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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended: December 31, 1999
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to _______
Commission file number: 0-21428
OCCUPATIONAL HEALTH + REHABILITATION INC
(Exact name of registrant as specified in its charter)
Delaware 13-3464527
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation ororganization)
175 Derby Street, Suite 36
Hingham, Massachusetts 02043
(Address of principal executive offices) (Zip Code)
(781) 741-5175
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
None Not Applicable
Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, $0.001 par value
---------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorted period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contain, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting Common Stock held by
non-affiliates of the registrant on March 3, 2000 was $2,562,405 based on the
closing price of $4.4925 per share. The number of shares outstanding of the
registrant's Common Stock as of March 3, 2000 was 1,479,510.
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OCCUPATIONAL HEALTH + REAHBILITATION INC
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1999
Table of Contents
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PART I Page
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Item I. Business ................................................................. 3
Item 2. Properties ............................................................... 15
Item 3. Legal Proceedings ........................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders ...................... 15
PART II
Item 5. Market of Registrant's Common Equity and Related Stockholder Matters ..... 16
Item 6. Selected Financial Data .................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................... 18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .............. 26
Item 8. Financial Statements and Supplementary Data .............................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ..................................................... 26
PART III
Item 10. Directors and Executive Officers of the Registrant ...................... 27
Item 11. Executive Compensation .................................................. 31
Item 12. Security Ownership of Certain Beneficial Owners and Management .......... 34
Item 13. Certain Relationships and Related Transactions .......................... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ......... 38
Index to Consolidated Financial Statements and Financial Statements Schedules .... F
Signatures ....................................................................... S-1
Exhibit Index
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PART I
ITEM 1. BUSINESS
General
Occupational Health + Rehabilitation Inc (the "Company"), a leading
provider of occupational health services, develops and operates
multidisciplinary, outpatient healthcare services delivery sites and provides
on-site services to employers for the prevention, treatment and management of
work-related injuries and illnesses. The Company currently operates twenty-nine
occupational healthcare and related service centers in seven states serving over
5,000 employers and also provides workplace health services at employer
locations throughout the Eastern United States, as well as portions of the
Midwest and the South. The Company's centers provide high quality patient care
and a high level of service, which in combination reduce workers' compensation
costs for employers. The Company believes it is the leading provider of
occupational health services in its established markets as a result of its
commitment to quality care and service.
The Company has developed a system of clinical and operating protocols as
well as proprietary information systems to track the resulting patient outcomes
(the "OH+R System"), all focused on reducing the cost of work-related injuries.
The most effective way to reduce cost is to prevent injuries from occurring. The
OH+R System includes a full array of services designed to reduce the frequency
and severity of work-related injuries and to assure regulatory compliance. Many
of these services may also be delivered on-site at the workplace. Prevention and
compliance services include pre-placement examinations, medical surveillance,
drug and alcohol testing, physicals and work-site safety programs.
The Company's treatment approach for work-related injuries and illnesses is
based on documented, proprietary clinical protocols combining state-of-the-art
medical, rehabilitation and case management services in an integrated system of
care focused on addressing the needs of both employers and employees. Employers'
costs are reduced, and their workers are back on the job more quickly compared
to national averages. Employees receive better care, maintain a positive
attitude and have a greatly reduced probability of developing chronic problems.
Utilizing the OH+R System, which continues to evolve, occupational medicine
physicians and other clinical staff associated with the Company have
consistently generated substantial, documented savings as compared to national
averages in both the lost work days and the medical costs associated with
work-related injuries and illnesses.
The Company's strategic plan is to expand its services in selected regional
markets, principally through joint ventures, service agreements, network
development or other affiliations with health systems, acquisitions of
occupational medicine and related services practices, and to continue expanding
its workplace health programs. The Company currently has twelve health system
affiliations in place.
The Company was incorporated in Delaware in 1988. On June 6, 1996,
Occupational Health + Rehabilitation Inc ("OH+R") merged with and into (the
"Merger") Telor Ophthalmic Pharmaceuticals, Inc. ("Telor"). Telor initially
operated as an ophthalmic pharmaceutical company. Following the failure of its
lead product candidate, Telor curtailed its research and development programs
and sought a merger candidate. Pursuant to the terms of the Merger, Telor was
the surviving corporation. Simultaneously with the Merger, however, Telor's name
was changed to Occupational Health + Rehabilitation Inc, and the business of the
surviving corporation was changed to the business of OH+R. The Merger was
accounted for as a "reverse acquisition" whereby OH+R was deemed to have
acquired Telor for financial reporting purposes.
The Company maintains its principal executive offices at 175 Derby Street,
Suite 36, Hingham, Massachusetts 02043, telephone number (781) 741-5175.
Industry Overview
Work-related injuries and illnesses are a large source of lost productivity
and costs for businesses in the United States. In 1996, workers' compensation
costs in the U.S. were estimated at $121 billion according to the National
Safety Council. Wage and productivity losses accounted for approximately 50% of
these total costs. The primary occupational healthcare market, which includes
primary care treatment of injuries and non-injury health care services such as
prevention and compliance services ("Primary Occupational Healthcare"),
represented $10 billion of these costs. Although a small portion of these total
costs, the Company believes Primary Occupational Healthcare is a critical
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determinant of other costs. Functioning as the gatekeeper, the primary
occupational medicine physician greatly influences "down stream" medical costs,
as well as when an injured employee returns to work, thereby controlling lost
work days.
The rapid increase of workers' compensation costs nationally in past years
has resulted in employers taking more active roles in preventing and managing
workplace injuries. This typically includes the establishment of safety
committees, emphasis on ergonomics in the workplace, drug testing and other
efforts to reduce the number of injuries and the establishment of preferred
provider relationships to ensure prompt and appropriate treatment of
work-related injuries when they do occur. Employer demand for comprehensive and
sophisticated health care services to support these programs has been a key
factor in the development of the occupational healthcare industry.
The occupational healthcare market is highly fragmented, consisting
primarily of individual or small-group practices and hospital-based programs.
Greater capital requirements, the need for more sophisticated management and
marketing, and changes in the competitive environment, including the formation
of larger integrated networks such as the Company's, have created increased
interest in affiliating with larger, professionally managed organizations. As a
result of these factors, the Company believes that there is an opportunity to
consolidate hospital programs and private practices.
Strategy
The Company's mission is to reduce the cost of work-related injuries and
illnesses and other healthcare costs for employers and to improve the health
status of employees through high-quality care and outstanding service. The
Company's strategic objective is to develop a comprehensive regional network of
occupational healthcare delivery sites and to expand its workplace health
services to become the dominant occupational health provider in selected
regional markets.
The Company intends to build its network of delivery sites through:
o Joint ventures, network services agreements or other contractual
arrangements with health systems and clinicians designed to augment
provider's existing occupational health programs and to create
networks of occupational health services throughout the health system
and its affiliates.
o Acquisitions of existing occupational medicine, physical therapy and
other related service practices.
o Start-up of Company centers in strategic locations.
o Strategic alliances with workers' compensation insurers, managed care
companies, provider groups such as integrated delivery systems, group
health insurers, and health maintenance organizations.
Subsequent to an acquisition, joint venture or other contractual
relationship, new centers are converted to the Company's practice model through
implementation of the OH+R System. New services are added as required to provide
the Company's full-service offering. These additional services often are
provided through contracting with or through health systems affiliates or local
practitioners. Workplace health services are often delivered at employer
locations within the service area of a center and are a natural extension of
center operations. The Company's direct sales efforts and word-of-mouth
recommendations from satisfied clients are the source of workplace health
opportunities not proximate to a center.
The Company's operating strategy is based upon:
o Integration of Services--Prevention and compliance services provide
important baseline information to clinicians as well as knowledge of
the work site, which make the treatment of subsequent injuries more
effective. Close management and coordination of all aspects of an
injured worker's care are essential to ensuring the earliest possible
return to work. Management and coordination are difficult, if not
impossible, when clinicians are not working within an integrated
system. Such a system significantly reduces the number of
communications required for a given case and eases the coordination
effort, while enhancing the quality of care and patient convenience.
o Quality Care and Outstanding Service--For a number of reasons, injured
workers often receive second-class care. A lack of quality care is
costly to both the injured/ill worker and the employer. The worker
faces
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longer recovery time and the employer bears the burden of lost
work-days including the associated indemnity, lost production and
staff replacement costs. The Company is committed to providing
outstanding service--to patients, to employers and to third parties.
From van pick-ups for injured workers to custom services addressing an
employer's specific needs, the Company is dedicated to delivering a
level of service that is expected from companies noted for
extraordinary service, but atypical for healthcare providers.
o Outcome Tracking and Reporting--The OH+R System is focused on
achieving successful outcomes--cost-effectively returning injured
workers back to the job as quickly as possible while minimizing the
risk of re-injury. Since the inception of its first center, the
Company has tracked outcome statistics. The Company believes these
extensive outcome statistics demonstrate its ability to return injured
workers back to the job faster and for costs substantially lower than
the national averages.
o Low Cost Provider--The Company believes that future success in
virtually any segment of healthcare services will require delivery of
quality care at the lowest possible price. The Company believes it is
a low cost provider, and it continuously is working to further reduce
the cost of providing care by increasing the productivity of
clinicians and administrative personnel. The Company routinely refines
and revises the OH+R System to increase efficiency and effectiveness.
o "At Risk" Reimbursement--The Company believes that case rates,
capitation and eventually outcome-based reimbursement will become more
prevalent in workers' compensation. The Company offers case rates,
capped fee-for-service programs and other innovative pricing programs,
which differentiate the Company from its competitors. The Company
believes its outcome data and management information systems enable it
to properly price and manage "at risk" reimbursement programs,
enhancing the Company's profitability while providing increased
accountability for results to client employers.
Services
The Company's services address the diverse healthcare needs and challenges
faced by employers in the workplace. Specializing in the prevention, treatment
and management of work-related injuries and illnesses, the Company is able to
meet the needs of single site, regional multi-site or national employers. The
Company's services are delivered in a variety of venues including the Company's
full service centers, in the workplace or through contract arrangements with
providers or hospitals affiliated with its health system partners.
The Company's full service centers are typically staffed with
multi-disciplinary teams, including physicians, physician assistants, nurse
practitioners, nurses, physical and occupational therapists, as well as a
manager, a client relations director, and support personnel. Each center also
has specialists such as orthopedists and physiatrists on staff or has
established relationships with local specialty physicians who have compatible
treatment philosophies.
In support of both center operations and workplace health initiatives, the
Company also provides an after-hours program to coordinate second and third
shift injuries through local emergency departments. This program ensures that
the injured employee is referred back into the Company's organized system of
care to assure continuity of care.
The Company's Medical Policy Board is the focal point for maintaining and
enhancing the Company's reputation for clinical excellence. The Medical Policy
Board is comprised of physicians who are associated with the Company and who are
established, recognized leaders in occupational healthcare. The Medical Policy
Board oversees the establishment of `best practice" standards, the development
of clinical protocols and quality assurance programs, and the recruitment and
training of clinical personnel.
Specific services provided by the Company include:
Prevention/Compliance:
A safe work environment is a critical factor impacting costs associated
with work-related injuries and illnesses. To optimize workplace safety and
productivity, the Company offers a full array of services designed to prevent
injuries before they occur and to meet regulatory compliance requirements. The
expertise and experience of the Company's occupational health specialists
differentiate the Company's prevention and compliance services. Through treating
work-related injuries, the Company's clinicians gain significant insights into
employers' safety issues thereby improving the
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efficacy of prevention programs. The Company's expertise in health and safety
regulatory matters provides employers with a critical resource to assist them in
addressing increasingly complex federal and state regulations. Specific
prevention and compliance services include:
o Physical Examinations
- Preplacement
- Executive
- DOT
- Annual
- Medical Monitoring/Surveillance
o Screenings
- Drug & Alcohol Testing
- Hazardous substances
- Pulmonary Function Tests
o Safety Programs
o Health Promotion
Treatment/Management:
Where an injured worker receives initial treatment for a work-related
injury or illness is critical to the eventual outcome of the case. The urgent
care provider is the medical gatekeeper and single most important player in
controlling case cost. When the Company acts as the gatekeeper, whether in a
Company center, in the workplace, or through its network providers, it controls
the cost of treatment provided plus the costs of specialist and ancillary
services by ensuring that referrals are appropriate and required. The Company's
prevention/compliance efforts provide an in-depth understanding of the workplace
and the workforce facilitating optimal treatment plans and early return to work.
Lost work days are minimized when care is controlled and effectively
coordinated.
The Company's treatment protocols, which have been demonstrated to be
effective through outcome studies documenting reduced medical costs and fewer
lost work days, are based on a sports medicine philosophy of early intervention
and aggressive treatment to maximize a patient's recovery while minimizing the
ultimate costs associated with the case.
As part of the Company's injury treatment services, the multi-disciplinary
clinical team controls and coordinates all aspects of an injured worker's care.
This includes referrals to specialists who are part of a network of physicians
who understand workers' compensation and the special requirements of treating
work-related injuries. Within a typical Company full service center or a network
of its contract providers, medical and rehabilitation team members work within
an integrated system of formal, defined protocols. This approach facilitates
superior, ongoing communication among clinician team members regarding the most
appropriate treatment plan thus eliminating "system delays" (i.e., time lost as
patients deal with several, unrelated providers).
Another element to successfully managing work-related injuries is
continuous communication to all the "key players" including the employer,
employee, and insurance representative. With expectations and treatment plans
clearly communicated to all involved, the Company's commitment to goal-oriented,
cost-effective, quality care is evident.
When an individual is not treating with the Company, specialty evaluations
are often used to bring a case to closure and/or to create return to work
programs for both work-related and non-work-related cases. The Company's
occupational medicine physicians and therapists bring a unique set of skills and
experiences to these evaluations including in-depth understanding of the
workplace. Referrals for these services typically come from employers, insurers,
or lawyers.
Treatment/management services are summarized below:
o Urgent Care
o Physical and Occupational Therapy
o Specialist Referrals
o Case Management
o Specialty Evaluations
- Independent Medical Examinations
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- Disability Examinations
Workplace Health:
The workplace is often the most effective place for the Company to deliver
its services for work-related injuries/illnesses as well as to reduce other
employee healthcare costs. Furthermore, many employers recognize the value of
medical personnel managing integrated disability management programs that cover
both work-related and non-work-related injuries and illnesses. The Company has
assembled a fully integrated continuum of workplace health services that
systematically address workplace safety, aim to minimize absenteeism of
employees who have work-related and non-work-related injuries and illnesses, and
strive to reduce the cost of chronic diseases. Employers may choose to have all
or some of these services delivered at the workplace through staffing contracts
or in conjunction with the Company's center resources.
Consulting/Advisory Services
Based on its depth of occupational medicine expertise, the Company provides
a variety of consulting/advisory services for clients as follows:
o Healthcare policy development
o Regulatory compliance
o ADA compliance
o Environmental medicine
o Medical Review Officer (MRO)
Outcomes Measurement and Tracking
The Company has significant experience with data management and outcomes
tracking and has created a state-of-the-art reporting tool that enables
employers and third party payors to track all costs and utilization of services
received within the Company's network of care. In addition, the system measures
the Company's return-to-work performance by measuring lost and modified work
days per case. The Company believes that its multi-disciplinary clinical teams
have consistently outperformed others by returning injured employees back to
work more quickly and at lower cost, while maintaining high patient
satisfaction. The Company believes its ability and willingness to measure and be
accountable for its performance to employers and third party payors
significantly differentiates the Company from its competitors.
Sales and Marketing
The Company markets through a direct sales force primarily to employers,
but also to insurers and third-party administrators. These parties strongly
influence (and in many instances direct) an injured worker's choice of provider.
In addition, employers select providers for prevention and compliance services.
Through a sales planning and forecasting process, markets are analyzed
and resources are allocated and consistently monitored to ensure maximum
results. Client relations directors (CRDs), typically located at each Company
center, are responsible for client retention and new client prospecting
activities. The personal sales efforts of each CRD are supported by direct mail,
selective advertising and public relations programs focused on reinforcing the
Company's position as a leader in occupational health.
Agreements with Medical Providers
Medical and other professional services at the Company's centers are
provided through independently organized professional corporations
(collectively, the "Medical Providers") that enter into management agreements
with the Company or its affiliated joint ventures, which subcontract with the
Company. The Company provides a wide array of business services under these
management and submanagement agreements, such as providing personnel, practice
and facilities management, real estate services, billing and collection,
accounting, tax and financial management, human resource management, risk
management, insurance, sales, marketing and information-based services such as
process management and outcome analysis. The Company provides services under
these management agreements as an independent contractor, and the medical
personnel at the centers under the direction of the Medical Providers provide
all
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medical services and retain sole responsibility for all medical decisions. The
management agreements grant the Medical Providers a non-exclusive license to use
the Company's service mark "Occupational Health + Rehabilitation." The
management agreements typically have automatically renewing terms and specific
termination rights. Management fees payable to the Company vary depending upon
the particular circumstances and applicable legal requirements. These fees may
include an assignment of certain accounts receivable, an allocation of a certain
portion of net revenue or a flat fee for each service provided by the Company.
Expansion Plan
The Company's objective is to build comprehensive regional occupational
health systems with full-service occupational health centers, workplace health
sites and a variety of network providers typically affiliated with the Company's
health system partners. Forming ventures, alliances and other contractual
relationships with hospitals and health systems and providers in markets in
which the Company operates is a key strategy for the Company. The Company's
management team is comprised of healthcare executives who are experienced in
corporate development as well as the integration and operation of the resulting
acquisitions, ventures and alliances. In addition, the OH+R System, with its
documented protocols covering all aspects of occupational health services
delivery, facilitates effective assimilation of new operations. The Company
believes that occupational health providers, like all other segments of the
healthcare industry, will feel the pressure of managed care and other cost
containment efforts from employers. These pressures and the expected continuance
of regulatory complexities in the workers' compensation and health and safety
systems will cause a need, in the Company's opinion, for physicians and
hospitals with occupational health programs to seek affiliations with larger,
professionally managed organizations such as the Company that specialize in
occupational health. Because of the many factors involved in building such a
network, there can be no assurance that the Company will be successful in
meeting its expansion goals.
Health System Joint Ventures, Affiliations and Network Service Agreements
The Company's intended principal method of expansion is entering into joint
ventures, affiliations, service agreements or other contractual arrangements
with health systems to develop and operate comprehensive occupational health
programs based upon networks of delivery sites including full-service centers,
satellite locations and/or contract providers. There are approximately 1,500
hospital-based occupational health programs in the United States.
Most hospital occupational health programs have developed by default.
Employers and injured employees have naturally looked to the local hospital for
treatment of work-related injuries. In addition, as OSHA and other safety and
health regulations came into existence, hospitals again were the logical, and
often only, place for employers to turn for service. The majority of the
occupational health services offered by hospitals are delivered by functional
departments where occupational health is a small percentage of the services
rendered. Management of care, employer communications and, ultimately,
successful outcomes are extremely difficult to accomplish. Therefore, many
health systems are looking to acknowledged experts in the field such as the
Company for effective outsourcing of their hospital-based occupational health
programs.
By affiliating or contracting with the Company, health systems benefit
from:
o The OH+R System--a proven clinical and operating system
o The Company's expertise in sales and marketing to increase market
share, occupational health revenues and referrals for other health
system services
o Access to the Company's regional network of multi-location clients
o The Company's expertise in profitably delivering high quality care and
outstanding service at the center level
o Enhanced relationships with employers, many of whom are becoming
directly involved in contracting with health systems to provide health
care for their employees
o The Company's entrepreneurial work environment that provides
incentives for performance
o Minimizing capital requirements
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Health system relationships allow the Company to leverage the name and
position of the institution within a community to ease market entry and expedite
building market share. In addition, as healthcare reform continues, integrated
healthcare delivery systems are expected to develop around networks of
hospitals. Employers will contract with these systems to provide for all the
healthcare needs of their employees, including the prevention and treatment of
work-related injuries and illnesses. It is strategically important for the
Company to have links to these systems to be well-positioned to become the
occupational health provider for a system.
At the end of 1996, the Company had hospital joint ventures in effect with
a member of the Care Group System, New England Baptist Hospital in Boston,
Massachusetts, and a member of the Central Maine Health System, Central Maine
Medical Center in Lewiston, Maine. During 1997, joint ventures with Maine Health
System, the major health system in Southern Maine and the parent company of
Maine Medical Center in Portland, Maine, and the Care New England Health System
in Warwick, Rhode Island were consummated. In both of these cases, existing
hospital-owned occupational health centers were combined with existing OH+R
centers. The combined Maine Medical Center/OH+R center is now the primary
occupational healthcare provider in the Portland area. The Care New England
Health System network, includes three hospitals located in the Providence, Rhode
Island area. The combined Care New England/OH+R center is now the primary
occupational healthcare provider in the Warwick, Rhode Island area.
Additionally in 1997, the Company entered into a strategic relationship
with Eastern Maine Health Care ("EMH"), the parent of Eastern Maine Medical
Center in Bangor, Maine, which is the primary tertiary care institution for
Northern and Eastern Maine region. Through an exclusive affiliation with EMH and
related parties, the Company provides comprehensive occupational health services
to employers and their employees in the region.
During 1998, the Company continued to expand its strategic relationships
with health systems through the establishment of joint ventures, service
agreements, clinical affiliations and other contractual arrangements involving
the delivery of occupational health services. These relationships included the
formation of a joint venture with Baystate Health Systems in Springfield,
Massachusetts, the establishment of a clinical coordination arrangement with
Southern New Hampshire Medical Center of Nashua, New Hampshire, the provision of
workplace health services in eastern Massachusetts in concert with the Lahey
Clinic of Burlington, Massachusetts, an agreement to manage and administer the
occupational health services of Western Maine Health's Stephens Memorial
Hospital located in Norway, Maine and an agreement to provide certain healthcare
practice services to Northern Cumberland Memorial Hospital located in Bridgton,
Maine. Baystate Health Systems is the largest health care delivery system in
Western Massachusetts. Southern New Hampshire Medical Center provides a wide
range of health services and programs throughout southern New Hampshire and is
academically affiliated with Dartmouth Medical School. Lahey Clinic is a group
practice of approximately 500 physicians, which provides primary and specialty
care at three hospitals and community-based practices throughout Eastern
Massachusetts. Western Maine Health is the primary health system in Western
Maine. Northern Cumberland Memorial Hospital is a member of the Central Maine
Medical Center Health System, which is the principal health system in Central
Maine.
In 1999, the Company once again continued to aggressively expand its
strategic relationships with hospital systems and clinicians through the
establishment of joint ventures, service agreements and other contractual
arrangements involving the delivery of occupational health services. These
relationships included the formation of a joint venture with Unity Health System
in Rochester, New York and a long term service agreement with Eastern
Rehabilitation Network, an affiliate of Hartford Hospital located in Hartford,
Connecticut. Unity Health System is a leading provider of health care services
in the Monroe County region of New York. The joint venture with Unity Health
System includes a preferred provider organization, ("PPO"), which is one of only
six PPOs in Monroe County certified by the State to provide care as part of the
New York Worker's Compensation Reform Act. Eastern Rehabilitation Network, an
affiliate of Hartford Hospital, is Connecticut's leading provider of
rehabilitation, occupational health and sports medicine services with 14
locations in Connecticut. Hartford Hospital is the largest medical center in
Connecticut, serving a statewide patient population and is a member of the
Connecticut Health System.
In the first quarter of 2000, the Company has continued to form strategic
relationships by entering into network service agreements with Newton-Wellesley
Hospital located in Newton, Massachusetts and Lincoln Urgent Care located in
Lincoln, Rhode Island. Newton-Wellesley Hospital is a leading medical center in
the Western suburbs of Boston and a member of Partners Health Care System.
Lincoln Urgent Care is a prominent and respected physician group providing
primary care and occupational health services in northern Rhode Island.
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The Company is continuously exploring other potential health system
affiliations. Typically under these affiliations, the Company provides all
necessary personnel and assumes management responsibility for the day-to-day
operation of the occupational health entity. In return for such services, the
Company will receive fees customarily including a component based upon the net
revenue attained by the entity and its operating profit performance, as well as
reimbursement of all of the Company's personnel costs and other expenses
incurred. Further, in a typical joint venture scenario, the Company will also
own 51% or more of the occupational health entity with the health system owning
the remainder.
Acquisitions, Strategic Alliances and Selective Start-ups
By acquiring private practices that perform occupational medicine, physical
therapy or related services, the Company can enter a new geographical area or
consolidate its position within an existing market. Therapy practices receive
referrals of injured workers from local specialty physicians which can
complement the Company's direct marketing to employers. Alternatively,
occupational medicine practices including medical consulting practices focused
on occupational and environmental health issues have established relationships
with employers to whom the Company's more comprehensive services may be
provided. Finally, related service practices, such as primary care and sports
medicine, can often be expanded by implementing the OH+R System to service the
occupational medicine needs of employers as well as offer an expanded array of
services to the injured worker.
During 1997, the Company continued to implement its acquisition strategy
through its purchases of Immediate Care Health Center ("ICHC"), Business Health
Management ("BHM"), New England Health Center ("NEHC") and Occupational Medical
Services ("OMS"). ICHC is a leading provider of occupational medicine and urgent
care services in the Burlington, Vermont area. BHM provides medical consulting
services regarding occupational and environmental health issues, workplace
medical services, medical surveillance programs, and drug testing programs.
BHM's client list includes various Fortune 500 employers. NEHC provides a broad
array of occupational medicine services and is a leading occupational medicine
provider northwest of Boston, Massachusetts, servicing hundreds of employer and
governmental clients. OMS, the Company's first acquisition in New York, is a
leading medical practice in Albany specializing in occupational medicine. OMS
serves a client base of more than 250 employers representing a broad cross
section of industries throughout the Capital District Region.
In 1998, the Company continued to further implement its acquisition
strategy and expansion of its related services platform through its purchase of
Sports Medicine Systems, Inc ("SMS") and Southern New Hampshire Medical Center's
Occupational Health Center ("OHC"). As a result of the SMS acquisition, the
Company managed two practices that provide orthopedics, podiatry, physiatry,
physical therapy, and athletic training services in Boston and Brookline,
Massachusetts. As a result of the Company's 1999 restructuring plan discussed in
more detail below, the Company decided to eliminate this line of business in
December, 1999. OHC consisted of four centers located in Bedford, Concord,
Milford and Nashua, New Hampshire, which provided comprehensive occupational
health services. OHC has been a prominent provider of occupational health
services in southern New Hampshire for over a decade, serving a client base of
more than 2,000 employers and representing a broad cross section of industries
throughout its service area.
In 1999, the Company continued to implement its acquisition and expansion
of services strategy with its purchase of certain assets of Return To Work, Inc.
("RTW") located in Springfield, Massachusetts, a NovaCare, Inc. owned facility
in Londonderry, New Hampshire ("NovaCare New Hampshire"), Logan International
Health Center located at Logan International Airport in East Boston,
Massachusetts, and Kaiser Permanente's Workplace Health Services occupational
health center located in Greenfield, Massachusetts and its workers' compensation
managed care program based in Williston, Vermont. RTW is a physical therapy
practice that has been merged into the Company's joint venture with Baystate
Health System. The incorporation of this acquisition will allow the Springfield
center to realize the Company's standard integrated services model. NovaCare New
Hampshire is a newly designed full service occupational health center, located
just outside of Manchester, New Hampshire. In a move to create efficiencies and
synergies, the Company merged and relocated its Bedford, New Hampshire center
into this site in late March 1999 and chose not to renew its lease at its
Milford, New Hampshire site. The Logan International Health Center formerly
owned by the East Boston Neighborhood Health Center Corporation, has provided
occupational health services to the Logan Airport community and other area
employees for more than a decade. The Logan International Health Center has also
served as an excellent alternative location for the Company's clients subsequent
to the Company's closure of its South Boston location in December 1999 in
connection with the Company's 1999 restructuring plan discussed below.
10
<PAGE>
The Company will also consider establishing start-up centers when
appropriate and in a cost effective manner. This approach is most suitable for
geographic areas proximate to existing Company centers or where a large source
of patients can be assured through arrangements with large employers and third
party administrators. Often start-ups can be developed in concert with a local
provider enabling the Company to minimize its investments particularly during
the site's early growth phase. The Company will continue to explore
opportunities such as these throughout its marketplace when conditions warrant
such an approach.
1999 Restructuring Plan
During the fourth quarter of 1999, senior management with appropriate
authority implemented measures designed to enhance the overall financial
strength and success of the Company. These measures principally included the
closure of Company centers that were either outside of the Company's core
occupational health focus or were not capable of achieving significant
profitability due to specific market factors. On December 30, 1999, the
Company's Boston, Massachusetts occupational health and sports medicine center
was closed and during the first quarter of 2000 its Wellesley, Massachusetts
occupational health and sports conditioning center and its Essex Junction,
Vermont primary care location were closed. Further, the restructuring plan
included the streamlining of certain other remaining operations and the
elimination or combining of various other positions within the Company.
The Company believes that it would have been irresponsible for the Company
to continue to operate marginal facilities that would have continued to drain
resources and detracted from the Company's primary focus on its growing network
of profitable operations.
The plan has resulted in recorded or incurred restructuring and other
charges of $2,262,000 for the fourth quarter of 1999.
Competition
Most organizations providing care for work-related injuries and illnesses
in the East are local providers or hospitals. The fundamental difference between
the Company and these providers is the Company's focus on combining multiple
disciplines to address the needs of a single market segment--work-related
injuries and illnesses. Other providers are generally organized to provide
services, such as physical therapy, to a wide variety of market segments with
differing needs regardless of the source of the injury or type of patient.
The vast majority of the Company's competitors are local operations and
typically provide only some of the services required to successfully resolve
work-related injuries and illnesses. Hospitals typically provide most of the
required services but not as part of a tightly integrated, formal care system.
Injured workers tend to be a small segment of the patients seen by the
individual hospital departments involved, and department personnel tend not to
have any particular training or expertise in work-related injuries and
illnesses.
Concentra Managed Care, Inc. is the nation's largest physician practice
management company focusing on occupational healthcare. HEALTHSOUTH Corporation,
a large national provider of rehabilitation services offers occupational health
services in certain locations. Although the Company has not yet seen a
significant occupational healthcare presence from these companies in the markets
in which the Company currently operates and many of the other markets it is
exploring, there can be no assurance that these competitors will not establish
such services in these markets. These companies are larger than the Company and
have greater financial resources.
Laws and Regulations
General
As a participant in the healthcare industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state and local levels. The Company is
also subject to laws and regulations relating to business corporations in
general. The Company believes that its operations are in material compliance
with applicable laws. Nevertheless, because of the special nature of the
Company's relationship with the Medical Providers, many aspects of the Company's
business operations have not been the subject of state or federal regulatory
interpretation, and there can be no assurance that a review of the Company's or
the Medical Providers' business by courts or regulatory authorities will not
result in a determination that could adversely affect the operations of
11
<PAGE>
the Company or the Medical Providers or that the healthcare regulatory
environment will not change so as to restrict the Company's or the Medical
Providers' existing operations or their expansion.
Workers' Compensation Legislation
Each state in which the Company does business administer workers'
compensation programs, which require employers to cover medical expenses, lost
wages and other costs resulting from work-related injuries, illnesses and
disabilities. Medical costs are paid to healthcare providers through the
employers' purchase of insurance from private workers' compensation carriers,
participation in a state fund or by self-insurance. Changes in workers'
compensation laws or regulations may create a greater or lesser demand for some
or all of the Company's services, require the Company to develop new or modified
services or ways of doing business to meet the needs of the marketplace and
compete effectively or modify the fees that the Company may charge for its
services.
Many states are considering or have enacted legislation reforming their
workers' compensation laws. These reforms generally give employers greater
control over who will provide medical care to their employees and where those
services will be provided, and attempt to contain medical costs associated with
workers' compensation claims. Some states have implemented procedure-specific
fee schedules that set maximum reimbursement levels for healthcare services. The
federal government and certain states provide for a "reasonableness" review of
medical costs paid or reimbursed by workers' compensation.
When not governed by a fee schedule, the Company adjusts its charges to the
usual and customary levels authorized by the payor.
Corporate Practice of Medicine and Other Laws
Most states limit the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals and prohibit
physicians and other licensed individuals from splitting professional fees with
non-licensed persons. Many states also limit the scope of business relationships
between business entities such as the Company and licensed professionals and
professional corporations, particularly with respect to non-physicians
exercising control over physicians engaged in the practice of medicine. Many
states require regulatory approval, including certificates of need, before
establishing certain types of healthcare facilities, offering certain services
or making expenditures in excess of statutory thresholds for healthcare
equipment, facilities or programs.
Laws and regulations relating to the corporate practice of medicine, the
sharing of professional fees, certificates of need and similar issues vary
widely from state to state, are often vague and are seldom interpreted by courts
or regulatory agencies in a manner that provides guidance with respect to
business operations such as those of the Company. Although the Company attempts
to structure all of its operations so that they comply with the relevant state
statutes and believes that its operations and planned activities do not violate
any applicable medical practice, fee-splitting, certificates of need or similar
laws, there can be no assurance that (i) courts or governmental officials with
the power to interpret or enforce these laws and regulations will not assert
that the Company or certain transactions in which it is involved are in
violation of such laws and regulations and (ii) future interpretations of such
laws and regulations will not require structural and organizational
modifications of the Company's business. In addition, the laws and regulations
of some states could restrict expansion of the Company's operations into those
states.
Fraud and Abuse Laws
A federal law (the "Anti-Kickback Statute") prohibits any offer, payment,
solicitation or receipt of any form of remuneration to induce or in return for
the referral of Medicare or other governmental health program patients or
patient care opportunities, or in return for the purchase, lease or order of, or
arranging for, items or services that are covered by Medicare or other
governmental health programs. Violations of the statute can result in the
imposition of substantial civil and criminal penalties. In addition, certain
anti-referral provisions (the "Stark Amendments") prohibit a physician with a
"financial interest" in an entity from referring a patient to that entity for
the provision of certain "designated health services", some of which are
provided by the Medical Providers that engage the Company's management services.
Most states have statutes, regulations or professional codes that restrict
a physician from accepting various kinds of remuneration in exchange for making
referrals, some of which are similar to the Anti-Kickback Statute and are
applicable to non-governmental programs. Several states are considering
legislation that would prohibit referrals by a physician for certain types of
healthcare services to an entity in which the physician has a specified
financial interest.
12
<PAGE>
All of the foregoing laws are subject to modification and interpretation,
have not often been interpreted by appropriate authorities in a manner directly
relevant to the Company's business and are enforced by authorities vested with
broad discretion. The Company has attempted to structure all of its operations
so that they comply with all applicable federal and state anti-kickback and
anti-referral prohibitions. The Company also continually monitors developments
in this area. If these laws are interpreted in a manner contrary to the
Company's interpretation, reinterpreted or amended, or if new legislation is
enacted with respect to healthcare fraud and abuse or similar issues, the
Company will seek to restructure any affected operations so as to maintain
compliance with applicable law. No assurance can be given that such
restructuring will be possible, or, if possible, will not adversely affect the
Company's business.
Antitrust Laws
Federal, and many state, laws prohibit anti-competitive conduct, including
price fixing, improper exercise of monopoly power, concerted refusals to deal
and division of markets. Violations of the Sherman Act, the primary federal
antitrust statute, are felonies punishable by significant fines. While the
Company believes that it is in compliance with relevant antitrust laws, no
assurance can be given that the Company's business practices will be interpreted
by federal and state enforcement agencies to comply with such laws, and any
violation of such laws could have a material adverse effect on the Company and
its business.
Uncertainties Related to Changing Healthcare Environment
Over the last several years, the healthcare industry has experienced
change. Although managed care has yet to become a major factor in occupational
healthcare, the Company anticipates that managed care programs, including
capitation plans, may play an increasing role in the delivery of occupational
healthcare services. Further, competition in the occupational healthcare
industry may shift from individual practitioners to specialized provider groups
such as those managed by the Company, insurance companies, health maintenance
organizations and other significant providers of managed care products. To
facilitate the Company's managed care strategy, the Company is offering
risk-sharing products for the workers' compensation industry that will be
marketed to employers, insurers and managed care organizations. No assurance can
be given that the Company will prosper in the changing healthcare environment or
that the Company's strategy to develop managed care programs will succeed in
meeting employers' and workers' occupational healthcare needs.
Other changes in the healthcare environment may result from an Internal
Revenue Service ruling related to whole-hospital joint ventures with tax-exempt
organizations. The Company currently has no reason to believe that this specific
ruling will be extended to joint ventures concerning ancillary services such as
occupational health for tax-exempt hospitals; however, if so extended, the
Company's structure for joint ventures with tax-exempt hospitals may differ from
the Company's typical model so as not to jeopardize the tax-exempt status of
these hospitals.
Environmental
The Company and the Medical Providers are subject to various federal, state
and local statutes and ordinances regulating the disposal of infectious waste.
If any environmental regulatory agency finds the Company's facilities to be in
violation of waste laws, penalties and fines may be imposed for each day of
violation, and the affected facility could be forced to cease operations. The
Company believes that its waste handling and discharge practices are in material
compliance with the applicable law; however, any future claims or changes in
environmental laws could possibly have an adverse effect on the Company and its
business.
Use of Provider Networks
The Company's ability to provide comprehensive healthcare management and
cost containment services depends in part on the Company's ability to contract
with or create networks of healthcare providers which share the Company
objectives. For some of the Company's clients, the Company offers injured
workers access to networks of providers who are selected by the Company or its
joint venture partners for quality of care and willingness to follow the OH+R
System. Laws regulating the operation of managed care provider networks have
been adopted by a number of states. These laws may apply to managed care
provider networks having contracts with the Company or to provider networks that
the Company may develop or acquire. To the extent these regulations apply to the
Company, the Company may be subject to additional licensing requirements,
financial oversight and procedural standards for beneficiaries and providers.
13
<PAGE>
Seasonality
The Company is subject to the seasonal fluctuations that impact the various
employers and employees it serves. Historically, the Company has noticed these
impacts in portions of the first and fourth quarters. Traditionally, revenues
are lower during these periods since patient visits decrease due to the
occurrence of plant closings, vacations, holidays, a reduction in new employee
hirings and the impact of severe weather conditions. These activities also cause
a decrease in drug and alcohol testings, medical monitoring services and
pre-hire examinations. Similar fluctuations occur during the summer months, but
typically to a lesser degree than during the first and fourth quarters. The
Company attempts to ameliorate the impacts of these fluctuations through
adjusting staff levels and ongoing efforts to add service lines with less
seasonability.
Employees
As of March 1, 2000, the Company employed 394 individuals on a full and
part-time basis. The total licensed or clinical professionals contracted or
associated with the Company as of March 1, 2000 was 203, including physicians,
physician assistants, nurses, nurse practitioners, medical assistants, physical
and occupational therapists, and assistant physical and occupational therapists.
None of the Company's employees are covered by collective bargaining agreements.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.
Important Factors Regarding Forward-Looking Statements
Statements contained in this Annual Report on Form 10-K, including in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain forward-looking statements within the meaning of Section
21E of the Securities Exchange Act, which statements are intended to be subject
to the "safe-harbor" provisions of the Private Securities Litigation Reform Act
of 1995. The forward-looking statements are based on management's current
expectations and are subject to many risks and uncertainties, which could cause
actual results to differ materially from such statements. Such statements
include statements regarding the Company's objective to develop a comprehensive
regional network of occupational healthcare centers providing integrated
services through multi-disciplinary teams. Among the risks and uncertainties
that will affect the Company's actual results in achieving this objective are
locating and identifying suitable acquisition candidates, the ability to
consummate acquisitions on favorable terms, the success of such acquisitions, if
completed, the costs and delays inherent in managing growth, the ability to
attract and retain qualified professionals and other employees to expand and
complement the Company's services, the availability of sufficient financing, the
attractiveness of the Company's capital stock to finance acquisitions,
strategies pursued by competitors, the restrictions imposed by government
regulation, changes in the industry resulting from changes in workers'
compensation laws and regulations and in the healthcare environment generally
and other risks described in this Annual Report on Form 10-K and the Company's
other filings with the Securities and Exchange Commission.
14
<PAGE>
ITEM 2. PROPERTIES
The Company rents approximately 6,000 square feet of office space for its
corporate offices in Hingham, Massachusetts.
The Company's centers typically range in sizes from approximately 725
square feet to 15,239 square feet and have lease terms of three years to six
years with varying renewal or extension rights. A typical center ranges in size
from approximately 4,000 to 10,000 square feet and has four to eight rooms used
for examination and trauma, a laboratory, an x-ray room and ancillary areas for
reception, drug testing collection, rehabilitation, client education and
administration. The centers generally are open from nine to twelve hours per day
at least five days per week.
The Company believes that its facilities are adequate for its reasonably
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not
aware of any threatened litigation that could have a material adverse effect
upon its business, operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders of the Company was held on November
30, 1999. At the Annual Meeting, the stockholders elected the nominees John C.
Garbarino, Angus M. Duthie, and Steven W. Garfinkle to the Board of Directors of
the Company for a term that expires at the 2002 Annual Meeting of Stockholders.
The holders of 1,393,644 shares of Common Stock on the applicable record date
were present in person or represented by proxy at the meeting. There were
1,393,082; 1,393,072; and 1,393,072 votes for Messrs. Garbarino, Duthie and
Garfinkle, respectively. As of the date of the Annual Meeting, the continuing
directors of the Company were Kevin J. Dougherty and Frank H. Leone, who are
serving terms that expire at the 2001 Annual Meeting of Stockholders and Edward
L. Cahill and Donald W. Hughes, who are currently serving terms which expire at
the 2000Annual Meeting of Stockholders.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the Merger on June 6, 1996, Telor's common stock was traded on the
Nasdaq National Market under the symbol TELR. From that date and through June 7,
1999, the Company's Common Stock was traded on the Nasdaq SmallCap Market. Since
June 8, 1999, the Company's Common Stock has been traded on the OTC Bulletin
Board. The Company trades under the symbol OHRI. The following table sets forth
the high and low bid quotations for the Company's Common Stock as reported by
Nasdaq or the OTC Bulletin Board, as the case may be, during the periods shown
below.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Quarter ended March 31, 1998 ................. 4 1/4 2 15/16
Quarter ended June 30, 1998 .................. 5 3 7/16
Quarter ended September 30, 1998 ............. 7 1/2 4 3/4
Quarter ended December 31, 1998 .............. 6 1/2 3
Quarter ended March 31, 1999 ................. 4 1/2 3 1/4
Quarter ended June 30, 1999 .................. 4 3/4 3
Quarter ended September 30, 1999 ............. 5 1/4 3 1/4
Quarter ended December 31, 1999 .............. 3 7/8 3 1/8
</TABLE>
The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
As of March 14, 2000, there were approximately 61 holders of record of the
Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future. The
payment of future dividends will be at the discretion of the Board of Directors
of the Company and will depend, among other things, upon the Company's earnings,
capital requirements and financial condition. In addition, the consent of
holders of the members of the Board of Directors nominated solely by the holders
of Series A Convertible Preferred Stock is required before any dividends (other
than dividends payable in Common Stock) may be declared and paid upon or set
aside for the Common Stock of the Company in any year. Further, dividends will
be payable on the shares of Series A Convertible Preferred Stock when and if
declared by the Board of Directors after November 5, 1999 and will thereafter
accrue at an annual cumulative rate of $0.48 per share, subject to certain
adjustments. Finally, compliance with various financial covenants imposed by one
of the Company's lenders could limit the Company's ability to pay dividends.
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer Company.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The consolidated statement of operations data set forth below with respect
to the years ended December 31, 1999, 1998 and 1997 and the consolidated balance
sheet data as of December 31, 1999 and 1998 are derived from, and are qualified
by reference to, the audited Consolidated Financial Statements included
elsewhere in this report and should be read in conjunction with those financial
statements and notes thereto. The consolidated statement of operations data for
the years ended December 31, 1996 and 1995 and the consolidated balance sheet
data at December 31, 1997, 1996 and 1995 are derived from financial statements
not included herein. Due to the "reverse acquisition" accounting treatment of
the Merger, the data for periods prior to the Merger represent the financial
results of OH+R rather than Telor. Historical results should not be taken as
necessarily indicative of the results that may be expected for any future
period.
<TABLE>
<CAPTION>
(in thousands except share and per share data)
Year ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenue $32,148 $23,083 $18,307 $9,041 $5,835
Expenses:
Operating 26,924 19,970 17,209 9,063 6,407
General and administrative 3,708 3,035 2,590 1,570 1,102
Depreciation and amortization 1,062 759 658 449 365
Restructuring 2,262 -- -- -- --
---------------------------------------------------------------------
33,956 23,764 20,457 11,082 7,874
---------------------------------------------------------------------
(1,808) (681) (2,150) (2,041) (2,039)
Nonoperating gains (losses):
Interest income 51 171 334 38 38
Interest expense (244) (179) (248) (252) (97)
Minority interest in net (profits) losses of
subsidiaries (590) (318) 183 322 --
Gain on disposition of investment -- -- 217 -- --
Write-off of note receivable (292) -- -- -- --
---------------------------------------------------------------------
Loss before income taxes and cumulative
effect of a change in accounting principle (2,883) (1,007) (1,664) (1,850) (1,776)
Income Taxes 0 0 0 0 0
---------------------------------------------------------------------
Loss before cumulative effect of a change
in accounting principle (2,883) (1,007) (1,664) (1,850) (1,776)
Cumulative effect of change in accounting
principle -- (155) -- -- --
---------------------------------------------------------------------
Net loss $(2,883) $(1,162) $(1,664) $(1,850) $(1,776)
=====================================================================
Net loss available to common shareholders $(3,011) $(1,177) $(1,681) $(1,850) $(1,776)
=====================================================================
Loss before cumulative effect of a change
in accounting principle $(2.04) $(0.69) $(1.07) $(1.64) $(2.69)
Cumulative effect of change in accounting
principle -- (0.11) -- -- --
---------------------------------------------------------------------
Net loss per common share $(2.04) $(0.80) $(1.07) $(1.64) $(2.69)
=====================================================================
Weighted average common shares
outstanding 1,479,450 1,479,141 1,573,471 1,129,611 661,306
=====================================================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
December 31,
Consolidated Balance Sheet Data: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ 2,690 $ 3,694 $ 5,197 $ 8,846 $ (340)
Total assets 17,160 14,479 14,573 15,476 4,249
Long-term debt less, current portion 2,906 1,116 1,386 746 1,161
Redeemable convertible preferred stock 8,470 8,455 8,440 8,423 7,179
Stockholder's equity (deficit) (2,430) 581 1,757 3,415 (6,187)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company is a leading provider of occupational health care services to
employers and their employees specializing in the prevention, treatment and
management of work related injuries and illnesses. The Company develops and
operates multidisciplinary, outpatient healthcare centers and contracts with
other health care providers to develop integrated occupational health care
delivery systems. The Company typically operates the centers under management
and submanagement agreements with professional corporations that practice
exclusively through such centers. Additionally, the Company has entered into
joint ventures with health systems to provide management and related services to
the centers and networks of providers established by the joint ventures.
The Company is the surviving corporation of the Merger of OH+R into Telor.
Pursuant to the Merger, the ophthalmic pharmaceutical business of Telor ceased,
and the business of the surviving corporation was changed to the business of
OH+R.
The Company's operations have been funded primarily through venture capital
investments and the Merger. The Company's growth has resulted predominantly from
the formation of joint ventures, acquisitions and development of businesses
principally engaged in occupational health care.
The following table sets forth, for the periods indicated, the relative
percentages which certain items in the Company's consolidated statements of
operations bear to total revenue. The following information should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this report. Historical results and percentage
relationships are not necessarily indicative of the results that may be expected
for any future period.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Total revenue ......................................................... 100.0% 100.0% 100.0%
Operating ............................................................. (83.8) (86.5) (94.0)
General and administrative ............................................ (11.5) (13.1) (14.2)
Depreciation and amortization ......................................... (3.3) (3.3) (3.6)
Restructuring ......................................................... (7.0) -- --
Interest income ....................................................... 0.2 0.7 1.9
Interest expense ...................................................... (0.8) (0.8) (1.4)
Minority interest in net (profits) losses of subsidiaries ............. (1.8) (1.4) 1.0
Gain on disposition of investment ..................................... -- -- 1.2
Writedown of note receivable .......................................... (0.9) -- --
Cumulative effect of change in accounting
principle ............................................................. (0.7) --
----------------------------------------
Net loss .............................................................. (8.9)% (5.1)% (9.1)%
========================================
</TABLE>
18
<PAGE>
RESULTS OF OPERATIONS (dollar amounts in thousands)
Years Ended December 31, 1999 and 1998
Revenue
Revenue increased 39.3% to approximately $32,148 in 1999 from approximately
$23,083 in 1998. Of the approximately $9,065 increase in revenue in 1999
compared to 1998, approximately $6,467 was attributable to centers owned at the
end of 1998, and $2,598 was attributable to centers acquired or brought on line
in 1999.
Operating, General and Administrative Expenses
Operating expenses increased 34.8% to approximately $26,924 in 1999 from
approximately $19,970 in 1998. This increase was principally due to the
acquisition and development of additional centers. As a percentage of revenue,
however, operating expenses declined by approximately 2.7% to 83.8% in 1999 from
86.5% in 1998. The centers, in aggregate, improved their profitability in 1999
as individual centers continued to achieve improved critical mass in terms of
volume.
General and administrative expenses increased 22.2% to approximately $3,708
in 1999 from $3,035 in 1998. The increase was primarily the result of the
Company introducing a state level of management whereby most states have a State
Operations Director and a State Sales Manager. This level of management was
introduced through promotion of existing personnel and/or new hires. As a
percentage of revenue, general and administrative expenses declined by
approximately 1.6% to 11.5% in 1999 from 13.1% in 1998. The Company believes
that as additional acquisitions are completed, further leveraging of existing
management will occur, and, as a result, general and administrative costs will
continue to decline as a percentage of total revenue.
Depreciation and Amortization
Depreciation and amortization expense increased 39.9% to approximately
$1,062 in 1999 from approximately $759 in 1998. The increase occurred primarily
as a result of the Company's having additional growth through center development
and acquisitions as well as the Company's capital expenditure program, which is
primarily focused on upgrading its information systems infrastructure. As a
percentage of revenue, depreciation and amortization was 3.3% in both 1999 and
1998.
Restructuring Charge
During the fourth quarter of 1999, the Company adopted, communicated and
implemented a restructuring plan to close certain centers that were either
outside of the Company's core occupational health focus or were deemed not
capable of achieving significant profitability due to specific market factors.
As a result of the restructuring plan and other actions, the Company recorded a
charge of $2,262 during the fourth quarter of 1999. Further, the restructuring
plan included the streamlining of certain other remaining operations and the
elimination or combining of various other positions within the Company.
The total number of employees terminated in conjunction with the
restructuring plan was 64 with 33 having left the Company as of December 31,
1999. The remaining employees terminated employment with the Company during the
first quarter of 2000. The employees affected by the restructuring plan included
employees of the closed centers, including medical, physical therapy, and
administrative staff.
The restructuring charges primarily include severance and other expenses
related to the terminations, fixed asset disposals and goodwill impairments for
centers that are closed, contractual expenses including lease abandonment costs,
receivable write-downs related to accounts at centers that will no longer be
pursued and miscellaneous related charges.
19
<PAGE>
9. Restructuring Charges (continued)
Details of the restructuring and other charges are as follows:
<TABLE>
<CAPTION>
December 31, 1999
Description Initial Charge Payment Accruals
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued liabilities -- -- --
Severance costs $151 $8 $143
Lease Abandonment Costs 683 -- 683
Miscellaneous 68 -- 68
------
$894
======
Assets Impairments
Fixed Asset Writedowns and
Disposals 319 -- --
Goodwill Impairment 340 -- --
Receivable Writedown 690 -- --
Miscellaneous 11 -- --
------
$2,262
======
</TABLE>
The revenues associated with the closed centers were $3,492, $3,867, and
$1,588, respectively as of December 31, 1999, 1998 and 1997 while the net
operating losses were $565, $417, and $541, respectively for the same time
periods.
Interest Income
Interest income is generated primarily from cash invested in highly liquid
funds with a maturity of three months or less. Interest income decreased 70.2%
to approximately $51 in 1999 from $171 in 1998. The decrease was related to the
Company's having less cash available to invest in 1999 as compared to 1998,
since the Company has continued to utilize cash for acquisitions, as well as the
Company's capital expenditure program, which is primarily focused on upgrading
its information systems infrastructure.
Interest Expense
Interest expense increased to approximately $244 in 1999 from approximately
$179 in 1998. The increase was due to the Company utilizing its bank line of
credit to acquire new centers, to finance working capital in the interest of one
of its newly acquired joint venture centers and to finance the Company's revenue
growth. The Company also utilized its bank lease line to finance primarily
computer equipment to support the Company's growth. As a percentage of total
revenue, interest expense was 0.8% in both 1999 and 1998.
Minority Interest
Minority interest represents the share of (profits) and losses of joint
venture investors with the Company. In 1999, the minority interest in net
profits of subsidiaries was approximately ($590) as compared to approximately
($318) in 1998, due to increasing profits of the joint venture centers in 1999.
Write-off of Note Receivable
During the fourth quarter of 1999, the Company recognized the write-down of
a note receivable in the amount of $292 due to collection uncertainties. The
payor of the note had made all required quarterly principal payments due on the
note through June 30, 1999. However, the payor is currently undergoing a
restructuring of its debt arrangements with its lender as the payor was in
default of certain covenants. The Company has reserved the entire outstanding
balance.
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<PAGE>
Years Ended December 31, 1998 and 1997
Revenue
Revenue increased 26.1% to approximately $23,083 in 1998 from approximately
$18,307 in 1997. Of the approximately $4,776 increase in revenue in 1998
compared to 1997, approximately $5,205 was attributable to centers owned at the
end of 1997 and $2,955 was attributable to centers acquired in 1998. These
amounts were offset by $3,384 of revenue which related primarily to the
Company's share of a partnership in which the Company sold its interest on
December 31, 1997.
Operating, General and Administrative Expenses
Operating expenses increased 16.0% to approximately $19,970 in 1998 from
approximately $17,209 in 1997. This increase was principally due to the
acquisition and development of additional centers. As a percentage of revenues,
operating expenses declined approximately 7.5% to 86.5% in 1998 as compared to
94.0% in 1997. The centers in aggregate improved their profitability in 1998 as
individual centers reached critical mass in terms of volume.
General and administrative expenses increased 17.2% to approximately $3,035
in 1998 from $2,590 in 1997. As a percentage of revenues, general and
administrative expenses declined approximately 1.1% to 13.1% in 1998 as compared
to 14.2% in 1997.
Depreciation and Amortization
Depreciation and amortization expense increased 15.3% to approximately $759
in 1998 from approximately $658 in 1997. The increase occurred primarily as a
result of the Company having additional growth through center development and
acquisitions. As a percentage of revenue, depreciation and amortization was 3.3%
in 1998 compared to 3.6% in 1997. The 1998 amount is reflective of the change in
accounting principle noted below which was adopted as of January 1, 1998.
Interest Income
Interest income is generated primarily from cash invested in highly liquid
funds with a maturity of three months or less. Interest income decreased 48.8%
to approximately $171 in 1998 from $334 in 1997. The decrease was related to the
Company's having less cash available to invest in 1998 as compared to 1997,
since the Company has continued to utilize cash for acquisitions and other
general corporate needs.
Minority Interest
Minority interest represents the share of (profits) and losses of joint
venture investors with the Company. In 1998, the minority interest in net
profits of subsidiaries was $318 as compared to the minority interest in net
losses of subsidiaries of approximately $183 for 1997 as the joint venture
centers operating performance improved.
Cumulative Effect of Change in Accounting Principle
The Company adopted the provisions of Statement of Position 98-5, Reporting
the Costs of Start-Up Activities, (SOP 98-5), which requires that costs related
to start-up activities be expensed as incurred in its financial statement for
the year ended December 31, 1998. Prior to 1998, the Company capitalized its
preopening costs in connection with new centers and its costs associated with
new product lines. The Company adopted SOP 98-5 on December 31, 1998
retroactively to January, 1, 1998. The effect of the adoption of SOP 98-5 was a
charge of $155 to expense costs that had been capitalized prior to January 1,
1998.
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Gain on Disposition of Investment
The gain on disposition of investment recognized in 1997 relates to the
restructuring of one of the Company's joint ventures. In connection with such
restructuring, the ownership of the joint venture changed whereby the Company
assumed an additional 24% ownership interest in the joint venture. Through this
transaction, each party in the joint venture forgave outstanding indebtedness.
Additionally, certain assets associated with one of the joint venture sites were
purchased by one of the Company's partners in consideration for the forgiveness
of the Company's note payable to its partner of approximately $536 and for cash
of approximately $56. This restructuring resulted in the gain on disposition of
investment of $217 to the Company.
Seasonality
The Company is subject to the seasonal fluctuations that impact the various
employers and employees it serves. Historically, the Company has noticed these
impacts in portions of the first and fourth quarters. Traditionally, revenues
are lower during these periods since patient visits decrease due to the
occurrence of plant closings, vacations, holidays, a reduction in new employee
hirings and the impact of severe weather conditions. These activities also cause
a decrease in drug and alcohol testings, medical monitoring services and
pre-hire examinations. Similar fluctuations occur during the summer months, but
typically to a lesser degree than during the first and fourth quarters. The
Company attempts to ameliorate the impacts of these fluctuations through
adjusting staff levels and ongoing efforts to add service lines with less
seasonability.
Liquidity and Capital Resources
Since inception, the Company's funding requirements have been met through a
combination of issuances of capital stock, long-term debt and other commitments,
the utilization of capital leases and loans to finance equipment purchases, the
sale of certain accounts receivable and the creation of minority interests. Net
proceeds from the sale of capital stock have totaled approximately $14,000
including the Company's private placement of its Series A Convertible Preferred
Stock on November 6, 1996. The proceeds from the sale of this preferred stock
provided the Company with cash proceeds of approximately $8,400 net of expenses.
During 1996, the Company received approximately $3,800 from the sale of certain
account receivable. At December 31, 1999, the Company had $2,700 in working
capital, a decrease of $1,000 from December 31, 1998. The Company has utilized
its funds in its expansion effort and for working capital. The Company's
principal sources of liquidity as of December 31, 1999 consisted of (i) cash and
cash equivalents aggregating approximately $1,500 and (ii) accounts and notes
receivable of approximately $7,100.
Net cash provided by (used) in operating activities by the Company in 1999
was approximately $1,162 as compared to approximately $(195) for 1998 and
$(2,996) for 1997. During these years, the primary uses of cash were the funding
of working capital in centers in early stages of development or centers which
were recently acquired and to fund Company operating losses. During 1999, the
improved performance of the Company's centers resulted in net cash provided by
operating activities after consideration for non-cash items such as
depreciation, amortization, restructuring charges and minority interest in net
profits of subsidiaries. During 1997 the Company also provided funding for
working capital for certain centers where an accounts receivable financing
agreement was terminated and for expenses relating to opening a new location
during the fourth quarter. The operating losses cited above in 1998 and 1997
were offset by non-cash expenses, such as depreciation and amortization, and by
fluctuations in working capital.
Working capital fluctuations have been primarily from increases in accounts
receivable and other current assets offset by increases in accounts payable and
accrued expenses. Accounts receivable have increased from $5,137 in 1998 to
$7,105 in 1999. The increase is due to the Company's increase in net revenues as
days in sales outstanding has remained at 81 days in 1999 and 1998,
respectively. Accounts payable and related accruals have increased from $2,593
in 1998 to $5,062 in 1999. The increase is primarily due to the recognition of
approximately $1,000 of payables relating to new operations in 1999, $211 in
additional paid time off payable, and $244 in additional bonus incentives
payable. The remaining difference represents accounts payable and accrued
expenses associated with revenue growth. Finally, the Company has recognized a
restructuring liability of $894, of which $536 is estimated payable in 2000. The
$536 includes $143 in severance liability payable in the first quarter of 2000,
and $324 in lease liability (primarily space) payable throughout 2000.
Net cash used by investing activities was $2,345, $1,561 and $1,192 in
1999, 1998 and 1997, respectively. The Company's investing activities in 1999
included the purchase of three occupational medicine centers, a physical therapy
practice and a contribution to a joint venture with an aggregate cash outlay of
$938. The Company's investing activities in 1998 include a contribution to a
joint venture, the acquisition of four occupational medical centers and a
physician and
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physical therapy practice with an aggregate cash outlay of $469. The Company's
investing activities in 1997 included the purchase of physician practices and
investments in joint ventures with an aggregate cash outlay of $1,375. The
Company has an equity interest equal to or in excess of 51% in all joint
ventures
Additional investing activities included the use of $322, $484, and $381 in
1999, 1998 and 1997 respectively, for costs in excess of purchase price for
certain acquisitions and fixed asset additions of $498, $608 and $458 in 1999,
1998, and 1997, respectively. Fixed asset additions for 1999 related primarily
to computer related costs while 1998 expenditures related to computer costs and
the renovation of two existing centers and 1997 included primarily the buildout
of a new center as well as computer equipment. In 1997, approximately $345 of
cash that had been pledged for certain letters of credit in 1996 was released.
Finally, during the twelve months ended December 31, 1999, the Company paid
cash of $587 relating to distributions to its joint venture partners.
Distributions of joint venture subsidiary cash to the Company and its joint
venture partners allows the Company access to its share of the cash for general
corporate purposes. The Company expects to continue to make future
distributions, depending upon the cash balances in the joint venture accounts.
Net cash provided (used) by financing activities was $1,133, $(862) and
$(248) in 1999, 1998 and 1997, respectively. The Company used funds of
approximately $819, $917, and $596 in 1999, 1998 and 1997 respectively, for the
payment of long-term and other current obligations. In 1999, the Company
received advances of $1,706 under its bank line of credit and $204 from its
leasing line. The funds drawn down from the bank line of credit were utilized to
fund acquisitions, working capital needs and equipment purchases not leased. In
1997, the Company received approximately $331 from interest bearing working
capital loans from joint venture partners.
The Company expects that its principal use of funds in the near future will
continue to be in connection with acquisitions and the formation of joint
venture entities, working capital requirements, debt repayments and purchases of
property and equipment and possibly the payment of dividends on the Company's
Series A Convertible Preferred Stock, when and if declared by the Board of
Directors, after November 5, 1999. Such dividends accrue at an annual cumulative
rate of $0.48 per share, subject to certain adjustments.
During November of 1997, the Company entered into a financing arrangement
with Fleet National Bank (f/k/a BankBoston, N.A.) ("BankBoston") whereby it had
access to two separate credit facilities. The first credit facility provides the
Company with the ability to borrow $2,500 for working capital and acquisition
needs (the "Company Line"). The second facility provided the ability to borrow
up to $4,500 to be utilized by the Company's existing and future joint ventures
(the "JV Line"). During December of 1998, the allocation of the $7,000 aggregate
credit facility was changed to provide $5,000 for the Company Line and $2,000
for the JV Line. The borrowing base for the JV Line is eighty-five percent (85%)
of the joint ventures' accounts receivable less than 120 days old. The credit
facilities were to expire on December 31, 1999; however, effective as of such
date BankBoston extended the expiration date to June, 30, 2001 and renewed the
credit facilities at their existing levels and a .10% increase in the existing
interest rates on the Company Line, subject to certain loan covenant changes and
other modifications. In addition, during 1998 the Company secured a $500 Master
Lease Agreement from BancBoston Leasing, and during the first quarter of 1999
the Company increased such line to $2,000 (the "Lease Line"). Under this
agreement, the Company entered into capital leases of $513. The Lease Line
expired on December 31, 1999 and the Company is currently evaluating several
alternative sources of financing for this purpose. The credit facilities and the
Lease Line had an outstanding balance of $2,518 as of December 31, 1999.
The Company expects that the cash received as the result of the Merger,
proceeds received upon the sale of 1,416,667 shares of its Series A Convertible
Preferred Stock, the previously mentioned credit facilities and line, and cash
generated from operations will be adequate through June 30, 2001 to provide
working capital, fund debt repayments, to finance any necessary capital
expenditures, and to fund the above referenced dividends payments, if any,
through June 30, 2001. However, the Company believes that the level of financial
resources available to it is an important competitive factor and it will seek
refinancing opportunities, as well as further financings during the 2000 fiscal
year in anticipation of the maturity of the credit facilities in 2001and the
Company's future needs during subsequent fiscal years. The Company will also
consider raising additional equity capital on an on-going basis as market
factors and its needs suggest, since additional resources may be necessary to
fund acquisitions by the Company.
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<PAGE>
Impact of Year 2000
The Company was aware of the issues associated with the programming code in
existing computer systems as the year 2000 approached. The "Year 2000" problem
was pervasive and complex, as it was anticipated that virtually every computer
operation was to be affected by the rollover of the two digit year value to 00.
This issue was whether information technology and non-information technology
systems would properly recognize date sensitive information when the year
changed to 2000. Systems that did not properly recognize such information could
generate erroneous data or cause a system to fail.
The Company's core operations and essential functions were ready for the
Year 2000 transition. The Company formed a Year 2000 Committee (the "Y2K
Committee") to provide a centralized management function for the entire
organization. The Y2K Committee was formally organized in June 1998 and was
comprised of members from various functional groups within the Company including
operations, information services, finance and legal. The Y2K Committee's mission
was to lead and assist the Company in identifying, addressing and monitoring the
Company's Year 2000 readiness.
The Y2K Committee addressed the Year 2000 problem by creating a plan that
was developed by using a bottom-up planning approach. The plan included both
global goals and specific analyses of potential problem areas. From a global
perspective, the plan involved six steps - awareness, assessment, testing,
remediation, implementation and monitoring. The specific analysis phase included
focus on (a) critical computer hardware and software applications that were
internally maintained; (b) critical computer hardware and software applications
that were maintained by third-party vendors; (c) non-critical applications
regardless of maintenance responsibility; (d) hardware generally; (e) medical
equipment with embedded applications; and (f) computer applications of the
Company's significant payors and suppliers. The Company utilized principally
internal resources to identify, correct or reprogram, and test its systems for
Year 2000 compliance; however, it utilized external resources when it was deemed
appropriate. The expense associate with such external resources was not
material.
The Company completed the awareness, assessment, testing, remediaton and
implementation steps during the fourth quarter of 1999. As a result of the
awareness and assessment phases in the plan, the Company identified certain
critical computer applications. Critical computer applications were deemed to be
those which were fundamental to the Company's core business mission, the failure
of which would have a significant adverse impact on the Company. The Company
identified both its practice management system and its general ledger software
applications as being critical. The Company determined that its clinical
applications were not considered critical since to the extent any of these
applications were computer based, manual systems were appropriately available.
With regards to the critical application areas, the Company proceeded to
the testing, remediation and implementation phase. The Company completed its
review and testing of its practice management system during the first quarter of
1999. These tests indicated that existing software issues relevant to the Year
2000 problem could be corrected appropriately by utilizing so-called "patches"
provided by the software vendor. Implementation of these "patches" were
completed where necessary and the Company believes that the upgraded software
has operated in a compliant fashion. Further, the Company completed a number of
acquisitions and joint ventures in recent years and some of the information
systems associated with entities acquired in recent months had not been fully
integrated with the Company's information systems. A significant portion of the
Company's capital budget for the fiscal year ending December 31, 1999 was
allocated to the conversion of these acquired systems. The Y2K Committee
monitored the implementation of the 1999 capital budget and organized the
schedule to assure that any existing material non-compliant practice management
systems not susceptible to a patch were replaced by September 30, 1999. Since
acquisitions and other development transactions were expected to continue during
the remainder of calendar 1999 and into 2000 and beyond, the Company has
established systems and protocols to assure the timely conversion of information
systems acquired in future transactions so that any adverse impacts are
minimized.
During the third and fourth quarters of 1998, the Company implemented a
conversion and upgrade of its general ledger system to address the demands
placed upon the existing systems due to the Company's continued growth. The
Company believed that it received appropriate warranties and assurances from its
general ledger vendors that these systems are Year 2000 compliant.
24
<PAGE>
An assessment of the Company's hardware indicated that certain equipment
was not Year 2000 complaint. The cost of replacing this equipment was not
material as the shelf life of the Company's personal computers is 3-5 years and
each year approximately 25% of all personal computers have been replaced or
upgraded. The Company believes all personal computers purchased since early 1997
through 1999 are Year 2000 complaint.
The Company has completed its review of embedded applications that control
certain medical and other equipment. The nature of the Company's business is
such that any failure of these type of applications was not expected to have a
material adverse effect on its business. In particular, the Company focused on
reviewing and testing those applications the failure of which would be likely to
cause as significant risk of either producing inaccurate information regarding a
patient's risk of illness or injury or causing death or serious injury to
patients under treatment in the Company's facilities. The Company believed that,
because of the types of services it primarily provides and the nature of its
patient population, there was minimum likelihood of death or serious injury
occurring because of the failure of an embedded application. The Company
completed its review of this area during the fourth quarter of 1999 and
implemented solutions based on its findings. The estimated cost of equipment to
be replaced as a result of this review was approximately $50. The Company
included this estimate in its 1999 capital budget referenced below.
The Company sent inquiries to its significant equipment and medial
suppliers concerning the Year 2000 compliance of their significant computer
applications. Responses were received from over 60% of those suppliers
solicited. After a review of these responses, no significant problems were
identified.
During the third and fourth quarters of 1998, the Company sent inquiries to
its significant third-party payors. The Company's third-party payors are a
highly diffuse group and involve a class of several thousand parties. For the
purpose of the essential inquires sent in 1998, "significant" was deemed to mean
a payor that represented $5 to $10 in revenue generation during the last twelve
months depending on a center's revenue size. Although several hundred responses
to those 1998 inquiries were received and no serious payor issues were
identified, the Company narrowed its focus during the second quarter of 1999 to
a higher dollar revenue generating class. This narrower class not only received
additional written inquires where necessary, but also were interviewed by
telephone, if the Company deemed it appropriate, as to their Year 2000
capabilities. Since the Company's revenues are derived from reimbursement by
governmental and private third-party payors, the Company was dependent upon such
payors' evaluation of their Year 2000 compliance status and associated risks. If
such payors were incorrect in their evaluation of their Year 2000 compliance
status, this could result in delays or errors in reimbursement to the Company by
such payors, the effects of which could be material to the Company. To date, the
Company is not aware any material delays in such reimbursement due to Year 2000
problems.
As noted above, the Company executed the Year 2000 plan primarily with
existing internal resources. The Company did not separately track the internal
costs associated with the Year 2000 plan; however, the principal costs were
related to payroll and the associated benefits for its information services
group. Year 2000 remediation costs were incorporated into the Company's general
capital budget for the 1999 fiscal year. The overall capital budget for 1999 was
approximately $1,000. The costs included in this capital budget involving
remediation of Year 2000 issues were not material to the results of operations
or the financial condition of the Company.
Guidance from the Securities and Exchange Commission required the Company
to describe its "reasonably likely worst case scenario" in connection with year
2000 issues. As discussed above, while there was always the potential risk of
serious injury or death resulting from a failure of embedded applications in
medical and other equipment used by the Company, the Company did not believe
that such events were reasonably likely to occur. The Company believes that the
most reasonably likely worst case to which it would be exposed was that,
notwithstanding the Company's attempts to obtain Year 2000 compliance assurance
from third-party payors, there would be material failure in such payors' systems
which prevents or substantially delays reimbursement to the Company for its
services. In such event, the Company would be forced to rely on cash on hand and
available borrowing capacity to the extent of any shortfall in reimbursement,
and could be forced to incur additional costs for personnel and other resources
necessary to resolve any payment issues. Subsequent to the commencement of the
Year 2000, the Company has not yet had to incur any such additional costs or
deal with any such reimbursement issues.
Currently, the Company has not encountered any significant business
interruptions from the Year 2000 issue on its internal information systems and
non-information systems. The Company will continue to monitor its systems and
its suppliers and third-party payors to ensure that issues do not manifest
themselves over the next few months. Although the
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<PAGE>
Company does not anticipate any future significant business interruptions, no
assurance can be given that such interruptions will not occur.
Various of the Company's disclosures and announcements concerning its
products and Year 2000 programs are intended to constitute "Year 2000 Readiness
Disclosures" as defined in the Year 2000 Information and Readiness Disclosure
Act. The Act provides added protection from liability for certain public and
private statements concerning an entity's Year 2000 readiness and the Year 2000
readiness of its products and services. The Act also potentially provides added
protection from liability for certain types of Year 2000 disclosures made after
January 1, 1996, and before the date of enactment of the Act.
Inflation
The Company does not believe that inflation had a significant impact on its
results of operations during the last three years. Further, inflation is not
expected to adversely affect the Company in the future unless it increases
substantially, and the Company is unable to pass through the increases in its
billings and collections.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The auditors' reports, consolidated financial statements and financial
statement schedules that are listed in the Index to Consolidated Financial
Statements and Financial Statement Schedules on page F-1 hereof are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
John C. Garbarino................ 47 President, Chief Executive Officer and Director
Richard P. Quinlan............... 41 Chief Financial Officer, Treasurer, Secretary and General Counsel
Lynne M. Rosen................... 38 Senior Vice President, Operations and Assistant Secretary
H. Nicholas Kirby................ 51 Senior Vice President, Corporate Development
Pamela G. Fine................... 40 Senior Vice President, Sales and Marketing
Edward L. Cahill................. 47 Director
Kevin J. Dougherty............... 53 Director
Angus M. Duthie.................. 60 Director
Donald W. Hughes................. 49 Director
Frank H. Leone................... 55 Director
Steven W. Garfinkle.............. 42 Director
</TABLE>
John C. Garbarino, a founder of OH+R, was its President and Chief Executive
Officer and a director since its formation in July 1992 and has been President,
Chief Executive Officer and a director of the Company since the Merger. From
February 1991 through June 1992, Mr. Garbarino served as President and Chief
Executive Officer of Occupational Orthopaedic Systems, Inc., a management
company that operated Occupational Orthopaedic Center, Inc., a company which was
the initial acquisition of OH+R. From 1985 to January 1991, Mr. Garbarino was
associated in various capacities with Foster Management Company ("Foster"), a
private investment company specializing in developing businesses to consolidate
fragmented industries. In his association with Foster, Mr. Garbarino was a
general partner and consultant and held various senior executive positions
(including Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer) in Chartwell Group Ltd., a Foster portfolio company organized to
consolidate through acquisitions the highly fragmented premium priced segment of
the interior furnishings industry. Previously, Mr. Garbarino participated in the
venture capital industry as a founder and general partner of Fairfield Venture
Partners, L.P. and as vice president and treasurer of Business Development
Services, Inc., a venture capital subsidiary of General Electric Company. Mr.
Garbarino is a C.P.A. and previously worked at Ernst & Whinney (a predecessor to
Ernst & Young LLP).
Richard P. Quinlan joined the Company as Chief Financial Officer,
Treasurer, Secretary and General Counsel in November 1996. From December 1991 to
October 1996, Mr. Quinlan was Senior Vice President and General Counsel of
AdvantageHEALTH Corporation ("AdvantageHEALTH"). AdvantageHEALTH is a provider
of physical rehabilitation services, subacute services, home health services,
and senior living/assisted living services in the Northeast United States, and
now a wholly-owned subsidiary of HEALTHSOUTH Corporation, a provider of
outpatient and rehabilitative healthcare services. From June 1985 to November
1991, he practiced law with Nutter, McClennen & Fish in Boston, Massachusetts
and served as a partner during his final two years there. During March 2000, Mr.
Quinlan tendered his resignation to pursue another career opportunity. Such
resignation will become effective March 31, 2000.
Lynne M. Rosen, a founder of OH+R, has been with OH+R since its formation
in July 1992. During 1997, Ms. Rosen was appointed Senior Vice President,
Planning and Development, and subsequently in March, 1999, Ms. Rosen was
appointed Senior Vice President, Operations. Ms. Rosen had previously held the
positions of Vice President and Assistant Secretary since the Merger. From April
1988 through June 1992, Ms. Rosen held various positions with Occupational
Orthopaedic Center, Inc., including general manager. Ms. Rosen was an athletic
trainer at the University of Pennsylvania Sports Medicine Center from 1986 to
March 1988 and at the University of Rhode Island from 1985 to 1986. She has
published several papers and made a number of presentations in the area of
orthopedic rehabilitation.
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<PAGE>
H. Nicholas Kirby, has served as Senior Vice President, Corporate
Development since January 1998. Previously he served as Vice President,
Corporate Development of the Company since June 1996. From August 1994 to June
1996, he was OH+R's Director of Operations in Maine. Mr. Kirby was a founder and
President of LINK Performance and Recovery Systems, Inc. ( "LINK ") from January
1986 until the sale of the company to OH+R in August 1994. LINK was an
occupational health company headquartered in Portland, Maine.
Pamela G. Fine joined the Company in January 1999 as Senior Vice President,
Sales and Marketing. From September 1997 to January 1999. Ms. Fine was Vice
President of Sales for Mariner Medical Services, a business unit of Mariner
Post-Acute Network, responsible for the provision of subacute and long-term
pharmacy and home health services. From 1991 to 1997, Ms. Fine was with Olsten
Health Services, the largest provider of home nursing and infusion services
nationwide. While with Olsten, she held several sales management positions of
increasing responsibility, including, Director of Sales for New England; a
region comprised of 43 branch locations and $150 million dollars in revenue. In
1982, Ms. Fine began her sales and marketing career with E.I. DuPont de Nemours,
with their Medical Products Department. She held various sales positions with
DuPont, until 1990 when the Specialty Diagnostics Division was purchased by
Ortho Diagnostics, a wholly owned subsidiary of Johnson & Johnson. Ms. Fine
moved to Ortho Diagnostics as Account Executive for the Northeast, where she
remained until 1991.
Edward L. Cahill has served as a director of the Company since November
1996. Mr. Cahill is a founding partner of Cahill, Warnock & Company, LLC (
"Cahill, Warnock "), an asset management firm established to invest in small
public companies. Prior to founding Cahill, Warnock in July 1995, Mr. Cahill had
been a Managing Director at Alex. Brown & Sons Incorporated where, from 1986
through 1995, he headed the firm's Health Care Investment Banking Group.
Mr. Cahill is also a director of MedPlus, Inc. (Nasdaq: MEDP), MD/Bio and
several private companies.
Kevin J. Dougherty served as a director of OH+R since July 1993 and has
been a director of the Company since the Merger. Mr. Dougherty is currently a
General Partner of The Venture Capital Fund of New England, a venture capital
firm he joined in April 1986. Previously, he participated in the venture capital
industry as Vice President of 3i Capital Corporation from 1985 to 1986, and as
Vice President of Massachusetts Capital Resource Company from 1981 to 1985.
Prior to that, Mr. Dougherty served as a commercial banker at Bankers Trust
Company and the First National Bank of Boston.
Angus M. Duthie served as a director of OH+R since June 1992 and has been a
director of the Company since the Merger. Mr. Duthie is currently a General
Partner of Prince Ventures, L.P., a venture capital firm he co-founded in 1978.
Mr. Duthie has over 28 years of experience involving portfolio management. He
currently serves on the board of directors of KENETECH, Inc.
Donald W. Hughes has served as director of the Company since December 1997
and is Vice President and Chief Financial Officer of Cahill, Warnock. Prior to
joining Cahill, Warnock in February 1997, Mr. Hughes served as Vice President,
Chief Financial Officer and Secretary of Capstone Pharmacy Services, Inc.
(Nasdaq: DOSE) since December 1995 and as Executive Vice President and Chief
Financial Officer of Broventure Company Inc., a closely-held investment
management company from July 1984 to November 1995.
Frank H. Leone has served as a director of the Company since July 1998. In
1985, Mr. Leone founded and has since served as President/Chief Executive
Officer of RYAN Associates, and he is the founder and Executive Director of the
National Association of Occupational Health Professionals (N.A.O.H.P.). Mr.
Leone is also the executive editor of four leading occupational health
periodicals: "VISIONS", "Partners", the "Workers' Compensation Managed Care
Bulletin", and the "Clinical Care Update".
Steven W. Garfinkle has served as a director of the Company since July
1998. Mr. Garfinkle, who is currently a private health care consultant, served
as Chairman and Chief Executive Officer of Prism Health Group Inc. ("Prism")
from 1992 until Prism was sold to Mariner Health, Inc. in 1997. Mr. Garfinkle
also served as President of New England Health Strategies from 1991 to 1992.
From 1982 to 1991 Mr. Garfinkle served as Chief Operating Officer and in several
senior management positions for the Mediplex Group, Inc.
The directors are elected to three year terms or until their successors
have been duly elected and qualified. The terms of Edward L. Cahill and Donald
W. Hughes expire in 2000. The term of Kevin J. Dougherty and Frank H. Leone
expire at the 2001 Annual Meeting of Stockholders. The terms of Angus M. Duthie,
John C. Garbarino and Steven W. Garfinkle expire in 2002.
28
<PAGE>
Pursuant to the terms of the Series A Convertible Preferred Stock contained
in the Company's Restated Certificate of Incorporation, as amended, the holders
of the Series A Convertible Preferred Stock, voting as a single class, are
entitled to elect two directors of the Company. Mr. Cahill and Mr. Hughes
currently serve as these directors. Pursuant to the terms of a Stockholders'
Agreement (the "Stockholders' Agreement") dated as of November 6, 1996 by and
among the Company and certain of the Company's stockholders, such stockholders
have agreed to vote all of their shares of Preferred Stock and Common Stock to
elect certain nominees to the Company's Board of Directors. The Stockholders'
Agreement provides that such nominees are to be determined as follows: (a) the
Chief Executive Officer of the Company (presently, John C. Garbarino); (b) a
person designated by the Telor Principal Stockholders, as defined in the
Stockholders' Agreement (presently, Angus M. Duthie); (c) a person designated by
the OH+R Principal Stockholders, as defined in the Stockholders' Agreement
(presently, Kevin J. Dougherty); (d) two persons designated by Cahill, Warnock
Strategic Partners Fund, L.P. (presently, Edward L. Cahill and Donald W.
Hughes); and (e) two persons unaffiliated with the management of the Company,
the ("Independent Directors") and mutually agreeable to all of the other
directors (presently, Frank H. Leone and Steven W. Garfinkle).
Executive officers serve at the discretion of the Company's Board of
Directors. There are no family relationships among the executive officers and
directors nor are there any arrangements or understandings between any executive
officer and any other person pursuant to which the executive officer was
selected.
Other Key Officers
Other key contributing officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
William B. Patterson, MD, MPH....... 51 Chairman, Medical Policy Board
David R. McLarnon................... 45 Vice President, Workplace Health Division
Patti E. Walkover................... 45 Vice President, Network Operations
Raymond M. Sessler.................. 42 Vice President, Information Services
Janice M. Goguen ................... 36 Corporate Controller and Assistant Secretary
</TABLE>
William B. Patterson, MD, MPH, was appointed as Chairman of the Company's
Medical Policy Board in September 1998. Previously he served as Medical Director
of the Company's Massachusetts operations since August 1997, when New England
Health Center, a company of which he was the founder and President since 1990,
was acquired by the Company. Dr. Patterson is board certified in internal and
occupational medicine. He has served as President of the New England College of
Occupational and Environmental Medicine and is currently on its Board of
Directors. Dr. Patterson also currently serves as an assistant professor at the
Boston University School of Public Health.
David R. McLarnon joined the Company as Vice President, Operations in
December 1996. From January 1994 to November 1996, Mr. McLarnon was Corporate
Vice President, Ambulatory Division of AdvantageHEALTH Corporation, which merged
with HEALTHSOUTH Corporation, and was responsible for outpatient rehabilitation
operations in a seven-state region. From June, 1992 to December, 1993, Mr.
McLarnon held positions with The Mediplex Group, pursuant to which he served as
an administrator of outpatient rehabilitation services for the company's
operations in Denver, Colorado as well as provided development and
administrative services for certain of the company's comprehensive outpatient
rehabilitation facilities in Florida.
Patti E. Walkover joined the Company in March 1999 as Vice President,
Network Operations. From April 1996 to February 1999, Ms. Walkover served as
Vice President, New Markets and Vice President of Operations, respectively, for
Healthcare First, a regionally based workers' compensation managed care company,
where she was responsible for network development and operations in New England
and New York. Healthcare First was acquired by Gates McDonald in October, 1998.
Ms. Walkover was Director of Occupational Health and Workers' Compensation
Managed Care at VHA East in Philadelphia, from February 1993 to March 1996 where
she developed the TeamWorks occupational health plan. Her prior positions
include Program Director for the Occupational Health Center at Chester County
Hospital
29
<PAGE>
(January 1992 to January 1993), and Administrative Director at the Crozier
Center for Occupational Health (November 1989 to December 1991) a multi-site
occupational health program in greater Philadelphia.
Raymond M. Sessler joined the Company as Vice President, Information
Services in January 1998. From 1989 through 1997, Mr. Sessler served as Director
of Information Technology at Harvard Pilgrim Health Care, one of the largest
health maintenance organizations in the nation. As Director of Information
Technology, Mr. Sessler was responsible for enterprise system integration and
managed a $55 million annual operating budget.
Janice M. Goguen joined the Company as Corporate Controller in October
1997. From November 1992 through October 1997, Ms. Goguen was Corporate
Controller for AdvantageHEALTH Corporation, which merged with HEALTHSOUTH
Corporation. From August 1985 to November 1992, Ms. Goguen was employed by Ernst
& Young, LLP where she planned, managed and executed audits of publicly held,
privately owned and non-profit companies. Ms. Goguen is a Certified Public
Accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who beneficially own
more than ten percent of the Company's Common Stock to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Based
solely on reports and other information submitted by the executive officers,
directors and such beneficial owners, the Company believes that during the
fiscal year ended December 31, 1999, all such reports were timely filed.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth certain information regarding the
compensation paid by the Company to the Company's Chief Executive Officer, and
the only other executive officers whose salary and bonus exceeded $100,000 in
1999 (together the "Named Executive Officers") for services rendered in all
capacities to the Company and its subsidiaries for the fiscal years ended
December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Securities (1)
Annual Compensation Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options Compensation $
- --------------------------- ---- ---------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
John C. Garbarino .............................. 1999 180,000 18,000 60,000(2) 3,338
President and Chief Executive Officer 1998 180,000 -- 60,000(2) 3,494
1997 180,000 -- -- 6,170
Richard P. Quinlan ............................. 1999 140,000 14,000 5,000(2) 7,489
Chief Financial Officer, Treasurer, Secretary 1998 140,000 10,000 10,000 7,138
and General Counsel 1997 140,000 -- -- 7,674
Lynne M. Rosen ................................. 1999 140,000 14,000 5,000(2) 2,523
Sr. Vice President, Planning and 1998 139,711 -- 10,000 2,922
Development 1997 108,654 -- -- 2,915
H. Nicholas Kirby .............................. 1999 139,231 14,000 15,000(2) 1,385
Senior Vice President, 1998 129,515 -- 20,000 1,609
Corporate Development 1997 87,907 -- -- 1,485
Pamela G. Fine(3) .............................. 1999 115,385 12,000 25,000 554
Senior Vice President,
Sales & Marketing
</TABLE>
(1) Includes primarily the Company's contribution under the Company's 401(k)
plan and car allowances.
(2) This grant or a portion thereof in certain individual cases represents an
extension of a 1998 grant that was to vest fully upon the achievement of
certain goals and other criteria.
(3) Ms. Fine joined the Company in January 1999.
31
<PAGE>
Option Grants
The following table sets forth information with respect to stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total Realizable Value
Securities Options Assumed Annual
Underlying Granted to Exercise Rates of Stock
Options Granted Employees Price Expiration Price Appreciation
Name (#) in 1999 ($/SH) Date For Option Term (1)
------------------------
5% ($) 10%
- ------------------------------------------------------- ----------- ------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Garbarino ............. 60,000(2) 34% $3.00 01/16/09 $113,400 $286,800
Richard P. Quinlan ............ 5,000(2) 2.8% $3.00 01/16/09 $ 9,450 $ 23,900
Lynne M. Rosen ................ 5,000(2) 2.8% $3.00 01/16/09 $ 9,450 $ 23,900
H. Nicholas Kirby ............. 5,000(2) 2.8% $3.00 01/16/09 $ 9,450 $ 23,900
10,000(3) 5.7% $3.75 01/11/09 $ 23,700 $ 59,600
Pamela G. Fine ................ 5,000(2) 2.8% $3.00 01/16/09 $ 9,450 $ 23,900
20,000(3) 11.4% $3.75 01/11/09 $ 47,400 $119,200
</TABLE>
(1) The dollar amounts under these columns are the result of calculations
assuming 5% and 10% growth rates as set by the Securities and Exchange
Commission and, therefore, are not intended to forecast future price
appreciation, if any, of the Company's Common Stock.
(2) 100% were to vest fully on December 31, 1999 if various goals and other
criteria were achieved. Since such goals and other criteria were not
achieved, these options became null and void as of such date.
(3) Options granted vest ratably over four (4) years on each of the first four
anniversary dates of the grant date.
32
<PAGE>
Option Exercises and Year-End Values
The following table sets forth information concerning option holdings as of
December 31, 1999 with respect to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the Money Options
Acquired Options at FY-End (#) at FY-End ($) (1)
On Value ------------------------- --------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Garbarino ............. -- -- 129,540 25,000 58,148 0
Richard P. Quinlan ............ -- -- 35,000 15,000 938 2,813
Lynne M. Rosen ................ -- -- 27,787 8,750 11,320 2,813
H. Nicholas Kirby ............. -- -- 19,746 25,875 8,420 8,905
Pamela G. Fine ................ -- -- 0 20,000 0 15,000
</TABLE>
(1) Based on the fair market value of the Company's Common Stock as of December
31, 1999 ($3.75) minus the exercise price of options.
Employment Agreements
John C. Garbarino has an employment agreement with the Company dated June
6, 1996. The term of the agreement is two years from such date and renews
automatically for successive one-year periods until terminated. The agreement
provides for an annual salary of $180,000, subject to increase on an annual
basis in the discretion of the Board of Directors, and bonus as may be
determined by the Compensation Committee of the Board of Directors. Mr.
Garbarino is subject to a covenant not to compete with the Company for six
months after the termination of his employment. If the Company terminates the
agreement without "cause" (as defined in the agreement), or if Mr. Garbarino
becomes incapacitated, or if Mr. Garbarino resigns from the Company for "just
cause" (as defined in the agreement), then the Company is obligated to pay to
Mr. Garbarino six months' base salary in consideration of his covenant not to
compete.
Director Compensation
Except for the Independent Directors, the Company's directors do not
receive any cash compensation for service on the Board of Directors or any
committee thereof, but all directors are reimbursed for expenses actually
incurred in connection with attending meetings of the Board of Directors and any
committee thereof. Each of the Independent Directors receives $1,200 for each
meeting of the Board of Directors he attends. Pursuant to the Company's 1993
Stock Plan, each director who is not an employee of the Company is granted a
non-qualified stock option on the date of his or her election to purchase 1,200
shares of the Company's Common Stock. The exercise price for each such option is
the fair market value of the Company's Common Stock on the date of grant. Such
options vest ratably over three years on each of the first three anniversary
dates of the grant date and are exercisable for a period of ten years. Pursuant
to the Company's 1993 Stock Plan, at each annual meeting of stockholders or
special meeting in lieu thereof, each director who is not then an employee of
the Company and who has been in continued and uninterrupted service of the
Company as a director for at least the last six months is granted a
non-qualified stock option to purchase 800 shares of the Company's Common Stock.
The exercise price of each such option is the fair market value of the Company's
Common Stock on the date of grant. Such option has a term of ten years and is
immediately exercisable in full as of the date of the next annual meeting of
stockholders or special meeting in lieu thereof following the annual meeting or
special meeting in lieu thereof in which the option was granted, whether or not
such director is re-elected at that meeting, provided that such director has
been in the continued and uninterrupted service of the Company as a director
from the date of grant through the day prior to the subsequent annual meeting.
The Company has exhausted the available shares of Common Stock under the 1993
Stock Plan.
33
<PAGE>
Upon election to the Board, each Independent Director was granted a
non-qualified stock option to purchase 20,000 shares of the Company's Common
Stock. The exercise price of each such option was the fair market value of the
Company's Common Stock on the date of grant. Such options vest ratably over four
years on each of the first four anniversary dates and are exercisable for a
period of ten years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 14, 2000 by (i) each person
known by the Company to own beneficially more than five percent of the Common
Stock of the Company, (ii) each director and nominee for director of the
Company, (iii) each Executive Officer of the Company named in the Summary
Compensation Table and (iv) all directors and executive officers of the Company
as a group. Except as otherwise indicated, all shares are owned directly. Except
as indicated by footnote, and subject to community property laws where
applicable, the Company believes that the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
indicated.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Name and Address of Beneficial Owner Owned(1) of Class
- ------------------------------------ --------- --------
<S> <C> <C>
Cahill, Warnock Strategic Partners Fund, L.P. (2) ....... 679,042 31.5%
One South Street, Suite 2150
Baltimore, MD 21202
Prince Venture Partners III, L.P. (3) ................... 400,045 27.0%
10 South Wacker Drive
Chicago, IL 60606
Partech International Entities (4) ...................... 283,333 16.1%
50 California Street, Suite 3200
San Francisco, CA 94111
Venrock Entities (5) .................................... 246,784 15.0%
30 Rockefeller Plaza, Room 5508
New York, NY 10112
BancBoston Ventures, Inc. (6) ........................... 215,636 13.7%
100 Federal Street
Boston, MA 02110
The Venture Capital Fund of New England III, L.P. (7) ... 182,303 11.8%
160 Federal Street, 23rd Floor
Boston, MA 02110
Asset Management Associates 1989, L.P. (8) .............. 173,685 11.1%
2275 East Bayshore Road
Palo Alto, CA 94303
State of Wisconsin Investment Board (9) ................. 74,850 5.1%
P.O. Box 7842
Madison, WI 53707
John C. Garbarino (10) .................................. 201,609 12.5%
175 Derby Street, Suite 36
Hingham, MA 02043
Lynne M. Rosen (11) ..................................... 51,818 3.4%
Richard P. Quinlan (12) ................................. 41,250 2.7%
H. Nicholas Kirby (13) .................................. 33,527 2.2%
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Pamela G. Fine (14) ..................................... 5,000 *
Kevin J. Dougherty (15) ................................. 2,000 *
Angus M. Duthie (16) .................................... 2,000 *
Edward L. Cahill (17) ................................... 2,000 *
Donald W. Hughes (18) ................................... 1,200 *
Frank H. Leone (19) ..................................... 5,000 *
Steven W. Garfinkle (20) ................................ 5,000 *
All directors and executive officers as a group ......... 350,404 20.3%
(11 persons) (21)
</TABLE>
- ----------
* Less than 1%
(1) Each of the stockholders who is a party to a certain Stockholders'
Agreement (the "Stockholders' Agreement") dated as of November 6, 1996 by
and among the Company and certain of its stockholders may be deemed to
share voting power with respect to, and may be deemed to beneficially own,
all of the shares of the Preferred Stock and Common Stock subject to the
Stockholders' Agreement. Such stockholders disclaim such beneficial
ownership.
(2) Consists of 679,042 shares of Common Stock issuable upon conversion of
shares of the Preferred Stock. Edward L. Cahill, a director of the Company,
is a General Partner of Cahill, Warnock Strategic Partners, L.P., the
General Partner of Cahill, Warnock Strategic Partners Fund, L.P. David L.
Warnock is also a General Partner of Cahill, Warnock Strategic Partners,
L.P. The General Partners of Cahill, Warnock Strategic Partners, L.P. share
voting and investment power with respect to the shares held by Cahill,
Warnock Strategic Partners Fund, L.P. and may be deemed to be the
beneficial owners of such shares. Each of the General Partners of Cahill,
Warnock Strategic Partners, L.P. disclaims beneficial ownership of the
shares held by Cahill, Warnock Strategic Partners Fund, L.P.
(3) Angus M. Duthie, a director of the Company, is a General Partner of Prince
Ventures, L.P., the General Partner of Prince Venture Partners III, L.P.
James W. Fordyce, Mark J. Gabrielson and Gregory F. Zaic are also General
Partners of Prince Ventures, L.P. The General Partners of Prince Ventures,
L.P. share voting and investment power with respect to the shares held by
Prince Venture Partners III, L.P. and may be deemed to be the beneficial
owners of such shares. Each of the General Partners of Prince Ventures,
L.P. disclaims beneficial ownership of the shares held by Prince Venture
Partners III, L.P.
(4) Consist of 86,667 shares of Common Stock issuable upon conversion of shares
of Preferred Stock held by Axa U. S. Growth Fund, LLC (the "Axa Conversion
Shares"), 173,334 shares of Common Stock issuable upon conversion of shares
of Preferred Stock held by U.S. Growth Fund Partners, C.V. (the "GFP
Conversion Shares"), 16,667 shares of Common Stock issuable upon conversion
of shares of Preferred Stock held by Double Black Diamond II, LLC (the "DBD
Conversion Shares") and 6,665 shares of Common Stock issuable upon
conversion of shares of Preferred Stock held by Almanori Limited (the
"Almanori Conversion Shares"). As the investment managing member of Axa
U.S. Growth Fund, LLC, PAX V, LLC may be deemed to beneficially own the Axa
Conversion Shares. Based on a Schedule 13G dated February 10, 1998, AXA-UAP
may also be deemed to beneficially own the Axa Conversion Shares. As the
investment general partner of U.S. Growth Fund Partners, C.V., PAR, V
V.O.F. may be deemed to beneficially own the GFP Conversion Shares. As
non-managing members of PAX V, LLC and a general partner of PAR V V.O.F.,
David Sherry and Glenn Solomon may be deemed to beneficially own the Axa
Conversion Shares and the GFP Conversion Shares. As a managing member of
PAX V, LLC and PAR V V.O.F. , PAR SF, LLC may be deemed to beneficially own
the Axa Conversion Shares and the GFP Conversion Shares. As a managing
member of PAR SF, LLC and Double Black Diamond II, LLC, Vincent Worms may
be deemed to beneficially own the Axa Conversion Shares, the GFP Conversion
Shares and the DBD Conversion Shares. As a managing member of PAR SF, LLC
and Double Black Diamond II, LLC Thomas McKinley may be deemed to
beneficially own the Axa Conversion Shares, the GFP Conversion Shares and
the DBD Conversion Shares. As non-managing members of PAX V, LLC, Scott
Matson and Philippe Cases may be deemed to own the Axa Conversion Shares.
Each of PAX V, LLC, PAR SF, LLC, Vincent Worms, Thomas McKinley, Scott
Matson, Philippe Cases, David Sherry and Glenn Solomon disclaims beneficial
ownership of the Axa Conversion Shares,
35
<PAGE>
except to the extent of their respective proportionate pecuniary interest
therein. Each of PAR V V.O.F., PAR SF, LLC, Vincent Worms, Thomas McKinley,
David Sherry and Glenn Solomon disclaims beneficial ownership of the GFP
Conversion Shares, except to the extent of their respective proportionate
pecuniary interests therein. Each of Vincent Worms and Thomas McKinley
disclaims beneficial ownership of the DBD Conversion Shares, except to the
extent of their respective proportionate pecuniary interests therein.
(5) Consists of 55,316 shares of Common Stock and 66,667 shares of Common Stock
issuable upon conversion of shares of Preferred Stock held by Venrock
Associates and 24,801 shares of Common Stock and 100,000 shares of Common
Stock issuable upon conversion of shares of Preferred Stock held by Venrock
Associates II, L.P. Patrick F. Latterell, Ted H. McCourtney, Anthony B.
Evnin, David R. Hathaway, Anthony Sun, Kimberley A. Rummelsberg, and Ray A.
Rothrock are General Partners of Venrock Associates and of Venrock
Associates II, L.P. The General Partners of Venrock Associates and of
Venrock Associates II, L.P. share voting and investment power with respect
to the shares held by Venrock Associates and by Venrock Associates II, L.P.
and may be deemed to be the beneficial owners of such shares. Each of the
General Partners of Venrock Associates and Venrock Associates II, L.P.
disclaims beneficial ownership of the shares held by Venrock Associates and
Venrock Associates II, L.P.
(6) Includes 100,000 shares of Common Stock issuable upon conversion of shares
of Preferred Stock.
(7) Includes 66,667 shares of Common Stock issuable upon conversion of shares
of Preferred Stock. Kevin J. Dougherty, a director of the Company, is a
General Partner of FH&Co. III, L.P., the General Partner of The Venture
Capital Fund of New England III, L.P. Richard A. Farrell, Harry J. Healer,
Jr. and William C. Mills III are also General Partners of FH&Co. III, L.P.
The General Partners of FH&Co. III, L.P. share voting and investment power
with respect to the shares held by The Venture Capital Fund of New England
III, L.P. and may be deemed to be the beneficial owners of such shares.
Each of the General Partners of FH&Co. III, L.P. disclaims beneficial
ownership of the shares held by The Venture Capital Fund of New England
III, L.P.
(8) Includes 83,333 shares of Common Stock issuable upon conversion of shares
of Preferred Stock. Craig C. Taylor, Franklin P. Johnson Jr., John F. Shoch
and W. Ferrell Sanders are General Partners of AMC Partners 89, L.P., the
General Partner of Asset Management Associates 1989, L.P. The General
Partners of AMC Partners 89, L.P. share voting and investment power with
respect to the shares held by Asset Management Associates 1989, L.P. and
may be deemed to be the beneficial owners of such shares. Each of the
General Partners of AMC Partners 89, L.P. disclaims beneficial ownership of
the shares held by Asset Management Associates 1989, L.P.
(9) Shares reported as beneficially owned by State of Wisconsin Investment
Board in a Schedule 13G filed with the SEC dated February 10, 2000.
(10) Includes 129,540 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000.
(11) Includes 29,037 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000.
(12) Includes 36,250 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000.
(13) Includes 26,527 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000.
(14) Consists entirely of 5,000 shares of Common Stock issuable upon the
exercise of options that are exercisable within 60 days of March 14, 2000.
(15) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000. Mr.
Dougherty disclaims any beneficial ownership in the shares held by The
Venture Capital Fund of New England III, L.P. See Note 7.
(16) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable upon the exercise of options that are
exercisable within 60 days of March 14, 2000. Mr. Duthie disclaims any
beneficial ownership in the shares held by Prince Venture Partners III,
L.P. See Note 3.
36
<PAGE>
(17) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000. Does not
include 679,042 shares of Common Stock issuable upon conversion of shares
of Preferred Stock held by Cahill, Warnock Strategic Partners Fund, L.P.
(see Note 2) and 37,625 shares of Common Stock issuable upon conversion of
shares of Preferred Stock held by Strategic Associates, L.P. Mr. Cahill is
a Member of Cahill Warnock & Company, LLC, the General Partner of Strategic
Associates, L.P. Mr. Cahill disclaims any beneficial ownership of the
shares held by Cahill, Warnock Strategies Partners Fund, L.P. and Strategic
Associates, L.P.
(18) Consists entirely of shares of Common stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000.
(19) Consists entirely of shares of Common stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000.
(20) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 14, 2000.
(21) Includes an aggregate of 243,554 shares of Common Stock issuable upon the
exercise of options that are exercisable within 60 days of March 14, 2000.
Does not include an aggregate of 515,621 shares of Common Stock and an
aggregate of 783,334 shares of Common Stock issuable upon conversion of
shares of Preferred Stock with respect to which certain directors disclaim
beneficial ownership. See Notes 2, 3, 7, 15, 16 and 17.
ITEM l3. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No relationships or related transactions exist that require reporting by
the Company for the year ended December 31, 1999.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules
The auditors' report, consolidated financial statements and financial
statement schedules listed in the Index to Consolidated Financial Statements and
Financial Statement Schedules on page F-1 hereof are filed as part of this
report, commencing on page F-2 hereof.
Schedules Supporting the Financial Statements
Schedule II Valuation and Qualifying Accounts++
(a)(3) Exhibits
3.01 (a) Restated Certificate of Incorporation (Filed as Exhibit 4.1 to
Form 8-K/A dated June 6, 1996, File No. 0-21428, and incorporated
by reference herein).
(b) Certificate of Designations (Filed as Exhibit 4.1 to Form 8-K
dated November 6, 1996, File No. 0-21428, and incorporated by
reference herein).
3.02 Restated Bylaws, as amended.*
4.01 Form of Common Stock Certificate (Filed as Exhibit 4.01 to Form
10-Q dated June 30, 1996, File No. 0-21428, and incorporated by
reference herein).
4.02 Form of Series A Convertible Preferred Stock Certificate (Filed
as Exhibit 4.2 to Form 8-K dated November 6, 1996, File No.
0-21428, and incorporated by reference herein).
4.03 (a) Revolving Credit Agreement dated as of November 13, 1997 (the
"Revolving Credit Agreement"), by and between the Company and
BankBoston, N.A. **
(b) Letter Agreement dated December 30, 1998 by and between the
Company and BankBoston, N.A. modifying certain terms of the
Revolving Credit +
(c) Letter Agreement dated as of December 30, 1999 by and between the
Company and Fleet National Bank (f/k/a BankBoston, N.A.)
("BankBoston") modifying certain terms of the Revolving Credit
Agreement ++.
10.01 Form of Common Stock Purchase Warrant to purchase 4,195 shares of
the Company's Common Stock, held by each of Stephan Deutsch, Mark
DeNino, Mehrdad Motamed, Ira Singer and Steven Blazar.*
10.02 Termination Agreement among the Company and certain security
holders dated as of June 1, 1996.*
10.03 Employment Agreement by and between the Company and John C.
Garbarino dated as of June 6, 1996 (Filed as Exhibit 10.02 to
Form 10-Q dated June 30, 1996, File No. 0-21428, and incorporated
by reference herein).
10.04 (a) Registration Rights Agreement among the Company and certain
security holders dated as of June 6, 1996 (Filed as Exhibit 10.01
to Form 10-Q dated June 30, 1996, File No. 0-21428, and
incorporated by reference herein).
(b) Amendment No. 1 to Registration Rights Agreement among the
Company and certain security holders dated as of November 6,
1996.*
38
<PAGE>
10.05 Registration Rights Agreement between the Company and New England
Occupational Health Services, P.C. dated as of August 1, 1997
(Filed as Exhibit 10.01 to Form 10-Q for the quarterly period
ended September 30, 1997, File No. 0-21428, and incorporated by
reference herein).
10.06 (a) Series A Convertible Preferred Stock Purchase Agreement among the
Company and certain security holders dated as of November 6,
1996.*
(b) Stockholders' Agreement among the Company and security holders of
Series A Convertible Preferred Stock dated as of November 6,
1996.*
(c) Registration Rights Agreement between the Company and security
holders of Series A Convertible Preferred Stock dated as of
November 6, 1996.*
10.07 Registration Rights Agreement between the Company and Business
Health Management, P.C. dated as of March 4, 1997 (Filed as
Exhibit 10.01 to Form 10-Q for the quarterly period ended March
31, 1997, File No.0-21428, and incorporated by reference herein).
21.01 Subsidiaries of the Company.++
23.01 Consent of Ernst & Young LLP.++
27.01 Financial Data Schedule.++
* Previously filed as the exhibit stated in Form 10-K for the
fiscal year-ended December 31, 1996, File No. 0-21428, and
incorporated by reference herein.
** Previously filed as the exhibit stated in Form 10-K for the
fiscal year-ended December 31, 1997, File No. 0-21428, and
incorporated by reference herein.
+ Previously filed as the exhibit stated in Form 10-K for the
fiscal year-ended December 31, 1998, File No. 0-21428, and
incorporated by reference herein.
++ Filed herewith.
The Company agrees to furnish to the Commission a copy of any instrument
evidencing long-term debt, which is not otherwise required to be filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for events occurring during the last quarter
of the fiscal year ended December 31, 1999.
39
<PAGE>
Occupational Health + Rehabilitation Inc
Consolidated Financial Statements
Year ended December 31, 1999 and 1998
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets................................................ F-3
Consolidates Statement of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
and Redeemable Stock.................................................... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Occupational Health + Rehabilitation Inc
We have audited the accompanying consolidated balance sheets of
Occupational Health + Rehabilitation Inc and subsidiaries (the Company) as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and redeemable stock, and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedule listed in the index at Item 14(A)
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Occupational Health + Rehabilitation Inc and subsidiaries at December 31, 1999
and 1998, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As described in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for start-up costs in 1998.
ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 2000
F-2
<PAGE>
Occupational Health + Rehabilitation Inc
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,512 $ 1,562
Accounts receivable, less allowance for
doubtful accounts of $744 and $430 in 1999
and 1998, respectively 7,105 5,137
Note receivable 292
Prepaid expenses and other assets 638 349
-------------------------------
Total current assets 9,255 7,340
Property and equipment, net 2,383 2,181
Goodwill, less accumulated amortization of $719
and $508 in 1999 and 1998 5,346 4,574
Note receivable 175
Other assets 176 209
-------------------------------
Total assets $ 17,160 $14,479
===============================
Liabilities, redeemable stock and stockholders'
equity (deficit)
Current liabilities:
Accounts payable $ 748 $ 129
Accrued expenses 2,755 1,639
Accrued payroll 1,559 825
Current portion of long-term debt 573 901
Current portion of obligations under capital
leases 281 152
Restructuring liability 536
Dividends payable 113
-------------------------------
Total current liabilities 6,565 3,646
Long-term debt, less current maturities 2,586 999
Obligations under capital leases 320 117
Restructuring liability 358
-------------------------------
Total liabilities 9,829 4,762
Minority interests 1,291 681
Redeemable, convertible preferred stock, Series
A, $.001 par value, $8,500,002 liquidation
value, 1,666,667 shares authorized, 1,416,667
shares issued and outstanding 8,470 8,455
Stockholders' equity (deficit):
Preferred stock, $.001 par value--3,333,333
shares authorized, none issued and outstanding
Common stock, $.001 par value--10,000,000
shares authorized, 1,579,479 shares issued in
1999 and 1998 and 1,479,510 and 1,479,444
shares outstanding in 1999 and 1998,
respectively 1 1
Additional paid-in capital 10,620 10,620
Accumulated deficit (12,551) (9,540)
Less treasury stock, at cost, 100,502 shares (500) (500)
-------------------------------
Total stockholders' equity (deficit) (2,430) 581
-------------------------------
Total liabilities, redeemable stock and
stockholders' equity (deficit) $ 17,160 $14,479
===============================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Occupational Health + Rehabilitation Inc
Consolidated Statements of Operations
(in thousands, except share and per-share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Revenue $ 32,148 $ 23,083 $ 18,307
Expenses:
Operating 26,924 19,970 17,209
General and administrative 3,708 3,035 2,590
Depreciation and amortization 1,062 759 658
Restructuring 2,262 -- --
-----------------------------------------------------
33,956 23,764 20,457
-----------------------------------------------------
(1,808) (681) (2,150)
Nonoperating gains (losses):
Interest income 51 171 334
Interest expense (244) (179) (248)
Minority interest in net (profits) losses
of subsidiaries (590) (318) 183
Gain on disposition of investment 217
Write-off of note receivable (292) -- --
-----------------------------------------------------
Loss before income taxes and cumulative
effect of a change in accounting principle (2,883) (1,007) (1,664)
Income taxes -- -- --
-----------------------------------------------------
Loss before cumulative effect of a change in
accounting principle (2,883) (1,007) (1,664)
Cumulative effect of change in accounting
principle -- (155) --
-----------------------------------------------------
Net loss $ (2,883) $ (1,162) $ (1,664)
=====================================================
Net loss available to common shareholders $ (3,011) $ (1,177) $ (1,681)
=====================================================
Per share amounts:
Loss before cumulative effect of a change
in accounting principle $ (2.04) $ (0.69) $ (1.07)
Cumulative effect of change in accounting
principle -- (0.11) --
-----------------------------------------------------
Net loss per common share $ (2.04) $ (0.80) $ (1.07)
=====================================================
Weighted-average common shares outstanding 1,479,450 1,479,141 1,573,471
=====================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Occupational Health + Rehabilitation Inc
Consolidated Statements of Stockholders' Equity (Deficit) and Redeemable Stock
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Total Redeemable
Additional Stockholders' Convertible
Common Stock Paid-in Accumulated Treasury Stock Equity Preferred Stock
Shares Amount Capital Deficit Shares Amount (Deficit) Series A
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 1,471,477 $1 $10,096 $(6,682) $3,415 $8,423
Issuance of common
stock related to
Argosy Health
Northeast 100,502 500 500
Issuance of common
stock related to
practice acquisition 7,500 23 23
Accretion of preferred
stock issuance costs (17) (17) 17
Acquisition of 100,502
shares of treasury
stock (100,502) 100,502 $(500) (500)
Net loss (1,664) (1,664)
-----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 1,478,977 1 10,619 (8,363) 100,502 (500) 1,757 8,440
Accretion of
preferred stock
issuance costs (15) (15) 15
Exercise of stock
options 467 1 1
Net loss (1,162) (1,162)
-----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 1,479,444 1 10,620 (9,540) 100,502 (500) 581 8,455
Accretion of
preferred stock
issuance costs (15) (15) 15
Exercise of stock
options 66
Accrual of preferred
stock dividends (113) (113)
Net loss (2,883) (2,883)
-----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 1,479,510 $1 $10,620 $(12,551) 100,502 $(500) $(2,430) $8,470
============================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Occupational Health + Rehabilitation Inc
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,883) $(1,162) $(1,664)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 715 474 354
Amortization 347 285 304
Cumulative effect of change in accounting
principle -- 155 --
Amortization of discount -- -- 8
Minority interest in profits (losses) of
subsidiaries 590 308 (183)
Gain on disposition of investment -- -- (217)
Restructuring charges and write-off of note
receivable 1,660 -- --
Changes in operating assets and liabilities:
Accounts receivable (2,517) (1,294) (2,416)
Prepaid expenses and other current assets (326) 76 (67)
Due from related party, net -- -- 253
Deposits and other noncurrent assets (6) -- (27)
Restructuring liability 894 -- --
Accounts payable and accrued expenses and
other long-term liabilities 2,469 513 659
-----------------------------------------------------
Net cash provided (used) by operating
activities 943 (645) (2,996)
INVESTING ACTIVITIES
Release of restricted cash and refund of
security deposit -- -- 320
Cash paid for intangibles (296) (484) (381)
Property and equipment additions (480) (608) (458)
Distributions to joint venture partnerships (587) -- --
Cash received from sale of partnership
interest -- -- 702
Cash paid for acquisitions (938) (469) (1,375)
Cash received on notes receivable 175 450 --
-----------------------------------------------------
Net cash used in investing activities (2,126) (1,111) (1,192)
</TABLE>
F-6
<PAGE>
Occupational Health + Rehabilitation Inc
Consolidated Statements of Cash Flows (continued)
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from sale of common stock -- $ 1 --
Proceeds from lines of credit and loans
payable $1,706 -- $ 331
Proceeds from sale-leaseback
transaction 204
Payments of long-term debt (556) (780) (457)
Payments of capital lease obligations (263) (137) (139)
Cash received by partnership 42 54 17
-----------------------------------------------------
Net cash provided (used) by financing
activities 1,133 (862) (248)
-----------------------------------------------------
Net decrease in cash and cash equivalents (50) (2,618) (4,436)
Cash and cash equivalents at beginning of year 1,562 4,180 8,616
-----------------------------------------------------
Cash and cash equivalents at end of year $1,512 $ 1,562 $ 4,180
=====================================================
NON-CASH ITEMS
Accrual of dividends payable $ 113 -- --
Notes payable issued as partial consideration
for acquisitions 108 $ 700 $ 1,132
Forgiveness of note payable -- 536 --
</TABLE>
See accompanying notes.
F-7
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Occupational Health + Rehabilitation Inc (the Company) is a leading provider of
occupational health care services to employers and their employees specializing
in the prevention, treatment and management of work related injuries and
illnesses. The Company develops and operates multidisciplinary, outpatient
health care centers and contracts with other health care providers to develop
integrated occupational health care delivery systems. The Company typically
operates the centers under management and submanagement agreements with
professional corporations (Physician Practices) that practice exclusively
through such centers. Additionally, the Company has entered into joint ventures
with health systems to provide management and related services to the centers
and networks of providers established by the joint ventures.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiary and its majority-owned subsidiaries, joint ventures and
partnerships. All of the outstanding voting equity instruments of the Physician
Practices are owned by a shareholder nominated by the Company. Through option or
employee agreements, the Company restricts transfer of Physician Practice
ownership without its consent and can, at any time, require the nominated
shareholder to transfer ownership to a Company designee. It is through this
structure and through long-term management agreements entered into with the
Physician Practices that the Company has an other than temporary controlling
financial interest in the Physician Practices.
Most states in which the Company operates have laws and regulations that are
often vague limiting the corporate practice of medicine and the sharing of fees
between physicians and non-physicians. The Company believes it has structured
all of its operations so that they comply with such laws and regulations;
however, there can be no assurance that an enforcement agency could find to the
contrary or that future interpretations of such laws and regulations will not
require structure and organizational modifications of the Company's business.
All significant intercompany accounts and transactions have been eliminated.
F-8
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and short-term
investments with original maturities of three months or less. Cash and cash
equivalents include cash balances of majority-owned joint ventures amounting to
$1,079 and $1,189 at December 31, 1999 and 1998, respectively. These funds are
only utilized for joint venture purposes unless paid through dividends to the
joint venture participants.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed by straight-
line and declining-balance methods over the useful lives of the respective
assets. Medical equipment is depreciated over ten years while furniture and
office equipment is depreciated over five years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term or the
estimated useful life of the asset. Depreciation of assets under capital leases
is included with depreciation.
GOODWILL
Goodwill is amortized using the straight-line method over periods of 20 to 40
years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired, over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the estimated
shortfall of cash flows. No such impairment existed at December 31, 1999 for
existing centers. Refer to Note 9 for goodwill impairment associated with
centers considered in the restructuring plan.
REVENUE RECOGNITION
Revenue is recorded at estimated net amounts to be received from employers,
third-party payors and others for services rendered. The Company operates in
certain states that regulate the amounts which the Company can charge for its
services associated with work-related injuries and illnesses.
F-9
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROFESSIONAL LIABILITY COVERAGE
The Company maintains entity professional liability insurance coverage on a
claims-made basis in all states it has centers operating. The Company also
maintains professional liability insurance coverage in the name of its employed
physicians on a claims-made basis in all states, except Massachusetts, which is
on an occurrence basis. Management is not aware of any claims that may result
in a loss in excess of amounts covered by its existing insurance.
STOCK COMPENSATION ARRANGEMENTS
The Company accounts for its stock compensation arrangements under the
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
accordingly recognizes no compensation expense for the issue thereof.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation and
will continue to account for its stock option plans in accordance with the
provisions of APB Opinion No. 25.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities, if any, 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses, and long-term debt.
The Company believes that the carrying value of its financial instruments
approximates fair value. The Company has made this determination for its fixed-
rate long-term debt based upon interest rates currently available to it to
refinance such debt.
F-10
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT REPORTING
The Company follows SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" which also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
All of the Company's efforts are devoted to occupational health care and related
services that are managed and reported in one segment. Additionally, the
Company is located in the Northeastern United States and derives all of its
revenues from services provided in the United States.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting the Costs of Start-Up Activities, which
requires that costs related to start-up activities be expensed as incurred.
Prior to 1998, the company capitalized its preopening costs in connection with
new centers and its costs associated with new service lines. The Company
adopted the provisions of the SOP in its financial statements on December 31,
1998 retroactively to January 1, 1998. The effect of adoption of SOP 98-5 was
to record a charge for the cumulative effect of an accounting change of $155
($0.11 per share) to expense costs that had been previously capitalized prior to
January 1, 1998.
2. JOINT VENTURES AND ACQUISITIONS
During 1999, the Company entered into a joint venture with a hospital system,
with an aggregate initial contribution of $203. The Company holds a 60%
interest in the joint venture limited liability company. The Company also has a
management contract with the joint venture for an initial term of twenty years
with automatic renewals for successive five-year terms. In addition, the
Company purchased three occupational medicine centers, a physical therapy
practice and certain assets of an entity, which provides administrative support
for a state self-insured workers' compensation program. The combined purchase
price of these entities was $735 which was paid in cash at the time of closing.
Goodwill recognized in these transactions was $746.
F-11
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amounts in thousands, except per share data)
2. JOINT VENTURES AND ACQUISITIONS (CONTINUED)
During 1998, the Company entered into a joint venture with a hospital system,
with an aggregate initial contribution of $250 in cash and notes payable. The
Company holds a 51% interest in the joint venture. The Company also has a
management contract with the joint venture for an initial term of ten years with
automatic renewals for successive five-year terms. In addition, the Company
purchased four freestanding occupational medicine centers and a physician and
physical therapy practice. The combined purchase price was $919. The remainder
of the purchase price is due in the form of notes payable in varying
installments through 2001. Goodwill recognized in these transactions was $344.
During 1997, the Company entered into two joint ventures with two hospital
systems, with an aggregate initial contribution of $329 in cash and fixed
assets. The Company holds a 51% interest in one joint venture limited liability
company, and a 75% interest in the other. The terms of the partnerships are
each 30 years. The Company also has a management contract with each of the
joint ventures for an initial term of five years with automatic renewals for
successive five-year terms. In addition, The Company purchased five physician
practices. The combined purchase price was $2,329. The remainder of the
purchase price is due in the form of notes payable in varying installments
through 2002, contingent payments and a convertible subordinated promissory
note. Additionally, the Company issued 7,500 shares of stock relating to these
acquisitions. Goodwill recognized in these transactions was $2,162.
In April 1996, the Company entered into a partnership to provide management and
related services to the centers established by the partnership. On September
30, 1997, the partnership was converted to a limited liability company, and the
Company assumed an additional 24% ownership interest in the joint venture for a
total ownership percentage of 75%. Through this transaction, each party forgave
outstanding indebtedness. Additionally, certain assets associated with one of
the partnership centers were transferred in consideration for the forgiveness of
the Company's note payable of approximately $536 and cash of approximately $56.
The Company recorded a gain of $217 in connection with this transaction.
F-12
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amounts in thousands, except per share data)
2. JOINT VENTURES AND ACQUISITIONS (CONTINUED)
In September 1996, the Company purchased a 70% undivided interest in the assets
of a business division of an unrelated company which provided industrial on-site
occupational and physical therapy and related assessments. In connection with
the transaction, a general partnership was formed. On December 31, 1997, the
Company sold its general partnership interest in this entity. The Company
received consideration in the form of the return of 100,502 shares of the
Company common stock, (the Treasury Stock) a secured promissory note for $917
(the Note) and miscellaneous assets. In addition, the Company's former partner
discharged debt owed to OH+R by a cash payment of $750. A gain of $51 was
recognized in connection with this transaction. The Note originally had a term
of three years and an interest rate of 9% per annum and was secured by various
pledges and guarantees by the buyer, certain individuals and affiliates of the
buyer. The note was subsequently renegotiated in October of 1998 to include
quarterly payments at a rate of 12% through September 2000 and was unsecured.
The payor of the note had made all required quarterly payments due on the note
through June 30, 1999. The payor failed to make the September 30, 1999 payment,
which led to extensive discussions between the Company and the payor regarding
the financial condition of the payor. Based on these discussions, during the
fourth quarter of 1999 the Company reserved the entire balance of the note
receivable in the amount of $292. The payor of the note is undergoing a
restructuring of its debt arrangements with its lender.
In conjunction with certain acquisitions, the Company has entered into
contractual arrangements whereby the selling parties are entitled to receive
contingent cash consideration based upon the achievement of certain minimum
operating results. Obligations related to these contingencies are reflected as
additional goodwill in the period they become known.
All acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based upon their estimated fair values at the dates of
acquisition. The results of operations of the acquired practices are included
in the consolidated financial statements from the respective dates of
acquisition.
The pro forma results of operations as if the 1999 and 1998 acquisitions and
joint ventures had occurred at the beginning of the preceding fiscal year is as
follows:
F-13
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amounts in thousands, except per share data)
2. JOINT VENTURES AND ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
December 31
1999 1998
---------------------------------
<S> <C> <C>
Total revenue $34,344 $27,324
Net loss (3,260) (1,720)
Net loss per share (2.20) (1.16)
</TABLE>
The pro forma financial information is not necessarily indicative of the results
of operations as they would have been, had the transactions been effective on
the assumed dates or of the future results of operations of the combined
entities. These results highlight the financial condition of the operations
prior to the Company's influence on the acquired businesses.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
1999 1998
---------------------------------
<S> <C> <C>
Medical equipment $ 1,539 $ 1,201
Furniture and office equipment 2,123 1,483
Leasehold improvements 580 778
Vehicles 13 13
---------------------------------
4,255 3,475
Less accumulated depreciation (1,872) (1,294)
---------------------------------
$ 2,383 $ 2,181
=================================
</TABLE>
The Company entered into capital lease obligations of $595, $85 and $245 in
1999, 1998 and 1997, respectively. The cost of certain equipment leased under
capital lease agreements was $1,367 and $772 at December 31, 1999 and 1998,
respectively. Accumulated depreciation on these capitalized lease assets was
$509 and $330 at December 31, 1999 and 1998, respectively.
F-14
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1999 1998
-----------------------------
<S> <C> <C>
Promissory notes, bearing interest at rates ranging
from 0% to 8.75%, due in annual installments
through March 2002 $1,166 $1,613
Line of credit with bank, bearing interest at the
bank's base rate plus 0.75% (9.15% at December 31,
1999), secured by certain accounts receivable 1,993 287
----------------------------
3,159 1,900
Less current portion (573) (901)
----------------------------
$2,586 $ 999
============================
</TABLE>
A $250 promissory note included above contains provisions whereby it may convert
into 25,000 shares of common stock upon the occurrence of certain specified
events.
The Company's line of credit consists of two facilities that expired on
December 31, 1999 which, subsequent to year end, were amended to extend the term
to June 30, 2001 and increase the interest rate. The first facility provides the
Company with up to $5,000 for working capital and acquisition needs (the Company
Line). The second facility provides up to $2,000 to be utilized by the Company's
existing and future joint ventures (the JV Line). The borrowing base of the
JV Line is eighty-five percent (85%) of the joint ventures' accounts receivable
less than 120 days old. The amended line bears interest at .75% over the
bank's rate (previously .65%). The interest rate for the Company Line and the
JV Line was 9.15% as of December 31, 1999 and interest is due quarterly in
arrears.
The Company line contains leverage and fixed charge ratio covenants as well as
quarterly minimum net income targets while both facilities impose restrictions
on certain capital expenditures and related indebtedness. As of December 31,
1999, there was an outstanding balance of $1,706 on the Company Line and $287 on
the JV Line.
In addition, the Company had $525 outstanding on a lease agreement that expired
on December 31, 1999. The interest rate lease agreement approximated 9.4% as of
December 31, 1999.
F-15
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
4. LONG-TERM DEBT (CONTINUED)
Aggregate maturities of obligations under long-term debt agreements are as
follows:
<TABLE>
<S> <C>
2000 $ 573
2001 2,292
2002 294
2003 -
---------
$3,159
=========
</TABLE>
Interest paid in 1999, 1998 and 1997 was $196, $168 and $147, respectively.
5. LEASES
The Company maintains operating leases for commercial property and office
equipment. The commercial leases contain renewal options and require the
Company to pay certain utilities and taxes over established base amounts.
Operating lease expenses were $2,168, $1,625 and $1,395 for 1999, 1998 and 1997,
respectively. The Company acquired certain assets in 1998 that were subsequently
refinanced into capital leases in 1999. No gain or loss was recorded in any
such transaction due to the short holding period from the time the assets were
purchased until the time of the sale-leaseback.
Future minimum lease payments under capital leases and noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------------------------------
<S> <C> <C>
2000 $323 $1,652
2001 253 1,485
2002 89 1,172
2003 - 958
2004 and beyond - 536
------------------------------
Total minimum lease payments 665 $5,803
==========
Less amounts representing interest (64)
--------------
Present value of net minimum lease payments $601
==============
</TABLE>
F-16
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
5. LEASES (CONTINUED)
In connection with the restructuring plan (Note 9), minimum operating lease
payments of $297, $238, $173 and $89 payable in 2000, 2001, 2002 and 2003,
respectively, have been recorded as liabilities on the Company's balance sheet
at December 31, 1999. Accordingly, they are not included above.
6. INCOME TAXES
The Company provides for income taxes under the liability method. At December
31, 1999, the Company had net operating loss carryforwards for federal income
tax purposes of approximately $8,812, which begin to expire in 2009. The future
utilization of net operating loss carryforwards may be subject to limitations
under the change in stock ownership rules of the Internal Revenue Code. For
financial reporting purposes, a valuation allowance of $5,042 ($3,902 in 1998)
has been recognized to offset the deferred tax assets related to these
carryforwards and other temporary differences, since uncertainty exists with
respect to future realization of such deferred tax assets.
The significant components of the Company's deferred tax liabilities and assets
are as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,525 $ 3,552
Other 1,619 457
--------------------------------
Total deferred tax assets 5,144 4,009
Less valuation allowance (5,042) (3,902)
--------------------------------
Net deferred tax asset 102 107
Deferred tax liabilities:
Depreciation and amortization (53) (107)
Other (49) -
--------------------------------
Net deferred tax assets $ - $ -
================================
</TABLE>
The valuation allowance increased $1,140 in 1999 primarily due to the increase
in net operating loss carryovers.
F-17
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
7. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
NET LOSS PER COMMON SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share, which requires
disclosure of basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effects of options and convertible securities while
diluted earnings per share includes such amounts. In 1999 and 1998,
respectively, for purposes of the net loss per share calculation, the net loss
has been increased by $15 of preferred stock accretion. In 1999, the loss
available to common shareholders also has been adjusted for $113 in dividends on
the preferred stock. The effect of options, convertible preferred stock and a
convertible note payable is not considered as it would be anti-dilutive for the
years presented. Additional disclosures regarding these potentially dilutive
securities are included in Notes 4 and 8.
<TABLE>
<CAPTION>
LOSS 1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Loss before cumulative effect of a change
in accounting principle $(2,883) $(1,007) $(1,664)
Accretion on preferred stock redemption
value and dividends accrued (128) (15) (17)
--------------------------------------------------------
Loss before cumulative effect of a change
in accounting principle (3,011) (1,022) (1,681)
Cumulative effect of a change in
accounting principle -- (155) --
--------------------------------------------------------
Loss available to common shareholders $(3,011) $(1,177) $(1,681)
========================================================
SHARES
Total weighted average shares outstanding
(basic and diluted) 1,479 1,479 1,573
========================================================
Basic and diluted loss per common share
before cumulative effect of a
change in accounting principle $ (2.04) $ (0.69) $ (1.07)
Cumulative effect of a change in
accounting principle -- (0.11) (1.07)
--------------------------------------------------------
Net loss available to common shareholders $ (2.04) $ (0.80) $ (1.07)
========================================================
</TABLE>
F-18
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
7. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK (CONTINUED)
PREFERRED STOCK
At December 31, 1998, 5,000,000 shares of preferred stock $.001 par value, were
authorized, with 1,666,667 of such shares designated as Series A Convertible
Preferred Stock.
On November 6, 1996, the Company issued 1,416,667 shares of redeemable,
convertible Series A Preferred Stock (Series A) in a private placement at a
purchase price of $6.00 per share.
Each share of Series A is convertible, at the option of the holder, into one
share of Common Stock, subject to certain adjustments. The holders of the
Series A are entitled to vote as a single class with the holders of the Common
Stock, and each share of Series A is entitled to the number of votes that is
equal to the number of shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such vote.
The holders of Series A are entitled to certain registration rights with respect
to the Common Stock into which the Series A is convertible. Dividends will be
payable on the shares of Series A when and if declared by the Board of Directors
after three years from the date of issuance and will thereafter accrue at an
annual cumulative rate of $.48 per share, subject to certain adjustments.
Holders of shares of Series A constituting a majority of the then outstanding
shares of Series A may, by giving notice to the Company at any time after
November 5, 2001, require the Company to redeem all of the outstanding shares of
Series A at $6.00 per share plus an amount equal to all dividends accrued or
declared but unpaid thereon, payable in four equal installments over a four-year
period.
In the event of voluntary or involuntary liquidation, dissolution or winding up
of the Company the holders of shares of Series A shall be paid an amount equal
to the greater of (i) $6.00 per share plus all accrued but unpaid dividends or
(ii) the amount per share had each such share been converted to Common Stock
immediately prior to such liquidation, dissolution or winding up.
F-19
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
7. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, the Company has reserved shares of common stock for future
issuance for the following purposes:
<TABLE>
<S> <C>
Series A Preferred Stock 1,416,667
Stock Plans 660,000
-----------
2,076,667
===========
</TABLE>
8. BENEFIT PLANS
STOCK PLANS
1998 Stock Plan: In January 1998, the Company's board of directors adopted the
1998 Stock Plan, which provides for the granting of up to 150,000 non-qualified
stock options, "incentive stock options" (ISOs) and stock appreciation rights to
employees, directors and consultants of the Company.
1996 Stock Plan: In October 1996, the Company's board of directors adopted the
1996 Stock Plan, which provides for the granting of up to 265,000 nonqualified
stock options, ISOs and stock appreciation rights to employees, directors and
consultants of the Company.
Nonqualified options granted may not be at a price less than 50% of fair market
value of the common stock, and ISOs granted may not be at a price of less than
100% of fair market value of the common stock on the date of grant. Granting of
incentive stock options is subject to the approval of the 1996 Stock Plan by the
Company's stockholders.
1993 Stock Plan: The Company's 1993 Stock Plan provides for the granting of
options to purchase up to 245,000 shares of the Company's Common Stock.
1988 Stock Plan: Pursuant to the 1988 Stock Plan, the Company may grant
incentive stock options, nonqualified stock options and common stock purchase
rights. The Company has reserved 32,354 shares of common stock for the issuance
under this plan.
F-20
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
8. BENEFIT PLANS (CONTINUED)
The options in all of the above plans generally become exercisable over a four-
year period and expire over a period not exceeding ten years.
A summary of the activity under the stock plans follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1999 PRICE 1998 PRICE 1997 PRICE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the
year 606,904 $4.62 389,810 $3.84 438,769 $ 5.75
Granted 66,000 3.63 273,976 3.78 41,099 6.00
Exercised (66) 3.00 (467) 1.77
Canceled (163,468) 3.89 (56,415) 3.33 (90,058) 10.89
----------------------------------------------------------------------------------------
Outstanding at end of the year 509,370 $4.73 606,904 $4.62 389,810 $ 3.84
========================================================================================
</TABLE>
Related information for options outstanding and exercisable as of December 31,
1999, under the stock plans, is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
RANGE OF EXERCISE OPTIONS OPTIONS REMAINING
PRICES OUTSTANDING EXERCISABLE LIFE (YEARS)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
$1.77 48,843 48,843 4.47
3.00 68,125 17,031 8.08
3.25-3.50 20,600 3,300 7.77
3.53 51,357 47,421 6.09
3.75-4.50 42,200 1,200 8.82
5.00 55,000 13,750 8.75
6.00 220,445 160,307 7.28
8.75-81.25 2,800 2,255 4.75
---------------------------------
509,370 294,107
==================================
</TABLE>
F-21
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
8. BENEFIT PLANS (CONTINUED)
PRO FORMA INFORMATION FOR STOCK-BASED COMPENSATION
Pro forma information regarding net income and earnings per share, as if the
Company had used the fair value method of SFAS 123 to account for stock options
issued under its Plans, is presented below. The fair value of stock activity
under these plans was estimated at the date of grant using the minimum value
method for options granted prior to 1996, the date of the Company's merger and
the Black-Scholes option pricing model for options granted on and subsequent to
1996. The following weighted-average assumptions were used to determine the fair
value for 1999, 1998 and 1997, respectively; a risk-free interest rate of 6.5%
in 1999 and 5.3% in 1998 and 6.3% in 1997 each year, an expected dividend yield
of 0% each year, an average volatility factor of the expected market price of
the Company's common stock over the expected life of the option of 1.222 in
1999, 1.02-1.042 in 1998, and .897 in 1997, and a weighted-average expected life
of the options of five to six years.
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the related vesting period. Pro forma information is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Pro forma net loss $(3,316) $(1,587) $(1,935)
Pro forma net loss per share (2.24) (1.07) (1.23)
</TABLE>
401(K) PLAN
The Company has a qualified 401(k) plan for all employees meeting certain
eligibility requirements. The Company contributes a stipulated percentage based
on employee contributions. Company contributions to the 401(k) plan were $197,
$153 and $132 during 1999, 1998 and 1997, respectively.
F-22
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
9. RESTRUCTURING CHARGES
During the fourth quarter of 1999, the Company adopted, communicated and
implemented a restructuring plan to close certain centers that were either
outside of the Company's core occupational health focus or were deemed not
capable of achieving significant profitability due to specific market factors.
As a result of the restructuring plan and other actions, the Company recorded
restructuring and other charges of $2,262 during the fourth quarter of 1999.
Further, the restructuring plan included the streamlining of certain other
remaining operations and the elimination or combining of various other positions
within the Company.
The total number of employees terminated in conjunction with the restructuring
plan was 64 with 33 having left the Company as of December 31, 1999. The
remaining employees terminated employment with the Company during the first
quarter of 2000. The employees affected by the restructuring plan included
employees of the closed centers, including medical, physical therapy and
administrative staff.
The restructuring charges primarily include severance and other expenses related
to the terminations, fixed asset disposals and goodwill impairments for centers
that are closed, contractual expenses including lease abandonment costs,
receivable write-downs related to accounts at centers that will no longer be
pursued and miscellaneous related charges. The lease abandonment charge includes
an estimate of sublet income.
F-23
<PAGE>
Occupational Health + Rehabilitation Inc
Notes to Consolidated Financial Statements (continued)
(Dollar amount in thousands, except per share data)
9. RESTRUCTURING CHARGES (CONTINUED)
Details of the restructuring and other charges are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
INITIAL ---------------------------------------
DESCRIPTION CHARGE PAYMENT ACCRUALS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACCRUED LIABILITIES -- -- --
Severance costs $ 151 $8 $143
Lease abandonment costs 683 -- 683
Miscellaneous 68 -- 68
------------------
$894
==================
ASSETS IMPAIRMENTS
Fixed asset writedowns and
disposals 319 -- --
Goodwill impairment 340 -- --
Receivable writedown 690 -- --
Miscellaneous 11 -- --
----------
$2,262
==========
</TABLE>
The revenues associated with the closed centers were $3,492, $3,867 and $1,588,
respectively, as of December 31, 1999, 1998 and 1997, while the net operating
losses were $565, $417 and $541, respectively, for the same time periods.
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OCCUPATIONAL HEALTH + REHABILITATION INC
March 29, 2000
By: /S/ JOHN C. GARBARINO
----------------------------------
John C. Garbarino
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ JOHN C. GARBARINO President and Chief Executive Officer March 29, 2000
- ----------------------------------- (principal executive officer and
John C. Garbarino principal financial and accounting
officer)
/S/ EDWARD L. CAHILL DIRECTOR March 29, 2000
- -----------------------------------
Edward L. Cahill
/S/ KEVIN J. DOUGHERTY DIRECTOR March 29, 2000
- -----------------------------------
Kevin J. Dougherty
/S/ ANGUS M. DUTHIE DIRECTOR March 29, 2000
- -----------------------------------
Angus M. Duthie
/S/ DONALD W. HUGHES DIRECTOR March 29, 2000
- -----------------------------------
Donald W. Hughes
/S/ FRANK H. LEONE DIRECTOR March 29, 2000
- -----------------------------------
Frank H. Leone
/S/ STEVEN W. GARFINKLE DIRECTOR March 29, 2000
- -----------------------------------
Steven W. Garfinkle
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.03 (c) Letter Agreement dated as of December 30, 1999 by and between the
Company and Fleet National Bank (f/k/a BankBoston, N.A.)
modifying certain terms of the Revolving Credit Agreement.
21.01 Subsidiaries of the Company.
23.01 Consent of Ernst & Young LLP.
27.01 Financial Data Schedule.
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Occupational Health + Rehabilitation Inc
December 31, 1999
<TABLE>
<CAPTION>
Allowance for Doubtful Accounts
December 31,
---------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Beginning Balance $ 438,800 $ 179,700 $ 78,300
Charged to costs and expenses 534,700 350,600 159,400
Deductions (34,600) (91,500) (58,000)
--------- --------- ---------
Ending Balance $ 938,900 $ 438,800 $ 179,700
========= ========= =========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
Exhibit 4.03(c)
OCCUPATIONAL HEALTH + REHABILITATION INC
175 Derby Street
Hingham, Massachusetts 02043
Mr. George H. Dixon, Director As of December 30, 1999
Fleet National Bank (f/k/a BankBoston, N.A.)
100 Federal Street
Boston, Massachusetts 02110
RE: REVOLVING CREDIT AGREEMENT
--------------------------
Dear Mr. Dixon:
Reference is made to that certain Revolving Credit Agreement, dated as of
November 13, 1997, as amended as of December 30, 1998 (the "Credit Agreement"),
between Occupational Health + Rehabilitation Inc (the "Company") and Fleet
National Bank (f/k/a BankBoston, N.A.) (the "Bank"). Capitalized terms used
and not otherwise defined herein shall have the same meanings herein as in the
Credit Agreement, in each case, as amended by this letter agreement. This
letter agreement amends, restates and supersedes that certain letter agreement
dated December 30, 1999 between the Company and the Bank.
The Company has requested that the Bank consent to the amendments to the
Credit Agreement provided below, which amendments would have the effect of (i)
extending the Credit Expiration Date to June 30, 2001, (ii) amending certain of
the negative covenants under the Credit Agreement, (iii) reducing the required
Minimum Net Worth for the fiscal year ending December 31, 1999, and (iv) adding
certain financial covenants to the Credit Agreement.
(a) Section 1.1 of the Credit Agreement is hereby amended by deleting the
date "December 31, 1999" (as extended by prior agreement to "March 31, 2000")
appearing therein and inserting in lieu thereof the date "June 30, 2001."
(b) Section 1.2 of the Credit Agreement is hereby amended by adding at the
end of subsection (a) thereof the following:
The Company hereby agrees that notwithstanding any provision hereof to
the contrary, the aggregate amount of outstanding Company Revolving
Credit Loans the proceeds of which are or are to be used to finance
Eligible Acquisitions consumated subsequent to April 1, 2000
shall not at any time exceed $500,000.
<PAGE>
Exhibit 4.03(c)
(c) Effective December 31, 1999, Section 1.4(a)(ii) of the Credit
Agreement is hereby amended by deleting the figure "sixty-five one hundredths
percent (65/100%)" appearing therein and inserting in lieu thereof the figure
"seventy-five one-hundredths percent (75/100%)."
(d) Section 6.1(f) of the Credit Agreement is hereby amended by deleting
the proviso thereto in its entirety. Section 6.1(h) of the Credit Agreement is
hereby amended by deleting the proviso thereto in its entirety.
(e) Section 6.4 of the Credit Agreement is hereby deleted in its entirety.
(f) Section 7.1 of the Credit Agreement is hereby amended by deleting the
figure "$10,000,000" appearing therein with respect to the fiscal year ending
December 31, 1999 and inserting in lieu thereof the figure "$6,000,000."
(g) Section 7 of the Credit Agreement is hereby further amended by
deleting Section 7.2 thereof and adding the following provisions thereto after
Section 7.1 thereof:
(Section)7.2 Quick Ratio. The Company will not permit the Quick Ratio for
any fiscal quarter ending on or prior to December 31, 1999 to be less than
1.20 to 1.00.
(Section)7.3 Minimum Net Income. The Company will not permit the Net Income
for the quarterly fiscal period ending on June 30, 2000 and for each
quarterly fiscal period thereafter to be less than $1.00.
(Section)7.4 Minimum Adjusted Operating Cash Flow to Total Fixed Charges.
The Company will not permit the ratio of Adjusted Operating Cash Flow for
the four (4) consecutive fiscal quarters ending on the measuring dates set
forth below to Total Fixed Charges to be less than the respective amounts
indicated below:
<TABLE>
<CAPTION>
Minimum Ratio of Adjusted
Operating Cash Flow
Fiscal Quarter Ending to Total Fixed Charges
- ---------------------------------------------- ---------------------------------
<S> <C>
March 31, 2000 1.00:1.00
- ---------------------------------------------- ---------------------------------
June 30, 2000 1.00:1.00
- ---------------------------------------------- ---------------------------------
September 30, 2000 1.05:1.00
- ---------------------------------------------- ---------------------------------
December 31, 2000 1.15:1.00
- ---------------------------------------------- ---------------------------------
March 31, 2001 1.25:1.00
- ---------------------------------------------- ---------------------------------
June 30, 2001 1.25:1.00
- ---------------------------------------------- ---------------------------------
</TABLE>
2
<PAGE>
Exhibit 4.03(c)
(Section)7.5 Maximum Adjusted Total Senior Funded Debt to EBITDAR. The
Company will not permit the ratio of Adjusted Total Senior Funded Debt as
of the last day of any fiscal quarter set forth below to EBITDAR for any
period of four (4) consecutive fiscal quarters ending on such measuring
dates to be greater than the respective amounts indicated below:
<TABLE>
<CAPTION>
Maximum Ratio of Adjusted Total
Fiscal Quarter Ending Senior Funded Debt to EBITDAR
- ---------------------------------------------------------------------------------
<S> <C>
March 31, 2000 6.25:1.00
- ---------------------------------------------------------------------------------
June 30, 2000 6.25:1.00
- ---------------------------------------------------------------------------------
September 30, 2000 5.50:1.00
- ---------------------------------------------------------------------------------
December 31, 2000 5.00:1.00
- ---------------------------------------------------------------------------------
March 31, 2001 4.75:1.00
- ---------------------------------------------------------------------------------
June 30, 2001 4.50:1.00
- ---------------------------------------------------------------------------------
</TABLE>
(i) Section 8.1 of the Credit Agreement is hereby amended by adding after
subsection (l) thereof the following: "or (m) the Company shall have failed to
cause the holders of the outstanding redeemable, convertible preferred stock of
the Company to have executed and delivered to the Bank, on or prior to June 30,
2000, a subordination agreement reasonably satisfactory to the Company and the
Bank pursuant to which the repayment of all Indebtedness of the Company in
respect of such stock shall have been subordinated to the Indebtedness of the
Company evidenced by the Company Revolving Credit Note, the Indebtedness
evidenced by the JV Revolving Credit Agreements, and the Indebtedness of the
Company outstanding on April 1, 2000 under that certain Master Lease Financing
Agreement, dated as of September 15, 1998, as amended, between the Company and
BancBoston Leasing Inc."
(j) Section 9 of the Credit Agreement is hereby amended by deleting the
definitions "EBITDA" and "Eligible Acquisition" set forth therein and by adding
in the appropriate places therein the following definitions:
Adjusted Operating Cash Flow: for any period, EBITDA for such period,
after (a) restoring thereto amounts deducted for rental and operating lease
expense paid or payable and (b) deducting amounts paid for capital
expenditures and acquisitions that were not funded by financing obtained
from an external source.
3
<PAGE>
Exhibit 4.03(c)
Adjusted Total Senior Funded Debt: on the applicable measuring date, the
sum of (a) the aggregate amount outstanding (determined in accordance with
generally accepted accounting principles on a consolidated basis) of every
obligation for senior unsubordinated interest-bearing debt, including the
outstanding balance of the Revolving Credit Loans, Capital Leases, and
promissory notes of the Company and its Subsidiaries, and (b) the product
of eight (8) times the rental and operating lease expense paid or payable
in any period of four (4) fiscal quarters ending on the measuring date.
EBITDA: for any period, Net Income for such period, after restoring
thereto amounts deducted for (a) depreciation and amortization, (b)
Interest Expense, (c) income taxes in respect of income and profits, and
(d) minority interest in net profit of subsidiaries.
EBITDAR: for any period, the sum of (a) EBITDA for such period and (b) the
rental and operating lease expense paid or payable in such period.
Eligible Acquisition: shall mean the acquisition by the Company of the
assets or Shares of any Person engaged in the business of providing
occupational health or other medical services or other related business or
activities incidental thereto, provided that (i) the aggregate amount
representing the purchase price for all Eligible Acquisitions (including
any Indebtedness assumed in connection therewith other than routine
operating lease, trade debt and other similar ordinary course of business
obligations) for the period from April 1, 2000 through the Credit
Expiration Date shall not exceed $500,000 without the prior written consent
of the Bank, which consent shall not unreasonably withheld, conditioned or
delayed, (ii) prior to any such Eligible Acquisition, and after giving
effect thereto (including any Company Revolving Credit Loans requested by
the Company in connection with such Eligible Acquisitions), there shall
exist no Company Default or Company Event of Default, and (iii) prior to
any such Eligible Acquisition, the Company shall have provided to the Bank
notice of such proposed acquisition and an information package regarding
such proposed acquisition which shall contain a description of the assets
to be acquired, the purchase price and terms of payment for such assets and
such other information regarding such proposed acquisition as the Bank may
reasonably request at least ten (10) days prior to the proposed closing of
such proposed acquisition. If such proposed acquisition involves the
acquisition of Shares of a Person, such notice shall confirm that the
Company shall own, directly or indirectly, a majority of the equity
interests in the acquired Person and shall control a majority of any voting
securities and/or shall otherwise control the governance of the acquired
Person. In connection with such proposed acquisition, if such proposed
acquisition involves the acquisition of Shares of a Person, the Company
shall have granted to the Bank first priority security interests in the
Company"s equity interest in such acquired Person by means of a pledge.
Any assets
4
<PAGE>
Exhibit 4.02(c)
acquired in connection with such proposed acquisition shall constitute
after-acquired property subject to the Bank"s existing security interests
under the Company Security Documents unless such assets are simultaneously
contributed to a joint venture, which is majority owned by the Company.
Net Income: net income or net loss of the Company and its Subsidiaries for
the period in question, determined in accordance with generally accepted
accounting principles on a consolidated basis, provided that such net
income or net loss as determined for any period which includes the fiscal
quarter ending December 31, 1999 shall exclude those restructuring charges
and the write-off of the $292,000 Community Rehabilitation Center note
receivable effected by the Company during the fiscal quarter ending
December 31, 1999.
Total Fixed Charges: the aggregate amount (determined in accordance with
generally accepted accounting principles on a consolidated basis) for the
prior four (4) consecutive fiscal quarters ended as of the measuring date
of (a) long-term debt (excluding, if applicable, the outstanding balance of
the Revolving Credit Loans) and Capital Lease payments made or required to
be paid and dividends in respect of the Company's outstanding redeemable,
convertible preferred stock paid or payable, (b) Interest Expense, and (c)
rental and operating lease expense paid or payable.
(k) Section 1.1 of Exhibit A to the Credit Agreement (the form of JV
Revolving Credit Agreement) is hereby amended by deleting the date "December 31,
1999" (as extended by prior agreement to "March 31, 2000") appearing therein and
inserting in lieu thereof the date "June 30, 2001". The Bank hereby agrees that
it shall negotiate with each JV Borrower (as defined in the JV Revolving Credit
Agreement) an option to have outstanding loans pursuant to the JV Revolving
Credit Agreement with such terms and conditions as shall be mutually acceptable
to the Bank and such JV Borrower with the interest rate based on a money market
option if the JV Borrower has an equity owner (or affiliate) that is publicly
rated BBB+ or better and that jointly and severally guarantees the repayment in
full of the credit extended. The form of the JV Borrower Revolving Credit Note
(as defined in the JV Revolving Credit Agreement) is hereby amended by deleting
the date "December 31, 1999" (as extended by prior agreement to "March 31,
2000") appearing in the first paragraph thereof and inserting in lieu thereof
the date "June 30, 2001."
Except as amended hereby, the Credit Agreement and each of the other
Company Loan Documents shall remain in full force and effect. Concurrently with
the execution and delivery of this letter, the Company shall execute and deliver
to the Bank a replacement Company Revolving Credit Note in the form attached
hereto as Exhibit A, and the Company shall pay to the Bank a fee in the amount
of $7,500, in consideration of the Bank"s agreements herein and shall pay the
attorneys" fees of counsel to the Bank in connection with this letter. In
addition, the
5
<PAGE>
Exhibit 4.03(c)
Company is delivering herewith the budget for the Company and its Subsidiaries
for the fiscal year ending December 31, 2000 and the projections for the six-
month period ending June 30, 2001. On or prior to April 10, 2000, the Company
and the Bank shall prepare covenant compliance schedules incorporating the
financial covenants provided above and financial methodology (including, without
limitation, with respect to rental and operating expense paid or payable)
consistent with the Company's financial statements.
6
<PAGE>
Exhibit 4.03(c)
If you are in agreement with the foregoing, please execute each of the
accompanying counterparts to this letter, whereupon this letter shall become a
binding agreement under seal between the Company and the Bank. Please then
return one of such counterparts to the Company.
Very truly yours,
OCCUPATIONAL HEALTH +
REHABILITATION INC
By:/s/ John C. Garbarino
---------------------
President and Chief Executive Officer
ACKNOWLEDGED AND AGREED:
- -----------------------
FLEET NATIONAL BANK (f/k/a BankBoston, N.A.)
By:/s/ George H. Dixon
-------------------
Director
7
<PAGE>
EXHIBIT 21.01
Subsidiaries of
Occupational Health + Rehabilitation Inc
- --------------------------------------------------------------------------------
Occupational Orthopaedic Center, Inc.,
A Rhode Island corporation
CM Occupational Health, Limited Liability Company,
A Maine limited liability company
(also doing business as The Health Center)
OHR/MMC, Limited Liability Company,
A Maine limited liability company
(also doing business as Occupational Health + Rehabilitation,
An affiliate of Maine Health)
Kent/OH+R, LLC
A Rhode Island limited liability company
OH+R/Boston, LLC,
A Massachusetts limited liability company
(also doing business as Occupational Health + Rehabilitation)
OHR/Baystate,LLC,
A Massachusetts limited liability company
(also doing business as Occupational Health + Rehabilitation)
Occupational Health Connection LLC,
A New York limited liability company
<PAGE>
Exhibit 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-71462, Form S-8 No. 333-05253, Form S-8 No. 333-15191 and
Form S-8 No. 333-61997) pertaining to Occupational Health + Rehabilitation Inc
of our report, dated March 27, 2000, with respect to the consolidated financial
statements and schedule of Occupational Health + Rehabilitation Inc included in
the Annual Report (Form 10-K) for the year ended December 31, 1999.
ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 1,512 1,562
<SECURITIES> 0 0
<RECEIVABLES> 7,849 5,567
<ALLOWANCES> (744) (430)
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,255 7,340
<PP&E> 4,255 3,475
<DEPRECIATION> (1,872) (1,294)
<TOTAL-ASSETS> 17,160 14,479
<CURRENT-LIABILITIES> 6,565 3,646
<BONDS> 0 0
8,470 8,455
0 0
<COMMON> 1 1
<OTHER-SE> (2,431) 580
<TOTAL-LIABILITY-AND-EQUITY> 17,160 14,479
<SALES> 32,148 23,083
<TOTAL-REVENUES> 32,148 23,083
<CGS> 0 0
<TOTAL-COSTS> 33,956 23,764
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 292 0
<INTEREST-EXPENSE> 244 179
<INCOME-PRETAX> (2,883) (1,007)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (155)
<NET-INCOME> (2,883) (1,162)
<EPS-BASIC> (2.04) (0.80)
<EPS-DILUTED> (2.04) (0.80)
</TABLE>
