 'Use of Proceeds.' Pro
forma results for the year ended December 31, 1994 and the nine months ended
September 30, 1995 assume the Acquisitions occurred on January 1, 1994.
To date, the Company's consolidated financial statements have accounted for
acquisitions on a purchase basis and, accordingly, do not reflect the operating
results of the businesses that were acquired prior to the date of their
acquisition by the Company. The purchase of the Acquired Businesses also will be
accounted for on this basis. This accounting treatment results in goodwill being
recorded by the Company at the time of each transaction reflecting the
difference between the market value of the assets acquired and the price paid,
which is amortized over 20 years. A significant portion of the amortization
unrelated to goodwill, but associated with the purchase accounting in connection
with the Company's acquisition in 1991, will be fully amortized as of August
1996. In connection with the acquisition of the Acquired Businesses, the Company
will record a significant amount of intangible assets, including goodwill, which
will be amortized over future periods.
As a result of the purchase of Spring in 1993, the Company's operating
margins were reduced due primarily to Spring's lower margins as compared to PSS.
Furthermore, with the acquisition of Spring, the Company established a
$2,000,000 reserve for the relocation, consolidation and improvement of the
Spring operations. Such reserve was an estimate of the costs of consolidating
operations of the Spring billing offices into one new location in a lower cost
area and modifying the operating approach to include elements of the PSS
methodology. In addition, the Company's operating income margins in 1994 and
1995 were negatively affected by the reorganization of Spring due to costs
incurred by the Company not included in the operating improvement reserve. As
part of that reorganization, the Company closed 11 offices, maintained three
offices and opened a new centralized office in Stockton, California, which
became Spring's headquarters. Operating income margins in 1994 and 1995 also
reflect certain operational and sales and marketing initiatives launched in 1994
and 1995, which adversely affected total Company operating income margins. In
addition, the Company believes that the uncertainty in the marketplace as a
result of the Clinton Administration's 1993 health care reform discussions
influenced a number of physician groups to postpone making decisions regarding
their business management services in 1993, which continued into 1994.
14
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentages
of net revenues represented by certain items reflected in the Company's
statement of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
---------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------- ---------------------------
1994 1995
1992 1993 1994 PRO FORMA 1994 1995 PRO FORMA
----- ----- ----- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries, general and administrative
expenses.............................. 63.0 77.9 83.0 80.2 78.9 83.7 80.7
----- ----- ----- --------- ----- ----- ---------
Income before interest, taxes,
depreciation and amortization......... 37.0 22.1 17.0 19.8 21.1 16.3 19.3
Depreciation and amortization........... 21.9 19.6 17.8 15.4 17.1 17.4 15.0
Interest expense, net................... 12.8 9.6 8.1 1.9 7.8 7.3 1.7
Other, net.............................. -- 0.4 1.1 0.6 1.2 -- 0.3
----- ----- ----- --------- ----- ----- ---------
Income (loss) before income taxes
(benefit)............................. 2.3 (7.5) (10.0) 1.9 (5.0) (8.4) 2.3
Income taxes, (benefit)................. 2.1 (2.3) (4.3) 0.5 (2.6) (2.0) 1.9
----- ----- ----- --------- ----- ----- ---------
Net income (loss)....................... 0.2% (5.1)% (5.7)% 1.4% (2.4)% (6.4)% 0.4%
----- ----- ----- --------- ----- ----- ---------
----- ----- ----- --------- ----- ----- ---------
</TABLE>
REVENUES
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
The Company's revenues increased 61% from $8,123,000 for the year ended
December 31, 1992 to $13,080,000 for the year ended December 31, 1993. Revenues
in 1994 increased 44% from 1993 to $18,773,000 for the year ended December 31,
1994. The Company generally is compensated with a management fee based upon a
percentage of its clients' net collections, which percentage is determined after
considering a broad range of factors, including the medical specialty of the
client and the nature of the services to be provided. The Company's revenues
increased during 1993 and 1994 due primarily to the Company's acquisition of
Spring in August 1993.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
For the nine months ended September 30, 1994, revenues were $14,789,000.
Revenues declined 1% from the first nine months in 1994 to $14,631,000 for the
nine months ended September 30, 1995 as a result of a general reduction in the
average management fee charged by the Company. This reduction offset the
positive impact of new clients that began doing business with the Company during
the first nine months of 1995.
PRO FORMA
The Company's actual revenues of $18,773,000 for the year ended December
31, 1994 increase 43% on a pro forma basis to $26,897,000 after giving effect to
the Acquisitions. The increase is due to the additional revenues of the Acquired
Business reflected in the pro forma results. Historical revenues of $14,631,000
for the nine months ended September 30, 1995 also increase 42% to $20,841,000 on
a pro forma basis. The increase is due to the additional revenues of the
Acquired Businesses reflected in the pro forma results.
SALARIES AND WAGES; GENERAL AND ADMINISTRATIVE
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
Salaries and wages consist of all wages and other employee compensation.
Salaries and wages increased 90% from $3,101,000 for the year ended December 31,
1992 to $5,898,000 for the year ended
15
<PAGE>
<PAGE>
December 31, 1993. Salaries and wages increased 50% from 1993 to $8,866,000 for
the year ended December 31, 1994. Salaries and wages increased during these
periods due to the increase in the Company's total personnel from the Spring
acquisition. These increases further reflect increased salary expense
attributable to the addition of staff throughout the Company and an increase in
the sales force and client representatives at Spring. In addition, the Company's
salary expense increased during these periods as the Company increased its level
of service, broadened the types of medical specialties served and expanded its
business beyond its original base in the Middle Atlantic states.
General and administrative expenses increased 112% from $2,021,000 for the
year ended December 31, 1992 to $4,291,000 for the year ended December 31, 1993.
These expenses increased by 57% from 1993 to $6,723,000 for the year ended
December 31, 1994. These increases are due to the reasons described above for
increases in salaries and wages during the same periods.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
Salaries and wages increased 10% from $6,552,000 for the nine month period
ended September 30, 1994 to $7,234,000 for the nine months ended September 30,
1995. This increase was caused by greater processing volume due to the addition
of clients and increased service requirements of clients. General and
administrative expenses declined 2% from $5,121,000 for the nine months ended
September 30, 1994 to $5,020,000 for the corresponding 1995 period. This
decrease was due in large part to the consolidation of the Spring operations.
The Company has made significant, and expects to continue to make certain,
operating expenditures, including investments in systems and technology in order
to improve its operating efficiencies and enhance its services offered to
clients.
PRO FORMA
The Company's salaries and wages of $8,866,000 for the year ended December
31, 1994 increase 39% to $12,214,000 on a pro forma basis. For the nine months
ended September 30, 1995, wages and salaries increase by 39% from $7,234,000 on
a historical basis to $10,076,000 on a pro forma basis. These increases reflect
the personnel gained with the Acquired Businesses. General and administrative
expenses also increase 39% from $6,723,000 for the year ended December 31, 1994
to $9,349,000 on a pro forma basis for the year ended December 31, 1994. These
expenses also increase 34% for the nine months ended September 30, 1995 from
$5,020,000 on a historical basis to $6,748,000 on a pro forma basis. These
increases reflect the additional general and administrative expenses associated
with the Acquired Businesses.
DEPRECIATION AND AMORTIZATION; INTEREST EXPENSE, OTHER (NET) AND INCOME TAXES
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
The Company's depreciation and amortization increased 44% from $1,781,000
for the year ended December 31, 1992 to $2,566,000 for the year ended December
31, 1993 and 31% from 1993 to $3,349,000 for the year ended December 31, 1994.
These increases were due largely to the higher levels of depreciation and
amortization associated with the acquisition of Spring in August 1993. The
Company's interest expense represents its cost of borrowings, net of earned
interest income. The Company's other expenses consist of losses on dispositions
of equipment and other miscellaneous expense items. The Company's interest and
other expenses increased by 26% from $1,033,000 for the year ended December 31,
1992 to $1,300,000 for the year ended December 31, 1993. These expenses also
increased 32% from 1993 to $1,712,000 for the year ended December 31, 1994.
These increases were due primarily to the additional debt incurred in August
1993 in connection with the Company's acquisition of Spring. Due to the charges
for depreciation and amortization resulting from purchase accounting for the
Company's acquisitions, the Company has paid no federal income taxes and has
generated income tax benefits of $303,000 in the year ended December 31, 1993
and $810,000 in the year ended December 31, 1994.
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NINE MONTHS ENDED SEPTEMBER 1994 AND 1995
The Company's depreciation and amortization increased 1% from $2,522,000
for the nine months ended September 30, 1994 to $2,549,000 for the nine months
ended September 31, 1995. This increase was due primarily to the purchase of
additional equipment, furniture and leasehold improvements. The Company's
interest and other expenses declined by 21% from $1,338,000 for the nine months
ended September 30, 1994 to $1,056,000 for the nine months ended September 30,
1995. This decline was due to the decrease in debt of the Company resulting from
certain scheduled repayments of debt. The Company's income tax benefit decreased
from $382,000 for the nine months ended September 30, 1994 to $286,000 for the
corresponding 1995 period. This decrease was primarily due to the inclusion in
the tax benefit in the nine months ended September 1994 of a change in the state
tax law allowing previously disallowed prior year state net operating loss
deductions with no corresponding item in the nine months ended September 1995.
PRO FORMA
On a pro forma basis, the Company's depreciation and amortization for the
year ended December 31, 1994 increases 23% from $3,349,000 on a historical basis
to $4,134,000. The Company's depreciation and amortization for the nine months
ended September 30, 1995 of $2,549,000 also increases by 23% to $3,126,000 on a
pro forma basis. These increases are due largely to higher levels of
depreciation and amortization associated with the acquisition of the Acquired
Businesses.
The Company's interest and other expenses for the year ended December 31,
1994 of $1,712,000 on a historical basis decline by 60% to $678,000 on a pro
forma basis. The Company's interest and other expenses of $1,056,000 for the
nine months ended September 30, 1995 also decline by 63% to $391,000 on a pro
forma basis due to the reduced interest expense resulting from the repayment of
debt upon completion of the Offering. After giving effect to the Offering, the
Company's income tax benefit would be reduced from $810,000 for the year ended
December 31, 1994 to an income tax expense of $149,000 on a pro forma basis. On
a pro forma basis, the Company's income tax expense changes from an income tax
benefit of $286,000 to an income tax expense of $403,000 for the nine months
ended September 30, 1995. This increase in tax expense is attributable primarily
to the factors described above.
NET INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
The Company's net income declined from $16,000 for the year ended December
31, 1992 to a loss of $672,000 for the year ended December 31, 1993 and declined
59% from 1993 to a loss of $1,067,000 for the year ended December 31, 1994. The
changes (losses) in net income resulted principally from the matters discussed
above.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
The Company's net loss increased 159% from $363,000 for the nine months
ended September 30, 1994 to $942,000 for the nine months ended September 30,
1995. This increase was due to the management fee reductions and operating
expense increases outlined above, which were largely in connection with the
acquisition of Spring while its operations were being consolidated into three
offices and one centralized processing facility.
PRO FORMA
The Company's net income for the year ended December 31, 1994 increases by
$1,440,000 from the Company's actual net loss of $1,067,000 to $373,000 of net
income on a pro forma basis. The Company's pro forma net loss for the nine
months ended September 30, 1995 also would be reduced from the Company's
historical nine-month loss of $942,000 to net income of $96,000 on a pro forma
basis. These decreases in the net loss primarily are attributable to the
additional revenues generated by the Acquired Businesses.
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LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1991, the Company has financed its operations
through the sale of equity securities, borrowings under credit arrangements and
internally generated funds.
The Company's operating activities provided net cash of $1,375,000,
$1,685,000 and $1,946,000 for the years ended December 31, 1992, 1993 and 1994,
respectively. Net cash of $1,194,000 and $52,000 was generated by the Company's
operating activities during the nine months ended September 30, 1994 and 1995,
respectively.
At September 30, 1995, the Company had a working capital deficiency of
$1,351,000. This working capital deficiency was caused primarily by increased
short-term borrowings and related expenditure for items related to operating
improvements at Spring, capital expenditures and principal payments on long-term
debt and capital leases. To address its working capital deficiency, the Company
sold 1,100 shares of 10% Preferred Stock, Series A to Hillside Capital
Incorporated ('Hillside') for an aggregate consideration of $550,000 and
increased its available borrowing capacity under its line of credit from
$400,000 to $600,000. The Company intends to use the proceeds of its preferred
stock sale, which shares will be redeemed with a portion of net proceeds from
the Offering, for general working capital purposes.
For the years ended December 31, 1992, 1993 and 1994, the Company made
capital expenditures of $140,000, $130,000 and $535,000, respectively. Since
1992, the Company has made significant information technology system upgrades
and improvements. The Company's capital expenditures for the nine months ended
September 30, 1994 and 1995 were $184,000 and $396,000, respectively. These
expenditures reflect the continued investment in technology improvements and
include costs related to certain leasehold improvements and acquisitions of
other office equipment and furnishings. The Company's capital expenditures for
the first nine months in 1995 also reflect start-up costs associated with
servicing new clients from a new office in Florida.
On a pro forma basis at September 30, 1995, after giving effect to the
Offering and the application of the net proceeds as set forth in 'Use of
Proceeds,' the Company had working capital of approximately $4.3 million. Based
upon the Company's pro forma working capital position and its pro forma
statements of operations for the year ended December 31, 1994 and for the nine
months ended September 30, 1995, the Company believes that additional working
capital is not required to meet its current liquidity needs. In order to pursue
its strategy of making additional acquisitions, the Company will need to obtain
additional financing and is in negotiations for a line of credit from a
financial institution. There can be no assurance that the Company will obtain
any such line of credit, that any such line of credit will be obtained on
favorable terms or that the Company will not be required to seek additional
financing. The Company believes that the net proceeds of the Offering and its
pro forma cash balances, together with cash flow from operating activities, will
be sufficient to finance its operations for the foreseeable future.
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BUSINESS
GENERAL
The Company is a leading provider of business management services to
hospital-affiliated Physicians. The Company's clients practice medicine in an
array of settings, including solo and group practices, IPAs, specialty networks
and other affiliated-physician groups. The Company's services enable Physicians
to maintain their independence and clinical autonomy while maximizing their
reimbursement and cashflow. The Company believes that it is one of the largest
providers of business management services to Physicians.
The Company offers its clients a broad variety of business management
services, ranging from accounts receivable management to financial,
administrative and strategic support, data management and information systems
support. In addition, the Company employs its proprietary technology and
extensive financial and patient encounter databases to provide a comprehensive
range of managed care services to its clients, including contract review and
negotiation, implementation and administration, thereby enhancing their ability
to profitably participate in managed care systems. For its services, the Company
generally is compensated with a management fee based upon a percentage of its
clients' net collections, which percentage is determined after considering a
broad range of factors, including the medical specialty of the client and the
nature of the services to be provided. The Company currently provides services
to over 2,000 physicians, including specialists in radiology, anesthesiology,
pathology and emergency medicine, as well as other specialists, throughout
Pennsylvania, New Jersey, California, Arizona, Florida, Delaware, Maryland,
Massachusetts and Virginia. Many of the Company's clients are affiliated in some
sort of group practice, IPA or other specialty networks. As of November 30,
1995, the Company experienced client retention (as measured by the continuation
of written contracts in existence at the end of 1994) of approximately 95% of
those clients to which it provided services at the end of 1994. Upon completion
of the Acquisitions, the total number of physicians served by the Company will
increase to over 2,500, and, in addition to the states in which it currently
does business, the Company will offer services to clients in Alabama, Kentucky,
Ohio, Washington and West Virginia.
INDUSTRY BACKGROUND
The Health Care Financing Administration estimates that health care
spending in the United States totaled approximately $1 trillion in 1994, with
approximately $200 billion attributable to physician services. As a large and
rapidly growing component of overall health care costs, physicians have come
under increasing pressure due to the prospect of health care reform legislation,
an increasingly complex reimbursement environment and the continued penetration
of managed care. Due to these and other market forces, physicians have, in
increasing numbers, sought to align themselves with other physician practices
and with business management services companies in an effort to acquire enhanced
management capabilities and information systems. The Company believes that by
providing a broad array of business management services to Physicians, it
enables Physicians to maintain independence and ownership of their practices
while providing them with the expertise necessary to meet the challenges posed
by the changing health care environment. In addition, as more physicians face
pressure to affiliate with other health care providers or managed care
organizations, their need for advisors experienced in analyzing and negotiating
such affiliations increases.
The Company believes that the physician business management services
industry is highly fragmented. Many of the participants in the industry are
smaller firms with limited capital and management resources and limited patient
encounter databases. These firms offer primarily accounts receivable management
services and have a narrow range of additional services. The Company believes
that, as Physicians continue to demand greater sophistication, broader services
and technology-driven products, these smaller service providers will find it
increasingly difficult to compete.
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STRATEGY
The Company's strategy is to build upon its reputation and expertise in
providing a broad range of cost-effective, value-added business management
services to Physicians. PSS's strategy for achieving this objective contains the
following key elements:
Provide High Level of Customer Service at Effective Cost. The Company
customizes its services for each client and provides detailed reports on a
regular basis to its clients regarding their practices. PSS maintains
local offices in regions throughout the United States, where client
representatives are able to visit clients on a regular basis and respond
quickly to the Company's clients' needs. These client representatives
interact directly with existing clients and provide clients with
information derived from the Company's patient encounter database
regarding local, regional and national markets. The Company believes that
this 'multi-local' approach to client relationships effectively
differentiates the Company from its competitors. Further enhancing the
Company's local presence are its centralized processing centers, which
also provide significant economies of operation. The Company believes that
the skill of its employees, its relatively low labor costs and its
technological resources and efficiencies provide it with a cost of service
advantage over many of its competitors.
Provide Broad Array of Services. The Company provides a broad range of
value-added services that meet its clients' needs and that address market
changes. A key part of the Company's service strategy is to capitalize on
changes in the health care market, such as managed care initiatives and
increasingly complex reimbursement procedures, by providing new services
that address the changing needs of Physicians. For example, the Company's
extensive patient encounter database allows the Company to evaluate
managed care and capitation proposals for its clients. PSS believes that
it provides Physicians with an alternative to participation in
commercially owned physician networks by offering Physicians the
experience, expertise and guidance necessary to enable them to form
physician-owned networks, participate in Company-sponsored IPAs and
negotiate favorable contracts with managed care organizations. The Company
believes that its range of business management services (including the MSO
capability it will gain through acquisition of one of the Acquired
Businesses) and its market knowledge give it an advantage over many of its
competitors, which offer a narrower range of services and may not be as
well positioned to respond to market changes and managed care mandates.
Capitalize on Technological Capabilities. PSS's proprietary software
systems perform the complex processing and analytical tasks required to
maximize the income of Physicians and provide database capabilities that
are essential for negotiation and on-going management of managed care
provider relationships. The Company's information systems currently store
transactional data associated with approximately three million patient
encounters per year. As a result, PSS management believes that the Company
possesses one of the largest private patient encounter databases in the
regions in which it operates. This detailed database enables the Company
to provide clients with historical and future trends in utilization data
and physician referral patterns, as well as other encounters and
productivity measurements and benchmark data for strategic practice
planning.
The Company has made significant technology expenditures and believes
that future investments in technology are likely due to the data-intensive
nature of its business. The Company's dedicated programming personnel work
with clients to customize their software and systems functions. In order
to remain competitive in the future, the Company believes that it must be
able to establish full electronic interfaces with all provider and payor
organizations in order to instantly upload registration and procedure
data, verify eligibility, determine specifics of coverages, submit claims,
electronically adjudicate claims, negotiate electronic remittance and
achieve automated posting to line items on the physician's original claim
submission. The Company believes that it is a leader in the industry with
regard to its electronic data interface capabilities.
Pursue Consolidation Opportunities. The increasingly complex nature of the
health care reimbursement process, and the related growing demand for more
advanced technology, have made it more difficult for many of the smaller
medical billing service companies to effectively
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compete due to their limited capital and management resources and their
less comprehensive patient encounter database. As a result, industry
consolidation has accelerated over the past several years. The Company
expects this trend to continue for the foreseeable future. PSS intends to
continue to devote time to identifying and pursuing acquisition candidates
nationwide and to evaluate acquisition opportunities in light of its
acquisition criteria.
The Company seeks to position itself as an attractive acquiror to
prospective sellers. The Company generally looks for acquisition
candidates that share its philosophy of focusing on high-quality service
to clients and sophisticated database capabilities. In addition, PSS
typically encourages the management of its acquisition candidates to
remain involved in the business after the Company acquires the business in
order to ease the transition to the Company's ownership and utilize the
expertise and skills of the acquired company's managers.
Cross-Market Existing and Acquired Capabilities. PSS believes that it has
established a strong track record for providing highly competent and
cost-efficient services to its clients, thereby enabling a significant
portion of its internal growth to occur through referrals and physician
inquiries. In the past, the Company has utilized the expertise of
personnel in one office to acquire new accounts and offer supplemental
services to Physicians served by other offices. Upon its acquisition of
the Acquired Businesses, and any subsequent acquisitions, the Company
intends to similarly cross-market its services, market knowledge and
physician specialty expertise among its clients and clients of such
acquired businesses. In so doing, the Company believes that it will
expand, on a geographic basis, the services provided and types of
physician specialists served by the Company.
BUSINESS MANAGEMENT SERVICES
In recent years, the physician business management services industry has
changed from one where the service provider was responsible primarily for
accounts receivable management to one where a comprehensive, integrated range of
services is provided. The Company believes that providing its clients with
services beyond accounts receivable management helps create a stronger
relationship with its clients and provides PSS with a competitive advantage. As
the health care market continues to grow in complexity, the Company believes
that those companies with a history of providing a broad array of business
management services will be sought out by physicians and will be better
positioned than others to develop additional services to meet the needs of
the marketplace. The Company's and the Acquired Businesses' business management
services include the following:
Operations Management
Fee Schedule Development and
Management
Capitation Plan Analysis and
Administration
Patient and Resource Scheduling
Coding
Billing and Follow-up
Strategic Support
Feasibility Studies
Support in Establishing Independent
Practice
Contract Negotiation
Practice Marketing
Merger of Practices
Administrative/Financial Support
Valuation Analysis
Budgeting
Cash Management
Bookkeeping and Accounting
Financial Statements
Payroll and Accounts Payable
Expense Management
Insurance Program Administration
Independent Physician Associations
Management Service Organization
Payment Processing
Lockbox Payments
Internal Controls
Payment Validation
Performance Monitoring and Reporting
Data Management
Data Collection, Analysis and Reporting
Encounters Database Design and
Analysis
Financial
Contractual
Practice Profiles
Resource Utilization
Electronic Data Interface
Patient Demographic and Encounter
Information
Billing Claims Submission
Remittance Receipt and Posting
Client Office Connectivity
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The Company does not provide the full range of its business management
services to any one client, although generally all clients receive accounts
receivable management services. The Company's accounts receivable management
services range from data gathering to financial reporting and analysis.
Generally, the Company's practice is to employ personnel dedicated to the
performance of specific tasks in the accounts receivable management process. In
its initial stages, the Company collects data from Physicians, inputs relevant
data for claims processing, monitors data for errors and makes corrections. The
Company submits reimbursement claims on behalf of its Physician clients,
follows-up with third-party payors and patients regarding the Physicians'
accounts receivable and reports to the Physicians regarding their patient and
accounts receivable activity. The Company believes that, through the use of
trained personnel and its proprietary technology, it processes claims
efficiently for its clients, creating cost savings for the Company and rapid and
complete reimbursement for its clients.
CLIENT SUPPORT SERVICES
The Company believes that the level of service provided is the
distinguishing factor among physician business management service companies.
Accordingly, the Company emphasizes a personalized approach in providing
services to its clients. The Company believes that its multi-local,
sophisticated, technology-driven management services help distinguish the
Company from other providers of business management services and provide it with
a competitive advantage.
A key part of the Company's strategy is the proximity and availability of
client representatives to the Company's clients. The Company has 20 client
representatives based in four states, managing the accounts of between one and
15 clients. Upon completion of the Acquisitions, the Company anticipates that
its client representatives will have a presence in five additional states.
Through these client representatives, the Company is able to maintain regular
contact with its clients and respond rapidly, often in person, to questions or
problems. The Company provides detailed monthly and quarterly reports to its
clients. These reports indicate, among other things, the client's accounts
receivables activity for the period, the number of patients seen and procedures
performed for the period and a comparison of the current period's activity with
that of the prior year's. The Company's client representatives typically review
these detailed financial reports with the Physicians on a regular basis. In
addition, the Company's client representatives may share industry or regional
data with the Company's clients to help clients better understand their business
relative to that of other Physicians.
MARKETING AND SALES
The Company's marketing and sales efforts include advertising, attendance
at industry events and maintenance of a marketing and sales force. The Company
believes that most of its marketing efforts coincide with its client support
services, as many new clients are introduced to the Company by existing clients.
The Company believes that, as managed care initiatives become more prominent,
Physicians are more likely to affiliate with one another in groups and
subsequently retain business management services from a provider experienced in
dealing with group structures and issues. The Company believes that its
knowledge gained through operating one of the oldest and largest IPAs in the
United States, its service to a regional physician staffing organization and its
years of working with other affiliated groups of physicians provides it with a
competitive advantage in addressing the changing needs of the health care
market.
The Company employs 10 people in five states for the purpose of marketing
and business development. Typically, these regional representatives identify a
client prospect and then coordinate with senior management of the Company to
develop a suitable service and fee proposal. Before submitting its proposal, the
Company typically reviews financial and practice information of the Physicians
and identifies areas for improvement in the prospective client's current
business management. With knowledge of local markets, the Company's client
representatives also support the marketing efforts of the Company by providing
benchmark information pertaining to other local physician practices. The Company
believes that its experience and data resources provide it with a significant
advantage over many of its competitors in acquiring new accounts.
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CUSTOMERS
The Company's clients consist of hospital-affiliated Physicians. These
Physicians practice medicine in an array of settings, including solo and group
practices, IPAs and specialty networks and other affiliated-physician groups.
The Company estimates that it provides services (either directly or through its
physician group clients) to over 2,000 physicians, and that it will serve over
2,500 physicians after giving effect to the Acquisitions. Of the Company's 1994
revenues, services for radiologists, emergency room physicians and
anesthesiologists accounted for approximately 24%, 15% and 53%, respectively, of
total revenues. The Company's other clients practice various specialties,
including pathology, cardiology and surgery. As of November 30, 1995, the
Company has retained (as measured by the continuation of written contracts in
existence at the end of 1994) approximately 95% of those clients to which it
provided services at the end of 1994.
In most cases, the Company enters into written agreements with its clients.
The Company's written agreements generally range from month-to-month to five
years in duration and renew automatically at the end of the initial term unless
notice is given by either party 30 to 90 days prior to renewal. However, in
certain regions where the Company conducts business, the industry practice is to
provide business management services without a written contract. In those cases,
typically the Company does not require a written agreement with its clients and
experiences a lower comparative client retention rate.
Substantially all of the Company's contractual arrangements for business
management services provide for management fees payable to the Company based
upon a percentage of the Company's clients' net collections. Management fees,
which typically range from 3% to 15%, are negotiated at the outset of an
engagement based upon a number of factors, including the types of physician
specialists involved, the range of services to be provided by PSS, an analysis
of the collectability of a client's accounts receivable portfolio and an
estimate of the costs of such collection. The Company estimates that its average
management fee (on a weighted average basis) charged in 1994 for business
management services was approximately 7.3% of net collections. No single
customer or organization accounted for 10% or more of the Company's total
revenue in 1994.
ACQUISITIONS
Through their acquisition of the predecessor business of PSS in 1991 and
the Company's acquisition of Spring in 1993, the senior management of the
Company has experience in identifying and acquiring physician business
management service firms. The Company maintains a database of participants in
the physician business management services industry and has taken an active,
highly selective approach to identify acquisition targets that meet its
acquisition criteria. In general, the Company intends to focus on acquisition
candidates that have strong management, demonstrate potential for revenue growth
or continued profitability and are compatible with the Company's business or
provide an opportunity to expand into other high-revenue medical care
specialties.
The Company generally looks for acquisition candidates that share its
philosophy of focusing on high-quality service to clients and sophisticated
database capabilities. In addition, PSS typically encourages the management of
its acquisition candidates to remain involved in the business on a long-term
basis after the Company acquires the business in order to ease the transition to
the Company's ownership and utilize the expertise and skills of the acquired
company's managers. For example, L. David Covell, a former shareholder of
Spring, has continued to be involved in the day-to-day business of Spring
following the Company's acquisition of Spring in 1993 and has remained the
Chairman of the Board of Spring. PSS intends to evaluate acquisition
opportunities in complementary geographic markets and service areas that present
the potential for subsequent growth through referrals. Although it evaluates
each acquisition candidate on a case-by-case basis, the Company does not
currently anticipate acquiring other businesses where significant consolidation
or staff reductions would be required, and PSS anticipates that any necessary
consolidation would be gradual. See 'Risk Factors -- Acquisitions; Need for
Capital.'
Although PSS currently is engaged in discussions with several acquisition
candidates, no acquisition (other than of the Acquired Businesses) currently is
pending, and there can be no assurance that any such acquisition will be
completed. The Company currently is in negotiations with certain banks,
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including its existing bank lender, to provide it with a line of credit to be
used for acquisitions. There can be no assurance that such a line of credit will
be made available or be made available on favorable terms.
ACQUIRED BUSINESSES
The Company identified the Acquired Businesses as suitable acquisition
candidates due in part to their strong management, geographic location, range of
services provided and Physician specialists served. The Company has entered into
agreements to acquire the Acquired Businesses simultaneously with the
consummation of this Offering.
Under the terms of each acquisition agreement, consummation of the
Acquisitions is subject to ordinary closing conditions, including the accuracy,
at the time of the Acquisitions, of the representations and warranties of the
Acquired Businesses and their respective stockholders. The aggregate
consideration to be paid by the Company for the Acquired Businesses is
anticipated to consist of $11,500,000 in cash, $9,500,000 of which is payable
upon completion of the Offering and $2,000,000 of which is payable in monthly
installments during the first year after consummation of the Offering. An
additional $150,000 may be payable on the second anniversary of the Acquisitions
in connection with the acquisition of DPS, subject to the retention of clients.
Each of the Acquired Businesses and the principal terms of each Acquisition are
described below.
North Coast Health Care Management, Inc. ('NCHC'). NCHC was founded in 1985
and has its offices in Cleveland, Ohio. NCHC provides business management
services to approximately 400 emergency room and other physicians in Ohio, West
Virginia and Kentucky. NCHC also currently provides consulting services to two
MSOs, which provide assistance in evaluating and negotiating managed care plans
and providing scheduling, staffing, financial analysis and other services to
over 130 physicians. North Coast Account Systems, Inc. ('NCAS') and Medical
Dental Invoicing Services, Inc. ('MDIS'), which were established in 1991 and
1978, respectively, are affiliates of NCHC and also headquartered in Cleveland,
Ohio. NCAS provides collection services to Physicians. MDIS provides accounts
receivable management services to Physicians. NCHC, NCAS and MDIS are sometimes
referred to collectively herein as the 'NCHC Group.' The NCHC Group's revenues
for 1994 represent approximately 22% of the Company's 1994 revenues on a pro
forma basis, after giving effect to the Acquisitions. A significant portion of
the NCHC Group's revenues for 1994 is attributable to several physician groups
in which one of the shareholders of the NCHC Group is a member.
It is anticipated that, simultaneously with completion of the Offering, the
Company will purchase the capital stock of NCHC for a purchase price of
$5,590,000 in cash, payable at closing, and an aggregate of $1,950,000 in cash,
payable in monthly installments over the succeeding 12 months. In addition, the
Company will acquire the assets of NCAS and MDIS for cash in the aggregate of
$115,000, payable at closing and an aggregate of $50,000, payable in monthly
installments over the succeeding 12 months. The two stockholders of the NCHC
Group also will receive an aggregate of $295,000 in consideration of their
agreements not to compete with the Acquired Businesses or the Company.
The two stockholders of NCHC will enter into employment agreements with
NCHC at the time of the Acquisitions, pursuant to which each of them will be
employed for a term of five years at an annual base salary of $150,000. The
stockholders also will be entitled to receive deferred incentive compensation
based on increases in NCHC's earnings before interest, taxes and certain other
charges.
Medical Management Support, Inc. ('MM Support'). MM Support was founded in
1985 and has its offices in Bellevue, Washington. MM Support provides accounts
receivable management services to approximately 80 anesthesiologists in the
greater Seattle area. MM Support's 1994 revenue would account for approximately
5% of the Company's 1994 revenues on a pro forma basis, after giving effect to
the Acquisitions.
It is anticipated that, simultaneously with completion of the Offering, the
Company will acquire MM Support by purchasing, through a wholly owned subsidiary
of PSS, substantially all of the assets of MM Support. The purchase price for
the assets will be $2,400,000 in cash. In addition, MM Support and its
stockholders will receive $100,000, in the aggregate, for their agreements not
to compete with the Acquired Businesses or PSS.
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The three shareholders of MM Support will enter into employment agreements
with the ongoing Acquired Business upon completion of the Offering. Under these
agreements, each of the shareholders will agree to provide services of a
substantially similar nature to those currently provided to MM Support for a
period of two years from the Acquisition at a compensation rate of $35 per hour.
In addition, each such shareholder will be entitled to receive certain bonus
compensation based on revenue attributable to new clients introduced to the
Acquired Business by that shareholder before the second anniversary of the
Acquisition.
Data Processing Systems, Inc. ('DPS'). DPS was formed in 1989 and has its
offices in Birmingham, Alabama. DPS provides accounts receivable management
services to Physicians in the Birmingham, Alabama area. DPS's clients consist
principally of radiologists and pathologists, and it currently services
approximately 26 physicians. Revenues of DPS for 1994 represent approximately 3%
of the Company's 1994 revenues on a pro forma basis, after giving effect to the
Acquisitions.
It is anticipated that, simultaneously with completion of the Offering, a
wholly owned subsidiary of the Company will acquire DPS by purchasing
substantially all of DPS's assets for approximately $800,000 in cash (including
$100,000 payable because the Acquisition will occur after December 31, 1995) and
payment of $100,000 in consideration of DPS's agreement not to compete with the
ongoing business or the Company. In addition, $150,000 may be payable on the
second anniversary of the acquisition, subject to DPS's retention of clients.
In addition to the amounts described above, under the terms of the
acquisition agreement for DPS, McGriff, Seibels & Williams, Inc., the sole
stockholder of DPS ('McGriff'), will receive $100,000 in consideration of its
agreement not to compete. As a condition to the acquisition of DPS, McGriff will
enter into an agreement with the Acquired Business, under which McGriff will
lease office space to the Acquired Business for up to two years at a cost of
$10,000 per year, which includes the cost of certain corporate overhead, support
and computer software and hardware services to be provided by McGriff. In
addition, McGriff will agree to provide the Acquired Business on a cost-only
basis certain other services that it historically provided to DPS.
COMPETITION
The business of providing business management services to Physicians is
highly competitive. The Company estimates that it competes with several
relatively sophisticated local, regional and national physician business
management services organizations, with smaller, less-sophisticated local
accounts receivable management services businesses and with Physicians that
self-manage their practices and accounts receivable. The largest independent
provider of billing and accounts receivable management services to Physicians in
the United States is Medaphis Corporation, which is substantially larger than
the Company and has substantially greater resources.
The Company believes that the principal competitive factors in its industry
are the quality and range of services provided to clients, including the
maximization of revenue to Physicians for each procedure performed. In the
Company's view, the fees charged for services are a less important factor,
although it believes that its fees are competitive with other service providers.
In addressing certain complexities created by managed care initiatives, the
Company believes that one of the principal competitive factors is having a
patient utilization database and other market information to enable an
assessment of managed care proposals. The Company believes that, through use of
its proprietary technology and regional and specialty expertise, it is able to
compete effectively in providing business management services to Physicians in
the managed care market.
REGULATION
Various state and federal laws may regulate the Company's business of
providing business management services to Physicians. The Company also is
subject to laws and regulations relating to business corporations generally. The
Company believes that its operations are in material compliance with applicable
laws. However, many aspects of the Company's business operations have not been
the subject of state or federal regulatory interpretation, and certain areas of
the Company's business are highly technical in nature. In addition, as the
Company's business expands by the addition of services
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provided or geographically, it may become subject to additional federal or state
regulations based on the services it provides or the states in which it conducts
business.
Regulatory authorities have broad discretion concerning how these laws and
regulations are interpreted and how they are enforced. The Company may,
therefore, be subject to lengthy and expensive investigations of its business
operations. If the Company were found to be in violation of these laws or
regulations, the Company could be subject to criminal or civil penalties or
both, which could limit or prevent the Company from providing its physician
business management services. See 'Risk Factors -- Governmental Regulation;
Billing Practices.'
In accordance with Medicare regulations, physicians and hospitals are
permitted to assign Medicare claims to a billing and collection service only in
certain limited circumstances. The Medicare statutes that restrict assignment of
Medicare claims are supplemented by Medicare regulations and provisions in the
Medicare Carrier's Manual (the 'Manual'). The Medicare regulations and the
Manual provide that a billing service that prepares and sends bills for the
provider or physician and does not receive and negotiate the checks made payable
to the provider or physician does not violate the restrictions on assignment of
Medicare claims. The Company believes that its practices do not violate the
restrictions on assignment of Medicare claims and that it operates in a manner
consistent with these provisions.
The Social Security Act imposes criminal penalties for paying or receiving
remuneration (which is deemed a kickback, bribe or rebate) in connection with
Medicare or Medicaid programs. Violation of this law is a felony, punishable by
fines and imprisonment. These anti-kickback laws and rules have been broadly
interpreted to prohibit the payment, solicitation, offering or receipt of any
form of remuneration in return for the referral of Medicare or Medicaid patients
or any item or service that is covered by Medicare or Medicaid reimbursement.
The Company believes that its business operations do not put it in a position to
make or induce the referral of patients or services reimbursed under government
programs and, therefore, believes that its practices do not violate the federal
anti-kickback statute. If, however, the Company were found in violation of these
laws, the Company could be subject to substantial civil monetary fines, criminal
sanctions or both.
The Company also may be subject to criminal, civil and administrative
penalties under federal and state law prohibitions against submitting false
claims for payments. Generally, criminal penalties subjecting participants to
fines and imprisonment require that the entity act knowingly, willfully or with
fraudulent intent. Civil statutes provide for monetary penalties. The Company
also may be subject to criminal laws regarding failure to disclose known
overpayments under Medicare or Medicaid.
Various states prohibit a physician from sharing or 'splitting' fees with
persons not authorized to practice medicine. The Company believes that its
charges to its clients do not violate applicable fee splitting prohibitions. If
this belief is incorrect and the Company is determined to be engaged in fee
splitting arrangements with its clients, those clients would be subject to
charges of professional misconduct and penalties ranging from censure and
reprimand to revocation of their medical licenses. In addition, the Company
could be deprived of access to the courts to collect fees due from those
clients, thereby materially and adversely affecting the Company's revenues and
prospects.
Credit collection practices and activities are regulated by both federal
and state law. The Federal Fair Debt Collection Practices Act (the 'Federal Fair
Debt Act') sets forth various provisions designed to eliminate abusive,
deceptive and unfair debt collection practices by debt collectors. The Federal
Fair Debt Act also provides for, among other things, a civil right of action
against any debt collector who fails to comply with the provisions thereof.
Various states have also promulgated laws and regulations that govern credit
collection practices. In general, these laws and regulations prohibit certain
fraudulent and oppressive credit collection practices and also may impose
license or registration requirements upon collection agencies. In addition,
state credit collection laws and regulations generally provide for criminal
fines, civil penalties, injunctions and jail terms for collection agency
personnel who fail to comply with such laws and regulations and may entitle
states to recover unclaimed refunds from overcollections. The accounts
receivable management services the Company provides to its clients are not
considered debt collection services and the Company is not a 'debt collector'
under the Federal Fair Debt Act. Upon completion of the Acquisitions, certain
activities of one of the Company's subsidiaries will include collection
services, as NCAS specializes in collecting medical service receivables for its
clients.
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Various states regulate the provision of administrative and business
services by third parties to physician-sponsored health plans. In addition,
certain federal or state consumer protection laws may apply to the Company's
billing activities insofar as PSS bills patients directly for the cost of
physician services provided.
The Company anticipates that various health care reform proposals may be
introduced at the federal or state level. The Company is unable to predict
whether any such proposals will apply to the operation of the Company's business
or whether, if adopted, any such proposals would materially adversely affect the
Company.
EMPLOYEES
At November 30, 1995, PSS had approximately 364 full-time and 67 part-time
employees, of which approximately 348 were clerical and 83 were administrative
employees. PSS employs 20 client representatives, 10 marketing representatives
and eight software programmers. None of the Company's employees is represented
by a labor union. The Company has experienced no work stoppages and believes
that its relations with its employees are satisfactory.
FACILITIES
The Company's principal executive offices are located at Route 230 and
Eby-Chiques Road, Mt. Joy, Pennsylvania. The Company maintains 11 offices in six
states, five of which include processing centers. The Company leases all of its
facilities, which in the aggregate constitute approximately 75,000 square feet
of office space. Such leases have terms ranging from month-to-month to eight
years, in most cases with options to renew.
The Company believes that its facilities are adequate for its current
needs. The Company expects to renew its current leases from time to time or to
lease new space as necessary. In addition, the Company expects to lease
additional space as necessary to accommodate the anticipated expansion of the
Company.
LEGAL PROCEEDINGS
As of the date hereof, there are no legal proceedings pending against or
involving the Company that, in the opinion of management, could have a material
adverse effect on the business, financial condition or results of operations of
the Company.
LIABILITY INSURANCE
The Company carries liability insurance providing coverage for
comprehensive property damage, professional liability, employee dishonesty and
workers' compensation. Although the Company believes that its insurance policies
are adequate in amount and coverage for protection of its assets and operations
as currently conducted, there is no assurance that the coverage limits of the
Company's liability policies will be adequate. In addition, there is no
assurance that the Company's insurance coverage will continue to be available in
sufficient amounts and on reasonable terms, or at all.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors, executive officers and significant employees and
their ages as of January 1, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Peter W. Gilson.............................. 55 President, Chief Executive Officer and Director
Hamilton F. Potter III....................... 39 Executive Vice President, Chief Operating and
Financial Officer and Director
Douglas Estock............................... 41 Director of Marketing
Jack R. Kinne................................ 47 President of Spring
Ronald Royer................................. 51 Director of Systems Automation
Bruce B. Schmoyer............................ 52 Director of Operations
Mortimer Berkowitz III....................... 41 Director
</TABLE>
------------------------
Peter W. Gilson has served since September 1991 as a Director and the
President and Chief Executive Officer of PSS. Mr. Gilson also is a Vice
President of Spring. Mr. Gilson was the President of the Goretex Fabrics
Division of W.L. Gore & Associates from 1978 to 1986, and the Chief Operating
Officer of The Timberland Company from 1986 to 1988. Mr. Gilson currently is on
the Board of Directors of each of Forschner Company and Sweetwater, Inc.
Hamilton F. Potter III has served, since September 1991, as the Executive
Vice President and Chief Operating and Financial Officer of PSS. Mr. Potter also
is a Vice President and the Treasurer of Spring. Mr. Potter co-founded BPI
Capital Partners, Inc. ('BPI Capital') in 1990 and has been a Managing Director
of BPI Capital since that time.
Douglas Estock joined the predecessor company to PSS in January 1989 and
has served as Director of Marketing of the Company since 1991.
Jack R. Kinne joined Spring in 1982 and served as its Vice President until
August 1993. Spring was acquired by PSS in August 1993, at which time Mr. Kinne
was made President of Spring.
Ronald Royer joined the predecessor company to PSS in January 1989 and has
served as the Director of Systems Automation of the Company since 1991.
Bruce B. Schmoyer joined PSS in September 1995 as Director of Operations.
From 1990 to August 1995, Mr. Schmoyer was a Senior Manager, Director of Patient
Accounting Practice, Eastern Region at Ernst & Young LLP.
Mortimer Berkowitz III has served as a Director of the Company since
September 1991 and served as a Vice President and the Secretary of the Company
from September 1991 until December 1995. Mr. Berkowitz co-founded BPI Capital in
1990 and has been a Managing Director of BPI Capital since that time. Mr.
Berkowitz also is a director of VZV Research Foundation, Inc.
The Company intends to name up to two people to serve as outside directors
of PSS as soon as practicable. There can be no assurance that such directors
will be named prior to completion of the Offering.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation and Bylaws provide that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, relating to prohibited dividends or
distributions, or the repurchase or redemption of stock or (iv) for any
transaction from which the director derives an improper personal benefit.
Officers of PSS serve at the discretion of the Board of Directors and are
appointed to serve, subject to the discretion of the Board of Directors, until
their successors are appointed. The Company
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maintains key-man insurance for Messrs. Gilson and Potter, under which the
Company is named as the beneficiary.
Directors of the Company receive reimbursement of their reasonable
out-of-pocket expenses incurred in connection with their board activities.
Spring has entered into an Employment Agreement with Jack R. Kinne, the
President of Spring. Pursuant to the Employment Agreement, Mr. Kinne will be
employed by Spring as its President until August 1998, subject to early
termination by Spring for 'cause,' as defined in the agreement. Under the
Employment Agreement, Mr. Kinne receives an annual salary of $129,012, subject
to upward adjustment, and is entitled to receive bonus compensation as may be
determined by Spring's board of directors.
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth the cash compensation
earned by or paid to the Company's executive officers for the years ended
December 31, 1993, 1994 and 1995. The table sets forth such compensation earned
by or paid to the Chief Executive Officer and the Company's other executive
officers (the 'named executive officers').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION(1)
---------------------------------
ANNUAL COMPENSATION RESTRICTED OPTION & LONG TERM
NAME AND ------------------------------- STOCK WARRANT INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) OTHER(4) AWARDS AWARDS PAYOUTS COMPENSATION
- --------------------------- ---- --------- -------- -------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter W. Gilson 1995 $ 221,888 -- -- -- -- -- --
President, Chief 1994 216,094 -- -- -- -- -- --
Executive Officer 1993 203,658 -- -- -- -- -- --
Hamilton F. Potter III 1995 $ 137,151 -- -- -- -- -- --
Executive Vice President 1994 132,128 -- -- -- -- -- --
and Chief Operating and 1993 123,920 -- -- -- -- -- --
Financial Officer
Jack R. Kinne 1995 $ 131,012 -- $ 32,000(5) -- -- -- --
President of Spring 1994 121,101 $ 25,000 -- -- -- -- --
1993(6) 128,712 -- -- -- -- -- --
</TABLE>
- ------------
(1) The Company has no long-term incentive compensation plans other than its
proposed 1996 Stock Option Plan. No options were granted under that plan in
1995. The Company believes that Mr. Kinne may be granted options under the
1996 Stock Option Plan as of the completion of the Offering. Any such
options would be exercisable at the initial public offering price set forth
on the cover of this Prospectus and subject to the terms of the 1996 Stock
Option Plan.
(2) Amounts shown include compensation deferred pursuant to Section 401(k) of
the Internal Revenue Code of 1986, as amended.
(3) The Company has no formal bonus plan and does not provide for deferred
awards. The Company may pay bonuses based on individual and Company
performance.
(4) The aggregate amount of Other Annual Compensation for each named executive
officer except Mr. Kinne did not equal or exceed the lesser of $50,000 or
10% of such individual's base salary and bonus for the year ended December
31, 1995.
(5) Mr. Kinne received $32,000 in reimbursement for certain costs related to his
relocation in connection with the relocation of Spring's headquarters to
Stockton, California.
(6) PSS acquired Spring in August 1993. Amount shown reflects compensation from
Spring for the entire year.
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STOCK OPTION PLAN
It is anticipated that prior to completion of the Offering, the 1996 Stock
Option Plan (the 'Stock Option Plan') will be adopted by the Company's Board of
Directors and approved by its stockholders. It is anticipated that a total of
853,500 authorized but unissued shares of Common Stock will be reserved for
issuance under the Stock Option Plan and that as of completion of the Offering
options to purchase up to 85,350 shares of Common Stock will have been granted
to certain employees of the Company. The purpose of the Stock Option Plan is to
attract and retain employees (including officers), directors and independent
consultants of PSS (including its subsidiaries) and other affiliates (if any) of
PSS and provide such people with additional incentives by increasing their
equity ownership in the Company.
Options granted under the Stock Option Plan are intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the 'Code'), or be non-qualified. The Plan is intended to satisfy
the conditions of Section 16 of the Exchange Act pursuant to Rule 16b-3
promulgated thereunder ('Rule 16b-3').
It is anticipated that the Stock Option Plan will be administered by a
committee of the Company's Board of Directors comprised of directors who are
disinterested within the meaning of Rule 16b-3. Subject to the terms of the
Stock Option Plan, the committee administering the plan has the sole authority
and discretion to grant options, construe the terms of the plan and make all
other determinations and take all other action with respect to the Stock Option
Plan.
Options will be exercisable during the period specified by the committee
administering the Stock Option Plan, except that options will become immediately
exercisable in the event of a Change in Control (as defined in the Stock Option
Plan) of the Company. See 'Risk Factors -- Effect of Anti-takeover Provisions.'
It is anticipated that, generally, options will vest over a five-year period. No
option will be exercisable more than 10 years from the date of grant (or such
other period as may be required by the Code) or after the option holder leaves
the Company's employ (other than by reason of death). Options are
nontransferable, except by will or the laws of intestate succession or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order.
Shares underlying options that terminate unexercised are available for
reissuance under the Stock Option Plan.
The per share exercise price of options granted under the Stock Option Plan
will be determined by the committee of the Board of Directors administering the
Stock Option Plan, except that incentive stock options may not be exercised for
less than 100% of the Fair Market Value (as defined in the Stock Option Plan) of
a share of the Company's Common Stock on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, the Board of Directors does not have a compensation committee,
and decisions regarding compensation are made by the entire Board of Directors,
including Mr. Gilson, who currently is the President and Chief Executive Officer
of the Company, and Mr. Potter, who currently is the Executive Vice President,
Chief Operating and Financial Officer of the Company. The Board of Directors
anticipates establishing a compensation committee immediately prior to the
Offering, the initial members of which will be Messrs. Berkowitz and Gilson. The
Board of Directors also intends to establish, following completion of the
Offering and the addition of up to two outside directors to the Board of
Directors, an audit committee on which at least two outside directors would
serve.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of January 1, 1996, giving effect to
the sale of shares of Common Stock by the Company in the Offering (i) by each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) by each of the Company's
directors and executive officers and (iii) by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SHARES --------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- -------------------------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Peter W. Gilson................................................................. 840,000 37.5% 16.0%
Hamilton F. Potter III.......................................................... 504,000 22.5 9.6
Jack R. Kinne................................................................... 0 0 0
Mortimer Berkowitz III.......................................................... 336,000 15.0 6.4
John N. Irwin III............................................................... 498,400(3) 22.3 9.5
All executive officers and directors as a group (four persons).................. 1,680,000 75.0 32.1
</TABLE>
- ------------
(1) The address for each beneficial owner except John N. Irwin III is in care of
the Company, Route 230 and Eby-Chiques Road, Mt. Joy, Pennsylvania 17538.
Mr. Irwin's address is care of Hillside Capital Incorporated, 405 Park
Avenue, New York, New York 10022.
(2) Except as indicated in the footnotes to this table, to the knowledge of the
Company, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by them, except to the extent authority is shared by spouses under
applicable law.
(3) Includes 92,400 shares owned of record by Mr. Irwin's wife, 177,800 shares
owned of record for a trust of which Mr. Irwin's children are the
beneficiaries and 226,800 shares owned of record by Hillside, a corporation
in which Mr. Irwin holds a controlling equity interest. Mr. Irwin disclaims
beneficial ownership with respect to all shares not owned by him of record.
CERTAIN TRANSACTIONS
PREFERRED STOCK INVESTMENT
In December 1995, Hillside, the record holder of more than five percent of
the shares of Common Stock and the owner of over $960,000 in shares of the
Company's 10% Preferred Stock, Series A, purchased 1,100 additional shares of
the Company's 10% Preferred Stock, Series A, for aggregate consideration of
$550,000 in cash.
Upon completion of the Offering, the Company will apply approximately
$2,932,000 of the net proceeds of the Offering to redeem all of its 10%
Preferred Stock, Series A and Series B. Mr. John N. Irwin III, a beneficial
owner of more than five percent of the shares of Common Stock, is the beneficial
owner of an aggregate of $2,694,000 in such shares of preferred stock, as to
which he disclaims beneficial ownership of all but $394,000 in such shares. Of
the amount of preferred stock otherwise attributable to Mr. Irwin, Hillside owns
of record over $1,510,000 in such shares of the Company's 10% Preferred Stock,
Series A.
STOCKHOLDER ACTION
In connection with the Company's loans from Meridian Bank, all of the
stockholders of PSS, including Messrs. Berkowitz, Gilson and Potter and other
holders of more than five percent of the outstanding shares of Common Stock,
pledged their shares of capital stock as security for the Company's loan
obligations. Upon repayment of these loan obligations with a portion of the net
proceeds of the Offering, those pledged shares will be released.
Under the terms of the Shareholders' Agreement among the Company and its
existing stockholders (the 'Shareholders' Agreement'), the stockholders were
granted certain registration rights, including the right to be included in the
Offering. Those registration rights have been waived for the Offering. See
'Description of Capital Stock -- Registration Rights.'
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share.
COMMON STOCK
As of January 1, 1996, there were 2,240,000 shares of Common Stock
outstanding that were held of record by 15 stockholders. There will be 5,240,000
shares of Common Stock outstanding after giving effect to the sale of the shares
of Common Stock offered hereby.
Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders of the Company. Holders of shares
of Common Stock do not have cumulative voting rights; therefore, the holders of
more than 50% of the shares of the Common Stock will have the ability to select
all of the Company's directors. Holders of shares of Common Stock will be
entitled to receive dividends when, as and if declared by the Board of Directors
and to share ratably in the assets of the Company legally available for
distribution to its stockholders in the event of the liquidation, dissolution or
winding up of the Company, in each case subject to the rights of the holders of
Preferred Stock. Holders of Common Stock have no pre-emptive, subscription,
redemption or conversion rights. All outstanding shares of Common Stock are, and
Common Stock being issued and sold hereby will be, when issued, fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized, subject to certain
limitations prescribed by applicable law, from time to time to issue up to an
aggregate of 10,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, in each case without further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of Common Stock. The issuance of Preferred Stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. At present, the Company has no
plans to issue any of the Preferred Stock.
REGISTRATION RIGHTS
Under the Shareholders' Agreement, the Company's currently existing
stockholders have certain registration rights. Those stockholders have waived
their right to be included in the Offering. Following completion of the
Offering, the Company's currently existing stockholders (who will hold
approximately 42.7% of the Common Stock outstanding after the Offering) will be
entitled to request that their shares of Common Stock be included in any
registration of the Company's capital stock (except certain registrations in
connection with employee plans and business combinations). The number of shares
of stock to be included in any proposed offering may be reduced pro rata among
all securityholders included in such offering if and to the extent that the
managing underwriter of such offering is of the opinion that such inclusion
could reasonably be expected to adversely affect the marketing of shares to be
sold by the Company. The Company is obligated to pay the registration fee and
certain other fees and expenses in connection with any registration of shares of
Common Stock pursuant to the Shareholders' Agreement. The registration rights of
the Company's currently existing stockholders will continue for 10 years after
completion of the Offering.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Upon completion of this Offering, the Company's Certificate of
Incorporation will provide that all stockholder action must be effected at a
duly called meeting and not by a consent in writing. In
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addition, upon completion of the Offering the Company's Bylaws will not permit
stockholders of the Company to call a special meeting of stockholders. These
provisions of the Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. The provisions also are intended
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Common Stock and, as a consequence, they also may inhibit
fluctuations in the market price of the Common Stock that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See 'Risk Factors -- Effect
of Anti-takeover Provisions.'
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ('Section 203') which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation and Bylaws contain certain
provisions permitted under the Delaware General Corporation Law relating to the
liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as the breach of
a director's duty of loyalty or acts or omissions that involve intentional
misconduct or a knowing violation of law. These provisions do not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of a
director's fiduciary duty. These provisions will not alter a director's
liability under federal securities laws. The Company's Certificate of
Incorporation and Bylaws also contain provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the Delaware General
Corporation Law. The Company believes that these provisions will assist the
Company in attracting and retaining qualified individuals to serve as directors.
33
<PAGE>
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Bank of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, 5,240,000 shares of the Common Stock will
be outstanding (5,690,000 shares if the Underwriters' over-allotment option is
exercised in full). The 3,000,000 shares sold in the Offering (3,450,000 if the
Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restrictions or further registration under the Securities Act
unless acquired by an 'affiliate' of the Company (as that term is defined in the
Securities Act) which shares will be subject to the resale limitations of Rule
144 under the Securities Act.
Immediately prior to completion of the Offering, 2,240,000 shares of Common
Stock (the 'Restricted Shares') will be outstanding. Of such shares,
approximately 35,000 shares will be available for immediate sale in the public
market without restriction pursuant to Rule 144(k) under the Securities Act.
Beginning 180 days after the date of this Prospectus, an additional 2,205,000 of
the Restricted Shares will be available for sale in the public market subject to
certain volume and resale restrictions, as described below. Under the
Shareholders' Agreement, holders of the Restricted Shares also will have the
right to include their Restricted Shares in certain other registrations of the
Company's capital stock. See 'Description of Capital Stock -- Registration
Rights.'
In general, under Rule 144 as currently in effect, a shareholder who has
beneficially owned for at least two years shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons who
are affiliates of the Company, will be entitled to sell within any three-month
period a number of shares that does not exceed the greater of (i) 1.0% of the
outstanding shares of the Common Stock (approximately 52,400 shares immediately
after completion of the Offering, or approximately 56,900 shares if the
Underwriters' over-allotment option is exercised in full) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements relating to the manner and notice of sale and the availability of
current public information about the Company.
The Company, each of its directors and officers and each shareholder
holding more than 1.0% of the outstanding Common Stock have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of Common
Stock or options or any other rights to acquire shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Volpe, Welty & Company except for shares offered or sold under the
Company's stock-based benefit plans.
The Company has reserved 853,500 shares of Common Stock for issuance under
the Stock Option Plan. At appropriate times subsequent to completion of the
Offering, the Company may file registration statements under the Securities Act
to register the Common Stock to be issued under this plan. After the effective
date of such registration statement, shares issued under this plan will be
freely tradeable without restriction or further registration under the
Securities Act, unless acquired by affiliates of the Company.
Prior to the Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after the Offering. Sales of substantial
amounts of the Common Stock in the public market following the Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock or the ability of the Company to raise capital through sales of
its equity securities.
34
<PAGE>
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
'Underwriters'), and each of such Underwriters, for whom Volpe, Welty & Company
is acting as representative (the 'Representative'), has agreed severally to
purchase from the Company, the respective number of shares of Common Stock set
forth opposite its name below. The Underwriters are committed to purchase and
pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------- ---------
<S> <C>
Volpe, Welty & Company.................................................
---------
Total........................................................ 3,000,000
---------
---------
</TABLE>
The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share, of which $
may be reallocated to other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representative. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option for thirty days after
the date of this Prospectus to purchase, at the initial public offering price,
less the underwriting discounts and commissions as set forth on the cover page
of this Prospectus, up to 450,000 additional shares of Common Stock at the same
price per share as the Company receives for the 3,000,000 shares of Common Stock
offered hereby, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the foregoing table, bears to the 3,000,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
the over-allotments in connection with the sale of the 3,000,000 shares of
Common Stock offered hereby.
Each of the Company's directors and officers and each shareholder holding
more than 1.0% of the outstanding Common Stock has agreed not to offer, sell,
contract to sell or otherwise dispose of the Common Stock or securities
convertible into or exchangeable for, or any other rights to purchase or
acquire, Common Stock for a period of 180 days following the date of this
Prospectus, without the prior written consent of Volpe, Welty & Company. The
Company also has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for, or any other rights to purchase or acquire, Common Stock for a
period of 180 days following the date of this Prospectus without the prior
written consent of Volpe, Welty & Company, except for the granting of options or
the sale of stock pursuant to the Company's proposed stock option plan. Volpe,
Welty & Company, in its discretion, may waive the foregoing restrictions in
whole or in part, with or without public announcement of such action.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations between the Company and the Representative. Among the factors
that will be considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of companies
in related businesses.
35
<PAGE>
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with the Offering, including
liabilities under the Securities Act, or to contribute payments that the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Howard, Darby & Levin, New York, New York. Certain legal
matters relating to the shares of Common Stock offered hereby will be passed
upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The financial statements of Physician Support Systems, Inc., North Coast
Health Care Management Group and Medical Management Support, Inc. as of December
31, 1993 and 1994 and September 30, 1995 and for each of the three years in the
period ended December 31, 1994 and for the nine-month period ended September 30,
1995, included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and have been
so included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement under the Securities Act, with respect to
the shares of Common Stock offered hereby. This Prospectus, filed as part of the
Registration Statement, omits certain information contained in the Registration
Statement and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the Common Stock offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, including exhibits and schedules filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Room 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained at prescribed rates from the Public Reference Section
of the Commission, Room 1024, Judiciary Plaza, 450, Fifth Street, N.W.,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.
36
<PAGE>
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
Report of Deloitte & Touche LLP, Independent Auditors................................................. F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995................... F-3
Consolidated Statements of Operations for the Years ended December 31, 1992, 1993 and 1994 and for the
Nine Months ended September 30, 1994 (Unaudited) and 1995............................................ F-4
Consolidated Statements of Common Stockholders' Equity (Deficiency) for the Years ended December 31,
1992, 1993 and 1994 and for the Nine Months ended September 30, 1995................................. F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 1992, 1993 and 1994 and for the
Nine Months ended September 30, 1994 (Unaudited) and 1995............................................ F-6
Notes to Consolidated Financial Statements............................................................ F-7
NORTH COAST HEALTH CARE MANAGEMENT GROUP
Report of Deloitte & Touche LLP, Independent Auditors................................................. F-17
Combined Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995....................... F-18
Combined Statements of Operations for the Years ended December 31, 1992, 1993 and 1994 and for the
Nine Months ended September 30, 1994 (Unaudited) and 1995............................................ F-19
Combined Statements of Stockholders' Equity for the Years ended December 31, 1992, 1993 and 1994 and
for the Nine Months ended September 30, 1995......................................................... F-20
Combined Statements of Cash Flows for the Years ended December 31, 1992, 1993 and 1994 and for the
Nine Months ended September 30, 1994 (Unaudited) and 1995............................................ F-21
Notes to Combined Financial Statements................................................................ F-22
MEDICAL MANAGEMENT SUPPORT, INC.
Report of Deloitte & Touche LLP, Independent Auditors................................................. F-25
Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995................................ F-26
Statements of Operations for the Years ended December 31, 1992, 1993 and 1994 and for the Nine Months
ended September 30, 1994 (Unaudited) and 1995........................................................ F-27
Statements of Stockholders' Equity for the years ended December 31, 1992, 1993 and 1994 and for the
Nine Months ended September 30, 1995................................................................. F-28
Statements of Cash Flows for the Years ended December 31, 1992, 1993 and 1994 and for the Nine Months
ended September 30, 1994 (Unaudited) and 1995........................................................ F-29
Notes to Financial Statements......................................................................... F-30
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARIES
Introduction to Pro Forma Financial Information (Unaudited)........................................... F-35
Pro Forma Balance Sheet as of September 30, 1995 (Unaudited).......................................... F-36
Pro Forma Statement of Operations for the Year ended December 31, 1994 (Unaudited).................... F-37
Pro Forma Statement of Operations for the Nine Months ended September 30, 1995 (Unaudited)............ F-38
Notes to Pro Forma Financial Information (Unaudited).................................................. F-39
</TABLE>
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PHYSICIAN SUPPORT SYSTEMS, INC.
Mt. Joy, Pennsylvania
We have audited the accompanying consolidated balance sheets of Physician
Support Systems, Inc. and Subsidiary as of December 31, 1993 and 1994 and
September 30, 1995, and the related consolidated statements of operations,
common stockholders' equity (deficiency) and cash flows for each of the three
years in the period ended December 31, 1994 and the nine months ended September
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Physician Support Systems, Inc.
and Subsidiary as of December 31, 1993 and 1994, and September 30, 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 and the nine months ended September 30, 1995
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 8, 1996
New York, New York
F-2
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1993 1994 1995
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 656,505 $ 575,045 $ 18,609
Accounts receivable -- billed (net of allowances of $35,000 at
December 31, 1993 and 1994, and $125,000 at September 30,
1995)........................................................ 1,388,092 1,145,539 1,436,794
Accounts receivable -- unbilled................................ 3,000,060 3,207,364 3,948,738
Prepaid expenses............................................... 297,022 221,194 199,459
Other current assets........................................... 270,208 328,018 246,965
----------- ----------- -------------
Total current assets...................................... 5,611,887 5,477,160 5,850,565
Property and equipment -- net....................................... 3,511,849 2,982,757 2,577,952
Intangible assets -- net............................................ 16,596,892 14,242,663 12,488,051
Deferred income taxes............................................... -- -- 579,322
Other assets........................................................ 47,092 30,521 122,164
----------- ----------- -------------
Total..................................................... $25,767,720 $22,733,101 $21,618,054
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable............................................... $ 221,277 $ 316,683 $ 245,600
Accrued expenses............................................... 1,940,092 2,132,419 2,516,218
Short-term borrowings.......................................... -- -- 400,000
Current portion of long-term debt.............................. 1,266,667 1,466,667 1,995,333
Current portion of other long-term liabilities................. 1,011,834 1,037,115 686,372
Deferred income taxes.......................................... 866,715 742,733 1,358,515
----------- ----------- -------------
Total current liabilities................................. 5,306,585 5,695,617 7,202,038
----------- ----------- -------------
Long-term debt...................................................... 16,664,096 15,197,430 14,225,097
----------- ----------- -------------
Other long-term liabilities......................................... 1,721,223 1,623,391 1,238,122
----------- ----------- -------------
Deferred income taxes............................................... 1,008,214 322,293 --
----------- ----------- -------------
Commitments and contingencies
Redeemable preferred stock:
Par value $.01 per share: authorized 10,000 shares; 10%
Preferred Stock, Series A and B, stated value $500 per share,
outstanding 2,000, 2,120 and 2,382.032 shares of each series
at December 31, 1993 and 1994 and September 30, 1995,
respectively................................................. 2,000,000 2,120,000 2,382,032
----------- ----------- -------------
Common stockholders' deficiency:
Common stock, par value $.01 per share:
authorized 5,000 shares; outstanding 1,600 shares............ 16 16 16
Additional paid-in capital..................................... 127,984 127,984 127,984
Accumulated deficit............................................ (1,060,398) (2,353,630) (3,557,235)
----------- ----------- -------------
(932,398) (2,225,630) (3,429,235)
----------- ----------- -------------
Total..................................................... $25,767,720 $22,733,101 $21,618,054
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1992 1993 1994 1994 1995
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $8,123,359 $13,080,015 $18,772,920 $14,788,827 $14,630,988
---------- ----------- ----------- ----------- -----------
Operating expenses:
Salaries and wages.................. 3,100,517 5,898,379 8,866,498 6,552,343 7,233,522
General and administrative.......... 2,020,847 4,291,026 6,722,621 5,121,350 5,019,914
Depreciation and amortization....... 1,781,289 2,565,868 3,348,752 2,522,393 2,549,054
---------- ----------- ----------- ----------- -----------
Total operating expenses....... 6,902,653 12,755,273 18,937,871 14,196,086 14,802,490
---------- ----------- ----------- ----------- -----------
Income (loss) from operations............ 1,220,706 324,742 (164,951) 592,741 (171,502)
---------- ----------- ----------- ----------- -----------
Other expenses:
Interest expense.................... 1,043,484 1,261,939 1,525,850 1,148,843 1,058,598
Other, net.......................... (10,164) 38,415 186,334 188,940 (2,694)
---------- ----------- ----------- ----------- -----------
Total other expenses........... 1,033,320 1,300,354 1,712,184 1,337,783 1,055,904
---------- ----------- ----------- ----------- -----------
Income (loss) before income taxes
(benefit).............................. 187,386 (975,612) (1,877,135) (745,042) (1,227,406)
Income taxes (benefit)................... 171,353 (303,130) (809,903) (381,580) (285,833)
---------- ----------- ----------- ----------- -----------
Net income (loss)........................ $ 16,033 $ (672,482) $(1,067,232) $ (363,462) $ (941,573)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Net (loss) per share.................. $ (114.98) $ (553.63) $ (811.27) $ (331.66) $ (713.30)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Weighted average shares outstanding...... 1,600 1,600 1,600 1,600 1,600
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL COMMON
COMMON STOCK ADDITIONAL STOCKHOLDERS'
---------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992........................... 1,600 $ 16 $127,984 $ (3,949) $ 124,051
Net income.................................... -- -- -- 16,033 16,033
Redeemable preferred stock distributions...... -- -- -- (200,000) (200,000)
------ ------ ---------- ----------- ------------
Balance, December 31, 1992......................... 1,600 16 127,984 (187,916) (59,916)
Net loss...................................... -- -- -- (672,482) (672,482)
Redeemable preferred stock distributions...... -- -- -- (200,000) (200,000)
------ ------ ---------- ----------- ------------
Balance, December 31, 1993......................... 1,600 16 127,984 (1,060,398) (932,398)
Net loss...................................... -- -- -- (1,067,232) (1,067,232)
Preferred stock issued in lieu of cash
dividends................................... -- -- -- (120,000) (120,000)
Redeemable preferred stock distributions...... -- -- -- (106,000) (106,000)
------ ------ ---------- ----------- ------------
Balance, December 31, 1994......................... 1,600 16 127,984 (2,353,630) (2,225,630)
Net loss...................................... -- -- -- (941,573) (941,573)
Preferred stock issued in lieu of cash
dividends................................... -- -- -- (262,032) (262,032)
------ ------ ---------- ----------- ------------
Balance, September 30, 1995........................ 1,600 $ 16 $127,984 $(3,557,235) $(3,429,235)
------ ------ ---------- ----------- ------------
------ ------ ---------- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1992 1993 1994
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ 16,033 $ (672,482) $(1,067,232)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Pension liability provision................................... -- 18,360 6,920
Deferred landlord reimbursement............................... -- -- 667,495
Deferred rent................................................. -- -- 851
Depreciation and amortization................................. 1,781,289 2,565,868 3,348,752
Deferred income taxes......................................... 171,353 (303,130) (809,903)
Loss on disposal of property and equipment.................... 7,744 3,795 202,798
Provision for doubtful accounts receivable.................... -- 35,000 63,203
Changes in operating assets and liabilities:
Accounts receivable -- billed............................ (264,489) 64,776 179,350
Accounts receivable -- unbilled.......................... (267,140) 208,446 (207,304)
Prepaid expenses......................................... (84,411) (59,347) 75,828
Other current assets..................................... (12,638) (156,208) (57,810)
Other assets............................................. (1,642) 1,642 16,571
Accounts payable......................................... 10,999 (117,839) 95,406
Accrued expenses......................................... 17,748 112,101 192,327
Operating improvement reserve............................ -- (15,738) (761,504)
---------- ----------- -----------
Net cash provided by operating activities........... 1,374,846 1,685,244 1,945,748
---------- ----------- -----------
Cash flows from investing activities:
Acquisition of Spring, net of cash acquired........................ -- (2,720,854) --
Capital expenditures............................................... (140,118) (130,369) (534,745)
Proceeds from disposal of property and equipment................... -- 16,735 161,050
---------- ----------- -----------
Net cash used in investing activities............... (140,118) (2,834,488) (373,695)
---------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term borrowings................................. -- 8,000,000 --
Proceeds from short-term borrowings................................ -- -- --
Principal payments on long-term debt............................... (1,295,269) (6,216,731) (1,266,666)
Principal payments on capital lease obligations.................... (12,286) (141,919) (280,847)
Redeemable preferred stock distributions........................... (200,000) (200,000) (106,000)
---------- ----------- -----------
Net cash (used in) provided by financing
activities........................................ (1,507,555) 1,441,350 (1,653,513)
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.................... (272,827) 292,106 (81,460)
Cash and cash equivalents, beginning of period.......................... 637,226 364,399 656,505
---------- ----------- -----------
Cash and cash equivalents, end of period................................ $ 364,399 $ 656,505 $ 575,045
---------- ----------- -----------
---------- ----------- -----------
Supplemental investing activity:
Fair value of Spring assets acquired............................... $ -- $12,657,486 $ --
Cash acquired...................................................... -- (312,146)
Liabilities assumed................................................ -- (2,124,486) --
Subordinated note issued........................................... -- (5,500,000) --
Reserve for Spring office move and consolidation................... -- (2,000,000) --
---------- ----------- -----------
Net cash paid for acquisition....................... $ -- $ 2,720,854 $ --
---------- ----------- -----------
---------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest............................................. $1,015,881 $ 1,086,525 $ 1,328,405
---------- ----------- -----------
---------- ----------- -----------
Capital lease obligations incurred in acquisition of equipment..... $ 224,125 $ 84,702 $ 294,534
---------- ----------- -----------
---------- ----------- -----------
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1994 1995
----------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................$ (363,462) $ (941,573)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Pension liability provision................................... 622 6,298
Deferred landlord reimbursement............................... -- (60,657)
Deferred rent................................................. -- 248,343
Depreciation and amortization................................. 2,522,393 2,549,054
Deferred income taxes......................................... (381,580) (285,833)
Loss on disposal of property and equipment.................... 202,798 6,695
Provision for doubtful accounts receivable.................... -- 90,000
Changes in operating assets and liabilities:
Accounts receivable -- billed............................ (171,017) (381,255)
Accounts receivable -- unbilled.......................... (402,558) (741,374)
Prepaid expenses......................................... 13,224 21,735
Other current assets..................................... (120,051) 81,053
Other assets............................................. (922) (91,643)
Accounts payable......................................... 202,572 (71,083)
Accrued expenses......................................... 157,270 383,799
Operating improvement reserve............................ (465,620) (761,232)
----------- ----------
Net cash provided by operating activities........... 1,193,669 52,327
----------- ----------
Cash flows from investing activities:
Acquisition of Spring, net of cash acquired........................ -- --
Capital expenditures............................................... (184,137) (396,332)
Proceeds from disposal of property and equipment................... 161,050 --
----------- ----------
Net cash used in investing activities............... (23,087) (396,332)
----------- ----------
Cash flows from financing activities:
Proceeds from long-term borrowings................................. -- --
Proceeds from short-term borrowings................................ -- 400,000
Principal payments on long-term debt............................... (916,666) (443,667)
Principal payments on capital lease obligations.................... (216,536) (168,764)
Redeemable preferred stock distributions........................... (106,000) --
----------- ----------
Net cash (used in) provided by financing
activities........................................ (1,239,202) (212,431)
----------- ----------
Net increase (decrease) in cash and cash equivalents.................... (68,620) (556,436)
Cash and cash equivalents, beginning of period.......................... 656,505 575,045
----------- ----------
Cash and cash equivalents, end of period................................$ 587,885 $ 18,609
----------- ----------
----------- ----------
Supplemental investing activity:
Fair value of Spring assets acquired...............................$ -- $ --
Cash acquired......................................................
Liabilities assumed................................................ -- --
Subordinated note issued........................................... -- --
Reserve for Spring office move and consolidation................... -- --
----------- ----------
Net cash paid for acquisition.......................$ -- $ --
----------- ----------
----------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest.............................................$ 1,182,893 $ 982,496
----------- ----------
----------- ----------
Capital lease obligations incurred in acquisition of equipment.....$ 294,534 $ --
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
1. DESCRIPTION OF THE BUSINESS
a. Description of the Business -- Physician Support Systems, Inc. (a
Delaware corporation) and Subsidiary (the 'Company') are engaged in the business
of providing business management services to primarily hospital-affiliated
physicians.
b. Business Combination -- On August 12, 1993 (effective August 1, 1993),
the Company acquired 100 percent of the outstanding common stock of Spring
Anesthesia Group, Inc. ('Spring') for approximately $8,533,000, including
approximately $3,033,000 in cash and a $5,500,000 subordinated note. This
acquisition was accounted for under the purchase method of accounting and,
accordingly, the net assets acquired were recorded at their fair values on the
effective date of acquisition. Results of operations for Spring from the
effective date of acquisition through December 31, 1993 are included in the
Company's consolidated statement of operations for the year ended December 31,
1993. The excess purchase price over fair value of net assets acquired of
approximately $5,756,000 is being amortized on the straight-line method over 20
years.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, Spring. All
significant intercompany balances and transactions have been eliminated in
consolidation.
b. Revenue Recognition -- The Company estimates fees that will be invoiced
upon collection of physician accounts receivable and recognizes such revenues
when substantially all services to be performed by the Company have been
completed. Accounts receivable -- unbilled, represents amounts recognized for
services rendered but not yet invoiced and is based on the Company's estimate of
the fees that will be collected from clients when patient accounts are
collected. The Company provides for additional costs necessary to complete the
collection process.
Accounts receivable -- billed, primarily represents amounts invoiced to
clients. The Company provided $35,000, $63,203 and $90,000 for doubtful accounts
in the years ended December 31, 1993 and 1994 and the nine months ended
September 30, 1995, respectively, and wrote off $-0-, $63,203 and $-0-against
its allowance for doubtful accounts in the years ended December 31, 1993 and
1994 and the nine months ended September 30, 1995, respectively.
c. Cash and Cash Equivalents -- The Company considers its highly liquid
overnight investments to be cash equivalents.
d. Cash in Escrow -- The Company holds cash collected on behalf of its
physician customers in escrow and remits amounts due to physicians weekly.
Approximately $200,400, $2,178,600 and $1,460,700 of cash in escrow was offset
against due to physicians on the Company's balance sheet at December 31, 1993
and 1994 and September 30, 1995, respectively.
e. Property and Equipment -- Depreciation and amortization are computed on
a straight-line basis over the shorter of estimated useful lives of the assets
or lease terms.
f. Intangible Assets -- Amortization is computed on a straight-line basis
over estimated useful lives of the assets. On an annual basis the Company
compares the carrying value of its goodwill to an estimate of the Company's fair
value to evaluate the reasonableness of the carrying value and remaining
amortization period. Fair value is computed using projections of future cash
flows.
g. Income Taxes -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for
Income Taxes,' which requires an asset and liability approach to accounting for
income taxes. Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and
F-7
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
rates applicable to periods in which the differences are expected to affect
taxable income. Income taxes/benefit is the tax payable/receivable for the
period plus or minus the change during the period in deferred income tax assets
and liabilities.
h. Net (Loss) Per Share -- Net (loss) per common share is calculated
using the weighted average number of common shares outstanding during each of
the periods.
i. Unaudited Interim Financial Statements -- In the opinion of management,
the Company has made all adjustments, consisting of only normal recurring
accruals, necessary for fair presentation of the results of operations and cash
flows for the nine months ended September 30, 1994 as presented in the
accompanying unaudited financial statements.
3. PRO FORMA FINANCIAL INFORMATION
The unaudited consolidated results of operations on a pro forma basis as
though Spring had been acquired as of January 1, 1992 are as follows:
<TABLE>
<CAPTION>
1992 1993
----------- -----------
<S> <C> <C>
Revenue.................................................................. $21,067,583 $20,535,293
----------- -----------
----------- -----------
Net loss................................................................. $ (631,082) $(1,008,099)
----------- -----------
----------- -----------
Net loss per share....................................................... $ (394.43) $ (630.06)
----------- -----------
----------- -----------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ------------------------ SEPTEMBER 30,
USEFUL LIFE 1993 1994 1995
----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Furniture and fixtures......................... 7 $ 488,051 $ 528,914 $ 619,060
Equipment...................................... 5 1,652,148 1,535,445 1,664,497
Computer software.............................. 5 2,650,000 2,650,000 2,650,000
Vehicles....................................... 5 16,768 16,768 27,768
Leasehold improvements......................... 10 63,017 310,760 460,126
---------- ---------- -------------
4,869,984 5,041,887 5,421,451
---------- ---------- -------------
Less accumulated depreciation and
amortization................................. 1,358,135 2,059,130 2,843,499
---------- ---------- -------------
$3,511,849 $2,982,757 $ 2,577,952
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
F-8
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------------- SEPTEMBER 30,
USEFUL LIFE 1993 1994 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Physician contracts......................... 6 - 10 $ 9,883,290 $ 9,883,290 $ 9,883,290
Noncompetition agreements................... 5 3,727,042 3,727,042 3,727,042
Excess purchase price over fair value of net
assets acquired........................... 20 6,076,005 6,076,005 6,076,005
Other....................................... 5 441,458 441,458 441,458
----------- ----------- -------------
20,127,795 20,127,795 20,127,795
Less accumulated amortization............... 3,530,903 5,885,132 7,639,744
----------- ----------- -------------
$16,596,892 $14,242,663 $12,488,051
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Estimated costs necessary to complete the collection process
for unbilled receivables.................................. $ 758,041 $ 853,411 $ 882,105
Accrued payroll, benefits and related liabilities........... 517,394 483,275 619,380
Accrued interest............................................ 391,349 588,795 664,895
Other....................................................... 273,308 206,938 349,838
---------- ---------- -------------
$1,940,092 $2,132,419 $ 2,516,218
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
F-9
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1993 1994 1995
----------- ----------- -------------
<S> <C> <C> <C>
Bank fixed note, 7.6% until August 11, 1996, national
commercial rate plus 1.5% from August 12, 1996 through
August 1, 1998, payable monthly, $133,333 through August
1, 1996, $150,000 through August 1, 1997, $166,667
through August 1, 1998 and $250,000 on August 1, 1998... $ 7,600,000 $ 6,333,334 $ 5,516,667
Bank term note, national commercial rate plus 1%, payable
on February 28, 1996.................................... -- -- 200,000
Bank term note, national commercial rate plus 1 1/4%,
payable monthly $13,500 from August 1, 1995 through
September 1, 1996 and $11,000 on October 1, 1996........ -- -- 173,000
Subordinated notes, 13%, payable $1,500,000 on August 30,
1997 and 1998........................................... 3,000,000 3,000,000 3,000,000
Subordinated notes, 9% on the first $1,350,000 due August
30, 1997, 0% on the remainder, payable on August 30,
1998.................................................... 1,830,763 1,830,763 1,830,763
Spring acquisition subordinated note, 7.1%, payable on
August 12, 2003......................................... 5,500,000 5,500,000 5,500,000
----------- ----------- -------------
17,930,763 16,664,097 16,220,430
Less current portion...................................... 1,266,667 1,466,667 1,995,333
----------- ----------- -------------
$16,664,096 $15,197,430 $14,225,097
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The loan agreement between the Company and the bank (the 'Bank Agreement')
and certain of the subordinated notes have covenants which restrict the payment
of dividends on common stock and provide that various financial limits and
ratios be maintained. The Company is in compliance with all covenants of the
Bank Agreement as amended on February 25, 1994. In addition, the Bank Agreement
requires an annual prepayment of the fixed rate note equal to 50 percent of the
Company's cash flow as defined.
The bank fixed rate note is secured by all assets of the Company. In
addition, the stockholders have pledged their shares of common stock to the bank
as additional collateral.
The bank's national commercial rate was 8.75% at September 30, 1995.
During the year ended December 31, 1993, the interest rate on the Spring
acquisition subordinated note was negotiated from 8% to 7.6%. During the year
ended December 31, 1994, the interest rate on the Spring acquisition
subordinated note was negotiated from 7.6% to 7.1%.
F-10
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
The aggregate amount of maturities of long-term debt after September 30,
1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
------------- ------
<S> <C>
1996........................................... $ 1,995,333
1997........................................... 4,677,667
1998........................................... 4,047,430
1999........................................... --
2000........................................... --
Thereafter..................................... 5,500,000
-----------
$16,220,430
-----------
-----------
</TABLE>
In addition to the above, at September 30, 1995, the Company had borrowed
$400,000 under its line of credit with its bank. See Note 14.
8. INCOME TAXES
The income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------- -----------------------
1992 1993 1994 1994 1995
--------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal:
Current...................................... $ -- $ -- $ -- $ -- $ --
Deferred..................................... (71,893) 272,668 520,339 163,169 317,520
--------- -------- -------- ----------- --------
(71,893) 272,668 520,339 163,169 317,520
--------- -------- -------- ----------- --------
State:
Current...................................... -- -- -- -- --
Deferred..................................... (99,460) 30,462 289,564 218,411 (31,687)
--------- -------- -------- ----------- --------
(99,460) 30,462 289,564 218,411 (31,687)
--------- -------- -------- ----------- --------
$(171,353) $303,130 $809,903 $ 381,580 $285,833
--------- -------- -------- ----------- --------
--------- -------- -------- ----------- --------
</TABLE>
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1993 1994 1995
----------- ----------- -------------
<S> <C> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards............................... $ 935,014 $ 689,212 $ 1,678,588
Valuation reserve for state net operating loss carryforwards... -- (69,374) (153,821)
Spring operating reserve....................................... 748,259 459,791 173,547
Other.......................................................... 51,249 208,979 329,853
----------- ----------- -------------
1,734,522 1,288,608 2,028,167
----------- ----------- -------------
Deferred income tax liabilites:
Physician contracts............................................ (2,095,726) (847,369) (708,709)
Unbilled receivables........................................... (916,448) (947,005) (1,590,281)
Depreciation and amortization.................................. (595,761) (554,877) (503,987)
Other.......................................................... (1,516) (4,383) (4,383)
----------- ----------- -------------
(3,609,451) (2,353,634) (2,807,360)
----------- ----------- -------------
Net deferred income tax liability................................... $(1,874,929) $(1,065,026) $ (779,193)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
F-11
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
The net deferred income tax liability is classified in the consolidated
balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1993 1994 1995
----------- ----------- -------------
<S> <C> <C> <C>
Net current liability............................................... $ (866,715) $ (742,733) $ --
Net long-term asset................................................. -- -- 579,322
Net long-term liability............................................. (1,008,214) (322,293) (1,358,515)
----------- ----------- -------------
Net long-term asset................................................. $(1,874,929) $(1,065,026) $ (779,193)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
A reconciliation of the statutory Federal income tax rate and the effective
rate of the provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------
1992 1993 1994 1994 1995
---- ----- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory Federal income tax rate.............................. 34.0% (34.0)% (34.0)% (34.0)% (34.0)%
State income taxes, net of Federal income tax benefits......... 9.1 (9.0) (4.3) (4.4) (6.2)
Nondeductible items............................................ 4.4 6.1 6.2 11.9 7.5
Disallowed state net operating loss deduction.................. 43.9 13.5 -- -- --
Change in state tax laws allowing previously disallowed prior
years state net operating loss deduction..................... -- -- (8.7) (27.2) --
State net operating loss carryforwards valuation allowance..... -- -- 3.7 10.9 9.4
Effect of changes in state income tax rates on deferred income
tax assets and liabilities................................... -- -- (6.0) (8.4) --
Prior year items............................................... -- (7.7) -- -- --
---- ----- ----- ----------- -----
Effective income tax rate...................................... 91.4% (31.5)% (43.1)% (51.2)% (23.3)%
---- ----- ----- ----------- -----
---- ----- ----- ----------- -----
</TABLE>
As of December 31, 1994, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $1,724,000 which expire between
2007 and 2009.
In October 1995, the Internal Revenue Service ('IRS') examined the tax
returns of the Company for the years ended August 31, 1992 and 1993. As a result
of the examination, the estimated useful lives for income tax purposes of
certain physician contracts were adjusted to correspond to the estimated useful
lives for financial statement purposes of 10 years. The effect of the IRS
examination was a reduction in the Company's net operating loss carryforwards of
approximately $1,995,000.
F-12
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
9. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Reserve for Spring operations move, consolidation and improvement..... $1,984,262 $1,222,758 $ 461,526
Capitalized lease obligations......................................... 730,435 744,122 575,358
Pension liability (Note 10)........................................... 18,360 25,280 31,578
Deferred landlord reimbursement....................................... -- 667,495 606,838
Deferred rent......................................................... -- 851 249,194
---------- ---------- -------------
2,733,057 2,660,506 1,924,494
---------- ---------- -------------
Less current portion:
Reserve for Spring operations consolidation and improvement...... 761,504 806,246 461,526
Capitalized lease obligations.................................... 250,330 230,869 224,846
---------- ---------- -------------
1,011,834 1,037,115 686,372
---------- ---------- -------------
$1,721,223 $1,623,391 $ 1,238,122
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
On August 1, 1993 (the date on which the Company acquired Spring), the
Company established a $2,000,000 reserve for the move, consolidation and
improvement of the Spring operations. Such reserve was an estimate of the costs
of consolidating operations of the Spring billing offices into one new location
in a lower cost area and modifying the operating approach to include elements of
the PSS methodology. The Company classifies the portion of this reserve expected
to be disbursed within the next twelve months as a current liability.
The following is a schedule of future minimum lease payments under capital
leases and the present value of the minimum lease payments as of September 30,
1995:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
------------ ------
<S> <C>
1996......................................................... $262,562
1997......................................................... 221,671
1998......................................................... 109,923
1999......................................................... 51,112
2000......................................................... --
--------
Total minimum lease payments..................................... 645,268
Less amount representing interest................................ (69,910)
--------
Present value of minimum lease payments (of which $224,846 is due
within one year)............................................. $575,358
--------
--------
</TABLE>
10. EMPLOYEE BENEFIT PLANS
Spring provides pension benefits to eligible employees under a
noncontributory defined benefit pension plan. Benefits are earned on the basis
of credited service and employees' highest five consecutive plan years' average
compensation. The Plan was frozen effective July 1, 1993. Accordingly, no
further benefits accrue to eligible employees after July 1, 1993, the
accumulated benefit obligation becomes equal to the projected benefit obligation
as of that date, and all benefits become vested as of that date. The Company
makes contributions to the plan as necessary to satisfy the minimum funding
requirements of ERISA.
F-13
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
The following table summarizes the significant assumptions used in
determining the pension obligations as of December 31, 1993 and 1994:
<TABLE>
<S> <C>
Discount rate -- pre-retirement......................................... 7.0%
Discount rate -- post-retirement........................................ 5.0
Expected long-term rate of return on assets............................. 7.0
</TABLE>
Assets of the plan consist primarily of investments in stocks and corporate
and government bonds.
Pension cost includes the following components:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Service cost -- benefits earned during the period............................. $ -- $ --
Interest cost on projected benefit obligation................................. (142,407) (142,660)
Return on plan assets -- actual............................................... 46,331 69,574
Net amortization and deferral................................................. 94,834 66,166
--------- ---------
Net pension cost.................................................... $ (1,242) $ (6,920)
--------- ---------
--------- ---------
</TABLE>
The funded status of the pension plan at December 31, 1993 and 1994 was as
follows:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Projected benefit obligation (100% vested)................................ $(2,157,713) $(1,911,160)
Plan assets at fair value................................................. 2,132,433 1,740,219
----------- -----------
Projected benefit obligation in excess of plan assets..................... (25,280) (170,941)
Unrecognized net loss..................................................... 6,920 145,661
----------- -----------
Accrued pension cost................................................. $ (18,360) $ (25,280)
----------- -----------
----------- -----------
</TABLE>
The Company established a 401(k) plan that covers substantially all PSS
employees with one year of service age 21 or older effective January 1, 1994.
The Company did not make any contribution to the plan for the year ended
December 31, 1994 or for the nine months ended September 30, 1995.
11. COMMITMENTS
a. Operating Leases -- Future minimum annual rental commitments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, TOTAL
------------ -----
<S> <C>
1996......................................... $1,102,203
1997......................................... 585,107
1998......................................... 454,776
1999......................................... 459,948
2000......................................... 535,191
Thereafter................................... 1,225,965
----------
$4,363,190
----------
----------
</TABLE>
Rent expense was approximately $351,000, $810,000, $1,143,000, $831,700
(unaudited) and $1,009,000 for the years ended December 31, 1992, 1993, 1994 and
nine months ended September 30, 1994 (unaudited) and 1995, respectively.
b. Letter of Credit -- The Company has a letter of credit from a bank in
the amount of approximately $121,000 at September 30, 1995 in connection with
one of its self-insured employee medical plans.
F-14
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
12. COMMON STOCK
All common stockholders of the Company are parties to a Shareholders'
Agreement (the 'Agreement') dated August 31, 1991. The Agreement requires the
Company to repurchase, at the request of any stockholder, up to 5 percent of the
shares of common stock outstanding on each August 30 from 2006 through 2010 at a
predetermined multiple of earnings per share as defined. In addition, the
Company is required to repurchase, at the request of any stockholder, up to 5
percent of the shares of common stock outstanding on each August 30 from 2016
through 2020 at a price per share to be determined at the time of repurchase.
The Agreement terminates on the earlier of (a) August 30, 2021, (b) the sale of
all or substantially all of the assets of the Company, (c) the sale of more than
20% of the outstanding common stock of the Company pursuant to a public offering
registered under the Securities Act of 1933 or (d) the merger of the Company
into another entity where (i) the Company is not the surviving entity or (ii)
the common stockholders of the Company do not own at least a majority of the
common stock of the surviving entity.
13. REDEEMABLE PREFERRED STOCK
On August 30, 1991, the Company issued 2,000 shares of 10% Preferred Stock,
Series A (the 'Series A Stock') and 2,000 shares of 10% Preferred Stock, Series
B (the 'Series B Stock') (together, the '10% Preferred Stock'). On February 28,
1994, February 28, 1995 and August 31, 1995, the Company issued stock dividends
of 120 shares, 127.2 shares and 134.832 shares, respectively, of 10% Preferred
Stock, Series A and 120 shares, 127.2 shares and 134.832 shares, respectively,
of 10% Preferred Stock, Series B in lieu of cash dividends.
The Series A Stock dividends are cumulative and payable semiannually.
Should the Company merge into or consolidate with an entity such that at least a
majority of the common stock of the surviving entity is not held by the common
stockholders of record as of August 30, 1991, unpaid dividends shall then accrue
at the rate of 12 percent per annum from the latest dividend date. Should the
Company fail to pay dividends when due, the holders of Series A Stock will
receive in lieu of cash dividends additional shares of preferred stock with a
face amount equal to the amount of unpaid cash dividends, at the rate of 12
percent per annum, having identical terms to Series A Stock.
The Series A Stock has no voting rights except that the Company cannot
change the powers, preferences or rights of the 10% Preferred Stock or issue
securities senior to the 10% Preferred Stock without the approval of a majority
of the holders of the 10% Preferred Stock.
The Company must redeem all outstanding shares of Series A Stock on the
earlier of August 31, 1998 or the date on which 60 percent of the Company's
common stock is first held by persons other than the common stockholders of
record as of August 30, 1991. The Series A Stock will be redeemed at its stated
value plus an amount equal to all accrued and unpaid dividends (whether or not
declared) to the date of redemption. The Company may at any time prior to August
31, 1998 redeem all, or any number less than all, of the outstanding shares of
Series A Stock at their stated value plus an amount equal to all accrued and
unpaid dividends (whether or not declared) to the date of redemption.
Upon liquidation, dissolution or winding up of the Company, the holders of
Series A Stock shall be entitled to receive their pro rata share of any payment
or distribution before any such payment or distribution shall be made on any
common stock or on any other preferred stock issued but not approved by a
majority of the holders of 10% Preferred Stock.
The Series B Stock is identical to the Series A Stock except that the
Series B Stock is exchangeable in whole or in part, at the option of the
Company, into 10% Senior Subordinated Notes on any dividend date subsequent to
December 31, 1994, provided the Company has paid all dividends accrued to the
date of such exchange.
F-15
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
14. SUBSEQUENT EVENTS
Subsequent to September 30, 1995, the Company incurred professional fees in
connection with a proposed business transaction. The Company has been reimbursed
for all fees incurred in connection with the proposed transaction.
On December 15, 1995, the Company increased the total availability under
its line of credit to $600,000, and borrowed $100,000, bringing its total
outstanding borrowings under its line of credit to $500,000.
On December 21, 1995, the Company sold 1,100 shares of 10% Redeemable
Preferred Stock, Series A, stated value $500 per share, for $550,000.
F-16
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
NORTH COAST HEALTH CARE MANAGEMENT
Cleveland, Ohio
We have audited the accompanying combined balance sheets of North Coast
Health Care Management, Inc., Medical Dental Invoicing Services, Inc., and North
Coast Account Systems, Inc. (collectively 'North Coast Health Care Management
Group') as of December 31, 1993 and 1994 and September 30, 1995 and the related
combined statements of operations, of stockholders' equity and of cash flows for
the years ended December 31, 1992, 1993 and 1994 and the nine months ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of North Coast Health Care
Management Group as of December 31, 1993 and 1994 and September 30, 1995 and the
combined results of their operations, their stockholders' equity and their cash
flows for the years ended December 31, 1992, 1993 and 1994 and the nine months
ended September 30, 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
December 29, 1995
Cleveland, Ohio
F-17
<PAGE>
<PAGE>
NORTH COAST HEALTH CARE MANAGEMENT GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 54,674 $ 614,977 $ 379,799
Accounts receivable (Note 2):
Billed...................................................... 81,319 16,635 155,651
Unbilled.................................................... 1,407,953 1,217,733 1,250,820
Prepaid expenses and other current assets........................ 14,686 22,119 32,050
---------- ---------- -------------
Total current assets........................................ 1,558,632 1,871,464 1,818,320
Property and Equipment, net (Note 4).................................. 479,037 411,612 318,863
Intangibles and Other Assets.......................................... 97,462 65,989 2,387
---------- ---------- -------------
Total.................................................. $2,135,131 $2,349,065 $ 2,139,570
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank under line of credit (Note 5)............... $ 20,000 $ 65,000 $ 75,000
Current portion of note payable to bank (Note 5)................. 40,000 33,333
Accounts payable................................................. 167,280 170,501 95,646
Accrued compensation............................................. 636,946 537,446 931,590
Deferred revenue................................................. 23,440
---------- ---------- -------------
Total current liabilities................................... 864,226 806,280 1,125,676
---------- ---------- -------------
Note Payable to Bank, less current portion (Note 5)................... 33,333
---------- ---------- -------------
Stockholders' Equity:
Common stock, no par value; 750 shares authorized; 100 shares
issued and outstanding at December 31, 1993, 1994, and
September 30, 1995............................................. 2,000 2,000 2,000
Retained earnings..................................................... 1,235,572 1,540,785 1,011,894
---------- ---------- -------------
Total stockholders' equity.................................. 1,237,572 1,542,785 1,013,894
---------- ---------- -------------
Total.................................................. $2,135,131 $2,349,065 $ 2,139,570
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
See notes to combined financial statements.
F-18
<PAGE>
<PAGE>
NORTH COAST HEALTH CARE MANAGEMENT GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................... $5,828,162 $6,204,952 $5,791,893 $ 4,204,184 $4,376,442
---------- ---------- ---------- ----------- ----------
Operating Expenses:
Salaries and wages.................... 3,580,036 4,201,601 3,241,805 2,537,732 2,802,117
General and administrative............ 1,983,942 2,001,539 2,043,313 1,419,544 1,381,868
Depreciation and amortization......... 152,553 154,605 169,782 127,336 128,826
---------- ---------- ---------- ----------- ----------
Total operating expenses......... 5,716,531 6,357,745 5,454,900 4,084,612 4,312,811
---------- ---------- ---------- ----------- ----------
Income (loss) from Operations.............. 111,631 (152,793) 336,993 119,572 63,631
---------- ---------- ---------- ----------- ----------
Other Income (Expense):
Interest expense...................... (31,183) (13,478) (43,423) (29,753) (19,154)
Interest income....................... 3,164 5,062 11,643 1,170 396
---------- ---------- ---------- ----------- ----------
Other income (expense), net...... (28,019) (8,416) (31,780) (28,583) (18,758)
---------- ---------- ---------- ----------- ----------
Net Income (Loss).......................... $ 83,612 $ (161,209) $ 305,213 $ 90,989 $ 44,873
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
See notes to combined financial statements.
F-19
<PAGE>
<PAGE>
NORTH COAST HEALTH CARE MANAGEMENT GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ ---------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1992.......................................... 100 $2,000 $1,313,169 $ 1,315,169
Net income................................................... 83,612 83,612
------ ------ ---------- -------------
Balance, December 31, 1992........................................ 100 2,000 1,396,781 1,398,781
Net loss..................................................... (161,209) (161,209)
------ ------ ---------- -------------
Balance, December 31, 1993........................................ 100 2,000 1,235,572 1,237,572
Net income................................................... 305,213 305,213
------ ------ ---------- -------------
Balance, December 31, 1994........................................ 100 2,000 1,540,785 1,542,785
Net income................................................... 44,873 44,873
Cash distribution to shareholders............................ (573,764) (573,764)
------ ------ ---------- -------------
Balance, September 30, 1995....................................... 100 $2,000 $1,011,894 $ 1,013,894
------ ------ ---------- -------------
------ ------ ---------- -------------
</TABLE>
See notes to combined financial statements.
F-20
<PAGE>
<PAGE>
NORTH COAST HEALTH CARE MANAGEMENT GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------------
1992 1993 1994 1994 1995
--------- --------- -------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................. $ 83,612 $(161,209) $305,213 $ 90,989 $ 44,873
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization............................... 152,553 154,605 169,782 127,336 128,826
Changes in operating assets and liabilities:
Accounts receivable....................................... (219,572) 142,200 254,904 (24,080) (172,103)
Prepaid expenses and other current assets................. 3,508 (14,537) (7,433) (14,602) (9,931)
Other assets.............................................. (51) (40,669) (527) (346) 39,752
Accounts payable.......................................... 46,786 83,601 3,222 (99,686) (74,855)
Accrued compensation...................................... 106,382 101,948 (99,500) 263,128 394,144
Deferred revenue.......................................... 23,440
--------- --------- -------- ----------- ---------
Net cash provided by operating activities.............. 173,218 265,939 625,661 342,739 374,146
--------- --------- -------- ----------- ---------
Cash flows from investing activities -- Capital expenditures..... (53,949) (49,578) (70,358) (70,100) (12,227)
--------- --------- -------- ----------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on line of credit.................. 50,000 (215,000) 45,000 285,000 10,000
Principal payments on note payable to bank..................... (40,000) (40,000) (40,000) (29,999) (33,333)
Borrowing (repayment) of note payable to officer............... (100,000) 100,000
Cash distribution to shareholders.............................. (573,764)
--------- --------- -------- ----------- ---------
Net cash provided (used) by financing activities....... (90,000) (255,000) 5,000 355,001 (597,097)
--------- --------- -------- ----------- ---------
Net increase (decrease) in cash and cash equivalents............. 29,269 (38,639) 560,303 627,640 (235,178)
Cash and cash equivalents, beginning of year..................... 64,044 93,313 54,674 54,674 614,977
--------- --------- -------- ----------- ---------
Cash and cash equivalents, end of year........................... $ 93,313 $ 54,674 $614,977 $ 682,314 $ 379,799
--------- --------- -------- ----------- ---------
--------- --------- -------- ----------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest......................... $ 31,183 $ 13,478 $ 43,423 $ 29,753 $ 19,154
--------- --------- -------- ----------- ---------
--------- --------- -------- ----------- ---------
</TABLE>
See notes to combined financial statements.
F-21
<PAGE>
<PAGE>
NORTH COAST HEALTH CARE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
1. DESCRIPTION OF THE BUSINESS
North Coast Health Care Management, Inc., Medical Dental Invoicing
Services, Inc., and North Coast Account Systems, Inc. (collectively 'North Coast
Health Care Management Group' or, the 'Company') provide various services for
physicians located primarily in northeast Ohio. North Coast Health Care
Management, Inc. (an S corporation) provides practice management services to
both hospital and non-hospital based physicians. Medical Dental Invoicing
Services, Inc. (a C corporation) performs billing services solely for North
Coast Health Care Management, Inc. customers, and North Coast Account Systems,
Inc. (a C corporation) performs accounts receivable collection services for the
same clients. The C corporations have no taxable income, and no significant
temporary differences or net operating loss carryforwards.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination -- The combined financial statements include the
accounts of the Company due to common ownership and/or management. All
intercompany balances and transactions have been eliminated.
Revenue Recognition -- The Company estimates fees that will be invoiced
upon collection of physician accounts receivable and recognizes such revenues
when all services to be performed by the Company have been completed. Accounts
receivable-billed, primarily represents amounts invoiced to clients. Accounts
receivable-unbilled, represents amounts recognized for services rendered but not
yet invoiced and is based on the Company's estimate of the fees that will be
collected from clients when patient accounts are collected.
Property and Equipment -- Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets or life
of the lease.
Intangible Assets -- Amortization is computed using the straight-line
method over five years.
Unaudited Interim Financial Statements -- In the opinion of management, the
Company has made all adjustments, consisting of only normal recurring accruals,
necessary for fair presentation of the results of operations and cash flows for
the nine months ended September 30, 1994 as presented in the accompanying
unaudited financial statements.
3. RELATED PARTY TRANSACTIONS
An officer and director of the Company has an ownership interest in
physicians groups that are also clients of the Company. Transactions with these
groups accounted for revenue and accounts receivable as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................... $3,205,000 $3,152,000 $2,799,000 $ 2,100,000 $1,988,000
Accounts receivable.............. 931,000 848,000 718,000 781,000
</TABLE>
F-22
<PAGE>
<PAGE>
NORTH COAST HEALTH CARE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
DESCRIPTION 1993 1994 1995
----------- -------- ---------- -------------
<S> <C> <C> <C>
Office equipment.............................................. $633,198 $ 703,556 $ 715,783
Furniture and fixtures........................................ 165,531 165,531 165,531
Leasehold improvements........................................ 137,525 137,525 137,525
-------- ---------- -------------
Total.................................................... 936,254 1,006,612 1,018,839
Less accumulated depreciation and amortization................ 457,217 595,000 699,976
-------- ---------- -------------
Property and equipment, net................................... $479,037 $ 411,612 $ 318,863
-------- ---------- -------------
-------- ---------- -------------
</TABLE>
5. DEBT ARRANGEMENTS
Lines of Credit -- The Company has a total of $400,000 in unsecured lines
of credit available from a bank with interest (9.75% at September 30, 1995) at
the prime lending rate plus one percent.
Note Payable to Bank -- The Company had an unsecured note payable to a bank
in monthly installments of $3,333 plus interest at prime lending rate plus one
percent. This loan was fully paid in September 1995.
6. EMPLOYEE BENEFIT PLANS
The Company provides defined contribution employee benefit plans to the
employees of North Coast Health Care Management, Inc. and Medical Dental
Invoicing Services, Inc. The Company's contributions to the plan are based upon
a percentage of wages (10% for North Coast Health Care Management, Inc. and 5%
for Medical Dental Invoicing Services, Inc.). The total expense recognized by
the Company for the years ended December 31, 1992, 1993 and 1994 and the nine
months ended September 30, 1995 for the defined contribution plans is $152,000,
$158,000, $145,000 and $113,000, respectively.
7. LEASE COMMITMENTS
The Company has various operating leases for automobiles and office space.
Rent expense incurred by the Company is:
<TABLE>
<CAPTION>
PERIOD ENDED AMOUNT
------------ --------
<S> <C>
December 31, 1992................................................................. $309,000
December 31, 1993................................................................. 325,000
December 31, 1994................................................................. 331,000
Nine months ended September 30, 1995.............................................. 227,000
</TABLE>
Effective August 1, 1995, the Company entered into a new office lease for
$19,519 a month. This lease expires in November 2002.
F-23
<PAGE>
<PAGE>
NORTH COAST HEALTH CARE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
The remaining future minimum rental commitments under these noncancelable
operating leases, including the new office lease, are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1995................................................ $ 72,674
1996................................................ 296,495
1997................................................ 283,445
1998................................................ 252,926
1999................................................ 234,228
Thereafter.............................................. 663,646
----------
Total............................................... $1,803,414
----------
----------
</TABLE>
F-24
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
MEDICAL MANAGEMENT SUPPORT, INC.
We have audited the accompanying balance sheets of Medical Management
Support, Inc. as of December 31, 1993 and 1994, and September 30, 1995, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1994, and the nine-month
period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Medical Management Support, Inc. as of
December 31, 1993 and 1994, and September 30, 1995, and the results of its
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1994, and the nine-month period ended September
30, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 5, 1996
Seattle, Washington
F-25
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994, AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1993 1994 1995
-------- -------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $135,679 $217,890 $ 86,234
Accounts receivable -- Billed........................................ 14,001 1,974 10,463
Accounts receivable -- Unbilled...................................... 121,715 182,468 189,881
Accounts receivable -- Related parties............................... 312 1,150
Prepaid expenses..................................................... 13,540 12,712 7,472
-------- -------- -------------
Total current assets............................................ 285,247 416,194 294,050
Property and equipment, net............................................... 32,410 8,499 31,012
Other assets.............................................................. 4,501 4,333 4,333
-------- -------- -------------
Total...................................................... $322,158 $429,026 $ 329,395
-------- -------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 16,259 $ 11,477 $ 18,508
Stockholder dividends payable........................................ 95,000 150,000
Accrued expenses..................................................... 17,651 25,106 33,208
-------- -------- -------------
Total current liabilities....................................... 128,910 186,583 51,716
-------- -------- -------------
Deferred rent............................................................. 26,209 20,525 11,124
Stockholders' equity:
Common stock, $.10 par -- Authorized, 5,000,000 shares; issued, 100
shares............................................................. 10 10 10
Additional paid-in capital........................................... 990 990 990
Retained earnings.................................................... 166,039 220,918 265,555
-------- -------- -------------
Total stockholders' equity...................................... 167,039 221,918 266,555
-------- -------- -------------
Total...................................................... $322,158 $429,026 $ 329,395
-------- -------- -------------
-------- -------- -------------
</TABLE>
See notes to financial statements.
F-26
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................... $1,232,117 $1,153,064 $1,437,229 $ 1,062,075 $1,115,514
Operating expenses:
Salaries and wages.................... 567,086 473,064 454,058 343,617 440,838
Salaries and wages -- Related
parties............................. 124,632 72,800 112,441 69,851 39,558
General and administrative............ 294,670 278,186 260,816 191,972 184,748
General and administrative -- Related
parties............................. 18,297 14,539 27,859 21,835 20,590
Depreciation and amortization......... 63,327 54,053 21,387 18,437 3,264
---------- ---------- ---------- ----------- ----------
Total operating expenses......... 1,068,012 892,642 876,561 645,712 688,998
---------- ---------- ---------- ----------- ----------
Income from operations..................... 164,105 260,422 560,668 416,363 426,516
Other Expense:
Interest expense...................... 6,737 2,379 46 38 27
Other, net............................ (4,487) (2,277) 743 2,342 36,852
---------- ---------- ---------- ----------- ----------
Total other expenses............. 2,250 102 789 2,380 36,879
---------- ---------- ---------- ----------- ----------
Net income................................. $ 161,855 $ 260,320 $ 559,879 $ 413,983 $ 389,637
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
See notes to financial statements.
F-27
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992............................ 100 $ 10 $990 $ 221,114 $ 222,114
Net income..................................... 161,855 161,855
Dividends...................................... (200,000) (200,000)
------ ------ ---------- --------- -------------
Balance, December 31, 1992.......................... 100 10 990 182,969 183,969
Net income..................................... 260,320 260,320
Dividends...................................... (277,250) (277,250)
------ ------ ---------- --------- -------------
Balance, December 31, 1993.......................... 100 10 990 166,039 167,039
Net income..................................... 559,879 559,879
Dividends...................................... (505,000) (505,000)
------ ------ ---------- --------- -------------
Balance, December 31, 1994.......................... 100 10 990 220,918 221,918
Net income..................................... 389,637 389,637
Dividends...................................... (345,000) (345,000)
------ ------ ---------- --------- -------------
Balance, September 30, 1995......................... 100 $ 10 $990 $ 265,555 $ 266,555
------ ------ ---------- --------- -------------
------ ------ ---------- --------- -------------
</TABLE>
See notes to financial statements.
F-28
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------------------
1992 1993 1994 1994 1995
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income................................ $ 161,855 $ 260,320 $ 559,879 $ 413,983 $ 389,637
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........ 63,327 54,053 21,387 18,437 3,264
Loss on disposal of assets........... 8,160 6,836 6,803 10,943 64
Cash provided (used) by changes in
operating assets and liabilities:
Accounts receivable -- Billed... 10,103 (9,900) 12,027 6,535 (8,489)
Accounts receivable --
Unbilled...................... (509) 50,180 (60,753) (63,740) (7,419)
Accounts receivable -- Related
parties....................... (838) (690) 1,150
Prepaid expenses................ 3,792 (8,918) 828 6,877 5,240
Other assets.................... (168) 168 168
Accounts payable................ 5,374 222 (4,782) 3,183 7,031
Accrued expenses................ (8,812) (3,581) 7,455 9,631 8,102
Other long-term liabilities..... (2,638) 4,802 (5,684) (2,752) (9,401)
--------- --------- --------- ----------- ---------
Net cash provided by operating
activities.............................. 240,484 354,014 536,490 402,575 389,179
--------- --------- --------- ----------- ---------
Investing activities:
Capital expenditures...................... (10,659) (10,300) (4,279) (4,279) (25,835)
Proceeds from sale of assets.............. 2,300
--------- --------- --------- ----------- ---------
Net cash used by investing activities..... (8,359) (10,300) (4,279) (4,279) (25,835)
--------- --------- --------- ----------- ---------
Financing activities:
Principal payments on long-term debt...... (18,303) (78,287)
Dividends paid............................ (185,000) (222,250) (450,000) (450,000) (495,000)
--------- --------- --------- ----------- ---------
Net cash used in financing activities..... (203,303) (300,537) (450,000) (450,000) (495,000)
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 28,822 43,177 82,211 (51,704) (131,656)
Cash and cash equivalents:
Beginning of year......................... 63,680 92,502 135,679 135,679 217,890
--------- --------- --------- ----------- ---------
End of year............................... $ 92,502 $ 135,679 $ 217,890 $ 83,975 $ 86,234
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest.... $ 6,737 $ 2,379 $ 46 $ 38 $ 27
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See notes to financial statements.
F-29
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Medical Management Support, Inc. (the Company or MMS), a Washington
S-Corporation, is engaged in the business of providing accounts receivable
management, billing, collection, and related business services for healthcare
providers concentrated in the greater Seattle metropolitan area. The Company was
incorporated in 1981.
REVENUE RECOGNITION
For physician billing activities, the Company recognizes client fee revenue
on the accrual basis. Practice management revenue is based on a percentage fee
of net provider collections of receivables from patient and insurance company
billings. Client fees are calculated at month end and billed to clients the
following month.
A portion of the unbilled receivable is based on an estimate of future
practice management revenue from outstanding provider receivables. The estimated
amount is calculated by multiplying client fee percentages times outstanding
provider accounts receivable balances, less estimated provider write-offs and
less estimated costs to collect. This portion of the unbilled receivable
estimate is calculated and adjusted quarterly.
In addition to normal billing activities, the Company periodically performs
special project or consulting work. This work is billed to clients based on
actual time at standard hourly billing rates.
ACCOUNTS RECEIVABLE
The Company grants credit to its customers for services performed;
resulting accounts receivable are not collateralized. Accounts receivable are
charged directly against earnings when they are determined to be uncollectible.
Management does not expect use of this method to result in a material difference
from the allowance valuation method required by generally accepted accounting
principles.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are cash and short-term, highly liquid
investments with maturities of 90 days or less that are readily convertible to
known amounts of cash and present an insignificant risk of changes in principle
amount due to interest rate fluctuations. Periodically, the Company maintains
deposits in a money market account with a brokerage firm which are not covered
under federally insured programs. The money market account invests primarily in
U.S. Government-backed securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided by using the straight-line method over the estimated useful lives
of three to four years.
F-30
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
ADVERTISING COSTS
Expenses incurred related to nondirect advertising are expensed as
incurred.
INCOME TAXES
As the Company is classified as an S-Corporation, all taxable income or
loss is included in the stockholders' individual tax returns. These financial
statements do not include a provision for income taxes. In the event the
S-election is terminated the Company will be responsible for income taxes at the
corporate level.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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
disclosures 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.
INTERIM FINANCIAL INFORMATION
The interim financial information as of and for the nine-month period ended
September 30, 1994, was prepared by the Company in a manner consistent with the
audited financial statements. The unaudited information, in management's
opinion, reflects all adjustments that are of a normal recurring nature and that
are necessary to present fairly the results for the periods presented. The
results of operations for the nine-month period ended September 30, 1995, are
not necessarily indicative of the results to be expected for the entire year.
NOTE 2: RELATED PARTY TRANSACTIONS
ACCOUNTS RECEIVABLE FROM RELATED PARTY
Accounts receivable at December 31, 1993 and 1994, and September 30, 1995,
consist of various accounting services performed by a related party for Medical
Management Support, Inc. Certain partners of the firm own a combined 80%
interest in the Company.
ACCOUNTS PAYABLE TO RELATED PARTY
Included in accounts payable at December 31, 1993 and 1994, and September
30, 1995, are payables to related parties of $11,420, $3,608 and $2,996,
respectively.
SUBLEASE AGREEMENTS
The Company subleases office space to a related party at $120 per month and
subleases office space from them at $150 per month.
F-31
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------- SEPTEMBER 30,
USEFUL LIFE 1993 1994 1995
----------- -------- -------- -------------
<S> <C> <C> <C> <C>
Furniture, fixtures, and office equipment........... 3-4 $ 56,687 $ 58,016 $ 58,016
Computer equipment.................................. 3 104,823 91,133 72,852
Computer software................................... 3 42,953 36,702 37,320
-------- -------- -------------
204,463 185,851 168,188
Less accumulated depreciation and amortization...... 172,053 177,352 137,176
-------- -------- -------------
$ 32,410 $ 8,499 $ 31,012
-------- -------- -------------
-------- -------- -------------
</TABLE>
Efficiency in medical billing services is dependent on the use of the most
recent technology and systems. Investment in new computer equipment and software
is required on a continuing basis due to technical obsolescence.
NOTE 4: OFFICE LEASE
Medical Management Support, Inc. entered into an operating lease on October
26, 1990, for the use of space in an office building. Terms of the agreement
specified six months of free rent upon signing the lease. Rent expense is
recognized on a straight-line basis over the contractual lease term. Rent
expense recognized during the free rent period has been recorded as other
long-term liabilities and is amortized over the remaining lease life. Rental
expenses incurred for operating leases amounted to $48,140, $53,349, $52,106 for
the years ended December 31, 1992, 1993, and 1994, respectively, and $33,553
(unaudited) and $29,504 for the nine-month periods ended September 30, 1994
(unaudited) and 1995, respectively.
Minimum rental commitments on this lease as of December 31, 1994, are as
follows:
<TABLE>
<S> <C>
1995..................................................................... $52,000
1996..................................................................... 26,000
-------
$78,000
-------
-------
</TABLE>
NOTE 5: MAJOR CUSTOMERS
Customers which represent 10% or more of revenue for each year are as
follows:
<TABLE>
<CAPTION>
PERCENT OF REVENUE
---------------------------------------------
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
CUSTOMER 1995 1994 1993 1992
- --------- ----------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1 ................................................... 21.1% 23.5% 21.3% 17.8%
2 ................................................... 18.4 20.0 25.0 25.7
3 ................................................... 19.0 18.7 20.4 21.6
4 ................................................... 24.4 14.3
5 ................................................... 11.3
----- ---- ---- ----
82.9% 76.5% 66.7% 76.4%
----- ---- ---- ----
----- ---- ---- ----
</TABLE>
F-32
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
NOTE 6: RISKS AND UNCERTAINTIES
Substantially all of the Company's revenue is derived from management fees
which are based upon a percentage of net collection of health care receivables,
generated by providers on a fee-for-service basis.
During the past decade, federal and state governments have implemented
legislation designed to stimulate a reduction in the increase in health care
costs and it is anticipated that such legislative initiatives will continue.
There can be no assurance that current or future government regulations will not
have a material adverse effect on the Company's business.
Health care system reform and concerns over rising Medicare and Medicaid
costs continue to be high priorities for the federal and certain state
governments. Both the U.S. House of Representatives and the U.S. Senate have
approved bills that would reshape the Medicare and Medicaid programs. Although
no comprehensive health care, Medicare, or Medicaid reform legislation has yet
been implemented, pressures to contain costs and other market reforms have
impacted the health care delivery system. These reforms include cost reduction
initiatives by certain employers, health care providers and third party payors.
Such proposed legislation, market pressures, and market reforms could have a
material adverse effect on the Company. In addition, existing governmental
regulations could adversely affect the Company's business through, among other
things, its potential to reduce the amount of reimbursement received by the
Company's clients for health care services.
Certain market changes are occurring in the health care market that may
continue regardless of whether comprehensive federal or state health care reform
legislation is adopted and implemented and that could adversely affect the
accounts receivable management services provided by the Company. These market
reforms include certain employer initiatives, such as creating purchasing
cooperatives and contracting for health care services for employees through
managed care companies (including health maintenance organizations), certain
provider initiatives, such as risk-sharing among health care providers and
managed care companies through capitated contracts and integration of hospitals
and physicians into comprehensive delivery systems, and certain payor
initiatives, such as new alliances between health care providers and third party
payors in which the health care providers are employed by such third party
payors.
The Company is also subject to applicable federal and state billing and
credit collection agency laws and regulations. In general, these laws provide
for various fines, penalties, damages, and other assessments for violations,
including possible exclusion from Medicare, Medicaid, and certain other federal
and state health care programs. Although the Company's management believes that
its billing practices comply with all applicable laws, the increased focus by
governmental agencies on billing practices may have a material adverse effect on
the industry and the Company.
NOTE 7: STOCK PURCHASE AGREEMENT
The shareholders have a stock purchase agreement providing for the transfer
of shares in the event of a stockholder death or other disposition. No shares
may be disposed of without first offering them to the existing shareholders. The
agreement provides for a 90-day cash out of their capital balance at the date of
purchase, and a five-year payout based on an amount equal to the stockholders'
proportionate interest in the earnings of the Company over the five years
subsequent to the purchase.
F-33
<PAGE>
<PAGE>
MEDICAL MANAGEMENT SUPPORT, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1992, 1993, 1994,
AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1994 (UNAUDITED) AND 1995
NOTE 8: ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1993 1994 1995
------- ------- -------------
<S> <C> <C> <C>
Accrual for compensated absences.................................. $ 9,418 $13,361 $15,266
City, state, and federal taxes.................................... 7,292 11,397 17,942
Other............................................................. 941 348
------- ------- -------------
$17,651 $25,106 $33,208
------- ------- -------------
------- ------- -------------
</TABLE>
NOTE 9: SUBSEQUENT EVENT
Subsequent to September 30, 1995, and continuing as of the date of this
report, the stockholders of the Company have reached an agreement to sell
substantially all of the assets and liabilities of Medical Management Support,
Inc. to another company. It is anticipated an agreement can be reached and that
sale will take place in early 1996.
F-34
<PAGE>
<PAGE>
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma financial information gives effect to
(i)the acquisitions by Physician Support Systems, Inc. ('PSS')of the Acquired
Businesses (North Coast Health Care Management Group ('NCHCM'), Medical
Management Support, Inc. ('MMS') and Data Processing Systems, Inc. ('DPS'))
effective upon the completion of this offering and (ii) the sale of 3,000,000
shares of common stock offered by the Company at an assumed initial public
offering price of $10 per share and the application of the estimated net
proceeds therefrom as described under 'Use of Proceeds.' The acquisitions of
NCHCM, MMS and DPS will be accounted for as purchases. The unaudited pro forma
financial statements are derived from the historical financial statements of
PSS, NCHCM, MMS and DPS and estimates and assumptions set forth below and in the
notes to the unaudited pro forma financial statements.
The unaudited pro forma balance sheet gives effect to the acquisitions by
PSS of NCHCM, MMS and DPS as if such acquisitions had occurred on September 30,
1995. Such pro forma balance sheet is derived from the audited consolidated
balance sheet of PSS and Subsidiary as of September 30, 1995, included elsewhere
in this prospectus, as well as the audited balance sheets of NCHCM and MMS as of
September 30, 1995, included elsewhere in this prospectus, and the unaudited
balance sheet of DPS as of September 30, 1995.
The unaudited pro forma statements of operations present unaudited pro
forma results of operations for the year ended December 31, 1994 and nine months
ended September 30, 1995. For purposes of the unaudited pro forma statements of
operations, the acquisitions by PSS of NCHCM, MMS and DPS are included as if
such acquisitions had occurred on January 1, 1994. The unaudited pro forma
statement of operations for the year ended December 31, 1994 is derived from the
audited consolidated statement of operations of PSS and Subsidiary for the year
ended December 31, 1994 and the audited statements of operations of NCHCM and
MMS for the year ended December 31, 1994 included elsewhere in this prospectus,
as well as the unaudited statement of operations of DPS for the year ended
December 31, 1994. The unaudited pro forma statement of operations for the nine
months ended September 30, 1995 is derived from the audited consolidated
statement of operations of PSS and Subsidiary, and the audited statements of
operations of NCHCM and MMS for the nine months ended September 30, 1995
included elsewhere in this prospectus as well as the unaudited statement of
operations of DPS for the nine months ended September 30, 1995.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma financial information presented herein are not necessarily
indicative of the results the company would have obtained had such events
occurred at the beginning of the period, as assumed, or of the future results of
the company. The unaudited pro forma financial information should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this prospectus.
F-35
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ACQUISITION ADJUSTMENTS
--------------------------------------------- ------------------------------------------
PHYSICIAN NORTH NORTH
SUPPORT COAST COAST
SYSTEMS HEALTHCARE MEDICAL DATA HEALTHCARE MEDICAL DATA
AND MANAGEMENT MANAGEMENT PROCESSING MANAGEMENT MANAGEMENT PROCESSING
SUBSIDIARY GROUP SUPPORT SYSTEMS GROUP SUPPORT SYSTEMS SUBTOTAL
--------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... 19 380 86 1 (6,000)(a) (2,500)(b) (900)(c) (8,914)
Billed accounts
receivable............ 1,437 155 10 118 1,720
Unbilled accounts
receivable............ 3,949 1,251 190 5,390
Other current assets.... 446 32 8 1 487
--------- ---------- ----- ----- ---------- ---------- ----- --------
Total current
assets........ 5,851 1,818 294 120 (1,317)
--------- ---------- ----- ----- ---------- ---------- ----- --------
Fixed assets, net....... 2,578 319 31 37 2,965
Intangible assets,
net................... 12,488 6,987(a) 2,234(b) 743(c) 22,452
Other assets............ 701 2 4 707
--------- ---------- ----- ----- ---------- ---------- ----- --------
21,618 2,139 329 157 987 (266) (157) 24,807
--------- ---------- ----- ----- ---------- ---------- ----- --------
--------- ---------- ----- ----- ---------- ---------- ----- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion
long-term debt........ 1,995 1,995
Current portion other
long-term
liabilities........... 686 686
Short-term borrowings... 400 400
NCHC purchase note...... 2,000(a) 2,000
Other current
liabilities........... 4,120 1,126 52 5,298
--------- ---------- ----- ----- ---------- ---------- ----- --------
Total current
liabilities... 7,201 1,126 52 10,379
--------- ---------- ----- ----- ---------- ---------- ----- --------
Long-term debt.......... 14,226 14,226
Other long-term
liabilities........... 1,238 11 1,249
Redeemable preferred
stock................. 2,382 2,382
Common stock............ 2 1 1 1 (1)(a) (1)(b) (1)(c) 2
Additional paid-in
capital............... 126 126
Retained earnings....... (3,557) 1,012 265 156 (1,012)(a) (265)(b) (156)(c) (3,557)
--------- ---------- ----- ----- ---------- ---------- ----- --------
(3,429) 1,013 266 157 (1,013) (266) (157) (3,429)
--------- ---------- ----- ----- ---------- ---------- ----- --------
21,618 2,139 329 157 987 (266) (157) 24,807
--------- ---------- ----- ----- ---------- ---------- ----- --------
--------- ---------- ----- ----- ---------- ---------- ----- --------
<CAPTION>
PRO FORMA
OFFERING
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
ASSETS
Cash.................... 13,597(d) 4,683
Billed accounts
receivable............ 1,720
Unbilled accounts
receivable............ 5,390
Other current assets.... 487
----------- ---------
Total current
assets........ 12,280
----------- ---------
Fixed assets, net....... 2,965
Intangible assets,
net................... 22,452
Other assets............ 707
----------- ---------
13,597 38,404
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOL
Current portion
long-term debt........ (1,995)(d) --
Current portion other
long-term
liabilities........... 686
Short-term borrowings... (400)(d) --
NCHC purchase note...... 2,000
Other current
liabilities........... 5,298
----------- ---------
Total current
liabilities... 7,984
----------- ---------
Long-term debt.......... (8,726)(d) 5,500
Other long-term
liabilities........... 1,249
Redeemable preferred
stock................. (2,382)(d) --
Common stock............ 3(d) 5
Additional paid-in
capital............... 27,097(d) 27,223
Retained earnings....... (3,557)
----------- ---------
27,100 23,671
----------- ---------
13,597 38,404
----------- ---------
----------- ---------
</TABLE>
See notes to pro forma financial statements.
F-36
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ACQUISITION ADJUSTMENT
------------------------------------------------- ----------------------------------
PHYSICIAN NORTH NORTH
SUPPORT COAST COAST
SYSTEMS HEALTHCARE MEDICAL DATA HEALTHCARE MEDICAL DATA
AND MANAGEMENT MANAGEMENT PROCESSING MANAGEMENT MANAGEMENT PROCESSING
SUBSIDIARY GROUP SUPPORT SYSTEMS GROUP SUPPORT SYSTEMS SUBTOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. 18,773 5,792 1,437 895 26,897
Operating expenses:
Wages & salaries..... 8,866 3,241 566 391 (850)(e) 12,214
General &
administrative..... 6,724 2,044 289 292 9,349
Depreciation and
amortization....... 3,348 170 21 33 401(f) 121(f) 40(f) 4,134
---------- ---------- ---------- ----- ----- ----- --- --------
18,938 5,455 876 716 25,697
---------- ---------- ---------- ----- ----- ----- --- --------
Income from operations... (165) 337 561 179 1,200
Other income (expense)
Interest............. (1,526) (43) -- -- (1,569)
Other................ (186) 11 (1) -- (176)
---------- ---------- ---------- ----- ----- ----- --- --------
(1,712) (32) (1) -- (1,745)
---------- ---------- ---------- ----- ----- ----- --- --------
Income (loss) before
income taxes
(benefit).............. (1,877) 305 560 179 (545)
Income taxes (benefit)... (810) -- -- 71 301(h) 176(h) (16)(h) (278)
---------- ---------- ---------- ----- ----- ----- --- --------
Net income (loss)........ (1,067) 305 560 108 (267)
---------- ---------- ---------- ----- ----- ----- --- --------
---------- ---------- ---------- ----- ----- ----- --- --------
Weighted average shares
outstanding............
Net income per share.....
<CAPTION>
PRO FORMA
OFFERING
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
Revenues................. 26,897
Operating expenses:
Wages & salaries..... 12,214
General &
administrative..... 9,349
Depreciation and
amortization....... 4,134
----------- ---------
25,697
----------- ---------
Income from operations... 1,200
Other income (expense)
Interest............. 1,067(g) (502)
Other................ (176)
----------- ---------
(678)
----------- ---------
Income (loss) before
income taxes
(benefit).............. 522
Income taxes (benefit)... 427(h) 149
----------- ---------
Net income (loss)........ 373
----------- ---------
----------- ---------
Weighted average shares
outstanding............ 5,240,000
---------
Net income per share..... $0.07 (i)
---------
---------
</TABLE>
See notes to pro forma financial statements.
F-37
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ACQUISITION ADJUSTMENTS
---------------------------------------------- ------------------------------------------
PHYSICIAN NORTH NORTH
SUPPORT COAST COAST
SYSTEMS HEALTHCARE MEDICAL DATA HEALTHCARE MEDICAL DATA
AND MANAGEMENT MANAGEMENT PROCESSING MANAGEMENT MANAGEMENT PROCESSING
SUBSIDIARY GROUP SUPPORT SYSTEMS GROUP SUPPORT SYSTEMS SUBTOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... 14,631 4,376 1,116 718 20,841
Operating expenses:
Wages & salaries... 7,233 2,802 481 235 (675)(e) 10,076
General &
administrative... 5,020 1,382 205 141 6,748
Depreciation and
amortization..... 2,549 129 3 24 301(f) 90(f) 30(f) 3,126
---------- ---------- ---------- ----- ----- ----- --- --------
14,802 4,313 689 400 19,950
---------- ---------- ---------- ----- ----- ----- --- --------
Income from
operations........... (171) 63 427 318 891
Other income (expense)
Interest........... (1,059) (19) -- -- (1,078)
Other.............. 3 -- (37) -- (34)
---------- ---------- ---------- ----- ----- ----- --- --------
(1,056) (19) (37) -- (1,112)
---------- ---------- ---------- ----- ----- ----- --- --------
Income (loss) before
income taxes
(benefit)............ (1,227) 44 390 318 (221)
Income taxes
(benefit)............ (286) -- -- 126 167(h) 120(h) (12)(h) 115
---------- ---------- ---------- ----- ----- ----- --- --------
Net income (loss)...... (941) 44 390 192 (336)
---------- ---------- ---------- ----- ----- ----- --- --------
---------- ---------- ---------- ----- ----- ----- --- --------
Weighted average shares
outstanding..........
Net income per share...
<CAPTION>
PRO FORMA
OFFERING
ADJUSTMENTS PRO FORMA
----------- ----------
<S> <C> <C>
Revenues............... 20,841
Operating expenses:
Wages & salaries... 10,076
General &
administrative... 6,748
Depreciation and
amortization..... 3,126
----- ----------
19,950
----- ----------
Income from
operations........... 891
Other income (expense)
Interest........... 721(g) (357)
Other.............. (34)
----- ----------
(391)
----- ----------
Income (loss) before
income taxes
(benefit)............ 500
Income taxes
(benefit)............ 288(h) 404
----- ----------
Net income (loss)...... 96
----- ----------
----- ----------
Weighted average shares
outstanding.......... 5,240,000
----------
Net income per share... $0.02(i)
----------
----------
</TABLE>
See notes to pro forma financial statements.
F-38
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reflect the acquisition of NCHCM by PSS. The purchase
price of $8,000,000 is allocated as follows:
<TABLE>
<CAPTION>
($000S)
-----------
(UNAUDITED)
<S> <C>
Current assets............................................................... $ 1,818
Fixed assets................................................................. 319
Other assets................................................................. 2
Intangible assets............................................................ 6,987
Current liabilities.......................................................... (1,126)
-----------
Total purchase price.......................................... $ 8,000
-----------
-----------
</TABLE>
Intangible assets include the following:
<TABLE>
<CAPTION>
($000S)
-----------
<S> <C>
Physician contracts.......................................................... $ 1,691
Non-compete agreement........................................................ 295
Goodwill..................................................................... 5,001
-----------
Total intangible assets....................................... $ 6,987
-----------
-----------
</TABLE>
Useful lives assigned to fixed and intangible assets are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
--------------
<S> <C>
Furniture and fixtures................................................... 7 years
Equipment................................................................ 5 years
Leasehold improvements................................................... Life of lease
Physician contracts...................................................... 10 years
Goodwill................................................................. 20 years
</TABLE>
The NCHC purchase note bears no interest and is payable in equal monthly
installments over the 12 months following the acquisition.
(b) Adjustment to reflect the acquisition of MMS by PSS. The purchase price
of $2,500,000 is allocated as follows:
<TABLE>
<CAPTION>
($000S)
-----------
<S> <C>
Current assets............................................................... $ 278
Fixed assets................................................................. 31
Other assets................................................................. 20
Intangible assets............................................................ 2,234
Current liabilities.......................................................... (52)
Long-term liabilities........................................................ (11)
-----------
Total purchase price.......................................... $ 2,500
-----------
-----------
</TABLE>
Intangible assets include the following:
<TABLE>
<CAPTION>
($000S)
-----------
<S> <C>
Non-compete agreement........................................................ $ 100
Goodwill..................................................................... 2,134
-----------
Total intangible assets....................................... $ 2,234
-----------
-----------
</TABLE>
F-39
<PAGE>
<PAGE>
PHYSICIAN SUPPORT SYSTEMS, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION -- (continued)
Useful lives assigned to fixed and intangible assets are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
--------------
<S> <C>
Furniture and fixtures................................................... 7 years
Equipment................................................................ 5 years
Leasehold improvements................................................... Life of lease
Goodwill................................................................. 20 years
</TABLE>
(c) Adjustment to reflect the acquisition of DPS by PSS. The purchase price
of $900,000 is allocated as follows:
<TABLE>
<CAPTION>
($000S)
-------
<S> <C>
Current assets................................................................... $ 120
Fixed assets..................................................................... 37
Intangible assets................................................................ 743
-------
Total purchase price.............................................. $ 900
-------
-------
</TABLE>
Intangible assets include the following:
<TABLE>
<CAPTION>
($000S)
-------
<S> <C>
Non-compete agreement............................................................ $ 100
Goodwill......................................................................... 643
-------
Total intangible assets........................................... $ 743
-------
-------
</TABLE>
Useful lives assigned to fixed and intangible assets are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
--------------
<S> <C>
Furniture and fixtures................................................... 7 years
Equipment................................................................ 5 years
Leasehold improvements................................................... Life of lease
Goodwill................................................................. 20 years
</TABLE>
The assumed purchase price does not reflect any adjustments associated
with i) any contingent consideration that may be paid in conjunction with
this acquisition or ii) an additional $100,000 of purchase price as a result
of the closing of the transaction taking place subsequent to December 31,
1995.
(d) Adjustment to reflect the proceeds raised from the offering, net of
expenses and underwriting discount and the use of proceeds to purchase the
Acquired Businesses and to repay long-term debt.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
(e) Adjustment to reflect the decrease in compensation expense as a result
of employment agreements with NCHCM executive officers entered into as a result
of the acquisition by PSS.
(f) Adjustment to reflect the increase in amortization expense associated
with the intangible assets recorded by PSS in purchase accounting related to the
acquisitions. The goodwill associated with the acquisitions is being amortized
on a straight line basis over an estimated life of 20 years.
(g) Adjustment to reflect the decrease in interest expense associated with
the repayment of long-term debt as a result of the offering.
(h) Adjustment to reflect the income tax effects of the acquisitions.
(i) The weighted average shares outstanding used to calculate pro forma
earnings per share is 5,240,000 shares, representing the number of shares to be
issued and outstanding as a result of the offering.
F-40
<PAGE>
<PAGE>
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<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
________________________________________________________________________________
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
The Company.................................... 8
Use of Proceeds................................ 9
Dividend Policy................................ 9
Capitalization................................. 10
Dilution....................................... 11
Selected Financial and Pro Forma Data.......... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 14
Business....................................... 19
Management..................................... 28
Principal Stockholders......................... 31
Certain Transactions........................... 31
Description of Capital Stock................... 32
Shares Eligible for Future Sale................ 34
Underwriting................................... 35
Legal Matters.................................. 36
Experts........................................ 36
Additional Information......................... 36
Index to Financial Information................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
3,000,000 SHARES
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
, 1996
--------------------
VOLPE, WELTY & COMPANY
________________________________________________________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered. All the amounts shown are estimates, except
for the registration fee with the Securities and Exchange Commission, the NASD
filing fee and the Nasdaq fees.
<TABLE>
<S> <C>
SEC Registration fee.............................................................. $ 13,086
NASD filing fee................................................................... 4,296
Nasdaq fees....................................................................... 33,086
Blue Sky fees and expenses*....................................................... 20,000
Printing and engraving expenses*.................................................. 135,000
Legal fees and expenses*.......................................................... 300,000
Accounting fees and expenses*..................................................... 250,000
Transfer agent and registrar fees*................................................ 10,000
Miscellaneous*.................................................................... 34,532
--------
TOTAL*.................................................................. $800,000
--------
--------
</TABLE>
- ------------
* Estimated.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation and Bylaws set forth the extent
to which officers or directors of the Company may be indemnified against any
liabilities which they may incur. The general effect of such provisions is that
any person made a party to an action, suit or proceeding by reason of the fact
that he is or was a director or officer of the Company, or of another
corporation or other enterprise which he served as such at the request of the
Company, shall be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
to the full extent permitted under the laws of the State of Delaware. The
Company's Certificate of Incorporation and Bylaws give the Board of Directors
the authority to extend such indemnification to employees of the Company as
well.
The general effect of the indemnification provisions contained in Section
145 of the Delaware General Corporation Law is as follows: A director or officer
who, by reason of such directorship or officership, is involved in any action,
suit or proceeding (other than an action by or in the right of the corporation)
may be indemnified by the corporation against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was unlawful.
A director or officer who, by reason of such directorship or officership, is
involved in any action or suit by or in the right of the corporation may be
indemnified by the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which he shall have been adjudged to be liable to the
corporation unless and only to the extent that a court of appropriate
jurisdiction shall approve such indemnification.
The Company's Certificate of Incorporation provides that, to the maximum
extent permitted under the General Corporation Law of the State of Delaware, a
director of the Company shall not be personally liable to the Company or to any
of its stockholders for monetary damages for breach of fiduciary duty as a
director of the Company. Section 102(b)(7) of the Delaware General Corporation
Law permits a corporation to include in its charter a provision that eliminates
or limits the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or
II-1
<PAGE>
<PAGE>
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 1, 1992, the Company has issued the following securities:
As of February 28, 1994, the Company issued 120 shares of the
Company's 10% Preferred Stock, Series A, stated value of $500 per share
(the 'Series A Preferred Stock'), and 120 shares of the Company's 10%
Preferred Stock, Series B, stated value of $500 per share (the 'Series B
Preferred Stock'), to holders of the Series A Preferred Stock and Series B
Preferred Stock, respectively, as of February 15, 1994 as a dividend on
such capital stock. Such issuances were exempt from registration under
Section 4(2) of the Securities Act of 1933.
As of February 28, 1995 and August 31, 1995, the Company issued 127.2
and 134.832 shares, respectively, of Series A Preferred Stock and 127.2 and
134.832 shares, respectively, of Series B Preferred Stock to holders of the
Series A Preferred Stock and Series B Preferred Stock as of February 15,
1995 and August 15, 1995, respectively, as a dividend on such capital
stock. Such issuances were exempt from registration under Section 4(2) of
the Securities Act of 1933.
On December 21, 1995, the Company issued 1,100 shares of Series A
Preferred Stock to Hillside Capital Incorporated for aggregate
consideration of $550,000 in cash. Such issuance was exempt from
registration under Section 4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Proposed Form of Underwriting Agreement
2.1 -- Stock Purchase Agreement dated September 11, 1995 among the Shareholders of NCHC and the Company
2.2 -- Asset Purchase Agreement dated September 25, 1995 among NCAS, MDIS, the Shareholders of NCAS and MDIS
and the Company
2.3 -- Amended and Restated Asset Purchase Agreement dated December 7, 1995 among MM Support, the
Shareholders of MM Support and PSS-Medical Management Support, Inc.
2.4 -- Asset Purchase Agreement dated October 16, 1995 among DPS, McGriff, PSS-Data Processing Systems, Inc.
and the Company
3.1 -- Certificate of Incorporation of the Company, as amended
3.2** -- Form of Amended and Restated Certificate of Incorporation of the Company to be in effect upon
completion of the Offering
3.3 -- By-Laws of the Company
3.4* -- Form of By-Laws of the Company to be in effect upon completion of the Offering
3.5* -- Shareholders' Agreement, dated August 30, 1991, among PSS and the holders of capital stock named
therein
4.1** -- Form of 1996 Stock Option Plan of the Company
5.1** -- Opinion and Consent of Howard, Darby & Levin
10.1 -- Employment Agreement dated August 12, 1993 between Jack R. Kinne and Spring, as amended
10.2 -- Employment Agreement dated August 9, 1995 between Bruce B. Schmoyer and the Company, as supplemented
10.3 -- Agreement of Lease dated August 30, 1991 between the Company and Prospect Realty Company
10.4 -- Office Lease Agreement dated July 20, 1994 between Spring and American Savings Bank, F.A.
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.5*** -- Amended and Restated Loan Agreement dated August 12, 1993 among Meridian Bank, the Company and Spring,
as amended
10.6* -- Amended and Restated Line of Credit Note issued by the Company to Meridian Bank
10.7* -- Agreement dated as of December 18, 1995 among Medical Management Sciences, Inc., Managed Imaging, Inc.
and PSS
21.1 -- Subsidiaries
23.1* -- Consent of Deloitte & Touche LLP, independent accountants, relating to the financial statements of
PSS, the NCHC Group and MM Support
23.2** -- Consent of Howard, Darby & Levin (included in Exhibit 5.1)
24.1 -- Power of Attorney (see page II-5)
27.1* -- Financial Data Schedule
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
*** Amendment No. 3 is filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(2) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on January 16, 1996.
PHYSICIAN SUPPORT SYSTEMS, INC.
By /s/ HAMILTON F. POTTER III
...................................
NAME: HAMILTON F. POTTER III
TITLE: EXECUTIVE VICE PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
/s/ PETER W. GILSON President, Chief Executive Officer and January 16, 1996
......................................... Director (principal executive officer)
PETER W. GILSON
/s/ HAMILTON F. POTTER III Executive Vice President, Chief Operating January 16, 1996
......................................... and Financial Officer and Director
HAMILTON F. POTTER III (principal accounting and financial
officer)
/s/ MORTIMER BERKOWITZ III Director January 16, 1996
.........................................
MORTIMER BERKOWITZ III
</TABLE>
II-4
GRAPHIC APPENDIX
Graphic and Image Information:
Page 2 of the paper format prospectus contains a map of the continental
United States, illustrating that (i) PSS Centralized Processing
Centers exist in Stockton, CA and Mt. Joy, PA; (ii) Main Offices and/or
Processing Facilities of Acquired Businesses exist in Seattle, WA,
Cleveland, OH and Birmingham, AL; (iii) PSS operates in Pennsylvania,
New Jersey, California, Arizona, Florida, Delaware, Maryland, Massachusetts
and Virginia; and (iv) Acquired Businesses operate in Alabama, Kentucky, Ohio,
Washington and West Virginia.
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Proposed Form of Underwriting Agreement
2.1 -- Stock Purchase Agreement dated September 11, 1995 among the Shareholders of NCHC and the Company
2.2 -- Asset Purchase Agreement dated September 25, 1995 among NCAS, MDIS, the Shareholders of NCAS and MDIS
and the Company
2.3 -- Amended and Restated Asset Purchase Agreement dated December 7, 1995 among MM Support, the
Shareholders of MM Support and PSS-Medical Management Support, Inc.
2.4 -- Asset Purchase Agreement dated October 16, 1995 among DPS, McGriff, PSS-Data Processing Systems, Inc.
and the Company
3.1 -- Certificate of Incorporation of the Company, as amended
3.2** -- Form of Amended and Restated Certificate of Incorporation of the Company to be in effect upon
completion of the Offering
3.3 -- By-Laws of the Company
3.4* -- Form of By-Laws of the Company to be in effect upon completion of the Offering
3.5* -- Shareholders' Agreement, dated August 30, 1991, among PSS and the holders of capital stock named
therein
4.1** -- Form of 1996 Stock Option Plan of the Company
5.1** -- Opinion and Consent of Howard, Darby & Levin
10.1 -- Employment Agreement dated August 12, 1993 between Jack R. Kinne and Spring, as amended
10.2 -- Employment Agreement dated August 9, 1995 between Bruce B. Schmoyer and the Company, as supplemented
10.3 -- Agreement of Lease dated August 30, 1991 between the Company and Prospect Realty Company
10.4 -- Office Lease Agreement dated July 20, 1994 between Spring and American Savings Bank, F.A.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.5*** -- Amended and Restated Loan Agreement dated August 12, 1993 among Meridian Bank, the Company and Spring,
as amended
10.6* -- Amended and Restated Line of Credit Note issued by the Company to Meridian Bank
10.7* -- Agreement dated as of December 18, 1995 among Medical Management Sciences, Inc., Managed Imaging, Inc.
and PSS
21.1 -- Subsidiaries
23.1* -- Consent of Deloitte & Touche LLP, independent accountants, relating to the financial statements of
PSS, the NCHC Group and MM Support
23.2** -- Consent of Howard, Darby & Levin (included in Exhibit 5.1)
24.1 -- Power of Attorney (see page II-5)
27.1* -- Financial Data Schedule
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
*** Amendment No. 3 is filed herewith.
<PAGE>
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
PHYSICIAN SUPPORT SYSTEMS, INC.
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of
stockholders shall be held for the election of directors at such
date, time and place either within or without the State of
Delaware as may be designated by the Board of Directors from time
to time. Any other proper business may be transacted at the
annual meeting.
Section 1.2. Special Meetings. Special meetings of
stockholders may be called at any time by the Chairman of the
Board, if any, the Vice Chairman of the Board, if any, the
President or the Board of Directors, to be held at such date,
time and place either within or without the State of Delaware as
may be stated in the notice of the meeting.
Section 1.3. Notice of Meetings. Whenever stockholders
are required or permitted to take any action at a meeting, a
written notice of the meeting shall be given which shall state
the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of
any meeting shall be given not less than ten nor more than sixty
days before the date of the meeting to each stockholder entitled
to vote at such meeting. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of
stockholders, annual or special, may be adjourned from time to
time, to reconvene at the same or some other place, and notice
need not be given of any such adjourned meeting if the time and
place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation
may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the
meeting.
Section 1.5. Quorum. At each meeting of stockholders,
except where otherwise provided by law or the certificate of
incorporation or these by-laws, the holders of a majority of the
outstanding shares of stock entitled to vote on a matter at the
<PAGE>
<PAGE>
meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a
separate vote by class or classes is required for any matter, the
holders of a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, shall
constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to
vote together as a single class at the meeting. In the absence
of a quorum of the holders of any class of stock entitled to vote
on a matter, the holders of such class so present or represented
may, by majority vote, adjourn the meeting of such class from
time to time in the manner provided by Section 1.4 of these by-
laws until a quorum of such class shall be so present or
represented. Shares of its own capital stock belonging on the
record date for the meeting to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly
or indirectly, by the Corporation, shall neither by entitled to
vote nor be counted for quorum purposes; provided, that the
foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in
a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders
shall be presided over by the Chairman of the Board if any, or in
the absence of the Chairman of the Board by the Vice Chairman of
the Board, if any, or in the absence of the Vice Chairman of the
Board by the President, or in the absence of the President by a
Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence
of such designation by a chairman chosen at the meeting. The
Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the
absence of the Secretary and any Assistant Secretary the chairman
of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7. Voting; Proxies. Unless otherwise
provided in the certificate of incorporation, each stockholder
entitled to vote at any meeting of stockholders shall be entitled
to one vote for each share of stock held by such stockholder
which has voting power upon the matter in question. If the
certificate of incorporation provides for more or less than one
vote for any share on any matter, every reference in these by-
laws to a majority or other proportion of stock shall refer to
such majority or other proportion of the votes of such stock.
Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action
in writing without a meeting may authorize another person or
persons to act for such stockholder by proxy, but no such proxy
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<PAGE>
<PAGE>
shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power, regardless of
whether the interest with which it in coupled is an interest in
the stock itself or an interest in the Corporation generally. A
stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of stockholders need not be by
written ballot and need not be conducted by inspectors unless the
holders of a majority of the outstanding shares of all classes of
stock entitled to vote thereon present in person or represented
by proxy at such meeting shall so determine. Directors shall be
elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to
vote on the election of directors. In all other matters, unless
otherwise provided by law or by the certificate of incorporation
or these by-laws, the affirmative vote of the holders of a
majority of the shares present in person or represented by proxy
at the meeting and entitled to vote on the subject matter shall
be the act of the stockholders. Where a separate vote by class
or classes is required, the affirmative vote of the holders of a
majority of the shares of such class or classes present in person
or represented by proxy at the meeting shall be the act of such
class, except as otherwise provided by law or by the certificate
of incorporation or these by-laws.
Section 1.8. Fixing Date for Determination of
Stockholders of Record. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board
of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of
such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at
the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting
is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, that the Board of
Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other
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<PAGE>
<PAGE>
distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record
date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 1.9. List of Stockholders Entitled to Vote.
The Secretary shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each
ten,stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is
present.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The
business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, except as may be
otherwise provided by law or in the certificate of incorporation.
The Board of Directors shall consist of one or more members, the
number thereof to be determined from time to time by the Board.
Directors need not be stockholders.
Section 2.2. Election: Term of Office; Resignation;
Removal; Vacancies. Each director shall hold office until his or
her successor is elected and qualified or until his or her
earlier resignation or removal. Any director may resign at any
time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation
shall be necessary to make it effective. Any director or the
entire Board of Directors may be removed, with or without cause,
-4-
<PAGE>
<PAGE>
by the holders of a majority of the shares then entitled to vote
at an election of directors. Whenever the holders of any class
or series of stock are entitled to elect one or more directors.by
the certificate of incorporation, the provisions of the preceding
sentence shall apply, in respect to the removal without cause of
a director or directors so elected, to the vote of the holders of
the outstanding shares of that class or series and not to the
vote of the outstanding shares as a whole. Unless otherwise
provided in the certificate of incorporation or these by-laws,
vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of
the stockholders having the right to vote as a single class or
from any other cause may be filled by a majority of the directors
then in office, although less than a quorum, or by the sole
remaining director. Whenever the holders of any class or classes
of stock or series thereof are entitled to elect one or more
directors by the certificate of incorporation, vacancies and
newly created directorships of such class or classes or series
may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by the sole
remaining director so elected.
Section 2.3. Regular Meetings. Regular meetings of the
Board of Directors may be held at such places within or without
the State of Delaware and at such times as the Board may from
time to time determine, and if so determined notice thereof need
not be given.
Section 2.4. Special Meetings. Special meetings of the
Board of Directors may be held at any time or place within or
without the State of Delaware whenever called by the Chairman of
the Board, if any, by the Vice Chairman of the Board, if any, by
the President or by any two directors. Reasonable notice thereof
shall be given by the person or persons calling the meeting.
Section 2.5. Participation in Meetings by Conference
Telephone Permitted. Unless otherwise restricted by the
certificate of incorporation or these by-laws, members of the
Board of Directors, or any committee designated by the Board, may
participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and
participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all
meetings of the Board of Directors a majority of the entire Board
shall constitute a quorum for the transaction of business. The
vote of a majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a
-5-
<PAGE>
<PAGE>
vote of a greater number. In case at any meeting of the Board a
quorum shall not be present, the members of the Board present may
adjourn the meeting from time to time until a quorum shall be
present.
Section 2.7. Organization. Meetings of the Board of
Directors shall be presided over by the Chairman of the Board, if
any, or in the absence of the Chairman of the Board by the Vice
Chairman of the Board, if any, or in the absence of the Vice
Chairman of the Board by the President, or in their absence by a
chairman chosen at the meeting. The Secretary, or in the absence
of the Secretary an Assistant Secretary, shall act as secretary
of the meeting, but in the absence of the Secretary and any
Assistant Secretary the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting.
Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 2.9. Compensation of Directors. Unless
otherwise restricted by the certificate of incorporation or these
by-laws, the Board of Directors shall have the authority to fix
the compensation of directors.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate
one or more committees, each committee to consist of one or more
of the directors of the Corporation, except that the Board of
Directors may not form an executive committee without the
unanimous consent of the Board of Directors, which consent shall
specify the members of the proposed executive committee and
limitations, if any, over the authority of the executive
committee. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent
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provided in the resolution of the Board of Directors or in these
by-laws, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but
no such committee shall have the power or authority in reference
to amending the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted
by the Board of Directors, fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation
or a revocation of a dissolution, removing or indemnifying
directors or amending these by-laws; and, unless the resolution,
these by-laws or the certificate of incorporation expressly so
provides, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock or to
adopt a certificate of ownership and merger.
Section 3.2. Committee Rules. Unless the Board of
Directors otherwise provides, each committee designated by the
Board may adopt, amend and repeal rules for the conduct of its
business. In the absence of a provision by the Board or a
provision in the rules of such committee to the contrary, a
majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of
business, the vote of a majority of the members present at a
meeting at the time of such vote if a quorum is then present
shall be the act of such committee, and in other respects each
committee shall conduct its business in the same manner as the
Board conducts its business pursuant to Article II of these by-
laws.
ARTICLE IV
Officers
Section 4.1. Officers; Election. As soon as
practicable after the annual meeting of stockholders in each
year, the Board of Directors shall elect a President and a
Secretary, and it may, if it so determines, elect from among its
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members a Chairman of the Board and a Vice Chairman of the Board.
The Board may also elect one or more Vice Presidents, one or more
Assistant Vice Presidents, one or more Assistant Secretaries, a
Treasurer and one or more Assistant Treasurers and such other
officers as the Board may deem desirable or appropriate and may
give any of them such further designations or alternate titles as
it considers desirable. Any number of offices may be held by the
same person unless the certificate of incorporation or these by-
laws otherwise provide.
Section 4.2. Term of Office; Resignation; Removal;
Vacancies. Unless otherwise provided in the resolution of the
Board of Directors electing any officer, each officer shall hold
office until his or her successor is elected and qualified or
until his or her earlier resignation or removal. Any officer may
resign at any time upon written notice to the Board or to the
President or the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation
shall be necessary to make it effective. The Board may remove
any officer with or without cause at any time. Any such removal
shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation, but the election of an
officer shall not of itself create contractual rights. Any
vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled by the Board at
any regular or special meeting.
Section 4.3. Powers and Duties. The officers of the
Corporation shall have such powers and duties in the management
of the Corporation as shall be stated in these by-laws or in a
resolution of the Board of Directors which is not inconsistent
with these by-laws and, to the extent not so stated, as generally
pertain to their respective offices, subject to the control of
the Board.
Section 4.4. Chairman of the Board. The Chairman of
the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he or she shall be
present and shall have and may exercise such powers as may, from
time to time, be assigned to him or her by the Board or as may be
provided by law.
Section 4.5. Vice Chairman of the Board. In the
absence of the Chairman of the Board, the Vice Chairman of the
Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he or she shall be
present and shall have and may exercise such powers as may, from
time to time, be assigned to him or her by the Board or as may be
provided by law.
Section 4.6. President. In the absence of the Chairman
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of the Board and Vice Chairman of the Board, the President shall
preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. The President
shall be the chief executive officer and shall have general
charge and supervision of the business of the Corporation and, in
general, shall perform all duties incident to the office of
president of a corporation and such other duties as may, from
time to time, be assigned to him or her by the Board or as may be
provided by law.
Section 4.7. Vice Presidents. The Vice President or
Vice Presidents, at the request or in the absence of the
President or during the President's inability to act, shall
perform the duties of the President, and when so acting shall
have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more
of the Vice Presidents shall perform any of such duties; or if
such determination is not made by the Board, the President may
make such determination; otherwise any of the Vice Presidents may
perform an of such duties. The Vice President or Vice Presidents
shall have such other powers and shall perform such other duties
as may, from time to time, be assigned to him or her or them by
the Board or the President or as may be provided by law.
Section 4.8. Secretary. The Secretary shall have the
duty to record the proceedings of the meetings of the
stockholders, the Board of Directors and any committees in a book
to be kept for that purpose, shall see that all notices are duly
given in accordance with the provisions of these by-laws or as
required by law, shall be custodian of the records of the
Corporation, may affix the corporate seal to any document the
execution of which, on behalf of the Corporation, is duly
authorized, and when so affixed may attest the same, and, in
general, shall perform all duties incident to the office of
secretary of a corporation and such other duties as may, from
time to time, be assigned to him or her by the Board or the
President or as may be provided by law.
Section 4.9. Treasurer. The Treasurer shall have
charge of and be responsible for all funds, securities, receipts
and disbursements of the Corporation and shall deposit or cause
to be deposited, in the name of the Corporation, all moneys or
other valuable effects in such banks, trust companies or other
depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board,
the Treasurer shall give a bond for the faithful discharge of his
or her duties, with such surety or sureties as the Board may
determine. The Treasurer shall keep or cause to be kept full and
accurate records of all receipts and disbursements in books of
the Corporation, shall render to the President and to the Board,
whenever requested, an account of the financial condition of the
Corporation, and, in general, shall perform all the duties
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incident to the office of treasurer of a corporation and such
other duties as may, from time to time, be assigned to him or her
by the Board or the President or as may be provided by law.
Section 4.10. Other Officers. The other officers, if
any, of the Corporation shall have such powers and duties in the
management of the Corporation as shall be stated in a resolution
of the Board of Directors which is not inconsistent with these
by-laws and, to the extent not so stated, as generally pertain to
their respective offices, subject to the control of the Board.
The Board may require any officer, agent or employee to give
security for the faithful performance of his or her duties.
Section 4.11. Fidelity Bonds. If required by the
Board of Directors, any officer shall give the Corporation a bond
in a sum and with one or more sureties satisfactory to the Board,
for the faithful performance of the duties of his or her office,
and for the restoration to the Corporation, in case of his or her
death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever
kind in his or her possession or under his or her control
belonging to the Corporation.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in
the Corporation shall be entitled to have a certificate signed by
or in the name of the Corporation by the Chairman or Vice
Chairman of the Board of Directors, if any, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation
owned by such holder. If such certificate is manually signed by
one officer or manually countersigned by a transfer agent or by a
registrar, any other signature on the certificate may be
facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
Each certificate representing shares shall state upon
the face thereof that the Corporation is formed under the laws of
the State of Delaware, the name of the person or persons to whom
such shares have been issued and the number and class of such
shares, and the designation of the class or series, if any, which
such certificate represents.
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If the Corporation is authorized to issue more than one
class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof
and the qualifications or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or
back of the certificate which the Corporation shall issue to
represent such class or series of stock; provided, that, except
as otherwise provided by law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such
class or series of stock a statement that the Corporation will
furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
Section 5.2. Lost, Stolen or Destroyed Stock
Certificates; Issuance of New Certificates. The Corporation may
issue a new certificate of stock in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal
representative, to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 5.3. Transfers of Stock. Transfers of stock
shall be made on the books of the Corporation only by the person
named in the certificate or by his attorney, lawfully constituted
in writing, and upon surrender of the certificate therefor,
together with such evidence of the payment of transfer taxes and
compliance with other provisions of law as the Corporation or its
transfer agent may require.
Section 5.4. Registered Stockholders. The Corporation
may treat the holder of record of any share or shares of stock as
the holder thereof, and shall not be bound to recognize any
equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by the laws of
Delaware.
ARTICLE VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the
Corporation shall be determined by the Board of Directors.
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Section 6.2. Seal. The Corporation may have a corporate
seal which shall have the name of the Corporation inscribed
thereon and shall be in such form as may be approved from time to
time by the Board of Directors. The corporate seal may be used
by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of
Stockholders, Directors and Committees. Whenever notice is
required to be given by law or under any provision of the
certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, directors or members of a committee
of directors need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these
by-laws.
Section 6.4. Indemnification of Directors, Officers and
Employees. The Corporation shall indemnify to the full extent
permitted by law any person made or threatened to be made a party
to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a
director, officer or employee of the Corporation or serves or
served at the request of the Corporation any other enterprise as
a director, officer or employee. Expenses incurred by any such
person in defending any such action, suit or proceeding shall be
paid or reimbursed by the Corporation promptly upon receipt by it
of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled
to be indemnified by the Corporation. The rights provided to any
person by this by-law shall be enforceable against the
Corporation by such person who shall be presumed to have relied
upon it in serving or continuing to serve as a director, officer
or employee as provided above. No amendment of this by-law shall
impair the rights of any person arising at any time with respect
to events occurring prior to such amendment. For purposes of
this by-law, the term "Corporation" shall include any predecessor
of the Corporation and any constituent corporation (including any
constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall
include any corporation, partnership, joint venture, trust or
employee benefit plan; service "at the request of the
Corporation" shall include service as a director, officer or
employee of the Corporation which imposes duties on, or involves
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services by, such director, officer or employee with respect to
an employee benefit plan, its participants or beneficiaries; any
excise taxes assessed on a person with respect to an employee
benefit plan shall be deemed to be indemnifiable expenses; and
action by a person with respect to an employee benefit plan which
such person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be
action not opposed to the best interests of the Corporation.
Section 6.5. Interested Directors; Quorum. No contract
or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other
corporation, partnership, association or other organization in
which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are
counted for such purpose, if: (1) the material facts as to his or
her relationship or interest and as to the contract or
transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority
of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the
Board, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained
by the Corporation in the regular course of its business,
including its stock ledger, books of account and minute books,
may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into
clearly legible form within a reasonable time. The Corporation
shall so convert any records so kept upon the request of any
person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may
be amended or repealed, and new by-laws adopted, by the Board of
Directors, but the stockholders entitled to vote may adopt
additional by-laws and may amend or repeal any by-law whether or
not adopted by them.
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ARTICLE VII
Offices
Section 7.1. Registered Office. The registered office
of the Corporation in the State of Delaware shall be at 1209
Orange Street, City of Wilmington, County of New Castle, and the
registered agent in charge thereof shall be The Corporation Trust
Company.
Section 7.2. Other Offices. The Corporation may also
have an office or offices at other places within or without the
State of Delaware.
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SHAREHOLDERS' AGREEMENT, dated August 30, 1991, among
PHYSICIAN SUPPORT SYSTEMS, INC. (formerly PSS Services
Corporation), a Delaware corporation (the "Corporation"), the
shareholders of the Corporation named on Schedule I and any
subsequent holder of capital stock of the Corporation who shall
become a signatory to this Agreement (together, the
Shareholders).
The Corporation is a corporation duly organized and
existing under the laws of the State of Delaware with an
authorized capitalization of (i) 5,000 shares of Common Stock,
$.01 par value (the "Common Stock") and (ii) 10,000 shares of
preferred stock, $.01 par value (the "Preferred Stock", and
together with the Common Stock, the "Stock"). The Corporation
and the Shareholders deem it in their best interest to enter into
this Agreement.
In consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties
agree as follows:
1. Voting Matters. (a) At each annual meeting of
the shareholders of the Corporation, at each special meeting of
the shareholders of the Corporation called for the purpose of
electing directors of the Corporation and at any time at which
shareholders of the Corporation shall have the right to, or
shall, vote for directors of the Corporation, the Shareholders
shall vote all shares of Common Stock owned by them for the
election of a Board of Directors consisting of five directors,
(i) four of whom shall be Mortimer Berkowitz III, Peter W.
Gilson, Hamilton F. Potter III, John N. Irwin III or,
respectively, persons designated by the holders of the Common
Stock in such person's group (as defined below), and (ii) one of
whom shall be elected by Shareholders holding a majority of the
Common Stock and entitled to vote for the election of directors.
In the event any of Messrs. Berkowitz, Gilson, Potter or Irwin,
in each case including his group, sells or otherwise transfers
more than 50% of the shares of Common Stock held by him or his
group on the date of this Agreement, the Shareholders shall no
longer be obligated to vote in favor of such person or his
designee and the director seat shall be elected by Shareholders
holding a majority of the Common Stock.
(b) A person's group shall mean (i) such
Shareholder, (ii) the spouse, immediate family and lineal
descendants of such Shareholder, (iii) a trust for the benefit of
any of the foregoing and (iv) any corporation (other than the
Corporation) or partnership controlled by such Shareholder,
members of such Shareholders immediate family and lineal
descendants or trusts for the benefit of any of the foregoing.
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(c) All other matters for which a vote of
shareholders is necessary or appropriate shall be approved in the
manner set-forth in the Corporation's Certificate of
Incorporation and Bylaws.
(d) The Bylaws of the Corporation shall include
provisions to effect the following:
(i) The Board of Directors shall by majority
vote determine appropriate compensation for Messrs.
Berkowitz, Gilson and Potter, which.in all cases shall be
reasonable and related to the officer's or employee's
contribution to the Corporation.
(ii) Without the unanimous consent of the
Board of Directors, the Corporation will not (A) pay
aggregate annual compensation to Messrs. Berkowitz, Gilson
and Potter and to members of such persons' group in excess
of $2,000,000 for the twelve month period between September
1, 1999 and August 31, 2000 and such amount as adjusted for
any increase thereafter in the United States Consumer Price
Index for each subsequent twelve month period, or (B) issue
or sell Stock or any stock equivalent to employees or
directors, or to members of such persons' group, unless at
the same time the Corporation offers, exercisable for 10
days, to each existing Shareholder a right to purchase such
Stock or stock equivalent on the same terms in order to
maintain such Shareholder's percentage interest in the
Corporation, or (C) redeem or otherwise repurchase any
shares of Common Stock.
(iii) The Board of Directors may not form an
executive committee without the unanimous consent of the
Board of Directors, which consent shall specify the members
of the proposed executive committee and limitations, if any,
over the authority of the executive committee.
2. Stock Transfer Provisions. Each Shareholder shall
not at any time during the term of this Agreement sell, pledge or
otherwise transfer any Common Stock except:
(a) by sale in accordance with Section 3, 4, 5, 7
or 10;
(b) by pledge either (i) to Meridian Bank or
another senior lending institution to which all Shareholders
pledge their Common Stock in connection with indebtedness
incurred with respect to the acquisition of assets by the
Corporation on the date of this Agreement or any refinancing
thereof, or (ii) which creates a security interest in the Common
Stock; provided, that the pledge has been authorized by a
resolution of the Corporation's Board of Directors and (A) the
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pledgee agrees not to foreclose on the pledge unless the pledgee
agrees in writing to be bound by and comply with all provisions
of this Agreement to the same extent as if it were the
Shareholder making such pledge or (B) the pledgee thereof shall
agree in writing in advance with the parties hereto to be bound
by and comply with all provisions of this Agreement to the same
extent as if it were the Shareholder making such pledge; or
(c) by transfer to another member of the
Shareholder's group; provided, that the transferee of such Common
Stock shall have agreed in writing with the parties hereto to be
bound by and to comply with all provisions of this Agreement.
3. Procedures on Sale of Stock to Third Parties.
Except as otherwise expressly provided herein, each Shareholder
shall not sell, pledge or otherwise transfer any Common Stock
except in accordance with the following procedures:
(a) In the event any Shareholder desires to sell,
pledge or otherwise transfer any Stock, the following procedures
apply:
(i) The selling Shareholder shall deliver to
the non-selling Shareholders and the Corporation a written
notice, which shall be irrevocable for a period of 45 days
after delivery, offering all or any portion of the Common
Stock owned by the selling Shareholder at the purchase price
and on the terms specified in the written notice. The non-
selling Shareholders shall have the first right and option,
for a period of 30 days after delivery of such written
notice, to purchase on a pro rata basis with all other
Shareholders so electing, any or all of the shares of Common
Stock so offered at the purchase price and on the terms
specified in the notice. Such acceptance shall be made by
delivering a written notice to the selling Shareholder
within such 30-day period.
(ii) In the event the other Shareholders
shall fail to accept in whole or part the offer, then upon
the earlier of the expiration of such 30-day period or upon
the receipt of a written rejection of such offer from all
nonselling Shareholders, the Corporation shall have the
second right and option, until 15 days after the expiration
of the 30-day period, to purchase any shares of Common Stock
offered but not purchased by the non-selling Shareholders at
the purchase price and on the terms specified in the notice.
Such acceptance shall be made by delivering a written notice
to the selling Shareholder within the 15-day period.
(iii) If the non-selling Shareholders and
the Corporation do not elect to purchase in the aggregate
all of the offered Common Stock, then the selling
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Shareholder may sell all or any part of the remaining Common
Stock so offered for sale at a price not less than the
price, and on terms not more favorable to the purchaser than
the terms, stated in the original written notice of
intention to sell, at any time within 120 days after the
expiration of the period in which the Corporation could
elect to purchase such Common Stock. In the event the
remaining Common Stock is not sold by the selling
Shareholder during such 120-day period, the right of the
selling Shareholder to sell such remaining Common Stock
shall expire and the obligations of this Section 3 shall be
reinstated.
(b) Any proposed sale of Common Stock by a
selling Shareholder shall be void unless (i) any purchaser of
Stock who is not a Shareholder shall agree in writing to be bound
by and comply with the provisions of this Agreement and (ii) the
Board of Directors has concluded in good faith that any purchaser
of Common Stock pursuant to this Section 3 is not a competitor of
the Corporation and that such purchaser's holding Common Stock
would not have a material adverse effect on the Corporation's
operations or business or its ability to sell its Common Stock in
a public offering.
4. Forced Sales. If the Board of Directors of the
Corporation and Shareholders holding a majority of the Common
Stock approve the sale of all of the outstanding shares of Common
Stock to an unaffiliated third party for cash or other
consideration, the Corporation shall give each Shareholder notice
of the proposed sale containing all of the material terms and
conditions of such sale. Each Shareholder shall sell all of such
Shareholder's shares of Common Stock pursuant to such sale at the
same price and on the same terms and conditions described in the
notice. The Board of Directors of the Corporation shall not
approve any offer to purchase the Common Stock unless such offer
entitles all of the Shareholders to receive the same form and
amount of consideration per share for all shares of Common Stock.
5. Right of Co-Sale. In the event any Shareholder
receives an offer from any person other than a person in such
Shareholder's group to purchase Common Stock owned by such
Shareholder, for a specified price payable in cash or otherwise
and on specified terms and conditions, such Shareholder shall
promptly forward a copy of the offer to the other Shareholders.
Such Shareholder shall not sell any Common Stock to the offeror
unless the terms of the offer are extended to the other
Shareholders on a pro rata basis.
6. Prohibition on Certain Sales. (a) Each of
Messrs. Berkowitz, Gilson and Potter agree not to sell shares of
Common Stock if such sale would result in a default under the
Corporation's 9% and 13% Subordinated Notes issued in connection
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with the acquisition by the Corporation on the date of this
Agreement and any attempted sale in violation of this provision
shall be void. If any of such persons attempts to violate this
provision, the Corporation shall have the right to require the
person creating the default to purchase the defaulted notes at
their face value from the Corporation or the holders of such
notes.
(b) Each of the Shareholders agrees not to sell
shares of Common Stock if such sale would cause the Corporation
to become required to redeem the Corporation's 10% Preferred
Stock, Series A or Series B, prior to its scheduled redemption
date. If any Shareholder attempts to violate this provision, the
corporation shall have the right to require the person creating
the early mandatory redemption condition to purchase the 10%
Preferred Stock at its stated value from the Corporation or the
holders thereof and to waive any right to redemption prior to the
stated redemption date.
7. Pledge. Each Shareholder agrees to pledge such
Shareholder's shares of Stock pursuant to the pledge agreement,
of even date herewith, in favor of Meridian Bank, a Pennsylvania
banking corporation, or at the request of the Corporation, to any
other person to which all Shareholders pledge their shares in
connection with the refinancing of any senior indebtedness in the
form attached as Annex A to this Agreement.
8. Purchase Limitations. Each Shareholder agrees
that, without the unanimous consent of the Board of Directors of
the Corporation, such Shareholder, together with members of such
Shareholder's group, shall not purchase or otherwise acquire
shares of Common Stock in an amount that, together with the
shares of Common Stock owned by such Shareholder and such
Shareholder's group, would exceed 45% of the Common Stock
outstanding at the time of purchase. For the purpose of this
Section only, a Shareholder's group shall have the following
meaning:
(i) in the case of any Shareholder who is an
individual, (A) such Shareholder, (B) the spouse, immediate
family and lineal descendants of such Shareholder, (C) a
trust for the benefit of any of the foregoing and (D) any
corporation (other than the Corporation) or partnership
controlled by such Shareholder, members of such
Shareholder's immediate family and lineal descendants or
trusts for the benefit of any of the foregoing;
(ii) in the case of any Shareholder which is a
partnership, (A) such partnership and any of its limited or
general partners (and any retired partners and the estate of
any partner or retired partner), (B) any corporation or
other business organization to which such partnership shall
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<PAGE>
sell all or substantially all of its assets or with which it
shall be merged and (C) any affiliate (as defined below) of
such partnership;
(iii) in the case of any Shareholder which is a
corporation, (A) such corporation, (B) any corporation
(other than the Corporation) or other business organization
to which such corporation shall sell all or substantially
all of its assets or with which it shall be merged and (C)
any affiliate of such corporation; and
(iv) in the case of any Shareholder which is a
trust, (A) such trust, (B) the settlor and beneficiaries of
such trust and (C) the spouse, immediate family and lineal
descendants of such settlor and any such beneficiary.
An "affiliate" of a person shall mean a person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first
person.
9. Confidentiality. Each Shareholder shall not
disclose any Confidential Information (as defined below) to
anyone, other than those of its employees, agents or consultants
(i) who needed to know the Confidential Information in order to
assist the Shareholder in evaluating whether to purchase Stock
and (ii) who agreed not to disclose the Confidential Information
to anyone and not to make use of the Confidential Information for
any purpose other than to assist the Shareholder in its
evaluation, except to the extent (x) such information has become
publicly available or the disclosure is required by law or
judicial decree or (y) in the case of Shareholders who are
directors, officers or employees of the Corporation, in the
discharge of their duties on behalf of the Corporation or as
approved by the Board of Directors of the Corporation. Each
Shareholder shall not make use of the Confidential Information
for any purpose other than to evaluate and monitor its holdings
of Stock. Each Shareholder and each of its employees, agents and
consultants, shall promptly return to the Corporation all copies
of all documents containing the Confidential Information upon the
earlier of (i) the Shareholder's ceasing to hold Stock or (ii)
the request of the Corporation that the Shareholder return the
Confidential Information. "Confidential Information" means, as
the following items relate to the Corporation and its businesses
or proposed businesses, trade secrets, research and development
activities, books and records, actual or projected financial
condition, nature and location of businesses, customer lists,
vendor lists, pricing information, private processes, agreements,
data, licenses, permits, approvals, offering memoranda, business
plans and any other confidential or proprietary technical or
business information.
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10. Registration Rights. (a) At any time during the
term of this Agreement if and whenever the Corporation proposes
to register any shares of its capital stock, or the capital stock
held by any Shareholder hereunder, under the Securities Act of
1933 for sale to the public (other than a registration statement
on Form S-4 or S-8, or any substitute form therefor, or filed in
connection with an exchange offer or offering of securities
solely to the Corporation's existing shareholders), the
Corporation shall give written notice to the Shareholders of its
intention to do so as soon as practicable, and in any event at
least 30 days prior to the anticipated filing date. Upon written
request of any Shareholder, given within 15 days after the
Corporation gives such notice, to register all or a portion of
its shares of Common Stock in such offering, the Corporation will
use all reasonable efforts to cause such shares of Common Stock
to be included in the proposed registration statement on the same
terms and conditions as any similar securities of the Corporation
included therein. The number of shares to be included in the
proposed offering may be reduced pro rata among all requesting
Shareholders and any other securityholders of the Corporation
included in such offering if and to the extent that the managing
underwriter of such offering is of the opinion that such
inclusion could reasonably be expected to adversely affect the
marketing of the shares to be sold by the Corporation. Any
Shareholder may exercise its option under this provision on five
occasions.
(b) In connection with any registration statement
described in clause (a) above, the Corporation shall pay the
following expenses incurred in connection with such registration:
(i) all registration and filing fees, (ii) fees and expenses of
compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky
qualifications of the securities to be included in such
registration statement), (iii) printing expenses, (iv) internal
expenses (including, without limitation, all salaries and related
expenses of the Corporation's officers and employees performing
legal and accounting duties), (v) fees and expenses incurred in
connection with the listing of any securities to be included in
such registration statement, (vi) reasonable fees and
disbursements of counsel for the Corporation and customary fees
and expenses for independent certified public accountants
retained by the Corporation and (vii) reasonable fees and
expenses of any special experts retained by the Corporation in
connection with such registration. The Corporation shall have no
obligation to pay any underwriting fees, discounts or commissions
attributable to the sale of any securities, or any out-of-pocket
expenses, of any of the Shareholders or their agents.
(c) No Shareholder may participate in any
underwritten registration described in clause (a) unless such
Shareholder (i) agrees to sell such Shareholder's Common Stock on
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the basis provided in any underwriting arrangements approved by
the Corporation and such other persons entitled to approve such
arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such
underwriting arrangements.
(d) Each Shareholder shall enter into any lock-up
or similar agreement (to the extent not inconsistent with
applicable law) restricting such party's ability to transfer any
shares of Stock not included in a registration statement of the
Corporation, or any similar security of the Corporation or any
securities convertible into or exchangeable for such securities
(including a sale pursuant to Rule 144 under the Securities Act
of 1933), for the periods prior to, during and after the
effective date of such registration statement as requested by the
managing underwriter or underwriters of such public offering;
provided, that, such periods shall not exceed 12 months in the
aggregate.
11. Put Rights. (a) On each of the 15th through 19th
anniversaries of the date of this Agreement, any Shareholder
owning Common Stock may, by 90 days' prior written notice to the
Corporation, require the Corporation to repurchase up to 5% of
the shares of Common Stock outstanding at such time for a price
per share equal to four times the Adjusted Income Per Share (on a
fully diluted basis). "Adjusted Income Per Share" shall mean the
operating income of the Corporation before cash compensation to
any person who is a Shareholder on August 30, 1991 for the twelve
months ending on the relevant anniversary date divided by the
number of shares of Common Stock outstanding at such date.
(b) On each of the 25th through 29th anniver-
saries of the date of this Agreement, any Shareholder may, by 90
days' prior written notice to the Corporation, require the
Corporation to repurchase up to 5% of the shares of Common Stock
outstanding at such time for a price per share determined by
mutual agreement among the Corporation and all Shareholders
electing to require the Corporation to repurchase their shares on
such date. If within 30 days prior to the relevant anniversary
date, no price has been determined, then each of the Corporation
and the electing Shareholders (as a group) will determine a price
per share and submit it to an investment banking firm of national
standing engaged jointly by the Corporation and the electing
Shareholders. The investment banking firm will be instructed to
choose the one of the two prices it believes most closely
reflects the fair price per share of the Common Stock.
(c) In the event a Shareholder notifies the
Corporation of its intention to exercise its right under clause
(a) or (b), the Corporation shall notify all Shareholders and all
such Shareholders notifying the Corporation within 30 days after
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receipt of notice from the Corporation may also require the
Corporation to repurchase a portion of such Shareholder's Common
Stock on a pro rata basis with all other Shareholders so electing
up to the 5% amount described in clauses (a) and (b) above.
12. Additional Shares of Stock. (a) In the event
additional shares of Stock are issued by the Corporation to a
Shareholder at any time during the term of this Agreement, either
directly or upon the exercise or exchange of securities of the
Corporation exercisable for or exchangeable into shares of Stock,
such additional shares of Stock shall, as a condition to such
issuance, become subject to the terms and provisions of this
Agreement.
(b) The Corporation shall not issue any shares of
capital stock (including shares of Stock) to any person unless
the person to whom such shares of capital stock (including shares
of Stock) are issued agrees in writing simultaneously therewith
to become a party hereto and to be bound by and to comply with
all applicable terms and provisions of this Agreement.
13. Legend on Stock Certificates. Each certificate
representing shares of Stock shall bear the following legend,
until such time as the shares represented thereby are no longer
subject to the provisions hereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT. ADDITIONALLY, THE SALE, TRANSFER,
ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AND THE RIGHTS OF THE
HOLDER OF SUCH SECURITIES IN RESPECT OF THE ELECTION OF
DIRECTORS ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
SHAREHOLDERS' AGREEMENT, DATED AUGUST 30, 1991, AMONG
THE ISSUER AND THE OTHER SIGNATORIES THERETO, AND NO
TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IN CONTRAVENTION OF SUCH AGREEMENT SHALL BE
VALID OR EFFECTIVE. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ISSUER."
14. Securities Act Restrictions on Transfer. (a) The
Stock, and any shares of capital stock received in respect
thereof, whether by reason of a stock split or share reclas-
sification thereof, a stock dividend thereon or otherwise
(collectively, the "Restricted Securities"), shall not be
transferable except upon the conditions specified in this Section
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14, which conditions are intended to ensure compliance with the
provisions of the Securities Act of 1933 in respect of the
transfer of the Restricted Securities.
(b) The holder of any Restricted Securities, by
acceptance thereof agrees, prior to any transfer of any
Restricted Securities, to give written notice to the Corporation
of such holder's intention to effect such transfer and to comply
in all other respects with the provisions of this Section 14(b).
Each such notice shall describe the manner and circumstances of
the proposed transfer and shall be accompanied by the written
opinion, addressed to the Corporation, of counsel for the holder
of such Restricted Securities, as to whether in the opinion of
such counsel (which written opinion and counsel shall be
reasonably satisfactory to counsel to the Corporation) such
proposed transfer involves a transaction requiring registration
of such Restricted Securities under the Securities Act of 1933.
Except as otherwise provided in this Agreement, if in the opinion
of such counsel the proposed transfer of Restricted Securities
may be effected without registration under the Securities Act of
1933, the holder of Restricted Securities shall thereupon be
entitled to transfer Restricted Securities in accordance with the
terms of the notice delivered by it to the Corporation. Each
certificate or other instrument evidencing the securities issued
upon the transfer of any Restricted Securities (and each
certificate or other instrument evidencing any untransferred
balance of such securities) shall bear the legend set forth in
Section 14 unless in the opinion of such counsel registration of
future transfer is not required by the applicable provisions of
the Securities Act. For the purposes of this Section 14, the
term "transfer" shall include any assignment, pledge, sale or
other disposition of securities which would constitute a sale
under the Securities Act of 1933.
15. Term and Termination. This Agreement shall
terminate (a) with respect to all of the Shareholders, on the
earlier of (i) the thirtieth anniversary hereof, except that the
voting provisions shall terminate on the tenth anniversary
hereof, in each case unless otherwise extended in accordance with
applicable law, (ii) the sale of all or substantially all of the
assets of the Corporation and the distribution of the net
proceeds thereof to its shareholders, (iii) the sale at any time
by the Corporation or the Shareholders of 20% or more of the then
outstanding Stock of the Corporation pursuant to a firm
underwritten public offering registered under the Securities Act
of 1933 or (iv) the merger of the Corporation with another entity
in which the Corporation is not the surviving entity or the
Shareholders do not own at least a majority of the common stock
of the surviving entity and (b) with respect to any Shareholder,
at the time such party ceases to own beneficially or of record
any Stock (other than by reason of a breach of this Agreement).
Upon termination pursuant to clause (a) hereof, no party hereto
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shall have any right or obligation hereunder in respect of any
other party hereto, except for breaches prior to such
termination. Upon termination pursuant to clause (b) hereof, no
party who shall remain as a Shareholder shall have any obligation
to a party who ceases to hold any Stock with respect to the
subject matter of this Agreement or the transactions contemplated
hereby. Notwithstanding the foregoing, in the event this
Agreement is terminated because of the event described in clause
(a)(iii), the provisions of Sections 9 and 10 shall survive the
termination of this Agreement for a period of ten years.
16. Miscellaneous.
(a) Severability. If any provision of this
Agreement shall be determined to be illegal and unenforceable by
any court of law, the remaining provisions shall be severable and
enforceable in accordance with their terms.
(b) Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(c) Notices. All notices or other communications
which are required or permitted hereunder shall be in writing and
sufficient if delivered personally or sent by registered or
certified mail, postage prepaid, return receipt requested,
addressed to a Shareholder, to such Shareholder's address set
forth on Schedule 1 hereto; and if to the Corporation, to the
Corporation at Route 230 and Eby-Chiques Road, Landisville,
Pennsylvania 17538, Attention: President, or to such other
address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith.
If mailed as aforesaid, any such communication shall be deemed to
have been given on the third business day following that on which
the piece of mail containing such communication is posted.
(d) Counterparts. This Agreement may be executed
in any number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
(e) Assignment. This Agreement shall not be
assignable by either party without the consent of the other
party.
(f) Modification. Except as otherwise provided
herein, neither this Agreement nor any provision hereof may be
modified, changed, discharged or terminated except by an
instrument in writing signed by Shareholders holding 90% or more
of the outstanding Common Stock; provided, that no modification
or amendment shall discriminate against any holder or holders.
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(g) Additional Actions. Each Shareholder agrees
that the Corporation's Board of Directors and officers may take
any additional corporate action necessary to make effective the
provisions hereof, including (without limitation) filing any
amendments to the Corporation's charter and other constitutive
documents, and hereby appoints the Corporation's Secretary its
attorney-in-fact for the execution of all such documents,
consents and approvals and (ii) that it will vote its shares to
approve any such action.
(h) Remedies. In the event of a breach or
threatened breach by a Shareholder of the provisions of Sections
1, 2, 3, 4, 6, 8 or 9, the Corporation or any holders of a
majority of the outstanding Stock shall be entitled to an
injunction restraining such Shareholder from such breach or
compelling compliance with such provision. Nothing contained
herein shall be construed as prohibiting the Corporation or any
Shareholder from pursuing any other remedies available at law or
equity for such breach or threatened breach of this Agreement.
(i) CHOICE OF LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK EXCEPT TO THE EXTENT CORPORATE MATTERS ARE
REQUIRED TO BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date first above written.
PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ Peter W. Gilson
--------------------------
Peter W. Gilson
President
SHAREHOLDERS:
/s/ Peter W. Gilson
--------------------------
Peter W. Gilson
/s/ Hamilton F. Potter III
--------------------------
Hamilton F. Potter III
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HILLSIDE INDUSTRIES INCORPORATED
By: /s/ John N. Irwin III
--------------------------------
Title: Managing Director
/s/ John N. Irwin III
--------------------------------
John N. Irwin III
/s/ Jeanet H. Irwin
--------------------------------
Jeanet H. Irwin
TRUST, DATED JANUARY 30, 1987, FOR
THE BENEFIT OF ONE OR MORE OF THE
CHILDREN OF JOHN N. IRWIN III
By: /s/ Herbert H. Chaice
--------------------------------
Herbert H. Chaice, Co-Trustee
UNITED STATES TRUST COMPANY OF
NEW YORK, Co-Trustee
By: /s/ Robert Y. Simmons
--------------------------------
Title: Vice President
/s/ Hamilton F. Potter, Jr.
--------------------------------
Hamilton F. Potter, Jr.
/s/ Mortimer Berkowitz III
--------------------------------
Mortimer Berkowitz III
/s/ George Doubleday II
--------------------------------
George Doubleday II
/s/ Neil Mellen
--------------------------------
Neil Mellen
/s/ Francis Goelet
--------------------------------
Francis Goelet
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THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN
AGREEMENT (the "Amendment") made and entered into this __ day of
March, 1995, by and among PHYSICIAN SUPPORT SYSTEMS, INC., a
Delaware corporation, SPRING ANESTHESIA GROUP, INC., a California
corporation (and the surviving corporation as a result of the
merger of PSS Investment with and into SAG), and MERIDIAN BANK, a
Pennsylvania-chartered bank.
BACKGROUND
A. The Lender and the Borrowers entered into a
certain Amended and Restated Loan Agreement dated August 12, 1993
(which was amended by an Amendment No. 1 between Lender and
Borrowers dated February 25, 1994 and Amendment No. 2 between
Lender and Borrowers dated May 19, 1994) (the "Loan Agreement"),
pursuant to which the Lender agreed to make certain credit
facilities available to the Borrowers, on the terms and subject
to the conditions therein set forth.
B. The Borrowers and the Lender desire to modify and
amend the Loan Agreement to reflect a term loan which the Lender
is making to the Borrowers in addition to the credit facilities
provided under the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and intending to be legally bound, the parties
hereto covenant and agree as set forth below.
1. Defined Terms. Any capitalized terms used in this
Amendment which are not defined, but which are defined in the
Loan Agreement, shall have the meanings given to those terms in
the Loan Agreement.
2. New Defined Terms. The following definitions are
hereby added to the provisions of Section 1.2 of the Loan
Agreement and shall read in their entirety as follows:
"1995 Term Note" shall mean the Term Note dated
March 24, 1995 executed by the Borrowers and payable to
the order of the Lender in the original principal
amount of Two Hundred Thousand Dollars ($200,000),
together with any future amendments, restatements,
modifications or supplements thereof or thereto.
"1995 Term Loan" shall mean the $200,000 term loan
made by the Lender to the Borrowers and evidenced by
the 1995 Term Note, together with any future
amendments, restatements, modifications or supplements
thereof or thereto.
3. Amendment to Existing Definitions. The following
definitions set forth in Section 1.2 of the Loan Agreement are
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<PAGE>
hereby modified, amended, and restated to read in their entirety
as follows:
"Notes" shall mean, collectively,
(i) the promissory note described in subsection 2.2
hereof; (ii) the Line of Credit Note; and (iii) the
1995 Term Note; and any future amendments,
modifications and restatements thereof or supplements
thereto.
"Loan Documents" shall mean, collectively, this
Agreement, the Assignments, the Notes, the Security
Documents and all other documents executed and
delivered to the Lender by or on behalf of either
Borrower or any Surety in connection therewith and in
connection with any modifications, amendments,
restatements, substitutions and replacements of or for
any' of the foregoing.
4. Amended Definitions. (a) Whenever the defined
term "Note" is used in the Loan Agreement, such term shall be
deemed to mean "Notes" as defined in the Loan Agreement.
(b) Whenever the defined term "Obligations" is used in
any of the Loan Documents, such term shall be deemed to include
the "1995 Term Loan" as defined in the Loan Agreement.
5. Unused Facility Fee. On each April 30, July 30,
October 30, and January 30, the Borrowers shall pay to the Lender
an unused facility fee equal to the product of (i) 0.25% and (ii)
$400,000 minus the average daily outstanding balance under the
Line of Credit Loan during the preceding calendar quarter.
Lender shall calculate such fee and furnish the Borrowers with a
copy of such calculation and the fee that is due on or before
each April 20, July 20, October 20 and January 20.
6. Postponement of Principal Payments. The monthly
payments of principal due March 1, 1995 and April 1, 1995 under
the promissory note of Borrowers dated August 12, 1993 in the
original principal amount of $8,000,000 and payable to the order
of Lender are postponed until the maturity of such note on August
31, 1998, at which time such principal payments shall be due and
payable.
7. Dividends. PSS shall not pay the cash dividends
due on the Series A Preferred Stock and Series B Preferred Stock
of PSS due in February 1995. PSS may pay stock dividends on its
outstanding shares of Series A Preferred Stock and Series B
Preferred Stock in lieu of such cash dividends.
8. Financial Covenants. The Borrowers agree to
negotiate with Lender reasonably appropriate changes to the
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financial covenants contained in subsections 5.11, 5.12, 5.13 and
5.14 to reflect the changes in the Borrowers' accounting
practices. Lender and Borrower will negotiate such changes in
good faith in an effort to complete such negotiations by April
30, 1995. The changes in such financial covenants shall be
evidenced by a letter setting forth such new financial covenants
signed by the Lender and the Borrowers.
9. Representations and Warranties. As a material
inducement for the Lender to enter into this Amendment, the
Borrowers jointly and severally make the following
representations and warranties to the Lender and acknowledge the
Lander's justifiable reliance thereon:
(a) No Default or Event of Default has occurred
and is continuing.
(b) Except as has otherwise been disclosed in
writing to the Lender on or before the date hereof, all
representations and warranties previously made to the Lender by
the Borrowers remain true, accurate, and complete in all material
respects as of the date hereof, except that the capital stock of
PSS Investment has been cancelled in connection with the merger
of PSS Investment into SAG.
(c) The Loan Agreement, as modified and amended
herein, is the valid and binding obligation of the Borrowers and
is fully enforceable in accordance with all stated terms.
10. Binding Effect. This Amendment shall be binding
upon and shall inure to the benefit of the Lender, the Borrowers,
and their respective successors and assigns subject, however, to
the restrictions set forth in Section 8.7 of the Loan Agreement.
11. Governing Law. This Amendment shall be governed
by and construed in accordance with the domestic, internal laws
(but not the law of conflict of laws) of the Commonwealth of
Pennsylvania.
12. Costs and Expenses. Without limiting the
generality of the provisions of Sections 8.3 and 8.4 of the Loan
Agreement, the Borrowers shall reimburse the Lender for its out-
of-pocket expenses, including counsel fees, incurred by the
Lender in connection with the development, preparation, and
negotiation of this Amendment and the documents executed in
connection herewith.
13. Ratification. Except as expressly modified and
amended herein, the Loan Agreement is hereby ratified and
affirmed.
IN WITNESS WHEREOF, the parties hereto have caused this
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Amendment to be duly executed by their duly authorized officers
as of the day and year first above written.
PHYSICIAN SUPPORT SYSTEMS, INC., a
Delaware Corporation
/s/ Hamilton F. Potter III
By________________________________
Hamilton F. Potter III,
Executive Vice President
/s/ Mortimer Berkowitz III
Attest:___________________________
Secretary
SPRING ANESTHESIA GROUP, INC., a
California corporation (the
surviving corporation as a result
of the merger of PSS INVESTMENT,
INC. with and into SPRING
ANESTHESIA GROUP, INC.)
/s/ Hamilton F. Potter III
By________________________________
Hamilton F. Potter III,
Vice President
/s/ Mortimer Berkowitz III
Attest:___________________________
Assistant Secretary
MERIDIAN BANK, a Pennsylvania
banking corporation
/s/ Randall M. Johnston
By________________________________
Randall M. Johnston,
Assistant Vice President
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CONSENT AND JOINDER
The undersigned corporations are Sureties for the
prompt payment and performance of all of the Obligations pursuant
to the terms and conditions of the Suretyship and, as a material
inducement for the Lender to execute and deliver the foregoing
Amendment, hereby:
(i) consent to and approve of the terms and
conditions of the Amendment;
(ii) recognize, acknowledge, covenant, and agree
that all of the Borrowers' duties, obligations, and liabilities
under or in connection with the 1995 Term Note and the 1995 Term
Loan are assured by the Suretyship in accordance with the
provisions thereof; and
(iii) ratify and affirm each of their duties,
obligations, and liabilities under the Suretyship.
Any capitalized terms used in this Consent and Joinder shall have
the meanings given to those terms in the Loan Agreement referred
to in the foregoing Amendment. Each of the undersigned has
executed this Consent and Joinder intending to be legally bound.
Dated: March 24, 1995
INDEPENDENT ANESTHESIA IPA OF
ARIZONA, INC., an Arizona
Corporation
/s/ Hamilton F. Potter III
By________________________________
Hamilton F. Potter III,
Vice President
/s/ Mortimer Berkowitz III
Attest:___________________________
Assistant Secretary
INDEPENDENT ANESTHESIA IPA OF
CALIFORNIA, INC., a California
corporation
/s/ Hamilton F. Potter III
By________________________________
Hamilton F. Potter III,
Vice President
/s/ Mortimer Berkowitz III
Attest:___________________________
Assistant Secretary
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COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 24th day of March, 1995, before me, a notary
public, the undersigned officer, personally appeared Hamilton F.
Potter, III, who acknowledged himself to be the Vice President of
INDEPENDENT ANESTHESIA IPA OF ARIZONA, INC., an Arizona
corporation, and that he as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as
such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and
official seal.
/s/ Mary Jo Plank
----------------------------------
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 24th day of March, 1995, before me, a notary
public, the undersigned officer, personally appeared Hamilton F.
Potter, III, who acknowledged himself to be the Vice President of
INDEPENDENT ANESTHESIA IPA OF CALIFORNIA, INC., a California
corporation, and that he as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as
such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and
official seal.
/s/ Mary Jo Plank
----------------------------------
Notary Public
-6-
<PAGE>
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 24th day of March, 1995, before me, a notary public,
the undersigned officer, personally appeared Hamilton F. Potter,
III, who acknowledged himself to be the Executive Vice President
of PHYSICIAN SUPPORT SYSTEMS, INC., a Delaware corporation, and
that he as such officer, being authorized to do so, executed the
foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/s/ Mary Jo Plank
----------------------------------
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 24th day of March, 1995, before me, a notary
public, the undersigned officer, personally appeared Hamilton F.
Potter, III, who acknowledged himself to be the Vice President of
SPRING ANESTHESIA GROUP, INC., a California corporation (the
surviving corporation as a result of the merger of PSS
INVESTMENT, INC. with and into SPRING ANESTHESIA GROUP, INC.),
and that he as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and
official seal.
/s/ Mary Jo Plank
----------------------------------
Notary Public
-7-
<PAGE>
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF LANCASTER :
On this 24th day of March, 1995, before me, a notary
Public, the undersigned officer, personally appeared Randall M.
Johnston who acknowledged himself to be an Assistant Vice
President of MERIDIAN BANK, a Pennsylvania banking corporation
and that he as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and
official seal.
/s/ Leigh A. Hershey
----------------------------------
Notary Public
-8-
<PAGE>
<PAGE>
THIS LINE OF CREDIT NOTE AMENDS AND RESTATES, EFFECTIVE AS OF
DECEMBER 15, 1995, THAT CERTAIN LINE OF CREDIT NOTE DATED
FEBRUARY 19, 1993 IN THE PRINCIPAL AMOUNT OF TWO HUNDRED THOUSAND
DOLLARS ($200,000) EXECUTED BY PHYSICIAN SUPPORT SYSTEMS, INC.
AND PAYABLE TO THE ORDER OF MERIDIAN BANK, BUT SHALL NOT RELEASE
OR DISCHARGE PHYSICIAN SUPPORT SYSTEMS, INC. FROM ANY ACCRUED
DUTIES, OBLIGATIONS, OR LIABILITIES UNDER OR IN CONNECTION WITH
SUCH LINE OF CREDIT NOTE.
AMENDED AND RESTATED LINE OF CREDIT NOTE
February 19, 1993,
as amended through
$600,000 December 15, 1995
FOR VALUE RECEIVED, PHYSICIAN SUPPORT SYSTEMS, INC., a
Delaware Corporation and SPRING ANESTHESIA GROUP, INC., a
California corporation (collectively, the "Maker"), jointly and
severally promise to pay to the order of Meridian Bank, ("Payee")
at its address at 51 South Duke Street, Lancaster, Pennsylvania
17602 or at such other place as Payee may from time to time
designate in writing, the principal sum of Six Hundred Thousand
Dollars ($600,000) or such greater or lesser amount as shall be
shown on the records of Payee as the unpaid principal balance of
this Note, in lawful money of the United States of America, (a)
within fifteen (15) days after demand and (b) immediately and
automatically upon any Event of Default as defined and described
in Paragraphs 7.1(e) or 7.1(f) of the Loan Agreement (as
hereinafter defined), on the terms and conditions described
below.
1. Interest. (a) Payment. Maker also promises to pay
interest on the unpaid principal balance of this Note at an
annual rate equal to Payee's National Commercial Rate as
hereinafter defined plus one percent (1.0%). Accrued interest
shall be payable monthly commencing April 1, 1993 and continuing
on the first day of each month thereafter until the principal
amount of, and all accrued interest on, this Note have been paid
in full and all credit availability under this Note has expired
or been terminated. The interest rate provided in this Note
shall apply to the indebtedness evidenced hereby before, on and
after the date or dates on which Payee enters judgment on this
Note.
(b) National Commercial Rate. "National
Commercial Rate" means a floating annual rate of interest that is
designated from time to time by Payee as the "National Commercial
Rate" and is used by Payee as a reference base with respect to
different interest rates charged to borrowers generally. The
interest rate payable hereunder shall change simultaneously with
and automatically upon Payee's designation of any change in such
<PAGE>
<PAGE>
reference rate. Payee's determination and designation from time
to time of the reference rate shall not in any way preclude Payee
from making loans to other borrowers at a rate which is higher or
lower than or different from the reference rate.
2. Maximum Legal Rate. Maker shall not be obligated
to pay and Payee shall not collect interest at a rate in excess
of the maximum permitted by law or the maximum that will not
subject Payee to any civil or criminal penalties. If, because of
the acceleration of maturity, the payment of interest in advance
or any other reason, Maker is required, under the provisions of
any Loan Document (as defined in the Loan Agreement referred to
below), or otherwise, to pay interest at a rate in excess of such
maximum rate, the rate of interest under such provisions shall
immediately and automatically be reduced to such maximum rate,
and any payment made in excess of such maximum rate, together
with interest thereon at the rate provided herein from the date
of such payment, shall be immediately and automatically applied
to the reduction of the unpaid principal balance of this Note as
of the date on which such excess payment was made. If the amount
to be so applied to reduction of the unpaid principal balance
exceeds the unpaid principal balance, the amount of such excess
shall be refunded by Payee to Maker.
3. Interest Computation. Interest shall be computed
on the basis of a 360-day year for the actual number of days
elapsed (365 or 366/360, as the case may be).
4. Late Charges. Maker shall pay to Payee a monthly
late charge imposed by Payee for any payment of principal and/or
interest received by Payee after the fifteenth day of any month,
in an amount equal to two percent (2.0%) of any overdue amount.
5. Application of Payments. All payments shall be
applied first to the payment in full of any costs incurred in the
collection of any sum due under this Note, including (without
limitation) reasonable attorneys' fees, then to the payment in
full of any late charges, then to the payment in full of accrued,
unpaid interest and finally to the reduction of the unpaid
principal balance of this Note.
6. Loan Agreement. This Note is the Line of Credit
Note referred to in the Amended and Restated Loan Agreement dated
August 12, 1993, as amended on February 25, 1994, on May 19,
1994, on March 19, 1995, on September 13, 1995, and on December
15, 1995 between Maker and Payee (as that Loan Agreement may be
amended from time to time, the "Loan Agreement") and evidences
the Maker's obligations under the Line of Credit Loan described
in the Payee's commitment letter dated December 15, 1995. This
Note is issued subject to the terms and conditions of the Loan
Agreement and is entitled to all the benefits contained in, and
security referred to in, the Loan Agreement. Prior to the
-2-
<PAGE>
<PAGE>
occurrence of an Event of Default or Payee making a demand for
payment hereunder, Maker may borrow, repay and reborrow under the
Line of Credit Loan. Any capitalized terms used herein which are
not defined herein shall have the meanings given to them in the
Loan Agreement.
7. Security. This Note is secured, and payment
hereof is assured, by the Security Documents.
This Note is issued subject to the terms and conditions of, and
is entitled to all the rights, remedies and benefits contained
in, the Loan Agreement, the Security Documents, and all other
documents and instruments regarding this Note executed pursuant
to the Loan Agreement. All of the Notes shall be secured on a
pari passu basis by the Security Documents.
8. Payee's Lien. Maker also grants Payee, as further
security for payment of this Note, a lien upon and security
interest in any deposit or other account of Maker with Payee and
any other debts which Payee may owe to Maker from time to time.
9. Default: Rights, Remedies. Upon the occurrence
of an Event of Default as defined in the Loan Agreement and so
long as the Event of Default shall continue unwaived by Payee:
(a) Upon the occurrence of an Event of Default
described in Paragraphs 7.1(e) or 7.1(f) of the Loan
Agreement, the credit availability evidenced by this Note
shall immediately and automatically terminate, and
thereafter the Payee shall have no obligation to make any
advances thereunder. Upon the occurrence of an Event of
Default as described in Paragraphs 7.1(a) through 7.1(4) or
7.1(g) through 7.1(k) of the Loan Agreement, the Payee may,
by written notice to Maker, terminate all credit
availability evidenced by this Note, and thereafter Payee
shall have no obligation to make any advances thereunder.
(b) Payee may exercise any of its rights and
remedies set forth in the Loan Agreement, the Security
Documents, and all other documents and instruments regarding
this Note executed pursuant to the Loan Agreement.
THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE MAKER. IN GRANTING
THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE
MAKER, THE MAKER HEREBY KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY, AND, ON THE ADVICE OF SEPARATE COUNSEL OF THE
MAKER, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE MAKER
HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR
HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE
UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA.
-3-
<PAGE>
<PAGE>
(c) Maker authorizes and empowers any attorney of
any court of record of Pennsylvania or elsewhere to appear
for and enter judgment against it for the then unpaid
principal amount of this Note, together with all accrued
unpaid interest and late charges, costs of suit and
reasonable attorneys' fees, with or without declaration or
stay of execution, and with release of errors, for which
this Note or a copy hereof shall serve as a sufficient
warrant. This power to enter judgment against Maker shall
not be exhausted by any exercise of the power and shall
continue from time to time and at all times until full
payment of all amounts due under this Note.
(d) The remedies of Payee shall be cumulative and
concurrent, and may be pursued singly, successively, or
together, at its sole discretion, and may be exercised as
often as the occasion therefore shall occur; and the failure
to exercise any such right or remedy shall in no event be
construed as a waiver or release thereof.
10. Joint and Several Obligation. All references
herein to the "Maker" shall be deemed to refer to each and every
person defined herein as the "Maker" individually, and to all of
them, collectively, jointly and severally, as though each were
named whenever the term "Maker" is used, and this Note shall be a
joint and several obligation of all of them.
11. Waivers. Maker and all guarantors of and sureties
for this Note waive presentment for payment, demand, notice of
dishonor, protest, and notice of protest with regard to this
Note, all errors, defects and imperfections in any proceedings
instituted by Payee under the terms of this Note, or of the Loan
Agreement, or any of the Loan Documents, and all benefit that
might accrue to Maker by virtue of any present or future laws
exempting any property, real or personal, or any part of the
proceeds arising from any sale of any such property, from
attachment, levy, or sale under execution, or providing for any
stay of execution, exemption from civil process, or extension of
time for payment; and Maker agrees that any real estate that may
be levied upon pursuant to a judgment obtained by virtue hereof,
on any writ of execution issued thereon, may be sold upon any
such writ in whole or in part in any order desired by Payee.
12. Unconditional Liability. Maker and all endorsers,
sureties and guarantors hereby jointly and severally waive all
other notices in connection with the delivery, acceptance,
performance, default, or enforcement of the payment of this Note,
and they agree that the liability of each of them shall be
unconditional, without regard to the liability of any other
party, and shall not be affected in any manner by any indulgence,
extension of time, renewal, waiver or modification granted or
consented to by Payee, and consent to any and all extensions of
-4-
<PAGE>
<PAGE>
time, renewals, waivers, or modifications that may be granted by
Payee with respect to the payment or other provisions of this
Note, and to the release of any part of any collateral, with or
without substitution, and agree that additional makers,
endorsers, guarantors, or sureties may become parties hereto
without notice to them or affecting their liability hereunder.
13. Construction. This Note shall be construed and
enforced in accordance with the domestic, internal law, but not
the law of conflict of laws, of the Commonwealth of Pennsylvania.
14. Severability. Any provision contained in this Note
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
15. Successors, Heirs and Assigns. The provisions of
this Note shall bind and inure to the benefit of Maker and Payee
and their respective successors, heirs, personal representatives
and permitted assigns.
IN WITNESS WHEREOF, Maker, intending to be legally
bound hereby, has caused this Amended and Restated Note to be
duly executed by its authorized officers this December l6, 1995.
PHYSICIAN SUPPORT SYSTEMS, INC.
By /s/ Hamilton F. Potter, III
-----------------------------------
Executive Vice President
Attest:/s/ Mortimer Berkowitz III
----------------------------
Secretary
SPRING ANESTHESIA GROUP, INC., a
California corporation (the
surviving corporation as a result
of the merger of PSS/INVESTMENT,
INC. with and into SPRING
ANESTHESIA GROUP, INC.)
By /s/ Hamilton F. Potter, III
-----------------------------------
Vice President
Attest:/s/ Mortimer Berkowitz III
---------------------------
Assistant Secretary
-5-
<PAGE>
<PAGE>
Accepted by Meridian Bank, as Payee, this December 16, 1995.
MERIDIAN BANK
By /s/ Randall M. Johnston
-----------------------------------
Assistant Vice President
-6-
<PAGE>
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF :
On this 18th day of December, 1995, before me, a notary
public, the undersigned officer, personally appeared Hamilton F.
Potter, III, who acknowledged himself to be the Vice President of
PHYSICIAN SUPPORT SYSTEMS, INC., a Delaware corporation, and that
he as such officer, being authorized to do so, executed the
foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and
official seal.
/s/ Alice J. Walker
---------------------------
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF :
On this 18th day of December, 1995, before me, a notary
public, the undersigned officer, personally appeared Hamilton F.
Potter, III, who acknowledged himself to be the Vice President of
SPRING ANESTHESIA GROUP, INC., a California corporation (the
surviving corporation as a result of the merger of PSS
INVESTMENT, INC. with and into SPRING ANESTHESIA GROUP, INC.,)
and that he as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and
official seal.
/s/ Alice J. Walker
-------------------------------
Notary Public
-7-
<PAGE>
<PAGE>
AGREEMENT dated as of December 18, 1995 among Medical
Management Sciences, Inc., a Maryland corporation ("MMS"), Managed Imaging,
Inc., a Delaware corporation ("MII"), and Physician Support Systems, Inc., a
Delaware corporation ("PSS").
The parties agree as follows:
1. MMS and PSS hereby terminate, as of the date of this
Agreement, the Letter of Intent dated June 2, 1995 between MMS and PSS and the
Agreement and Plan of Merger dated as of August 1, 1995 among PSS, MMS
Acquisition, Inc. and MMS. MII and PSS hereby terminate, as of the date of this
Agreement, the Agreement and Plan of Merger dated as of August 1, 1995 among
PSS, MII Acquisition, Inc. and MII. In connection with the termination of such
agreements, the parties hereby release each other from any and all liabilities,
obligations or claims that any such party had, has or may have to or against any
other party arising from, by reason of or in connection with such agreements. In
addition, MMS and PSS hereby release each other and any third party from any
provision in any agreement to which each of MMS, PSS and such third party is a
party that restricts in any way such third party from negotiating or
consummating a business combination with MMS or PSS.
2. PSS acknowledges that MMS is engaging in discussions with a
third party concerning a possible transaction involving MMS and such third
party. In connection with such possible transaction, PSS shall cause the
appropriate officer of PSS (the "PSS Officer") to promptly sign and deliver to
D&T such representation letters and other documents (the "Representation
Documents") regarding MMS's and MII's financial statements and condition, as is
reasonably requested by D&T or MMS in connection with D&T rendering its audit
report with respect to such financial statements and releasing the related work
papers to MMS and such third party.
3. The expenses that have been incurred to date (including
expenses that will result from certain services requested by MMS and PSS but not
yet completed) by MMS and PSS in connection with the pursuit of a possible
business combination of MMS, MII and PSS involving an initial public offering of
common stock of the combined entity (an "IPO Transaction") or the sale of the
combined entity (by merger or otherwise) to a third party (a "Sale Transaction")
shall be paid by MMS and PSS in the following manner:
(a) all expenses attributable to one company shall be paid by
such company only, such expenses to include the following:
(i) Howard, Darby & Levin ("HD&L") fees and
expenses associated with PSS pending
acquisitions, which fees and expenses shall
be paid by PSS,
(ii) Deloitte & Touche LLP ("D&T") fees and
expenses associated with the financial
audits on a company-by-company basis, which
fees and expenses shall be paid by (x) in
the case of the audit of PSS and PSS pending
acquisitions, PSS and (y) in the case of the
audit of MMS and MII, MMS,
(iii) BPI Capital Partners, Inc. ("BPI") fees and
expenses associated with a possible IPO
Transaction and Sale Transaction and with
<PAGE>
<PAGE>
PSS pending acquisitions, which fees and
expenses shall be paid by PSS, and
(iv) D&T fees and expenses associated with the
coding review on a company-by-company basis,
which fees and expenses shall be paid by (x)
in the case of the coding review of PSS and
PSS pending acquisitions, PSS and (y) in the
case of the coding review of MMS and MII,
MMS, and
(b) all other expenses shall be paid 50% by MMS and 50% by
PSS, such expenses to include the following:
(i) HD&L fees and expenses associated with a
possible IPO Transaction and Sale
Transaction, and
(ii) D&T fees and expenses associated with
consolidating the AMS companies and
structuring a possible IPO Transaction and
Sale Transaction.
Based on an estimate as of November 30, 1995, the agreement to
pay expenses as described above in this Section 3 would result in MMS paying
expenses in an aggregate amount equal to $975,500 and PSS paying expenses in an
aggregate amount equal to $2,551,500. In consideration of, among other things,
PSS's incurrence of certain expenses in connection with the Sale Transaction and
the IPO Transaction, if prior to December 31, 1996 MMS or its stockholders enter
into a definitive agreement to sell MMS (by merger or otherwise) to a third
party, promptly upon the consummation of such sale, MMS shall pay or cause to be
paid to PSS an amount in cash equal to $2,551,500.
4. MMS shall indemnify and hold harmless (i) PSS and the PSS
Officer from and against any and all liabilities, judgments, claims,
settlements, losses, damages, fees, liens, taxes, penalties, obligations and
expenses (including reasonable fees and expenses of counsel) (collectively,
"Losses") incurred or suffered by PSS or the PSS Officer in connection with any
claim by a third party (including D&T) against PSS or the PSS Officer arising
out of or relating to the execution and delivery by PSS or the PSS Officer of
any Representation Document (except to the extent that PSS or the PSS Officer
executed and delivered such Representation Document in bad faith) and (ii) PSS
and its affiliates, stockholders, directors, officers, employees and other
agents and representatives from and against any and all Losses incurred or
suffered by any such person arising out of or relating to the non-fulfillment by
MMS of its agreement to pay expenses as described above in Section 3.
PSS shall indemnify and hold harmless MMS and its affiliates,
stockholders, directors, officers, employees and other agents and
representatives from and against any and all Losses incurred or suffered by any
such person arising out of or relating to the non-fulfillment by PSS of its
agreement to pay expenses as described above in Section 3.
In case any claim or litigation which might give rise to any
obligation of a party under the indemnity and reimbursement provisions of this
Section 4 (each an "Indemnifying") shall come to the attention of the party
seeking indemnification hereunder (the "Indemnified Party"), the Indemnified
Party shall promptly notify in writing the Indemnifying Party of the existence
and amount thereof. Failure to give such notice shall not prejudice the rights
of the Indemnified Party,
-2-
<PAGE>
<PAGE>
except to the extent that the Indemnifying Party shall have been materially
prejudiced by such failure. The Indemnifying Party shall be entitled to
participate in and, if (i) in the reasonable judgment of the Indemnified Party
such claim can properly be resolved by money damages alone and the Indemnifying
Party has the financial resources to pay such damages and (ii) the Indemnifying
Party admits that this indemnity fully covers the claim or litigation, the
Indemnifying Party shall be entitled to direct the defense of any claim at its
expense, but such defense shall be conducted by legal counsel reasonably
satisfactory to the Indemnified Party. The Indemnifying Party shall not
compromise and settle any such claim or litigation without the prior written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld.
5. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. In case at any
time after the date of this Agreement any further action is necessary or
desirable to carry out the purposes of this Agreement, the parties each agree to
take or cause to be taken all such necessary or desirable action, including the
execution and delivery of such further instruments and documents, as may be
reasonably requested by any other party for such purposes. No modification,
amendment or waiver of any provision of this Agreement, shall be effective,
unless it is in writing and signed by the parties hereto. All of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. This Agreement
and the rights and obligations hereunder shall not be assignable by any party
hereto. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflict of laws principles.
This Agreement may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
-3-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, each of the parties to this Agreement has
caused this Agreement to be duly executed and delivered as of the day and year
first above written.
MEDICAL MANAGEMENT SCIENCES, INC.
By: /s/ James Thacker
--------------------------
Title: Chairman
MANAGED IMAGING, INC.
By: /s/ James Thacker
--------------------------
Title: Chairman
PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ Hamilton F. Potter III
----------------------------------
Title: Executive Vice President
-4-
<PAGE>
<PAGE>
To the Board of Directors and Stockholders of
Physician Support Systems, Inc.
Landisville, Pennsylvania
We consent to the use in this Amendment No. 1 Registration Statement (relating
to 3,000,000 shares of Common Stock) of Physician Support Systems, Inc. on Form
S-1 of our report dated January 8, 1996 on the financial statements of Physician
Support Systems, Inc., our report dated December 29, 1995 on the financial
statements of North Coast Health Care Management Group, and our report dated
January 5, 1996 on the financial statements of Medical Management Support, Inc.,
appearing in the Prospectus, which is a part of this Registration Statement, and
to the references to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
January 16, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 18,609
<SECURITIES> 0
<RECEIVABLES> 5,510,532
<ALLOWANCES> 125,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,850,565
<PP&E> 5,421,451
<DEPRECIATION> 2,843,499
<TOTAL-ASSETS> 21,618,054
<CURRENT-LIABILITIES> 7,202,038
<BONDS> 14,575,609
2,382,032
0
<COMMON> 16
<OTHER-SE> (3,429,235)
<TOTAL-LIABILITY-AND-EQUITY> 21,618,054
<SALES> 0
<TOTAL-REVENUES> 14,630,988
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,549,054
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 1,058,598
<INCOME-PRETAX> (1,227,406)
<INCOME-TAX> (285,833)
<INCOME-CONTINUING> (941,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (941,573)
<EPS-PRIMARY> (713.30)
<EPS-DILUTED> (713.30)
<PAGE>
