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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to _______________.
Commission File Number 0-21354
GULF SOUTH MEDICAL SUPPLY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0831411
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE WOODGREEN PLACE 39110
MADISON, MISSISSIPPI (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (601) 856-5900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value as of March 11, 1997, of Common Stock held by
non-affiliates of the Registrant: $212,434,354 based on the last reported sale
price on that date on The Nasdaq Stock Market.
Number of shares of Common Stock outstanding at March 11, 1997: 16,308,564.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1996. Portions of such proxy statement are incorporated by reference in Part
III of this Report.
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ITEM 1. BUSINESS.
GENERAL
Gulf South is a leading national distributor of medical supplies and related
products to the long-term care industry. The Company provides products and
services to approximately 10,500 long-term care facilities in all 50 states.
The Company's customers range from independent nursing home operators to large
national chains offering a broad range of healthcare services, such as Beverly
Enterprises, Multicare, Grancare, National Healthcare and Sun Healthcare Group,
as well as home healthcare providers, hospices and sub-acute, rehabilitative
and transitional care providers. Through its 18 full-service regional
distribution centers, the Company offers both national coverage to
multi-facility customers and local service to individual facilities and
independent operators. Gulf South believes that it has achieved its success to
date due to the expertise gained from more than twelve years of focus on the
long-term care industry and its strong commitment to providing superior service
to its customers.
INDUSTRY OVERVIEW
According to the latest industry data available, sales of medical supplies
and related products to the nursing home segment of the long-term care industry
in the United States were more than $1.6 billion in 1995 and the Company
estimates that such sales are growing at an annual rate in excess of 10%. The
Company believes that the home healthcare and sub-acute care segments are
growing at a faster rate than the nursing home segment of the long-term care
industry. Medical supplies and related products are distributed to healthcare
providers through two primary channels of distribution. Distribution to
hospitals and surgical clinics generally is made through several large national
hospital distributors or directly by manufacturers. In contrast, distribution
to long-term care facilities typically is made through many local and regional
distributors as well as several national distributors.
Hospital Distribution. The hospital distribution market is characterized by
customers that have physical plants with large inventory storage capacity and
that serve large numbers of patients primarily with short-term acute-level
medical care. In order to service this market and maintain economies of scale,
the large national hospital distribution companies have established multiple
warehouse facilities near the largest concentrations of customers, generally in
urban or metropolitan areas, with an infrastructure that allows them to deliver
goods in bulk volume with frequent, and in many cases same day, service.
Hospital distributors typically maintain their own trucking fleets to deliver
products. Because of the specialized acute care services performed by
hospitals, hospital distributors must handle an extremely broad and diverse
range of products that focus on the short-term medical and surgical needs of
hospital patients.
Distribution to Long-Term Care Industry. Distributors serving the long-term
care market must address a different set of customer needs. The long-term care
market is highly fragmented, consisting of large numbers of independent
operators, small to mid-sized local and regional chains and several national
chains. Facilities are typically located in suburban and rural areas, often at
considerable distances from one another. Long-term care facilities generally
serve a limited patient population (typically from 20 to 200 beds) and have
relatively small physical plants with limited inventory storage capacity.
Although long-term care facilities do not demand immediate same-day delivery,
they require distributors to deliver products in small quantities (including
"broken case" shipments) on a consistent and reliable basis. Distributors
serving the long-term care market must generally have the capability to tailor
their ordering, shipping and billing processes to suit customers'
individualized needs. Because of the fragmented structure and the specialized
service needs of the long-term care market, long-term care facilities have
traditionally been served by locally- or regionally-based distributors which
maintain supply relationships with a limited number of customers within a
finite geographic area. However, these local and regional distributors are
increasingly subject to intense competitive pressures as a result of the
consolidation of independent long-term care operators by large national chains
and a growing trend by manufacturers to deal with fewer and larger distributors
in this market.
Certain Trends Affecting the Long-Term Care Market. Economic, regulatory,
political and demographic pressures are combining to cause significant changes
in the long-term care industry. Cost containment pressures
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from governmental and private reimbursement sources have led to a reduction in
the length of expensive hospital stays and a resulting increase in the demand
for long-term care facilities to provide such services at a significantly lower
cost than hospitals. This trend has also led to a general increase in the
acuity levels of patients found in traditional long-term care facilities, as
well as to the emergence of sub-acute, rehabilitative, transitional and other
specialized long-term care facilities. Cost containment pressures have also
contributed to a need for greater efficiency by long-term care operators, and
have led to some consolidation among these healthcare providers. In addition,
the demographic pressures of an aging U.S. population have caused continued
demand for traditional custodial long-term care and other long-term care
services. Census Bureau data indicates that the number of persons aged 65 and
older is expected to increase from approximately 31.2 million in 1990 to
approximately 34.5 million by the year 2000 and that the number of persons aged
85 years and older, which is the fastest growing segment of the population and
the largest consumer of long-term care, is expected to increase from 3.1
million in 1990 to approximately 4.1 million during the same period.
These trends affecting the long-term care industry have created the need for
an increasingly sophisticated distribution system for medical and personal care
products. Rising acuity levels within the patient population require
distributors to handle a broader range of products, including more
sophisticated medical supplies and equipment that are often used in small
quantities. Industry consolidation of long-term healthcare providers into
regional and national chains has created a need for distributors that can
service facilities in different locations with consistent and reliable service.
Finally, cost containment pressures and competitive requirements mandate that
distributors provide products and services to this market on an increasingly
cost-effective basis.
BUSINESS STRATEGY
Gulf South's principal business objective is to enhance its position as a
leading national distributor of medical and personal care products to the
long-term care industry. The Company believes that the following factors have
been of principal importance in its ability to achieve its present market
position:
Focus on Long-Term Care Industry. Since its founding more than twelve
years ago, Gulf South has focused primarily on serving the long-term care
market. Based on its industry experience and expertise, the Company has
developed the necessary distribution systems and services that assist
operators of long-term care facilities to source products, manage inventory
usage and control costs. The Company believes that its long-standing focus
on the needs of the long-term care industry has enabled it to develop and
execute a consistent management strategy and to foster stable, long-term
relationships with its customers.
Consistent and Reliable Customer Service. The Company offers customers
a high level of service and support which it believes differentiates it
from its competitors, particularly small to medium-sized local and regional
distributors. The Company's objective is to enable customers to place
orders easily and conveniently, to fill orders accurately and completely
and to deliver orders with prompt, consistent and reliable service. As of
December 31, 1996, the Company estimates that it shipped more than 95% of
all orders on the same day the order is placed with a fill rate of 98.5%
and that more than 90% of customer orders are delivered to the customer
within two days of receipt. In addition, the Company offers customers
various value-added services, including monthly usage reports, inventory
control/ancillary billing software programs, next-day invoicing and
customized programs designed to assist customers to manage inventory usage
and control costs. The Company centralizes all customer ordering and
invoicing and the delivery of value-added services through its Jackson
facility enabling the Company to provide consistent levels of customer
service to each individual facility within multi-location chains.
Broad Product Offering at Competitive Prices. Gulf South presently
offers over 10,000 medical supplies and related products and updates its
product offerings regularly to meet its customers' changing needs. The
Company's sales volume, national coverage and stable vendor relationships
enable it to obtain products from suppliers at favorable negotiated prices.
Through the breadth of its product offerings and effective use of its
purchasing leverage with vendors, the Company has the capability to serve
as a competitively priced, single source of supply to a wide variety of
long-term care facilities.
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National Coverage With a Local Presence. With 18 full-service regional
distribution centers, each supported by a team of direct sales
representatives, the Company is able to provide consistent and reliable
coverage to mid-sized and large chains that operate in different geographic
areas. The Company also maintains a strong local presence in each region to
support independent operators and individual facilities within
multi-location chains.
GROWTH STRATEGY
The Company believes that the continuing implementation of the business
strategies described above, coupled with a focus on the following growth
strategies, will enhance its ability to expand its sales to existing and new
customers:
Emphasis on Attracting New Customers. The Company's strategy is to
increase its emphasis on attracting large regional and national chains as
well as to target both small chains and independent operators. The Company
believes that it can increase sales to large regional and national chains
by adding new distribution centers, expanding its existing distribution
centers and by hiring additional direct sales or other personnel and
through national account sales efforts. The Company believes that it can
increase its penetration of small chains and independent operators,
particularly in rural areas, by increasing its direct sales force and
utilizing group purchase organizations. The Company believes that its high
levels of customer service and value-added support, breadth of its product
offerings and competitive pricing afford it a competitive advantage over
the regional and local distributors that typically target these customers.
Increased Penetration of Existing Customer Base. The Company intends
to capitalize on opportunities to expand sales to existing customers. The
Company believes that continuing industry consolidation will result in an
increase in the number of facilities operated by mid-sized and large chains
presently served by the Company. In addition, rising acuity levels within
the patient population of long-term care facilities are expected to
increase the breadth and amount of products required by the Company's
existing customers. The Company also believes that cost containment
pressures will continue to create incentives for facility operators to deal
increasingly with fewer distributors that, like the Company, can provide
inventory management and cost control programs.
Addressing Needs of Emerging Market Segments. The Company intends to
increase its focus on the home healthcare, hospice and sub-acute,
rehabilitative and transitional care segments of the long-term care market.
The Company believes that the home healthcare and sub-acute care segments
are growing at a faster rate than the nursing home segment of the long-term
care industry.
Acquisitions. The Company's strategy is to augment its internal growth
with the acquisition of medical supply distributors that serve
complementary markets or that supplement the Company's presence in existing
markets. On December 26, 1996, the Company completed its acquisition of
all of the outstanding capital stock and warrants of Gateway Healthcare
Corporation, a national supplier of disposable medical surgical supplies to
the long-term care and alternate care market places primarily located in
New England and the Mid-Atlantic area, with sales of approximately $67
million during the twelve-month period prior to its acquisition. On
February 29, 1996, the Company acquired all the outstanding common stock of
Bayer Medical Service Systems, Inc., a regional medical supply distributor
serving the long-term care markets of the Ohio Valley and Florida. Bayer
Medical Service Systems had revenues of approximately $10.0 million during
the twelve-month period prior to its acquisition. The Company also acquired
certain operating assets and liabilities of Express Care, L.P. on April 1,
1996, Alternative Healthcare Services on July 1, 1996 and TDR Medical, LLC
on December 10, 1996, serving principally the Southeast, Southern
California and South Texas long-term care markets, respectively. See
"Factors Affecting Future Performance."
The foregoing discussion contains forward-looking statements which involve
risks and uncertainties, and the Company's actual experience may differ
materially from that discussed above. Factors that may cause such a difference
include, but are not limited to, those discussed in "Factors Affecting Future
Performance."
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CUSTOMERS
The Company's customers range from independent nursing home operators to
large national chains offering a broad range of healthcare services, as well as
providers of home healthcare and sub-acute, rehabilitative and transitional
care. Nursing home operators tend to focus on providing custodial or skilled
nursing care, principally to elderly patients. In addition, many of these
facilities are increasingly setting aside a portion of their beds for sub-acute
care patients. Principal customers of the Company providing this form of
long-term care include Beverly Enterprises, Multicare, Grancare, National
Healthcare and Sun Healthcare Group. Home healthcare providers offer a wide
range of services such as pulmonary and infusion therapy to patients who have
been discharged from hospitals or sub-acute care facilities. Customers of the
Company providing home healthcare include Vitas Healthcare and Apria
Healthcare. Sub-acute, rehabilitative and transitional care providers generally
serve patients who are recovering from major injury, surgery or illness, but no
longer need the full services of a general acute care hospital. Principal
customers of the Company providing sub-acute, rehabilitative and transitional
care include Sun Healthcare Group.
The Company believes that approximately 77% of its 1996 net sales were
attributable to customers that focused primarily on providing custodial,
skilled nursing and sub-acute care, principally through nursing homes. The
Company estimates that large nursing home chains (operating more than 50
facilities) and mid-sized nursing home chains (operating between 20 and 50
facilities) accounted for approximately 24.2% of the facilities served by the
Company in 1996 and 50.4% of the Company's 1996 net sales. In 1996, the
Company's largest five customers accounted for approximately 32.2% of net
sales; Beverly Enterprises accounted for 19.6% of net sales for the year ended
December 31, 1996. The Company does not have long-term contracts with any of
its customers. Although the Company has not to date experienced any failure to
collect accounts receivable from its largest customers, an adverse change in
the financial condition of any of these customers, including as a result of a
change in governmental or private reimbursement programs, which would cause the
accounts receivable to become uncollectible or subject to extended payment
terms, could have a material adverse effect upon the Company's results of
operations or financial condition.
CUSTOMER SERVICE/ORDER ENTRY AND FULFILLMENT
The Company is committed to providing high levels of customer service and
support, the principal basis of which is accurate and complete order
fulfillment and reliable, consistent deliveries. As a result of its efficiency
in order entry and order fulfillment, the Company estimates that, as of
December 31, 1996, it shipped more than 95% of all orders on the same day the
order is placed with a fill rate of 98%. Since approximately 80% of customer
orders are placed by telephone, the efficient handling of incoming calls is
critical to the Company's business. The Company offers to its customers a
toll-free telephone number and fax line and is currently using its EDI ordering
capability to accept electronically transmitted orders from several of its
major customers. All orders are received by 86 customer service representatives
primarily at the Company's Jackson distribution facility who utilize on-line
computer terminals to enter customer orders and to access information about
products, product availability, pricing, promotions and the customer's
purchasing history. Following entry of an order, the order is electronically
transmitted to the distribution center nearest the customer's facility and a
packing slip for the entire order is printed for order fulfillment. The Company
imposes no minimum dollar amount on orders.
The Company believes that the reliable and consistent delivery of complete
and accurate orders is more important to its customers than immediate same-day
delivery. Accordingly, each distribution facility stocks the 4,000 most
frequently ordered products, with the Jackson facility stocking an additional
6,000 products. Product back orders average less than 2% of products ordered.
The Company estimates that approximately 60% of its orders are shipped by
United Parcel Service while the remaining orders are shipped by various common
carriers. The Company generally does not charge customers for shipping costs
for orders of $300 or more. Because the Company seeks to service a customer's
entire order from the distribution center nearest the customer's facility, the
Company estimates that 90% of the customers receive their orders within one or
two business days of the order date and 95% of the customers receive their
orders within three business days. Customer service operations of the Company
are primarily centralized at its Jackson facility, enabling the Company to
provide consistent levels of customer service to all customers, including to
each individual facility operated by a large multi-location chain. The
Company's
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customer service representatives are provided with detailed product knowledge
and receive ongoing training regarding new products and promotions enabling
them to provide prompt and efficient service and accurately answer customer
inquiries. From time to time, the Company arranges for manufacturers to make
presentations on new products both to the customer service representatives and
directly to its customers.
An essential part of the Company's commitment to customer service and
customer relations is the value-added support services developed by the Company
to meet the unique needs of long-term care providers as well as the specialized
needs of individual customers. These services are made available both to large
chains and to independent operators and are generally provided by the Company
without cost to the customer. The principal value-added services currently
provided by the Company include the following:
Monthly Usage Reports. The Company has been producing monthly usage
reports for its customers since the early 1980's and has refined such
reports over time in response to customer needs. The Company believes that
usage reports are critical to managing inventory consumption and
controlling costs. These reports identify each product purchased by a
facility during the month, the quantity purchased, the price per product
and the total price paid and also provide year-to-date totals. The monthly
usage reports enable customers to manage supply requirements, maintain
inventory controls, prepare monthly and yearly forecasts and budgets and
enable operators of multi-facility chains to track product purchases on
either a facility-by-facility or chain-wide basis.
Inventory Control/Ancillary Billing Software Programs. Since 1990, the
Company has offered software programs which allow a customer to maintain a
real time inventory count and order products on a just-in-time basis, as
well as to monitor patients' utilization of products for Medicaid and
Medicare reimbursement purposes. A product identification number is
assigned to each product, and when a product is utilized or distributed
within the facility, the customer enters the product identification number
into its computer system either manually or by use of a bar code scanner.
Next-Day Invoicing. Because the Company seeks to ship each entire
order at one time from a single distribution center, the Company is able to
generate and mail a single invoice directly to the customer within one
business day of the order date. As a result, the customer generally
receives the invoice concurrently with or within one day of receiving the
order, facilitating efficient verification of charges and reducing handling
and administrative costs for the customer.
Customized Services. The Company frequently works directly with a
customer to provide services tailored to its specialized needs. The Company
will generate customized invoices for customers upon request. For those
customers that use an inventory control/ancillary billing system, the
Company can provide bar code labels to support the customer's software
program, making the scanning process simple for those customers. To enable
multi-facility chains to better manage costs and control product selection,
the Company provides each of its chain customers with a customized ordering
guide which contains only those products selected by the chain operator in
advance to be offered within each of its facilities. The Company presently
publishes approximately 40 customized ordering guides.
PRODUCTS
The Company offers a comprehensive selection of over 10,000 medical supplies
and related products consisting largely of name brand items. The breadth of the
Company's product offerings and its special order capabilities enable it to
provide its customers with the convenience of one-stop shopping. The following
chart sets forth the principal categories of products offered by the Company
and the top selling types of products in each category, if appropriate, and
percentage of 1996 net sales in parenthesis:
MEDICAL/SURGICAL SUPPLIES (46.0%) ENTERAL FEEDING SUPPLIES (6.4%)
Wound care supplies Nutritional supplements
Exam gloves Pump sets
Urologicals Tubing
Blood/urine testing supplies
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PERSONAL CARE ITEMS (11.6%) DURABLE EQUIPMENT (4.2%)
Soaps and shampoos Medical Instruments
Personal hygiene items
Paper products OTC (NON-LEGEND) DRUGS (3.0%)
Bedside utensils
RESPIRATORY THERAPY SUPPLIES (5.8%) INCONTINENT SUPPLIES (21.8%)
Oxygen Supplies Adult diapers and underpads
Ventilator supplies
Trach and suction supplies OSTOMY SUPPLIES (1.2%)
Wound care supplies, adult diapers and underpads and exam gloves were the
Company's top selling product types in 1996, accounting for 13.8%, 21.8% and
11.1%, respectively, of net sales. Some of the product categories which
experienced a growth rate of 50% or more in 1996 included wound care supplies,
exam gloves, enteral feeding supplies and respiratory therapy supplies.
The Company's Product Task Force regularly evaluates customer response to
product offerings and sales results in order to make informed product
selections and pricing decisions. Product selection is mainly a function of
customer preference, and the Company expects to continue to increase its
product line breadth as customer demand warrants. The Company has increased the
number of products offered from approximately 4,800 in 1989 to over 10,000 in
1996.
SALES AND MARKETING
At December 31, 1996, the Company employed a direct sales force of 53
professionals who have primary responsibility for maintaining relationships
with existing customers and identifying and soliciting new customers. Once a
customer relationship is established, the sales force serves primarily to
supplement and support sales through the Company's catalogs. Four sales
professionals concentrate exclusively on national accounts, calling on the
corporate offices of the national long-term care chains. The sales force
supports each of the Company's 18 regional distribution centers, enabling the
Company to establish a local sales presence in the markets served by each
center. The Company currently anticipates that it will increase the size of its
direct sales force to approximately 90 sales professionals by the end of 1997.
The Company trains its sales professionals through an ongoing program of
identifying and solving customer needs, augmenting selling skills and providing
detailed product knowledge. Manufacturers support this program by assisting
from time to time in the training of the Company's sales professionals.
The Company markets its products to customers primarily through a variety of
catalogs. The Company publishes its standard catalog (approximately 350 pages
in length), which is designed to serve as a basic resource tool for customers.
The standard catalog features approximately 2,500 products and provides
detailed product descriptions, photographs and helpful technical information
relating to products, if appropriate.
Approximately twice a year, the Company publishes a standard ordering guide
which contains pricing information and easy-to-follow ordering procedures for
the approximately 750 top selling products carried by the Company. The Company
also publishes for certain of its chain customers customized ordering guides
which contain only those products requested to be included by the chain. In
addition, the Company has introduced specialty ordering guides based on product
category, such as home respiratory therapy supplies. The Company guarantees the
published pricing information for the life of each of its ordering guides
(generally six months).
PURCHASING
The Company believes that effective purchasing is a key element to providing
name brand products at competitive prices. The Company believes that its high
volume purchases have increased its purchasing power with its primary
suppliers, resulting in volume discounts and rebates, favorable return policies
and promotional allowances.
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The Company regularly evaluates supplier relationships and considers
alternate sourcing as appropriate to assure competitive costs and quality
standards. No single supplier represented more than 12% of the total cost of
the products purchased by the Company in 1996. The Company's largest suppliers
in 1996 were: Kendall Healthcare Products Company, Baxter Healthcare, Inbrand,
Becton, Dickinson & Co., Ross Labs and Proctor & Gamble. In 1996, these
suppliers accounted for approximately 35.0% of the cost of the products
purchased by the Company in 1996. Kendall Healthcare Products Company
accounted for over 9.5% of the total cost of products purchased by the Company
in 1996. As is customary in the industry, the Company generally does not have
any long-term contracts with its suppliers.
The Company's management information system is used to monitor and manage
its inventory. Generally, the Company has been able to return any unsold or
obsolete inventory to the manufacturer, resulting in negligible inventory
write-offs. At December 31, 1996, the Company maintained an investment in
inventory of approximately $27.2 million, of which approximately $535,000 (less
than 2%) was over 180 days old. The Company turned its inventory approximately
seven times during 1996. The Company also utilizes its management information
system to minimize its inventory out-of-stock position.
COMPETITION
The Company faces intense competition from many regional and local
distributors in its markets as well as from several companies that distribute
products to long-term care facilities on a national basis. The Company believes
that there are three principal competitors that distribute products to
long-term care facilities on a national basis, General Medical Corporation
(acquired by McKesson Corp. in January 1997), Medline Industries, Inc. and
Redline Medical Supply Co. In addition, certain national long-term care chains
buy products and supplies directly from manufacturers and distribute such
products directly to their facilities. Although several national hospital
distributors and healthcare manufacturers presently sell to the long-term care
market, to date the long-term care market has not been a primary focus for such
distributors and manufacturers. Barriers to entry for distribution in the
long-term care market are relatively low, and the risk of new competitors
entering the market, particularly in local areas, is high. Certain of the
Company's current competitors, including many national hospital distributors,
have substantially greater capital resources, sales and marketing experience
and distribution capabilities than the Company. In response to competitive
pressures from any of its current or future competitors, the Company may be
required to lower selling prices in order to maintain or increase market share,
and such measures could adversely affect the Company's operating results.
The Company believes that the principal competitive factors in distributing
products to the long-term care market are the quality and level of customer
service, product pricing, breadth and quality of products offered and
consistency and stability of business relationships with customers. The Company
believes that it competes favorably with respect to each of these factors. In
particular, the Company believes it differentiates itself from the smaller
local and regional distributors with which it competes on account of the
breadth of its product offerings, its ability to acquire goods from suppliers
at favorable prices and its national coverage which enables it to offer
consistent and reliable service to multi-location chains. In addition, the
Company believes that it differentiates itself from most other national
distributors in the long-term care market as a result of its focus on providing
services that can be integrated with customers' internal budgetary and cost
containment systems.
GOVERNMENT REGULATION
The Company's business is subject to regulation under the federal Food,
Drug and Cosmetic Act and the Occupational Safety and Health Act, as well as
under certain state regulations, because of its labeling, storage and handling
of certain drugs and medical devices. The Company believes that sales of
products that are subject to such regulation are not material in the aggregate.
The Company believes that it is in substantial compliance with such federal and
state laws and regulations and possesses all material licenses and permits
required for the conduct of its business.
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EMPLOYEES
As of December 31, 1996, the Company employed 642 persons (all on a
full-time basis), of whom 125 were engaged in management, administration and
accounting, 91 were engaged in direct sales, 145 were engaged in customer
service, purchasing and credit collection and 281 were engaged in warehouse and
distribution operations. Of these employees, 177 were located at the Company's
corporate headquarters and distribution center in Jackson. The Company
considers its employee relations to be excellent. No employees are covered by
collective bargaining agreements.
ITEM 2. PROPERTIES.
The Company owns or leases offices and warehouses in cities throughout the
United States. The following table sets forth the general location and certain
information for each of the distribution centers and other facilities owned or
leased by the Company.
<TABLE>
<CAPTION>
DISTRIBUTION CENTER LOCATION LEASED/OWNED
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<S> <C>
Atlanta, GA . . . . . . . . . . . . . . . . . . . . . . . Leased
Columbus, OH . . . . . . . . . . . . . . . . . . . . . . Leased
Dallas, TX . . . . . . . . . . . . . . . . . . . . . . . Leased
Dallas, TX* . . . . . . . . . . . . . . . . . . . . . . . Leased
Harrisburg, PA . . . . . . . . . . . . . . . . . . . . . Leased
Indianapolis, IN* . . . . . . . . . . . . . . . . . . . . Leased
Jackson, MS . . . . . . . . . . . . . . . . . . . . . . . Owned
Los Angeles, CA . . . . . . . . . . . . . . . . . . . . . Leased
Madison, WI . . . . . . . . . . . . . . . . . . . . . . . Leased
Manchester, NH . . . . . . . . . . . . . . . . . . . . . Leased
Memphis, TN . . . . . . . . . . . . . . . . . . . . . . . Leased
Orlando, FL . . . . . . . . . . . . . . . . . . . . . . . Leased
Orlando, FL* . . . . . . . . . . . . . . . . . . . . . . Leased
Phoenix, AZ . . . . . . . . . . . . . . . . . . . . . . . Leased
Warren, RI* . . . . . . . . . . . . . . . . . . . . . . . Leased
Raleigh, NC . . . . . . . . . . . . . . . . . . . . . . . Leased
Richmond, VA . . . . . . . . . . . . . . . . . . . . . . Leased
Roanoke, VA . . . . . . . . . . . . . . . . . . . . . . . Leased
Sacramento, CA . . . . . . . . . . . . . . . . . . . . . Leased
San Antonio, TX . . . . . . . . . . . . . . . . . . . . . Leased
Sellinsgrove, PA* . . . . . . . . . . . . . . . . . . . . Leased
ADMINISTRATIVE OFFICES
- ----------------------
Richmond, VA . . . . . . . . . . . . . . . . . . . . . . Leased
Sunbury, PA . . . . . . . . . . . . . . . . . . . . . . . Owned
Madison, MS (headquarters) . . . . . . . . . . . . . . . Owned
</TABLE>
*Gateway Healthcare operations which have been, or are scheduled to be,
discontinued.
The Company believes that its facilities are adequate to carry on its
business as currently conducted. A number of leases relating to the
above-described properties are scheduled to terminate within the next several
years. The Company believes that, if necessary, it could find facilities to
replace such leased premises without suffering a material effect on its
business.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant from time to time in lawsuits incidental to its
business. The Company currently is not a party to, and none of its property is
subject to, any material legal proceedings.
<PAGE> 11
-11-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the fourth quarter of
the Company's fiscal year 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the NASDAQ National Market under the
symbol GSMS. The following table sets forth for the periods indicated the high
and low closing sale prices for the Common Stock, which reflect a 2-for-1 stock
split effected in the form of a stock dividend on May 25, 1995:
<TABLE>
<CAPTION>
STOCK PRICE
-----------
1995 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . .$20 7/8 $16 1/2
Second Quarter . . . . . . . . . 26 18 1/4
Third Quarter . . . . . . . . . . 32 1/2 23 1/4
Fourth Quarter . . . . . . . . . 30 3/4 19
1996
- ----
First Quarter . . . . . . . . . .$39 $25 3/4
Second Quarter . . . . . . . . . 49 1/2 35 1/4
Third Quarter . . . . . . . . . . 41 1/2 15
Fourth Quarter . . . . . . . . . 32 1/4 21 1/4
</TABLE>
On March 11, 1997, the closing price for the Common Stock was $20 7/8 per
share. The trading price of the Company's Common Stock may be subject to
fluctuations in response to quarter-to-quarter variations in operating results,
changes in earnings estimates by investment analysts or changes in business or
regulatory conditions affecting the Company, its customers or its competitors.
The market price of securities of companies in the healthcare industry have
been, and may continue to be, volatile. Such fluctuations and volatility may
adversely affect the price of the Company's Common Stock.
As of March 11, 1997, there were approximately 45 stockholders of record.
The Company believes that shares of the Company's Common Stock held in bank,
money management, institution and brokerage house "nominee" names may account
for at least an estimated 4,500 additional beneficial holders.
The Company has not paid any cash dividends on its capital stock in the past
four fiscal years and does not anticipate paying cash dividends in the
foreseeable future. The Company intends to retain any earnings or other cash
resources to finance future growth of its business. In addition, the Company's
revolving line of credit agreement with NationsBank of Tennessee, N. A.
prohibits the payment of dividends on the Company's capital stock without the
prior written consent of the bank. Any future determinations to pay cash
dividends will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's results of operations, financial condition
and other factors deemed relevant by the Board of Directors.
RECENT SALES UNREGISTERED SECURITIES
On February 29, 1996, the Company completed the acquisition of all of the
outstanding common stock of Bayer Medical Service Systems, Inc. ("Bayer"). The
Company issued 151,724 shares (the "Shares") of common stock, $.01
<PAGE> 12
-12-
par value, of the Company to the sole shareholder of Bayer in exchange for the
all of the outstanding common stock of Bayer. The Company claims that the offer
and sale of the Shares were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended based on the fact that the Shares
were sold to a single person and such sale did not involve a public offering.
On August 28, 1996, the Company filed a registration statement on Form S-3
(File No. 333-10939) with the Securities and Exchange Commission covering the
resale of the Shares, and the registration statement became effective on
January 14, 1997.
In connection with the acquisition on December 26, 1996 of all of the
outstanding capital stock and warrants of Gateway Healthcare Corporation
("Gateway"), The Company issued to the five securityholders of Gateway warrants
(the "Warrants",) to purchase up to 450,000 shares of the Company's common
stock. The Company claims that the offer and sale of the Warrants were exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended, based on the fact that the issuance of the Warrants did not involve a
public offering. On January 24, 1997, the Company filed a registration
statement on Form S-3 covering the resale of the shares of common stock
underlying the Warrants. The registration statement became effective on March
7, 1997.
<PAGE> 13
-13-
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED
OPERATING DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA (1):
Net sales . . . . . . . . $ 177,710 $ 130,094 $ 92,151 $ 65,119 $ 44,659
Cost of sales . . . . . . 136,344 97,973 68,122 48,357 33,041
--------- ---------- ----------- ----------- -----------
Gross profit . . . . . . 41,366 32,121 24,029 16,762 11,618
Selling, general and
administrative expenses . . . 23,450 18,418 13,913 10,307 7,552
Acquisition and merger expenses 2,378 -- -- -- --
--------- ---------- ----------- ----------- -----------
Operating income (2) . . . 15,538 13,703 10,116 6,455 4,066
Interest expense . . . . (229) (199) (629) (2,206) (1,242)
Interest income . . . . . 1,771 163 186 -- --
--------- ---------- ----------- ----------- -----------
Income before income taxes 17,080 13,667 9,673 4,249 2,824
Income taxes (3) . . . . (6,386) (5,507) (3,877) (1,619) (1,030)
--------- ---------- ----------- ----------- -----------
Net income (3) . . . . . $ 10,694 $ 8,160 $ 5,796 $ 2,630 $ 1,794
========= ========== =========== ============ ===========
Net income per share (4) . $ .69 $ .58 $ .45 $ .29 $ .19
SELECTED OPERATING DATA:
Number of orders shipped 575,113 384,401 283,350 215,425 165,834
Average order size . . . $ 309 $ 313 $ 298 $ 270 $ 238
Number of facilities served 10,730 8,555 6,314 4,390 3,699
BALANCE SHEET DATA (AT PERIOD END) (1):
Working capital . . . . . $ 102,074 $ 36,228 $ 28,469 $ 12,842 $ 9,026
Total assets . . . . . . 197,971 55,021 41,042 23,576 16,519
Total debt . . . . . . . 30,321 3,803 1,147 21,015 19,247
Stockholders' equity (deficit) 144,299 39,954 30,502 (5,670) (8,300)
</TABLE>
_______________
(1) Restated to reflect the share exchange with Bayer Medical Service
Systems Inc. accounted for as a pooling of interests. See Note 2 of
Notes to Consolidated Financial Statements.
(2) Reflects $819 ($513 after tax, or $.03 per share) of legal, accounting
and other integration costs incurred in connection with the Bayer
Medical Service Systems, Inc. share exchange in February 1996 and
additional integration and exit charges of $771 ($483 after taxes, or
$.03 per share) pertaining to the acquisition of L&M Medical, Inc. in
1995 and $778 ($487 after taxes, or $.03 per share) pertaining to the
Express Care L. P. and Alternative Healthcare Services acquisitions in
1996. See Note 2 of Notes to Consolidated Financial Statements.
(3) The Company elected to be treated as an S corporation for income tax
purposes from January 1, 1989 through June 25, 1992, and accordingly
did not pay federal and state (except in certain states) income taxes
during such periods. The Company distributed S corporation earnings of
$998 to its shareholders during 1992. The net income data reflects a
pro forma provision for income taxes during the period from January 1,
1992 through June 25,1992 as if the Company had been subject to
federal and state income taxes. Because the Company has been a C
corporation since June 25,1992, no pro forma adjustment to net income
for periods subsequent to such date is necessary and, accordingly, the
net income data set forth above for such subsequent periods reflects
actual net income.
(4) Computed by dividing net income applicable to Common Stock (net income
plus interest requirements, less tax effects, of the 10% Convertible
Subordinated Debentures (the "Convertible Debentures")) by the
weighted average number of shares of Common Stock and equivalents
outstanding. The conversion of the Convertible Debentures was effected
upon the closing of the Company's initial public offering in March
1994. For the years ended December 31, 1996, 1995, 1994, 1993 and 1992
the weighted average number of shares of Common Stock and equivalents
was 15,419,438, 13,993,595, 13,073,040, 10,442,068 and, 10,200,170,
respectively. See Note 1 of Notes to Consolidated Financial
Statements. Net income per share and weighted average number of
shares of Common Stock and equivalents outstanding for each of the
years ended December 31, 1994, 1993 and 1992 have been restated to
reflect a two-for-one stock split in the form of a stock dividend
effected on May 25, 1995.
<PAGE> 14
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Gulf South's net sales have grown at a compound annual rate of 41.0% over
the past five years, from $45 million in 1992 to $178 million in 1996. The
Company primarily attributes this net sales growth to both the addition of new
long-term care customers and the increased penetration of existing customer
accounts, including increased sales to providers of home healthcare and
sub-acute, rehabilitative and transitional care, and to a lesser extent, the
acquisition of six medical supply distributors in 1995 and 1996. The Company's
gross profit has increased from $11.6 million in 1992 to $41.4 million in 1996,
while the Company's gross profit as a percentage of net sales ("gross margin")
has ranged from 23.3% to 26.0% within that period. The Company believes that
the decline in gross margin from 26.0% in 1992 to 23.3% in 1996 is primarily
attributable to competitive pricing of products sold by the Company in order to
maintain or increase market share, particularly with respect to the Company's
large chain customers.
Management believes that the Company's current gross margins are
consistent with the Company's long-term strategy to expand sales with
aggressive pricing and to increase operating margins through reductions in
selling, general and administrative expenses as a percentage of increased net
sales. To date, the decrease in gross margins has been offset in part by
participation in volume-based rebate programs offered by vendors.
Notwithstanding these actions, there can be no assurance that the Company will
be able to increase sales through aggressive pricing or to increase operating
margins through controlling selling, general and administrative expenses; or
that participation in vendor programs will offset reductions in gross margin to
a significant extent.
The Company is actively seeking to attract large chain customers and to the
extent that the Company is successful in attracting such customers, the
Company's operating expenses may increase. In order to effectively serve
additional large chain customers, the Company may be required to increase the
size of its distribution facilities, to expand its order processing and
delivery systems and to hire additional personnel. The Company may also be
required to lower prices to attract and maintain such customers. The Company's
selling, general and administrative expenses have decreased as a percentage of
net sales over the last five years, although such expenses have increased in
dollar amount in order to support higher sales volume over this period.
Consequently, operating income over this period grew at a compound annual rate
of 39.4%, from $4.1 million in 1992 to $15.5 million in 1996.
Since September 1995, the Company has completed the acquisition of six
medical supply distributors: L&M Medical Inc., Bayer Medical Service Systems,
Inc., Express Care, L.P., Alternative Healthcare Services, TDR Medical, LLC,
and Gateway Healthcare, Inc. See "Item 1: Business - Growth Strategy". To
augment its internal growth, the Company will consider additional acquisitions
of medical supply distributors that serve complementary markets or that
supplement the Company's presence in existing markets. See "Factors Affecting
Future Performance."
Economic, regulatory, political and demographic pressures, including cost
containment measures from public and private reimbursement sources, are
resulting in an increase in the demand for long-term care facilities to provide
medical services to patients at lower cost than traditional hospital care. See
"Item 1: Business-- Industry Overview."
The Company has experienced, and expects to continue to experience,
increasing demand for its products and services in this market, including from
customers in the home healthcare and subacute care segments, which it believes
are growing at a faster rate than the nursing home segment. The Company
believes that sales of enteral feeding, respiratory therapy and wound care
supplies to home healthcare providers and sub-acute care facilities will
represent an increasing proportion of its overall product mix. In order to
maintain or increase market share, particularly with respect to the Company's
large chain customers, the Company offers competitive pricing for its products,
which has in the past resulted in lower gross margins. The Company is actively
seeking to attract large chain customers and to the extent that the Company is
successful, such trend may continue.
<PAGE> 15
-15-
Certain of the foregoing statements are forward-looking and involve risks
and uncertainties, and the Company's actual experience may differ materially
from that discussed above. Factors that may cause such a difference include,
but are not limited to, those discussed in "Factors Affecting Future
Performance."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information
derived from the statements of income of the Company expressed as a percentage
of net sales for such year and the percentage change in such items compared to
the amount for the prior year.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE CHANGE
-------------------------------- ------------------
1996 1995
OVER OVER
1996 1995 1994 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . 100.0% 100.0% 100.0% 36.6% 41.2%
Cost of sales . . . . . . . 76.7 75.3 73.9 39.2 43.8
Gross profit . . . . . . . 23.3 24.7 26.1 28.8 33.7
Selling, general and
administration expenses . . 13.2 14.2 15.1 27.3 32.4
Acquisition and merger expenses 1.4 - - - -
Operating income . . . . . 8.7 10.5 11.0 13.4 35.5
Interest expense . . . . . (0.1) (0.1) (0.7) 15.1 (68.4)
Interest income . . . . . . 1.0 0.1 0.2 - (12.4)
Income before income taxes 9.6 10.5 10.5 25.0 41.3
Income taxes . . . . . . . (3.6) (4.2) (4.2) 16.0 42.0
Net income . . . . . . . . 6.0% 6.3% 6.3% 31.1 40.8
</TABLE>
1996 COMPARED TO 1995
Net sales increased by $47.6 million, or 36.6%, to $177.7 million in 1996
compared to $130.0 million in 1995. The net sales growth in 1996 was
attributable to internal sales growth through the addition of new customers and
increased sales penetration in existing customer facilities, expansion through
acquisitions of regional medical supply distributors and facility expansion by
existing customers.
Gross profit increased by $9.2 million, or 28.8%, to $41.4 million in 1996
compared to $32.1 million in 1995, while gross margin decreased to 23.3% from
24.7% over the same period. The decrease in gross margin was primarily due to a
greater mix of higher volume, large chain customers that require more
competitive pricing, but was offset in part by lower selling and servicing
costs as a percentage of net sales. Other factors contributing to the decrease
in gross margin were cost increases associated with high volume, commodity
items, such as latex exam gloves and paper and resin products, and the
Company's aggressive pricing strategy. In addition, the reduction in gross
margin was also offset in part by vendor performance incentives earned by the
Company through the achievement of certain predetermined sales and purchase
levels, and the taking of prompt pay discounts with certain vendors.
Selling, general and administrative expenses increased by $5.0 million, or
27.3%, to $23.4 million in 1996 compared to $18.4 million in 1995, and as a
percentage of net sales decreased to 13.2% from 14.2% for the same period.
Selling, general and administrative expenses increased in order to support the
Company's higher sales volume during 1996, while the decrease in selling,
general and administrative expenses as a percentage of net sales was due to
leveraging of the Company's general and administrative expenses through
increased sales volume and the lower selling and servicing costs generally
associated with the Company's greater mix of higher volume, large chain
customers. Both factors were offset in part by the non-recurring expense
related to the write-off of an uncollectible note receivable.
During 1996, the Company incurred acquisition and merger expenses of $2.4
million. Included was $819,000 of legal, accounting and other integration
costs incurred in connection with the Bayer Medical Service Systems, Inc.
<PAGE> 16
-16-
share exchange, which was accounted for as a pooling of interests. The Company
also incurred integration and exit charges of $771,000 during 1996 pertaining
to the acquisition of L&M Medical, Inc. in 1995, and $778,000 pertaining to
Express Care L. P. and Alternative Healthcare Services acquired in 1996.
Integration and exit charges pertain principally to severance, moving and
relocation costs, operating lease terminations and settlements and other
expenses associated with integration of various systems into those of the
Company. The Company believes that it has adequate accruals to cover
additional costs in the future relating to these acquisitions.
Interest expense increased $30,000, or 15.1%, to $229,000 in 1996 compared
to $199,000 in 1995. This increase was attributable to increased borrowings
under the Company's revolving line of credit agreement for working capital
purposes, offset in part by a portion of the net proceeds of the public offering
in June 1996 being used to repay the outstanding balance under the Company's
revolving line of credit.
Interest income increased $1.6 million to $1.8 million in 1996 compared to
$163,000 in 1995. This increase was attributable to the net proceeds of the
offering, in excess of the amounts used to pay the outstanding balance of the
Company's revolving credit facility, being invested in short-term
interest-bearing securities.
Income taxes increased by $879,000 to $6.4 million in 1996 compared to $5.5
million in 1995. This increase was attributable to higher income before taxes,
which was partially offset by a reduction in the effective tax rate from 40.3%
in 1995 to 37.4% in 1996. The decrease in the effective tax rate was primarily
due to increased tax-exempt income in 1996 as compared to 1995.
1995 COMPARED TO 1994
Net sales increased by $37.9 million, or 41.2%, to $130.1 million in 1995
compared to $92.2 million in 1994. The net sales growth in 1995 was
attributable to the addition of new customers, facility expansion by existing
customers and increased sales penetration in existing customer facilities.
Gross profit increased by $8.1 million, or 33.7%, to $32.1 million in 1995
compared to $24.0 million in 1994, while gross margin decreased to 24.7% from
26.1% over the same period. The decrease in gross margin was primarily due to a
greater mix of higher volume, large chain customers that require more
competitive pricing, but was offset in part by lower selling and servicing
costs as a percentage of net sales. Other factors contributing to the decrease
in gross margin were cost increases associated with high volume, commodity
items, such as latex exam gloves and paper and resin products, and the
Company's aggressive pricing strategy. In addition, the reduction in gross
margin was also offset in part by vendor performance incentives earned by the
Company through the achievement of certain predetermined sales and purchase
levels, and the taking of prompt pay discounts with certain vendors.
Selling, general and administrative expenses increased by $4.5 million, or
32.4%, to $18.4 million in 1995 compared to $13.9 million in 1994, and as a
percentage of net sales decreased to 14.2% from 15.1% for the same period. The
increase in the amount of selling, general and administrative expenses was
primarily attributable to salaries, commissions and other costs associated with
increased staffing levels throughout the Company to support the expansion of
the Company's business during 1995. The decrease in selling, general and
administrative expenses as a percentage of net sales was a result of both the
economies associated with the Company's net sales growth, particularly with
large chain customers where support costs were generally lower, and increased
controls over such expenses.
Interest expense decreased by $430,000, or 68.4%, to $199,000 in 1995
compared to $629,000 in 1994. This decrease was a result of a portion of the
net proceeds of the Company's initial public offering in March 1994 being used
to repay the Company's outstanding long-term debt.
Income taxes increased by $1.6 million to $5.5 million in 1995 compared to
$3.9 million in 1994. This increase was attributable to higher taxable income
and an increase in the Company's provision for state income taxes, resulting in
the effective tax rate increasing to 40.3% in 1995 from 40.1% in 1994.
<PAGE> 17
-17-
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirement to date has been to fund working
capital in order to support growth of net sales. Through 1996, the Company
funded its working capital requirements principally with cash generated from
operations, proceeds from its bank borrowings and the sale of equity
securities.
The Company completed a third public offering in June 1996 pursuant to which
the Company received net proceeds of approximately $91.5 million from the sale
by the Company of 2,223,276 shares of its common stock. A portion of the net
proceeds from the offering were used to repay the outstanding balance under the
Company's revolving credit facility ($9.6 million), with the remaining balance
to be used for general corporate purposes, including the possible acquisition
of one or more medical supply distributors that serve complementary markets or
supplement the Company's presence in existing markets. As part of the
Company's growth strategy, the Company continually evaluates potential
acquisition candidates. However, the Company presently has no specific
agreements or commitments with respect to any acquisition. Pending such uses,
the net proceeds of the offering are invested in short-term interest-bearing
securities.
The Company's working capital was $102.1 million and its current ratio was
2.9 at December 31, 1996 as compared to working capital of $36.4 million and a
current ratio of 3.4 at December 31, 1995. Included in working capital are
cash and cash equivalents form the Company's public offering.
The Company has a revolving credit facility of $15.0 million, of which $10.0
million was available at December 31, 1996. Borrowings bear interest, at the
option of the Company, at prime or LIBOR plus an amount ranging from 1% to 2.5%
per annum. A facility fee of .125% per annum is charged on the unused portion
of the revolving credit facility. Substantially all of the Company's assets
would collateralize any borrowings in excess of $7.5 million under the
revolving credit facility, which contains numerous restrictive covenants and
financial ratio requirements.
During 1996, the Company incurred acquisition and merger expenses of $2.4
million. See Note 2 of "Notes to Consolidated Financial Statements" and
"Factors Affecting Future Performance".
The Company has consolidated, or plans to consolidate, certain distribution
facilities into its larger regional distribution centers which has resulted,
and may in the future result, in cash expenditures in excess of those required
in the ordinary course of business.
The Company made capital expenditures totaling $1.1 million in 1996
principally to purchase telephone and computer equipment, an administrative
office building and for various warehouse improvements. The Company expects to
make capital expenditures of approximately $1.5 million in 1997 principally in
connection with improvements to or expansion of existing facilities and to
purchase additional telephone, computer and warehouse equipment.
The Company expects that available cash, borrowings available under its
existing revolving credit facility and funds generated from operations will be
sufficient to fund its operations through December 1997.
The foregoing statements contain forward-looking statements which involve
risks and uncertainties and the Company's actual experience may differ
materially from that discussed above. Factors that may cause such a difference
include, but are not limited to, those discussed in "Factors Affecting Future
Performance" as well as future events that have the effect of reducing the
Company's available cash balances, such as unanticipated operating losses or
capital expenditures related to possible future acquisitions.
Factors Affecting Future Performance
The Company's future operating results may be affected by various trends and
factors which are beyond the Company's control. These include adverse changes
in general economic conditions and changes in federal and state regulation
affecting the Company's customers. Accordingly, past trends should not be used
to anticipate future results and trends. Further, the Company's prior
performance should not be presumed to be an accurate indicator of future
performance.
<PAGE> 18
-18-
The Company faces intense competition from a variety of regional, local and
national distributors. Barriers to entry in the long-term care distribution
industry are relatively low, and the risk of new competitors entering the
market, particularly on a local level, is high. In response to competitive
pressures, the Company has in the past lowered, and may in the future lower,
selling prices in order to maintain or increase market share, which has
resulted, and may in the future result, in lower gross margins. Certain of the
Company's current competitors, including many national distributors, have
substantially greater capital resources, sales and marketing experience, and
distribution capabilities than the Company. Certain of these national
distributors may have cost advantages over the Company due to their ability to
purchase products in large volumes, the Company may experience significant
pricing pressures from these and other competitors which could adversely affect
the Company's operating results.
A key element of the Company's growth strategy is to augment its internal
growth with the acquisition of medical supply distributors, and inventory and
facilities of such distributors, that serve complementary markets or that
supplement the Company's presence in existing markets. Certain of these
businesses may be marginally profitable or unprofitable. In order to achieve
anticipated benefits from these acquisitions, the Company must successfully
integrate the acquired businesses with its existing operations, and no
assurance can be given that the Company will be successful in this regard. In
the past the Company has incurred one-time costs and expenses in connection
with acquisitions and it is likely that similar one-time costs and expenses may
be incurred in connection with future acquisitions, including the write-off of
unsold inventory and unused assets. In addition, attractive acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the possible need to obtain regulatory
approval. There can be no assurance that the Company will be able to complete
future acquisitions. In order to finance such acquisitions, it may be
necessary for the Company to raise additional funds either through public or
private financings, including bank borrowings. Any financing, if available at
all, may be on terms which are not favorable to the Company. The Company may
also issue shares of its Common Stock to acquire such businesses, which may
result in dilution to the Company's existing stockholders.
The Company depends on a limited number of large customers for a significant
portion of its net sales, including Beverly Enterprises which accounted for
19.6% of net sales for the year ended December 31, 1996. See "Item 1:
Business- Customers". Consolidation among long-term care providers and the
growth of the Company's business with large chains could increase such
dependence. The loss of, or significant declines in the level of purchases by,
one or more of these customers would have a material adverse effect on the
Company's operating results. Although the Company has not to date experienced
any failure to collect accounts receivable from its largest customers, an
adverse change in the financial condition of any of these customers, including
as a result of a change in governmental or private reimbursement programs,
could have a material adverse effect upon the Company's operating results. In
addition, the expansion of the Company's business with large chains has in the
past resulted in competitive pricing pressures and lower and lower operating
margins and such pressure on margins may continue in the future.
A key element of the Company's growth strategy is to increase sales to
existing and new customers, including large chains and independent operators,
by adding one or more new strategic distribution centers or expanding existing
distribution centers and by hiring additional direct sales or other personnel
and through national account sales efforts. Such efforts will result in
increased operating expenses. There can be no assurance that the establishment
of new strategic distribution centers, the expansion of existing distribution
centers, the addition of new sales or other personnel or national account sales
efforts will result in additional revenues or operating income.
As a result of changes occurring in the long-term care market, both the
nature of the Company's customer base as well as products and services required
by its customers are changing. The failure of the Company's management to
effectively respond to and manage changing business conditions, including
changes in customer requirements and changes to the Company's overall product
mix, could have an adverse effect on the Company's operating results.
Because the Company believes that its success to date is dependent in part
upon its ability to provide prompt, accurate and complete service to its
customers on a price-competitive basis, any disruption in its day-to-day
operations or material increases in its cost of procuring and delivering
products could have an adverse effect on its operating results. In order to
provide prompt and complete service to its customers, the Company maintains a
significant investment in product inventory. Although the Company closely
monitors its inventory exposure through
<PAGE> 19
-19-
a variety of inventory control procedures and policies, there can be no
assurance that such procedures and policies will continue to be effective or
the unforeseen product developments or price changes will not adversely affect
the Company's operating results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The information required by this item and as listed in Item 14(a)(1) and (2)
of this Report is included in this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS
The information concerning directors of the Company required under this item
is incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, to be filed with the Commission not later than 120
days after the close of the Company's fiscal year ended December 31, 1996,
under the heading "Election of Directors" and "Section 16 (a) Beneficial
Ownership Reporting Compliance."
EXECUTIVE OFFICERS
The information concerning executive directors of the Company required under
this item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1996, under the heading "Election of Directors" and "Section 16 (a) Beneficial
Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's fiscal year ended December 31, 1996, under the heading "Compensation
and Other Information Concerning Directors and Officers."
ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item in incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's fiscal year ended December 31, 1996, under the heading "Management
and Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the Company's fiscal
year ended December 31, 1996, under the headings "Election of Directors."
<PAGE> 20
-20-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
8-K.
(a) 1. Financial Statements.
The following financial statements of the Company are included
in this Report beginning on Page F-1:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994 Consolidated Statements of
Stockholders' Equity for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 Notes to Consolidated
Financial Statements
2. Financial Statement Schedules.
The following financial statement schedule of the Company is
included in this Report beginning on Page S-1:
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
3. List of Exhibits.
The following exhibits are filed with this Report or are incorporated by
reference:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of the
Company.
3.2(1) Amended and Restated By-laws of the Company.
4.1(1) Specimen certificate representing the Common Stock.
4.2 Form of Common Stock Purchase Warrant
10.1(1)* 1992 Stock Plan, as amended.
10.1a(2)* Forms of the Company's Incentive Stock Option Agreement and
Non-Qualified Stock Option Agreement.
10.2(3) Loan and Security Agreement between the Company and
NationsBank of Tennessee, N. A. dated September 25, 1995.
10.3 Intentionally omitted.
</TABLE>
<PAGE> 21
-21-
<TABLE>
<S> <C>
10.4(1) Registration Rights Agreement among the Company, the
Investors, the stockholders listed therein and Healthcare
Capital Investments, Inc. dated as of June 25, 1992.
10.5 Intentionally omitted.
10.6(1)* Form of Non-Competition Agreement.
10.7(4) Stock Purchase Agreement dated as of November 19, 1996 among
Gulf South Medical Supply, Inc., Gateway Healthcare
Corporation ("Gateway") and the stockholders of Gateway listed
on the signature pages thereto ("Gateway Stock Purchase
Agreement").
10.8(5) Amendment and Waiver Agreement, dated as of December 26, 1996
among Gateway, the stockholders of Gateway listed on the
signature pages thereto and Gulf South Medical Supply, Inc.,
to the Gateway Stock Purchase Agreement.
10.9* 1997 Stock Plan.
10.10* Form of the Company's Incentive Stock Option Agreement under
the 1997 Stock Plan.
10.11* Form of the Company's Non-Qualified Stock Option Agreement
under the 1997 Stock Plan.
11.1 Statement re: computation of per share earnings.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on page 28).
27 Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated herein by reference to the exhibits (of the same
exhibit number) to the Company's Registration Statement on
Form S-1 (File No. 33-75170).
(2) Filed as Exhibits 4.5 and 4.6, respectively, to the Company's
Registration Statement on Form S-8 (File No. 33-83714) and
incorporated herein by reference.
(3) Incorporated herein by reference to the exhibit (of the same
exhibit number) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(4) Filed as Exhibit 2.1 to the Company's Current Report on Form
8-K dated December 26, 1996 filed January 9, 1997.
(5) Filed as Exhibit 2.2 to the Company's Current Report on Form
8-K dated December 26, 1996 filed January 9, 1997.
* Indicates a management contract or any compensatory plan,
contract or arrangement required to be filed as an exhibit
pursuant to Item 14(c).
<PAGE> 22
-22-
Reports on Form 8-K.
Current Report on Form 8-K dated November 19, 1996 reporting, under
Item 5, the Company's announcement that it had entered into a certain
Stock Purchase Agreement pursuant to which it intended to acquire all
of the outstanding capital stock and stock warrants of Gateway
Healthcare Corporation.
Current Report on Form 8-K dated December 26, 1996 reporting, under
Item 2, the Company's completion of the acquisition of all of the
outstanding capital stock and warrants of Gateway Healthcare
Corporation.
Exhibits.
The Company hereby files as exhibits to this Report those exhibits
listed in Item 14(a)(3), above.
Financial Statement Schedules.
The Company hereby files as financial statement schedules to this
Report the financial statement schedule listed in Item 14(a)(2),
above, which is attached hereto.
<PAGE> 23
-23-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Jackson, Mississippi on March 21, 1997.
GULF SOUTH MEDICAL SUPPLY, INC.
By: /s/ Thomas G. Hixon
-------------------------------------
Thomas G. Hixon
President and Chief Executive Officer
We, the undersigned officers and directors of Gulf South Medical Supply,
Inc., hereby severally constitute and appoint Thomas G. Hixon and Guy W.
Edwards, and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the
capacities to do all things in our names and on our behalf in such capacities
to enable Gulf South Medical Supply, Inc. to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all requirements of the
Securities Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Thomas G. Hixon President, Chief Executive Officer, and
- ------------------------------- Chairman of the Board
Thomas G. Hixon (principal executive officer) March 21, 1997
/s/ Guy W. Edwards Senior Vice President, Chief Financial Officer,
- ------------------------------- Treasurer, Secretary and Director (principal
Guy W. Edwards financial and accounting officer) March 21, 1997
/s/ David L. Bogetz Director March 21, 1997
- ---------------------------------
David L. Bogetz
/s/ Melvin L. Hecktman Director March 21, 1997
- ------------------------------
Melvin L. Hecktman
/s/ William W. McInnes Director March 21, 1997
- -----------------------------
William W. McInnes
</TABLE>
<PAGE> 24
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 . . . . F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
All other schedules are omitted since the required information is inapplicable
or has been presented in the financial statements and related notes.
F-1
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Gulf South Medical Supply, Inc.
We have audited the accompanying consolidated balance sheets of Gulf South
Medical Supply, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. Our audit
also included the financial statement schedule listed in the index under 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 and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gulf South
Medical Supply, Inc. and subsidiaries as of December 31, 1996, and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. 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.
/s/ ERNST & YOUNG LLP
Jackson, Mississippi
February 7, 1997
F-2
<PAGE> 26
GULF SOUTH MEDICAL SUPPLY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
-------- ---------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 76,054 $ 2,147
Trade accounts receivable, less allowance for doubtful accounts of $1,651
in 1996 and $1,717 in 1995 . . . . . . . . . . . . . . . . . . . . . . . 48,404 28,742
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,189 16,874
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,501 1,032
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . 1,113 1,836
Deferred income taxes (Note 2 and 4) . . . . . . . . . . . . . . . . . . . 1,485 664
-------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 155,746 51,295
Property and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567 567
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,270 600
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,127 1,853
-------- ---------
4,964 3,020
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (1,092) (882)
-------- ---------
3,872 2,138
Other assets:
Goodwill (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,824 -
Deferred income taxes (Note 2 and 4) . . . . . . . . . . . . . . . . . . 1,965 1,141
Notes receivable from affiliate (Note 5) . . . . . . . . . . . . . . . . . - 413
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,564 34
-------- ---------
38,353 1,588
-------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $197,971 $ 55,021
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
To bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - 1,403
Others (Note 2 and 3) . . . . . . . . . . . . . . . . . . . . . . . . . 25,321 -
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 14,381 9,913
Accrued expenses and other current liabilities . . . . . . . . . . . . . . 8,970 1,351
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . 5,000 2,400
-------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 53,672 15,067
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 1,000,000
Issued and outstanding shares - none
Common stock, $.01 par value:
Authorized shares -- 30,000,000
Issued and outstanding shares - 16,264,923 in 1996 and 13,918,096 in 1995 163 139
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,679 22,052
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,457 17,763
-------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 144,299 39,954
-------- ---------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $197,971 $ 55,021
======== =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 27
GULF SOUTH MEDICAL SUPPLY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $ 177,710 $ 130,094 $ 92,151
Cost of sales . . . . . . . . . . . . . . . . . . 136,344 97,973 68,122
----------- ----------- ------------
Gross profit . . . . . . . . . . . . . . . . . . 41,366 32,121 24,029
Selling, general and administrative
expenses (Note 2) . . . . . . . . . . . . . 23,450 18,418 13,913
Acquisition and merger expenses (Note 2) . . . . 2,378 - -
----------- ----------- ------------
Operating income . . . . . . . . . . . . . . . . 15,538 13,703 10,116
Interest expense . . . . . . . . . . . . . . . . (229) (199) (629)
Interest income . . . . . . . . . . . . . . . . . 1,771 163 186
----------- ----------- ------------
Income before income taxes . . . . . . . . . . . 17,080 13,667 9,673
Income taxes (Note 4) . . . . . . . . . . . . . . (6,386) (5,507) (3,877)
----------- ----------- ------------
Net income . . . . . . . . . . . . . . . . . . . $ 10,694 $ 8,160 $ 5,796
----------- ----------- ------------
Net income per share . . . . . . . . . . . . . . $ .69 $ .58 $ .45
----------- ----------- ------------
</TABLE>
See accompanying notes.
F-4
<PAGE> 28
GULF SOUTH MEDICAL SUPPLY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
-------------------- PAID-IN RETAINED TREASURY EQUITY
SHARES AMOUNT CAPITAL EARNINGS STOCK (DEFICIT)
---------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 . . . . . 10,200,000 $102 $ 3,396 $ 3,480 $(13,000) $ (6,022)
Acquisition - pooling of interest 151,724 1 24 327 -- 352
(Note 2) . . . . . . . . . . . .
Net income for 1994 . . . . . . . . -- -- -- 5,796 -- 5,796
Public offering of common stock . . 3,240,000 32 23,350 -- -- 23,382
Retirement of treasury stock . . . (6,120,000) -- (13,000) -- 13,000 --
Conversion of convertible
debentures into common stock . . 6,120,000 -- 6,500 -- -- 6,500
Issuance of common stock from
exercise of options . . . . . . 137,010 2 37 -- -- 39
Tax benefit of stock options
exercised . . . . . . . . . . . . -- -- 455 -- -- 455
---------- ---- -------- ------- -------- --------
Balance at December 31, 1994 . . . . 13,728,734 137 20,762 9,603 -- 30,502
Net income for 1995 . . . . . . . . -- -- -- 8,160 -- 8,160
Issuance of common stock from
exercise of options . . . . . . 189,362 2 110 -- -- 112
Tax benefit of stock options
exercised . . . . . . . . . . . . -- -- 1,180 -- -- 1,180
---------- ---- -------- ------- -------- --------
Balance at December 31, 1995 . . . . 13,918,096 139 22,052 17,763 -- 39,954
Net income for 1996 . . . . . . . -- -- -- 10,694 -- 10,694
Public offering of common stock . . 2,223,276 22 91,441 -- -- 91,463
Issuance of common stock from
exercise of options . . . . . . 123,551 2 569 -- -- 571
Tax benefit of stock options
exercised . . . . . . . . . . . . -- -- 1,617 -- -- 1,617
---------- ---- -------- ------- -------- --------
Balance at December 31, 1996 . . . . 16,264,923 $163 $115,679 $28,457 $ -- $144,299
========== ==== ======== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 29
GULF SOUTH MEDICAL SUPPLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . $10,694 $ 8,160 $ 5,796
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . 492 327 223
Deferred income tax expense (credits) . . . 239 (99) (173)
Provision for doubtful accounts . . . . . . 924 869 525
Note receivable from affiliate . . . . . . 378 -- --
Changes in operating assets and liabilities
net of assets acquired and liabilities
assumed of Gateway Healthcare Corporation,
Express Care, L.P., Alternative Healthcare
Services and TDR Medical LLC in
1996 and L&M Medical, Inc. in 1995:
Increase in trade accounts receivable . (8,345) (8,940) (5,798)
Increase in inventories . . . . . . . . (4,231) (6,101) (2,958)
Decrease (increase) in prepaid income taxes,
prepaid expenses and other . . . . . . 315 (2,249) (382)
Increase (decrease) in trade accounts payable (2,012) 2,495 1,820
Increase in accrued expenses . . . . . . 1,461 56 459
-------- -------- --------
Net cash used in operating activities . . . . (85) (5,842) (488)
INVESTING ACTIVITIES
Transaction costs related to the purchase of
Gateway Healthcare Corporation, net of cash
acquired . . . . . . . . . . . . . . . . . (732) -- --
Purchase of Express Care, L.P., Alternative
Healthcare Services, and TDR Medical LLC
in 1996 and L&M Medical, Inc. in 1995 . . (4,452) (3,749) --
Purchases of building and equipment . . . . . (1,117) (539) (359)
Decrease (increase) in other assets . . . . . (1,473) (2) 3
-------- -------- --------
Net cash used in investing activities . . . . (7,774) (4,290) (356)
FINANCING ACTIVITIES
Principal payments on note payable to bank . (1,403) -- --
Principal payment on notes payable-others . . (11,465) -- --
Principal payments on long-term debt . . . . -- -- (7,103)
Net borrowings (payments) under
revolving line of credit . . . . . . . . . 2,600 (2,656) (6,927)
Proceeds from issuance of common stock . . . 91,463 -- 23,382
Proceeds from exercise of stock options . . . 571 112 39
-------- -------- --------
Net cash provided by financing activities . . 81,766 2,768 9,391
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . 73,907 (7,004) 8,547
Cash and cash equivalents at beginning of year 2,147 9,151 604
-------- -------- --------
Cash and cash equivalents at end of year . . 76,054 2,147 9,151
======== ======== ========
</TABLE>
continued
F-6
<PAGE> 30
GULF SOUTH MEDICAL SUPPLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
------- ------- -------
NON-CASH TRANSACTIONS:
<S> <C> <C> <C> <C>
Issuance of notes for the purchase of
Gateway Healthcare Corporation . . . . . . $25,321 $ -- $ --
======= ======= =======
Conversion of convertible subordinated
debentures . . . . . . . . . . . . . . . . $ -- $ -- $ 6,500
======= ======= =======
Tax benefit of stock options exercised . . . $ 1,617 $ 1,180 $ 455
======= ======= =======
Cash paid for:
Interest . . . . . . . . . . . . . . . . . . $ 202 $ 177 $ 1,026
======= ======= =======
Federal and state income taxes . . . . . . .
$ 4,903 $ 5,372 $ 3,518
======= ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE> 31
GULF SOUTH MEDICAL SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, 1996
1. ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include Gulf South
Medical Supply, Inc. and subsidiaries (the "Company"). All intercompany
transactions have been eliminated in consolidation.
Nature of Business
The Company is a national distributor of medical supplies and related
products to the long-term care industry.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Inventories
Inventories, which consist primarily of medical supplies and related
products, are stated at the lower of cost (average cost method) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is provided by straight-line and accelerated methods over the
estimated useful lives, which is 31 years for the buildings and from 3 to 7
years for the equipment.
Goodwill
The excess of the cost of acquisitions over the fair value of the net
assets acquired (goodwill) is amortized on a straight-line basis over their
estimated useful lives, principally at 30 years (See Note 2). Management
assesses the recoverability of goodwill based on undiscounted cash flows.
Accumulated amortization was $147 and $30 at December 31, 1996 and 1995,
respectively.
F-8
<PAGE> 32
Revenue Recognition
Revenue is recognized when product is shipped to customers. Credit is
extended based upon an evaluation of the customer's financial condition and
generally does not require collateral. Substantially all of the Company's
accounts receivables are due from companies in the long-term care industry
located throughout the United States. Credit losses are provided for in the
financial statements and have consistently been within management's
expectations.
Stock Compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, Accounting for Stock Issued to Employees.
Income Taxes
Deferred income taxes, which are provided on the liability method, relate
to temporary differences between assets and liabilities recognized differently
for financial reporting purposes and for income tax purposes.
Net Income Per Common Share
Net income per common share is computed by dividing net income applicable
to common stock (interest expense, net of income taxes, on the 10% convertible
subordinated debentures has been eliminated in 1994 ), based on the weighted
average number of shares outstanding during each year presented (15,419,438 in
1996, 13,993,595 in 1995 and 13,073,040 in 1994). Common equivalent shares
include the conversion of the 10% convertible subordinated debentures in 1994.
Common equivalent shares relating to the stock options and warrants outstanding
during the years ended December 31, 1996, 1995 and 1994, when dilutive, have
been calculated using the treasury stock method based on the average market
value of the common stock during 1996, 1995 and 1994.
F-9
<PAGE> 33
ACQUISITIONS
On December 26, 1996, the Company acquired all of the outstanding common
stock of Gateway Healthcare Corporation ("Gateway") for $26,077, including
transaction costs of $756, in notes payable to the former shareholders of
Gateway and warrants for 450,000 shares of the Company's common stock (see
notes 3 and 6). The Company also acquired certain operating assets and
liabilities of Express Care, L.P. ("Express Care") on April 1, 1996,
Alternative Healthcare Services ("AHS") on July 1, 1996 and TDR Medical, LLC
("TDR") on December 10, 1996 (collectively, "Others") in separate transactions
totaling $4,670. These acquisitions have been accounted for using the purchase
method of accounting. The total purchase price has been allocated on the basis
of fair values of the assets acquired and liabilities assumed. The total
purchase price was allocated to the assets acquired and liabilities assumed as
follows:
<TABLE>
<CAPTION>
Gateway Others
------- ------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 24 $ -
Accounts receivable . . . . . . . . . . . . . . . 10,906 1,300
Inventories . . . . . . . . . . . . . . . . . . . 4,928 1,156
Prepaid expenses . . . . . . . . . . . . . . . . . 61 302
Property and equipment . . . . . . . . . . . . . . 690 222
Other assets . . . . . . . . . . . . . . . . . . . 53 -
Deferred income taxes . . . . . . . . . . . . . . 3,025 -
Goodwill . . . . . . . . . . . . . . . . . . . . . 30,311 3,489
Notes payable to others . . . . . . . . . . . . . (11,465) -
Accounts payable . . . . . . . . . . . . . . . . . (5,331) (1,149)
Accrued exit and integration expenses . . . . . . (3,677) (600)
Accrued expenses . . . . . . . . . . . . . . . . . (3,448) (50)
------- -------
$26,077 $ 4,670
======== =======
</TABLE>
Accordingly, the results of operations of the Company include Gateway,
Express Care, AHS and TDR from the dates acquired. The operations of Express
Care, AHS and TDR were not material to the Company's operations for 1996, 1995
and 1994. Gateway, Express Care, AHS and TDR were distributors of medical
supplies and related products serving principally the East, Southeast, Southern
California and South Texas long-term care markets prior to being acquired by
the Company. Accrued exit and integration expenses principally relate to
severance, moving, relocation and lease termination expenses pertaining to the
closure of five Gateway distribution centers and conversion of Gateway's
systems. Included in the accrued severance expenses were administrative,
clerical, sales and warehouse personnel costs.
Unaudited pro forma results of operations of the Company including Gateway
for the periods prior to its acquisition by the Company were as follows:
<TABLE>
<CAPTION>
Period ended
December 26, Year ended December 31,
------------ -----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales . . . . . . . . . . . $248,544 $177,831 $125,367
Gross profit . . . . . . . . . 150,793 42,134 30,809
Interest expense . . . . . . . 2,249 2,897 3,249
Income before income taxes . . 13,563 10,877 6,278
Net income . . . . . . . . . . 8,159 6,210 3,964
Net income per share . . . . . .53 .44 .30
</TABLE>
F-10
<PAGE> 34
ACQUISITIONS (CONTINUED)
Pro forma results do not purport to be indicative of actual results had the
acquisition been made at January 1, 1994 or the results that may occur in the
future.
On February 29, 1996, the Company completed the acquisition of all of the
outstanding common stock of Bayer Medical Service Systems, Inc. ("Bayer"). The
Company issued 151,724 shares of its common stock in exchange for the
outstanding common stock of Bayer. The share exchange was accounted for as a
pooling of interests and accordingly, the Company's consolidated financial
statements have been restated to include accounts and operations of Bayer for
all periods prior to the share exchange. Separate results of operations for the
two months in 1996 and the two years prior to the share exchange with Bayer are
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales
Gulf South $175,185 $120,287 $83,376
Bayer 2,525 9,807 8,775
-------- -------- -------
Combined $177,710 $130,094 $92,151
======== ======== =======
Gross profit
Gulf South $ 40,939 $ 29,752 $21,282
Bayer 427 2,369 2,747
-------- -------- -------
Combined $ 41,366 $ 32,121 $24,029
======== ======== =======
Net income
Gulf South $ 10,693 $ 8,567 $ 5,728
Bayer 1 (407) 68
-------- -------- -------
Combined $ 10,694 $ 8,160 $ 5,796
======== ======== =======
</TABLE>
The Company had expenses of $2,378 during 1996 in connection with the
acquisitions described above and the L&M Medical, Inc. acquisition in 1995.
Included therein was $819 of legal, accounting and other integration costs
incurred in the Bayer share exchange, $771 of integration and exit charges
pertaining to L&M Medical, Inc. acquired in 1995 and $778 pertaining to the
Express Care and AHS acquisitions. Integration and exit charges pertain
principally to severance, moving and relocation costs, operating lease
terminations and settlements and other expenses associated with integration of
various systems into those of the Company.
3. CREDIT FACILITIES AND NOTES PAYABLE
The Company has a $15.0 million revolving credit facility which matures
September 25, 1998, of which $10 million and $12.6 million was available at
December 31, 1996 and 1995, respectively. Borrowings bear interest at prime or
at LIBOR plus 1% to 2.5% per annum. A facility fee of .125% per annum is
charged on the unused portion of the revolving credit facility. Borrowings
under the revolving credit facility up to $7.5 million are unsecured.
Substantially all of the Company's assets would collateralize any borrowings in
excess of $7.5 million. The revolving credit facility contains numerous
restrictive covenants and financial ratio requirements.
Notes payable-other consists of $25,321 payable to the former shareholders
of Gateway.
F-11
<PAGE> 35
4. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $5,125 $4,561 $3,378
State . . . . . . . . . . . . . . . . . . . . . . . . . 1,022 1,045 672
------ ------ ------
6,147 5,606 4,050
Deferred (credits):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . 211 (86) (151)
State . . . . . . . . . . . . . . . . . . . . . . . . . 28 (13) (22)
------ ------ ------
239 (99) (173)
------ ------ ------
$6,386 $5,507 $3,877
====== ====== ======
</TABLE>
The components of deferred income tax assets are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Current:
Accounts receivable . . . . . . . . . . . . . . . . . . . $ 935 $500
Inventories . . . . . . . . . . . . . . . . . . . . . . . 470 80
Accrued expenses . . . . . . . . . . . . . . . . . . . . . 80 84
------- ----
Current deferred tax asset . . . . . . . . . . . . . . . . 1,485 664
Non-current:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 550 -
Property and equipment . . . . . . . . . . . . . . . . . . 215 -
Net operating loss . . . . . . . . . . . . . . . . . . . . 1,200 -
------- ----
Non-current deferred tax asset . . . . . . . . . . . . . . 1,965 664
------- ----
Total deferred tax asset . . . . . . . . . . . . . . . . . $ 3,450 $664
======= ====
</TABLE>
The Company has net operating loss carryforwards, which have certain
restrictions as to the amount that may be utilized in any given year,
applicable to Gateway, which expire at various dates through 2011.
The difference between income taxes at the Company's effective tax rate and
income taxes (credits) at the statutory federal tax rate are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Statutory federal income taxes . . . . . . . . . . . . . . $ 5,807 $ 4,683 $ 3,288
State income taxes, net . . . . . . . . . . . . . . . . . . 693 678 429
Tax-exempt interest . . . . . . . . . . . . . . . . . . . . (442) - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 (146) 160
------- ------- --------
$ 6,386 $ 5,507 $ 3,877
======= ======== ========
</TABLE>
F-12
<PAGE> 36
5. RELATED PARTY TRANSACTIONS
The Company had the following receivables from a company ("related
company") whose stockholders included certain executive officers of the
Company.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Account receivable . . . . . . . . . . . . . . . . . . . . . . . $ - $332 $163
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . $ - $413 $413
</TABLE>
The Company acquired the related company during 1996 for the assumption of
its debt. The related company was subsequently acquired by a customer of the
Company for the assumption of such debt, excluding amounts owed to the Company.
As a result, the Company charged off $378 of the note receivable in connection
with the sale.
6. STOCK OPTION PLAN AND WARRANTS OUTSTANDING
The Company has elected to follow APB No. 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, compensation expense of $31 and $76 has been accrued applicable
to certain options exercisable at December 31, 1996 and 1995, respectively.
Under the Company's 1992 Stock Plan, 1,300,000 shares of common stock have
been reserved for grant to key management personnel and to members of the Board
of Directors. The options granted have ten year terms with vesting periods
of either three or five years from either the date of grant or the first
employment anniversary date. At December 31, 1996 and 1995, 224,888 and
416,050 shares, respectively, were available for grant under the 1992 plan.
Pro forma information regarding net income and net income per share is
required by FASB Statement No. 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1995: risk-free interest rate of
6.5%; no dividend yield; volatility factor of the expected market price of the
Company's common stock of .418 and .340, respectively; and a weighted-average
expected life of the options of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
F-13
<PAGE> 37
6. STOCK OPTION PLAN AND WARRANTS OUTSTANDING (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options granted in 1996 and 1995 is amortized to expense over the options'
vesting period. The Company's pro forma information follows (in thousands
except for earnings per share information):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma net income $ 10,314 $ 8,019
Pro forma net income per share $ .67 $ .57
</TABLE>
A summary of the Company's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at December 31, 1994 546,948 $ .76
Granted 200,000 20.78
Exercised 189,364 .58
-------
Outstanding at December 31, 1995 557,584 8.00
Granted 202,562 28.93
Exercised 123,550 4.69
Forfeited 11,400 16.75
-------
Outstanding at December 31, 1996 625,196 15.00
=======
</TABLE>
The weighted-average fair value of options granted during 1996 and 1995 was
$10.39 and $6.56, respectively.
Following is a summary of the status of options outstanding at December 31,
1996:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Number Life Price Number Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.2118 - $.4853 238,334 6.3 years $ .32 206,204 $ .33
$6.46 - $8.00 19,362 7.6 years $ 7.80 8,162 $ 7.52
$20.375 - $22.41 169,500 8.1 years $ 20.86 54,900 $ 20.97
$28.50 - $31.35 198,000 9.2 years $ 28.93 38,000 $ 28.95
</TABLE>
The Company granted warrants for 450,000 shares of its common stock on
January 2, 1997 at an exercise price of $25.90 in connection with the purchase
of Gateway (see Note 2). All of the warrants were exercisable upon the date of
grant and expire January 2, 2002.
7. OTHER MATTERS
One customer accounted for 20.0%, 16.6% and 10.1% of net sales for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-14
<PAGE> 38
7. OTHER MATTERS (CONTINUED)
The Company leases certain vehicles, computers and office equipment under
operating leases. Lease periods range from two to six years. The Company also
leases warehouse space in various states under operating leases with lease
periods ranging from three to five years. Minimum future rental payments under
noncancelable operating leases having remaining terms in excess of one year as
of December 31, 1996, by year and in the aggregate, are as follows:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,609
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 908
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . $3,561
======
</TABLE>
Rental expense under the operating leases was $1,449 in 1996, $1,054
in 1995 and $680 in 1994.
Effective January 1, 1996, the Company adopted FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. Statement No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
effect of this adoption was not material to the Company's financial position or
results of its operations.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, notes payable to bank and notes payable-others approximate the
fair value at December 31, 1996 and 1995.
The Company is involved from time to time in claims and routine litigation
incidental to its business. Management is of the opinion, based on the advice
of counsel, that the outcome of any presently pending matters will not have a
material adverse effect on the financial position or results of the operation
of the Company.
F-15
<PAGE> 39
GULF SOUTH MEDICAL SUPPLY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFF BALANCE AT
BEGINNING OF COST AND OF END OF
DESCRIPTION PERIOD EXPENSE ACCOUNTS PERIOD
----------- ------ ------- -------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts ...... $ 1,717 $ 924 $ 990 $ 1,651
======= ======= ======= =======
Reserve for inventory obsolescence ... $ 199 $ -- $ -- $ 199
======= ======= ======= =======
Year ended December 31, 1995:
Allowance for doubtful accounts ...... $ 1,203 $ 869 $ 355 $ 1,717
======= ======= ======= =======
Reserve for inventory obsolescence ... $ 199 $ -- $ -- $ 199
======= ======= ======= =======
Year ended December 31, 1994:
Allowance for doubtful accounts ...... $ 907 $ 525 $ 229 $ 1,203
======= ======= ======= =======
Reserve for inventory obsolescence ... $ 199 $ -- $ -- $ 199
======= ======= ======= =======
</TABLE>
S-1
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of the Company.
3.2(1) Amended and Restated By-laws of the Company.
4.1(1) Specimen certificate representing the Common Stock.
4.2 Form of Common Stock Purchase Warrant
10.1(1)* 1992 Stock Plan, as amended.
10.1a(2)* Forms of the Company's Incentive Stock Option Agreement and Non-Qualified Stock Option
Agreement.
10.2(3) Loan and Security Agreement between the Company and NationsBank of Tennessee, N. A. dated
September 25, 1995.
10.3 Intentionally omitted.
10.4(1) Registration Rights Agreement among the Company, the Investors, the stockholders listed therein
and Healthcare Capital Investments, Inc. dated as of June 25, 1992.
10.5 Intentionally omitted.
10.6(1)* Form of Non-Competition Agreement.
10.7(4) Stock Purchase Agreement dated as of November 19, 1996 among Gulf South
Medical Supply, Inc., Gateway Healthcare Corporation ("Gateway") and the
stockholders of Gateway listed on the signature pages thereto ("Gateway Stock
Purchase Agreement").
10.8(5) Amendment and Waiver Agreement, dated as of December 26, 1996 among Gateway, the stockholders
of Gateway listed on the signature pages thereto and Gulf South Medical Supply, Inc., to the
Gateway Stock Purchase Agreement.
10.9* 1997 Stock Plan.
10.10* Form of the Company's Incentive Stock Option Agreement under the 1997 Stock Plan.
10.11* Form of the Company's Non-Qualified Stock Option Agreement under the 1997 Stock Plan.
11.1 Statement re: computation of per share earnings.
23.1 Consent of Ernst & Young LLP.
24.2 Power of Attorney (included on page 28).
27 Financial Data Schedule
</TABLE>
- -----------------
<PAGE> 41
(1) Incorporated herein by reference to the exhibits (of the same
exhibit number) to the Company's Registration Statement on
Form S-1 (File No. 33-75170).
(2) Filed as Exhibits 4.5 and 4.6, respectively, to the Company's
Registration Statement on Form S-8 (File No. 33-83714) and
incorporated herein by reference.
(3) Incorporated herein by reference to the exhibit (of the same
exhibit number) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(4) Filed as Exhibit 2.1 to the Company's Current Report on Form
8-K dated December 26, 1996 filed January 9, 1997.
(5) Filed as Exhibit 2.2 to the Company's Current Report on Form
8-K dated December 26, 1996 filed January 9, 1997.
* Indicates a management contract or any compensatory plan,
contract or arrangement required to be filed as an exhibit
pursuant to Item 14(c).
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
W -- (WarrantNo)
----------------------------------------
GULF SOUTH MEDICAL SUPPLY, INC.
COMMON STOCK PURCHASE WARRANT
----------------------------------------
This certifies that, for good and valuable consideration, Gulf South
Medical Supply, Inc., a Delaware corporation (the "Company"), grants to
(Warrant_Holder) (the "Warrantholder"), the right to subscribe for and purchase
from the Company (NoSharesinWords) ((NoSharesinNumbers)) validly issued, fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), at the purchase price per
share of $25.90 (the "Exercise Price"), at any time prior to 5:00 p.m., New
York City time, on the Expiration Date, all subject to the terms, conditions
and adjustments herein set forth.
This Warrant was issued in connection with the Stock Purchase
Agreement, dated November 19, 1996 (the "Stock Purchase Agreement"), among the
Company, Gateway Healthcare Corporation, and North American Fund II, Allied
Investment Corporation, Allied Capital Corporation II, Allied Venture
Partnership and Gary Nutter (collectively, the "Sellers"), and is subject to
the terms thereof. The Warrantholder is entitled to the rights and subject to
the obligations contained in the Stock Purchase Agreement relating to this
Warrant and the Warrant Shares.
1. Duration and Exercise of Warrant.
1.1 Duration and Exercise of Warrant. Subject to the
terms and conditions set forth herein, this Warrant may be exercised, in whole
or in part, by the Warrantholder by:
(a) the surrender of this Warrant to the Company,
with a duly executed Exercise Form specifying the number of Warrant Shares to
be purchased, during normal business hours on any Business Day prior to the
Expiration Date; and
<PAGE> 2
-2-
(b) the delivery of payment to the Company, for
the account of the Company, by cash, wire transfer, certified or official bank
check or any other means approved by the Company, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. Notwithstanding the
foregoing, no such surrender shall be effective to constitute the Person
entitled to receive such shares as the record holder thereof while the transfer
books of the Company for the Common Stock are closed for any purpose (but not
for any period in excess of five days); but any such surrender of this Warrant
for exercise during any period while such books are so closed shall become
effective for exercise immediately upon the reopening of such books, as if the
exercise had been made on the date this Warrant was surrendered and for the
number of shares of Common Stock and at the Exercise Price in effect at the
date of such surrender.
1.2 Warrant Shares Certificate. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder within three Business Days after receipt of the
Exercise Form by the Company and payment of the purchase price. No fractional
shares shall be issued upon the exercise of this Warrant, provided that the
Warrantholder shall receive, in lieu of any fractional shares, cash in an
amount equal to the product of the fraction multiplied by the Current Market
Price of a share of Common Stock. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant.
2. Restrictions on Transfer; Restrictive Legends.
2.1 This Warrant, including the registration rights
pursuant to Section 7 hereof, may be offered, sold, transferred, pledged or
otherwise disposed of, in whole or in part, to any person, subject to
compliance with any applicable securities laws.
2.2 Except as otherwise permitted by this Section 2, each
stock certificate for Warrant Shares issued upon the exercise of any Warrant
and each stock certificate issued upon the direct or indirect transfer of any
such Warrant Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
<PAGE> 3
- 3 -
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST HEREIN MAY
BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH
LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION,
IS AVAILABLE.
Notwithstanding the foregoing, the Warrantholder may require
the Company to issue a Warrant or a stock certificate for Warrant Shares, in
each case without a legend, if either (i) such Warrant or such Warrant Shares,
as the case may be, have been registered for resale under the Securities Act,
(ii) the Warrantholder has delivered to the Company an opinion of legal counsel
(from a firm reasonably satisfactory to the Company) which opinion shall be
addressed to the Company and be reasonably satisfactory in form and substance
to the Company's counsel, to the effect that such registration is not required
with respect to such Warrant or such Warrant Shares, as the case may be, or
(iii) such Warrant or Warrant Shares are sold in compliance with Rule 144 or
Rule 144(k) (or any successor provision then in effect) under the Securities
Act, the Company receives customary representations to such effect and the
Company receives an opinion of counsel to the Company in customary form that
such legend may be removed.
3. Reservation and Registration of Shares, Etc.
The Company covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the exercise
of this Warrant shall, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of the issuance of the Warrant
Shares hereunder and any transfer occurring contemporaneously with such issue.
(b) During the period within which this Warrant may be
exercised, the Company shall at all times have authorized and reserved, and
keep available free from preemptive rights, a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Loss or Destruction of Warrant.
Subject to the terms and conditions hereof, upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such mutilation, upon surrender and cancellation
of this Warrant, the Company will execute and deliver a new Warrant of like
tenor.
<PAGE> 4
- 4 -
5. Ownership of Warrant.
The Company may deem and treat the person in whose name this Warrant
is registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. Certain Adjustments.
6.1 The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) Stock Dividends, Splits, Combinations. If at
any time after the date of the issuance of this Warrant the Company (i)
declares a dividend or other distribution payable in shares of Common Stock or
securities convertible into Common Stock or subdivides its outstanding shares
of Common stock into a larger number or (ii) combines its outstanding shares of
Common Stock into a smaller number, then (x) the number of Warrant Shares to be
delivered upon exercise of this Warrant will, upon the occurrence of an event
set forth in clause (i) above, be increased and, upon the occurrence of an
event set forth in clause (ii) above, be decreased so that such Warrantholder
will be entitled to receive the number of shares of Common Stock that such
Warrantholder would have owned immediately following such action had this
Warrant been exercised immediately prior thereto and (y) the Exercise Price in
effect immediately prior to such dividend, other distribution, subdivision or
combination, as the case may be, shall be adjusted proportionately by
multiplying such Exercise Price by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Warrant Shares purchasable immediately thereafter.
(b) Distributions of Stock, Other Securities,
Evidence of Indebtedness, Etc. In case the Company shall distribute to the
holders of Common Stock shares of its capital stock (other than Common Stock or
shares convertible into Common Stock for which adjustment is made under Section
6.1(a)), stock or other securities of the Company or any other Person,
evidences of indebtedness issued by the Company or any other Person, assets
(excluding cash dividends) or options, warrants or rights to subscribe for or
purchase the foregoing, then, and in each such case, immediately following the
record date fixed for the determination of the holders of Common Stock entitled
to receive such distribution, the Exercise Price then in effect shall be
adjusted by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction (i) the numerator of which shall be such Current
Market Price of the Common Stock less the then Fair Market Value (as determined
by the Board of Directors) of the portion of the stock, other securities,
evidences of indebtedness so distributed or of such options, warrants or rights
applicable to one share of Common Stock (but such numerator shall not be less
than one) and (ii) the denominator of which shall be the Current Market Price
of the Common Stock on such record date. Such adjustment shall become
effective at the opening of business on the Business Day following the record
date for the determination of stockholders entitled to such distribution.
<PAGE> 5
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(c) Reorganization, Merger, Sale of Assets. In
case of any capital reorganization or reclassification or other change of
outstanding shares of Common Stock (other than a change in par value), any
consolidation or merger of the Company with or into another Person (other than
a consolidation or merger of the Company in which the Company is the resulting
or surviving Person and which does not result in any reclassification or change
of outstanding Common Stock) or the sale of all or substantially all of the
assets of the Company or another Person, upon exercise of this Warrant, the
Warrantholder shall have the right to receive the kind and amount of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of this Warrant would
have been entitled upon such reorganization, reclassification, consolidation,
merger or sale had this Warrant been exercised immediately prior to such event;
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions of this
Section 6 with respect to the rights and interest thereafter of the
Warrantholder, to the end that the provisions set forth in this Section 6
(including provisions with respect to changes in and other adjustments of the
Exercise Price) shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter deliverable
upon exercise of this Warrant.
(d) Carryover. Notwithstanding any other
provision of this Section 6.1, no adjustment shall be made to the number of
shares of Common Stock to be delivered to the Warrantholder (or to the Exercise
Price) if such adjustment represents less than 1% of the number of shares to be
so delivered, but any lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment that together
with any adjustments so carried forward shall amount to 1% or more of the
number of shares to be so delivered, provided however, that, upon exercise of
this warrant pursuant to Section 1 hereof, any adjustment called for by
Sections 6.2(a), (b) or (c) which has not been made as a result of this Section
6.1(d) shall be made.
6.2 No Adjustment for Dividends. Except as provided in
Section 6.1, no adjustment in respect of any dividends shall be made during the
term of this Warrant or upon the exercise of this Warrant. Notwithstanding any
other provision hereof, no adjustments shall be made on Warrant Shares issuable
on the exercise of this Warrant for any cash dividends paid or payable to
holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
6.3 Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares shall be adjusted, as
provided in Section 6.1, the Company shall forthwith file, at the principal
office of the Company (or at such other place as may be designated by the
Company), a statement, certified by the chief financial officer of the Company,
showing in detail the facts requiring such adjustment, the computation by which
such adjustment was made and the Exercise Price that shall be in effect after
such adjustment. The Company shall also cause a copy of such statement to be
sent by first class mail, postage prepaid, to the Warrantholder, at such
Warrantholder's address as shown in the records of the Company.
<PAGE> 6
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7. Registration Statement. The Company shall file a registration
statement with the United States Securities and Exchange Commission within 30
days after the date hereof to effect the registration of the resale of the
Warrant Shares under the Securities Act; provided that the Warrantholder shall
not sell any Warrant Shares pursuant to such registration statement unless and
until it provides to the Company such information as the Company may reasonably
request for use in connection with the identification of the Warrantholder as a
selling stockholder in such registration statement, or any prospectus included
therein, and no such sale shall be made by the Warrantholder pursuant to such
registration statement unless and until such information is included by the
Company in such registration statement or prospectus. The Company shall in
good faith use its reasonable efforts and at its cost to cause such
registration statement to be declared effective as promptly as practicable
thereafter, to amend such registration statement to include additional or
revised information with respect to the selling stockholders and to include in
such registration statement the information provided by the Warrantholder as a
selling stockholder and shall notify the Warrantholder of the effectiveness
thereof and agrees to use its reasonable efforts to maintain the effectiveness
of such registration statement until the earliest of (a) such time as all of
the Warrant Shares have been sold pursuant to the registration statement, (b)
the Warrant expires according to its terms and (c) the date that Rule 144(k)
under the Securities Act (or successor provision) is available for the resale
of the Warrant Shares, provided that expenses incurred by the Company with
respect to any post-effective amendment to include additional or revised
information with respect to the selling stockholders shall be paid by such
selling stockholders. The Company shall indemnify and hold harmless the
Warrantholder, its officers, directors and agents and employees, each person
who controls the Warrantholder (within the meaning of Section 15 of the
Securities Act or Section 20 of the 1934 Act) and the officers, directors,
agents and employees of any such controlling person, from and against all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding) ("Losses") incurred or suffered
and arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any such registration statement, or related
prospectus or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent the same are based upon information furnished
in writing to the Company by or on behalf of the Warrantholder expressly for
use therein; provided, that the Company shall not be liable to the
Warrantholder to the extent that any such Losses arise out of or are based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A)(i) the Warrantholder failed to
send or deliver a copy of the final prospectus with or prior to the delivery of
written confirmation of the sale by the Warrantholder of a Warrant Share to the
person asserting the claim from which such Losses arise and (ii) the prospectus
would have completely corrected such untrue statement or alleged untrue
statement or such omission or alleged omission; or (B)(i) such untrue statement
or alleged untrue statement, omission or alleged omission is completely
corrected in an amendment or supplement to the prospectus and (ii) having
previously been furnished by or on behalf of the Company with copies of the
prospectus as so amended or supplemented, the Warrantholder thereafter fails to
deliver such prospectus as so amended or supplemented, prior to or concurrently
with the sale of a Warrant Share to the person asserting the claim from which
such Losses arise. Promptly after receipt by
<PAGE> 7
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an indemnified party under Section 7.01 of the Stock Purchase Agreement of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the Company under
such Section 7.01 notify the Company in writing of the claim or the
commencement of that action. No indemnification provided for in such Section
7.01 shall be available to any party who shall fail to give the notice if the
party to whom such notice was not given was unaware of the action, suit or
proceeding to which the notice would have related and was prejudiced by the
failure to give the notice, but the omission so to notify such indemnifying
party of any such notification shall not relieve such indemnifying party from
any liability which it may have to the indemnified party otherwise than under
such Section 7.01. If any such claim or action shall be brought against an
indemnified party, and it shall notify the Company thereof, the Company may, or
if the indemnified party requests shall, participate therein and assume the
defense thereof with counsel reasonably satisfactory to the indemnified party.
After notice from the Company to the indemnified party of its election to
assume the defense of such claim or action, the Company shall not be liable to
the indemnified party under such Section 7.01 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, if the defendants in any such action include both
an indemnified party and the Company and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and for
other indemnified parties that are different from or additional to those
available to the Company, the indemnified party or parties under such Section
7.01 shall have the right to employ not more than one counsel to represent them
and, in that event, the reasonable fees and expenses of not more than one such
separate counsel shall be paid by the Company. The Company shall not be liable
for any settlement effected without its written consent of any claim or action.
8. Amendments.
Any provision of this Warrant may be amended and the observance
thereof waived only with the written consent of the Company and the
Warrantholder.
9. Notices of Corporate Action.
So long as this Warrant has not been exercised in full, in the event of
(a) any taking by the Company of a record of all holders
of Common Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than cash dividends or distributions
paid from the retained earnings of the Company) or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right;
(b) any capital reorganization of the Company, any
reclassification (other than a change in par value of the Common Stock) or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other Person; or
<PAGE> 8
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(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right or (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property, if any, deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
10 days prior to the date therein specified (unless such date is beyond the
control of the Company, in which case, as soon as practicable thereafter, but
in no event more than 5 days thereafter), in the case of any date referred to
in the foregoing subdivisions (i) and (ii).
10. Definitions.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
"Affiliate" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
"Business Day" means any day other than a Saturday, Sunday or a day on
which national banks are authorized by law to close in the State of
Mississippi.
"Common Stock" has the meaning specified on the cover of this Warrant.
"Company" has the meaning specified on the cover of this Warrant.
"Current Market Price" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Common Stock is listed or
admitted for trading on a national securities exchange (including The
Nasdaq Stock Market, Inc.), then the Current Market Price shall be the
average of the last 30 "daily sales prices" of the Common Stock on the
principal national securities exchange on which the Common Stock is
listed or admitted for trading on the last 30 trading days prior to
the Determination Date, or if not listed or traded on any such
exchange, then the Current Market Price shall be the average of the
last 30 "daily sales prices" of the Common Stock on the
over-the-counter market on the last 30 trading days prior to the
Determination Date. The "daily sales price" shall be the closing
price of the Common Stock at the end of each day; or
<PAGE> 9
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(ii) If the Common Stock is not so listed
or admitted to unlisted trading privileges or if no such sale is made
on at least 25 of such days, then the Current Market Price shall be as
reasonably determined in good faith by the Company's Board of
Directors or a duly appointed committee of the Board of Directors
(which determination shall be reasonably described in the written
notice delivered to the Warrantholder together with the Common Stock
certificates).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
(or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
"Exercise Form" means an Exercise Form in the form annexed hereto as
Exhibit A.
"Exercise Price" has the meaning specified on the cover of this
Warrant.
"Expiration Date" means January 2, 2002.
"Fair Market Value" means the amount which a willing buyer would pay a
willing seller in an arm's length transaction.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Securities Act" has the meaning specified on the cover of this
Warrant, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Act, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
"Stock Purchase Agreement" has the meaning specified on the cover of
this Warrant.
"Warrantholder" has the meaning specified on the cover of this
Warrant.
"Warrant Shares" has the meaning specified on the cover of this
Warrant.
11. Miscellaneous.
11.1 Entire Agreement. This Warrant, together with the
Stock Purchase Agreement, constitute the entire agreement between the Company
and the Warrantholder with respect to this Warrant.
11.2 Binding Effect; Benefits. This Warrant shall inure
to the benefit of and shall be binding upon the Company and the Warrantholder
and their respective successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any
<PAGE> 10
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person other than the Company and the Warrantholder, or their respective
successors or assigns, any rights, remedies, obligations or liabilities under
or by reason of this Warrant.
11.3 Section and Other Headings. The section and other
headings contained in this Warrant are for reference purposes only and shall
not be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
11.4 Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service, overnight mail or personal delivery:
(a) if to Warrantholder:
(Warrant_Holder)
(Address)
with a copy to:
McDermott, Will & Emery
227 W. Monroe Ave.
Chicago, IL 60606
Telecopy: (312) 984-3669
Attention: Helen Friedli, Esq.
(b) if to the Company:
Gulf South Medical Supply, Inc.
426 Christine Drive
Ridgeland, MS 39157
Telecopy: (601) 853-4801
Attention: Stanton Keith Pritchard, Esq.
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Telecopy: (617) 248-7100
Attention: William B. Asher, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically
<PAGE> 11
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acknowledged, if telecopied. Any party may by notice given in accordance with
this Section 11.4 designate another address or Person for receipt of notices
hereunder.
11.5 Severability. Any term or provision of this Warrant
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the terms and
provisions of this Warrant or affecting the validity or enforceability of any
of the terms or provisions of this Warrant in any other jurisdiction.
11.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
11.7 No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
GULF SOUTH MEDICAL SUPPLY, INC.
By:
-------------------------------
Name:
Title:
Dated: ______ __, 199_
<PAGE> 13
Exhibit A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right
represented by this Warrant, to purchase _____ of the Warrant Shares and
herewith tenders payment for such Warrant Shares to the order of Gulf South
Medical Supply, Inc. in the amount of $_____ in accordance with the terms of
this Warrant. The undersigned requests that a certificate for such Warrant
Shares be registered in the name of the undersigned and that such certificates
be delivered to the undersigned's address below.
The undersigned represents that it is acquiring such Warrant Shares
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control).
Dated:___________
Signature_________________________________
_________________________________________
(Print Name)
_________________________________________
(Street Address)
_________________________________________
(City) (State) (Zip Code)
Signed in the presence of:
________________________
NOTE: The above signature must correspond with the name as written
upon the face of this Warrant in ever particular way, without any alteration
whatsoever.
Any unexercised Warrants evidenced by the Warrant Certificate are to
be issued to:
Name:_______________________ (please print)
Address:_____________________
Taxpayer Identification or Social Security Number:________________
<PAGE> 1
EXHIBIT 10.9
GULF SOUTH MEDICAL SUPPLY, INC.
1997 STOCK PLAN
1. PURPOSE. The purpose of the Gulf South Medical Supply, Inc.
1997 Stock Plan (the "Plan") is to encourage key employees of Gulf South
Medical Supply, Inc. (the "Company") and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations") and other
individuals who render services to the Company or a Related Corporation, by
providing opportunities to participate in the ownership of the Company and its
future growth through (a) the grant of options which qualify as "incentive
stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"); (b) the grant of options which do not qualify as
ISOs ("Non-Qualified Options"); (c) awards of stock in the Company ("Awards");
and (d) opportunities to make direct purchases of stock in the Company
("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter
individually as an "Option" and collectively as "Options." Options, Awards and
authorizations to make Purchases are referred to hereafter collectively as
"Stock Rights." As used herein, the terms "parent" and "subsidiary" mean
"parent corporation" and "subsidiary corporation," respectively, as those terms
are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan
shall be administered by the Board of Directors of the Company
(the "Board") or, subject to paragraph 2(D) (relating to
compliance with Section 162(m) of the Code), by a committee
appointed by the Board (the "Committee"). Hereinafter, all
references in this Plan to the "Committee" shall mean the
Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right
by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the class of
employees eligible under paragraph 3 to receive ISOs) ISOs
shall be granted, and to whom (from among the class of
individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options and Awards and to make Purchases)
Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at
which Options or Awards shall be granted or Purchases made;
(iii) determine the purchase price of shares subject to each
Option or Purchase, which prices shall not be less than the
minimum price specified in paragraph 6; (iv) determine whether
each Option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when
each Option shall become exercisable and the duration of the
exercise period; (vi) extend the period during which
outstanding Options may be exercised; (vii) determine whether
restrictions such as repurchase options are to be imposed on
shares subject to Options, Awards and Purchases and the nature
of such restrictions, if any, and (viii) interpret the Plan
and prescribe and rescind rules and regulations relating to
it. If the Committee
<PAGE> 2
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determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422 of the
Code and the regulations promulgated thereunder, to ensure
that such Option is not treated as an ISO. The interpretation
and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final
unless otherwise determined by the Board. The Committee may
from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of
the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or
any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select
one of its members as its chairman, and shall hold meetings at
such time and places as it may determine. A majority of the
Committee shall constitute a quorum and acts of a majority of
the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the
members of the Committee (if consistent with applicable state
law), shall be the valid acts of the Committee. From time to
time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS.
Stock Rights may be granted to members of the Board. All
grants of Stock Rights to members of the Board shall in all
respects be made in accordance with the provisions of this
Plan applicable to other eligible persons. Members of the
Board who either (i) are eligible to receive grants of Stock
Rights pursuant to the Plan or (ii) have been granted Stock
Rights may vote on any matters affecting the administration of
the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting
to himself or herself of Stock Rights, but any such member may
be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect
to the granting to such member of Stock Rights.
D. PERFORMANCE-BASED COMPENSATION. The Board,
in its discretion, may take such action as may be necessary to
ensure that Stock Rights granted under the Plan qualify as
"qualified performance- based compensation" within the meaning
of Section 162(m) of the Code and applicable regulations
promulgated thereunder ("Performance-Based Compensation").
Such action may include, in the Board's discretion, some or
all of the following (i) if the Board determines that Stock
Rights granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be
administered, to the extent required for such Stock Rights to
constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as
defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any
<PAGE> 3
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Non-Qualified Options with an exercise price less than the
fair market value per share of Common Stock are granted under
the Plan and the Board determines that such Options should
constitute Performance- Based Compensation, such options shall
be made exercisable only upon the attainment of a pre-
established, objective performance goal established by the
Committee, and such grant shall be submitted for, and shall be
contingent upon stockholder approval and (iii) Stock Rights
granted under the Plan may be subject to such other terms and
conditions as are necessary for compensation recognized in
connection with the exercise or disposition of such Stock
Right or the disposition of Common Stock acquired pursuant to
such Stock Right, to constitute Performance-Based
Compensation.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to
employees of the Company or any Related Corporation. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee,
officer or director (whether or not also an employee) or consultant of the
Company or any Related Corporation. The Committee may take into consideration
a recipient's individual circumstances in determining whether to grant a Stock
Right. The granting of any Stock Right to any individual or entity shall
neither entitle that individual or entity to, nor disqualify such individual or
entity from, participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized
but unissued shares of Common Stock of the Company, par value $.01 per share
(the "Common Stock"), or shares of Common Stock reacquired by the Company in
any manner. The aggregate number of shares which may be issued pursuant to the
Plan is 850,000, subject to adjustment as provided in paragraph 13. If any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable
in whole or in part or shall be repurchased by the Company, the unpurchased
shares of Common Stock subject to such Option shall again be available for
grants of Stock Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 595,000 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or
in part or shall be repurchased by the Company, the shares subject to such
Option shall be included in the determination of the aggregate number of shares
of Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under
the Plan at any time on or after March 3, 1997 and prior to March 4, 2007. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.
<PAGE> 4
- 4 -
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND
PURCHASES. Subject to paragraph 2(D) (relating to compliance
with Section 162(m) of the Code), the exercise price per share
specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock
granted in any Award or authorized as a Purchase, under the
Plan may not be less than the minimum legal consideration
required therefor under the laws of any jurisdiction in which
the Company or its successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share
specified in the agreement relating to each ISO granted under
the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case
of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common
Stock on the date of grant. For purposes of determining stock
ownership under this paragraph, the rules of Section 424(d) of
the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING.
Each eligible employee may be granted Options treated as ISOs
only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any
Related Corporation, ISOs do not become exercisable for the
first time by such employee during any calendar year with
respect to stock having a fair market value (determined at the
time the ISOs were granted) in excess of $100,000. The
Company intends to designate any Options granted in excess of
such limitation as Non-Qualified Options, and the Company
shall issue separate certificates to the optionee with respect
to Options that are Non-Qualified Options and Options that are
ISOs.
D. DETERMINATION OF FAIR MARKET VALUE. If, at
the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be
determined as of the date of grant or, if the prices or quotes
discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are
available prior to the date of grant and shall mean (i) the
average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the
Nasdaq National Market, if the Common Stock is not then traded
on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by
an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq
National Market. If the Common
<PAGE> 5
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Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall mean the fair value
of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions
negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided
in paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as
determined under paragraph 6(B). Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an
installment becomes exercisable, it shall remain exercisable
until expiration or termination of the Option, unless
otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment
may be exercised at any time or from time to time, in whole or
in part, for up to the total number of shares with respect to
which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall
have the right to accelerate the date that any installment of
any Option becomes exercisable; provided that the Committee
shall not, without the consent of an optionee, accelerate the
permitted exercise date of any installment of any Option
granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his or her
ISOs shall become exercisable, and his or her ISOs shall terminate on
<PAGE> 6
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the earlier of (a) three months after the date of termination of his or her
employment, or (b) their specified expiration dates, except to the extent that
such ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16. For purposes of this paragraph
9, employment shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave
does not exceed 90 days or, if longer, any period during which such optionee's
right to reemployment is guaranteed by statute or by contract. A bona fide
leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under this paragraph 9, provided that
such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved
period of absence. ISOs granted under the Plan shall not be affected by any
change of employment within or among the Company and Related Corporations, so
long as the optionee continues to be an employee of the Company or any Related
Corporation. Nothing in the Plan shall be deemed to give any grantee of any
Stock Right the right to be retained in employment or other service by the
Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by reason
of his or her death, any ISO owned by such optionee may be
exercised, to the extent otherwise exercisable on the date of
death, by the estate, personal representative or beneficiary
who has acquired the ISO by will or by the laws of descent and
distribution, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by reason
of his or her disability, such optionee shall have the right
to exercise any ISO held by him or her on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of the ISO or
(ii) 180 days from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or any successor
statute.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution, and
during the lifetime of the optionee shall be exercisable only by such optionee.
Stock Rights other than ISOs shall be transferable to the extent set forth in
the agreement relating to such Stock Right.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced
by instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11
<PAGE> 7
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hereof and may contain such other provisions as the Committee deems advisable
which are not inconsistent with the Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options. The Committee may
specify that any Non-Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, or to such other termination and
cancellation provisions as the Committee may determine. The Committee may from
time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to such optionee
hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the
shares of Common Stock shall be subdivided or combined into a
greater or smaller number of shares or if the Company shall
issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock
dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is
to be consolidated with or acquired by another entity in a
merger or other reorganization in which the holders of the
outstanding voting stock of the Company immediately preceding
the consummation of such event, shall, immediately following
such event, hold, as a group, less than a majority of the
voting securities of the surviving or successor entity, or in
the event of a sale of all or substantially all of the
Company's assets or otherwise (each, an "Acquisition"), the
Committee or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"),
shall, as to outstanding Options, either (i) make appropriate
provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such
Options either (a) the consideration payable with respect to
the outstanding shares of Common Stock in connection with the
Acquisition, (b) shares of stock of the surviving or successor
corporation or (c) such other securities as the Successor
Board deems appropriate, the fair market value of which shall
not materially exceed the fair market value of the shares of
Common Stock subject to such Options immediately preceding the
Acquisition; or (ii) terminate all Options in exchange for a
cash payment to be paid by the entity assuming the obligations
of the Company hereunder equal to the excess of the fair
market value of the shares subject to such Options (to the
extent then exercisable or to be exercisable as a result of
the Acquisition) over the exercise price thereof; or (iii)
take any other action as may
<PAGE> 8
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be consistent with this Plan, the original instruments
granting such Options and tax and accounting rules applicable
thereto.
C. RECAPITALIZATION OR REORGANIZATION. In the
event of a recapitalization or reorganization of the Company
(other than a transaction described in subparagraph B above)
pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares
of Common Stock, an optionee upon exercising an Option shall
be entitled to receive for the purchase price paid upon such
exercise the securities he or she would have received if he or
she had exercised such Option prior to such recapitalization
or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs A, B
or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain from
making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of
the proposed dissolution or liquidation of the Company, each
Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such
other conditions as shall be determined by the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly
provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of
the Company.
G. FRACTIONAL SHARES. No fractional shares
shall be issued under the Plan and the optionee shall receive
from the Company cash in lieu of such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of
the events described in subparagraphs A, B or C above, the
class and aggregate number of shares set forth in paragraph 4
hereof that are subject to Stock Rights which previously have
been or subsequently may be granted under the Plan shall also
be appropriately adjusted to reflect the events described in
such subparagraphs. The Committee or the Successor Board
shall determine the specific adjustments to be made under
<PAGE> 9
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this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify
the number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, (b) at the discretion of the Committee, through delivery
of shares of Common Stock having a fair market value equal as of the date of
the exercise to the cash exercise price of the Option, (c) at the discretion of
the Committee, by delivery of the grantee's personal recourse note bearing
interest payable not less than annually at no less than 100% of the lowest
applicable Federal rate, as defined in Section 1274(d) of the Code, (d) at the
discretion of the Committee and consistent with applicable law, through the
delivery of an assignment to the Company of a sufficient amount of the proceeds
from the sale of the Common Stock acquired upon exercise of the Option and an
authorization to the broker or selling agent to pay that amount to the Company,
which sale shall be at the participant's direction at the time of exercise, or
(e) at the discretion of the Committee, by any combination of (a), (b), (c) and
(d) above. If the Committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (b), (c),
(d) or (e) of the preceding sentence, such discretion shall be exercised in
writing at the time of the grant of the ISO in question. The holder of an
Option shall not have the rights of a shareholder with respect to the shares
covered by such Option until the date of issuance of a stock certificate to
such holder for such shares. Except as expressly provided above in paragraph
13 with respect to changes in capitalization and stock dividends, no adjustment
shall be made for dividends or similar rights for which the record date is
before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the
Board on March 3, 1997, subject, with respect to the validation of ISOs granted
under the Plan, to approval of the Plan by the stockholders of the Company at
the next Meeting of Stockholders or, in lieu thereof, by written consent. If
the approval of stockholders is not obtained prior to March 3, 1998, any grants
of ISOs under the Plan made prior to that date will be Non-Qualified Options.
The Plan shall expire at the end of the day on March 3, 2007 (except as to
Options outstanding on that date). Subject to the provisions of paragraph 5
above, Options may be granted under the Plan prior to the date of stockholder
approval of the Plan. The Board may terminate or amend the Plan in any respect
at any time, except that, without the approval of the stockholders obtained
within 12 months before or after the Board adopts a resolution authorizing any
of the following actions: (a) the provisions of paragraph 3 regarding
eligibility for grants of ISOs may not be modified; (b) the provisions of
paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (c) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders alter or impair
<PAGE> 10
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the rights of a grantee, without such grantee's consent, under any Stock Right
previously granted to such grantee.
16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO
(including the means of exercising such ISO) if such alteration would
constitute a modification (within the meaning of Section 424(h)(3) of the
Code). The Committee, at the written request or with the written consent of
any optionee, may in its discretion take such actions as may be necessary to
convert such optionee's ISOs (or any installments or portions of installments
thereof) that have not been exercised on the date of conversion into
Non-Qualified Options at any time prior to the expiration of such ISOs,
regardless of whether the optionee is an employee of the Company or a Related
Corporation at the time of such conversion. Such actions may include, but
shall not be limited to, extending the exercise period or reducing the exercise
price of the appropriate installments of such ISOs. At the time of such
conversion, the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Committee in its discretion may determine, provided that such conditions shall
not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. Upon the taking of such action, the
Company shall issue separate certificates to the optionee with respect to
Options that are Non-Qualified Options and Options that are ISOs.
17. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of shares pursuant to Options granted and Purchases authorized
under the Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting
an ISO granted under the Plan, each optionee agrees to notify the Company in
writing immediately after such optionee makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and regulations thereunder)
of any stock acquired pursuant to the exercise of ISOs granted under the Plan.
A Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of
a Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant
to an arm's-length transaction, the grant of an Award, the making of a Purchase
of Common Stock for less than its fair market value, the making of a
Disqualifying Disposition (as defined in paragraph 18), the vesting or transfer
of restricted stock or securities acquired on the exercise of an Option
hereunder, or the making of a distribution or other payment with respect to
such stock or securities, the Company may withhold taxes in respect of amounts
that constitute compensation includible in gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the transfer of a
Non-Qualified Stock Option, (iii) the grant of an Award, (iv) the making of a
Purchase of Common Stock for less than its fair market value, or (v) the
vesting or
<PAGE> 11
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transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval
of any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on
the Company with respect to the Plan. For example, the Company may be required
to send tax information statements to employees and former employees that
exercise ISOs under the Plan, and the Company may be required to file tax
information returns reporting the income received by grantees of Options in
connection with the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and
the instruments evidencing Stock Rights shall be governed by the laws of
Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
<PAGE> 1
EXHIBIT 10.10
GULF SOUTH MEDICAL SUPPLY, INC.
INCENTIVE STOCK OPTION AGREEMENT
Gulf South Medical Supply, Inc., a Delaware corporation (the
"Company"), hereby grants as of (Date) to (Employee) (the "Employee"), an
option to purchase a maximum of (Number) shares (the "Option Shares") of its
Common Stock, $.01 par value ("Common Stock"), at the price of $(ExercisePrice)
per share, on the following terms and conditions:
1. GRANT UNDER THE COMPANY'S 1997 STOCK PLAN. This option is
granted pursuant to and is governed by the Company's 1997 Stock Plan (the
"Plan") and, unless the context otherwise requires, terms used herein shall
have the same meaning as in the Plan. Determinations made in connection with
this option pursuant to the Plan shall be governed by the Plan as it exists on
this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS. This option
is intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Notwithstanding the
above, this option shall be treated as a Non-Qualified Option if the Plan is
not approved by the Company's stockholders on or before March 2, 1998. This
option is in addition to any other options heretofore or hereafter granted to
the Employee by the Company or any Related Corporation (as defined in the
Plan), but a duplicate original of this instrument shall not effect the grant
of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES. If the Employee
has continued to be employed by the Company or any Related Corporation on the
following dates, the Employee may exercise this option for the number of shares
of Common Stock set opposite the applicable date:
<TABLE>
<S> <C>
Less than one year from the date - (VestingNumber) shares
hereof
One year but less than two years from - an additional (VestingNumber) shares
the date hereof
Two years but less than three years - an additional (VestingNumber) shares
from the date hereof
Three years but less than four years - an additional (VestingNumber) shares
from the date hereof
Four years or more from the date - an additional (VestingNumber) shares
hereof
</TABLE>
<PAGE> 2
Notwithstanding the foregoing, in accordance with and subject to the provisions
of the Plan, the Committee may, in its discretion, accelerate the date that any
installment of this Option becomes exercisable. The foregoing rights are
cumulative and (subject to Sections 4 or 5 hereof if the Employee ceases to be
employed by the Company and all Related Corporations) may be exercised on or
before the date which is ten years from the date this option is granted.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE. If the Employee
ceases to be employed by the Company and all Related Corporations,
other than by reason of death or disability as defined in Section 5 or
other than for Cause as defined in Section 4(c), no further
installments of this option shall become exercisable, and this option
shall terminate (and may no longer be exercised) after the passage of
three (3) months from the Employee's last day of employment, but in no
event later than the scheduled expiration date. In such a case, the
Employee's only rights hereunder shall be those which are properly
exercised before the termination of this option.
(b) TERMINATION FOR CAUSE. If the employment of the
Employee is terminated for Cause (as defined in Section 4(c)), this
option shall terminate at the time of such termination of employment
and shall thereafter not be exercisable to any extent whatsoever. For
the purposes of this Section 4(b), termination of employment shall be
deemed to occur when the Employee receives notice of such termination.
(c) DEFINITION OF CAUSE. "Cause" shall mean conduct
involving one or more of the following: (i) the substantial and
continuing failure of the Employee, after notice thereof, to render
services to the Company or Related Corporation in accordance with the
terms or requirements of his or her employment; (ii) disloyalty, gross
negligence, willful misconduct, dishonesty or breach of fiduciary duty
to the Company or Related Corporation; (iii) the commission of an act
of embezzlement or fraud; (iv) deliberate disregard of the rules or
policies of the Company or Related Corporation which results in direct
or indirect loss, damage or injury to the Company or Related
Corporation; (v) the unauthorized disclosure of any trade secret or
confidential information of the Company or Related Corporation; or
(vi) the commission of an act which constitutes unfair competition
with the Company or Related Corporation or which induces any customer
or supplier to breach a contract with the Company or Related
Corporation.
5. DEATH; DISABILITY.
(a) DEATH. If the Employee dies while in the employ of
the Company or any Related Corporation, this option may be exercised,
to the extent otherwise exercisable on the date of his or her death,
by the Employee's estate, personal representative or beneficiary to
whom this option has been assigned pursuant to Section 10, at any time
within 180 days after the date of death, but not later than the
scheduled expiration date.
<PAGE> 3
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(b) DISABILITY. If the Employee ceases to be employed by
the Company and all Related Corporations by reason of his or her
disability (as defined in the Plan), this option may be exercised, to
the extent otherwise exercisable on the date of the termination of his
or her employment, at any time within 180 days after such termination,
but not later than the scheduled expiration date.
(c) EFFECT OF TERMINATION. At the expiration of the
180-day period provided in paragraphs (a) or (b) of this Section 5 or
the scheduled expiration date, whichever is the earlier, this option
shall terminate (and shall no longer be exercisable) and the only
rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. PARTIAL EXERCISE. This option may be exercised in part at any
time and from time to time within the above limits, except that this option may
not be exercised for a fraction of a share unless such exercise is with respect
to the final installment of stock subject to this option and cash in lieu of a
fractional share must be paid, in accordance with Paragraph 13(G) of the Plan,
to permit the Employee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Employee in accordance with the terms hereof.
7. PAYMENT OF PRICE. (a) The option price shall be paid in the
following manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares
of the Company's Common Stock having a fair market
value (as determined by the Committee) equal as of
the date of exercise to the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of
the proceeds from the sale of the Option Shares and
an instruction to the broker or selling agent to pay
that amount to the Company; or
(iv) by any combination of the foregoing.
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK.
If the Employee delivers Common Stock held by the Employee (the "Old
Stock") to the Company in full or partial payment of the option price,
and the Old Stock so delivered is subject to restrictions or
limitations imposed by agreement between the Employee and the Company,
an equivalent number of Option Shares shall be subject to all
restrictions and limitations applicable to the Old Stock to the extent
that the Employee paid for the Option Shares by delivery of Old Stock,
in addition to any restrictions or limitations imposed by this
Agreement. Notwithstanding the foregoing, the Employee may not pay
any part of the exercise price hereof by transferring Common Stock to
the Company
<PAGE> 4
- 4 -
unless such Common Stock has been owned by the Employee free of any
substantial risk of forfeiture for at least six months.
8. RESTRICTIONS ON RESALE. Option Shares may be of an illiquid
nature and may be deemed to be "restricted securities" for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). Accordingly, such
shares may be required to be sold in compliance with the registration
requirements of the Securities Act or an exemption therefrom.
9. METHOD OF EXERCISING OPTION. Subject to the terms and
conditions of this Agreement, this option may be exercised by written notice to
the Company at its principal executive office, or to such transfer agent as
the Company shall designate. Such notice shall state the election to exercise
this option and the number of Option Shares for which it is being exercised and
shall be signed by the person or persons so exercising this option. Such
notice shall be accompanied by payment of the full purchase price of such
shares, and the Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the notice shall be
received. Such certificate or certificates shall be registered in the name of
the person or persons so exercising this option (or, if this option shall be
exercised by the Employee and if the Employee shall so request in the notice
exercising this option, shall be registered in the name of the Employee and
another person jointly, with right of survivorship). In the event this option
shall be exercised, pursuant to Section 5 hereof, by any person or persons
other than the Employee, such notice shall be accompanied by appropriate proof
of the right of such person or persons to exercise this option.
10. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During
the Employee's lifetime only the Employee can exercise this option.
11. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of
this option imposes no obligation on the Employee to exercise it.
12. NO OBLIGATION TO CONTINUE EMPLOYMENT. Neither the Plan, this
Agreement, nor the grant of this option imposes any obligation on the Company
or any Related Corporation to continue the Employee in employment.
13. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Employee shall
have no rights as a stockholder with respect to the Option Shares until such
time as the Employee has exercised this option by delivering a notice of
exercise and has paid in full the purchase price for the shares so exercised in
accordance with Section 9. Except as is expressly provided in the Plan with
respect to certain changes in the capitalization of the Company, no adjustment
shall be made for dividends or similar rights for which the record date is
prior to such date of exercise.
14. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains
provisions covering the treatment of options in a number of contingencies such
as stock splits and mergers. Provisions in the Plan for adjustment with
respect to stock subject to options and the related
<PAGE> 5
- 5 -
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.
15. EARLY DISPOSITION. The Employee agrees to notify the Company
in writing immediately after the Employee transfers any Option Shares, if such
transfer occurs on or before the later of (a) the date two years after the date
of this Agreement or (b) the date one year after the date the Employee acquired
such Option Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for tax
purposes.
16. WITHHOLDING TAXES. If the Company or any Related Corporation
in its discretion determines that it is obligated to withhold any tax in
connection with the exercise of this option, or in connection with the transfer
of, or the lapse of restrictions on, any Common Stock or other property
acquired pursuant to this option, the Employee hereby agrees that the Company
or any Related Corporation may withhold from the Employee's wages or other
remuneration the appropriate amount of tax. At the discretion of the Company
or Related Corporation, the amount required to be withheld may be withheld in
cash from such wages or other remuneration or in kind from the Common Stock or
other property otherwise deliverable to the Employee on exercise of this
option. The Employee further agrees that, if the Company or any Related
Corporation does not withhold an amount from the Employee's wages or other
remuneration sufficient to satisfy the withholding obligation of the Company or
Related Corporation, the Employee will make reimbursement on demand, in cash,
for the amount underwithheld.
17. LOCK-UP AGREEMENT. The Employee agrees that in connection
with an underwritten public offering of Common Stock, upon the request of the
Company or the principal underwriter managing such public offering, the Option
Shares may not be sold, offered for sale or otherwise disposed of without the
prior written consent of the Company or such underwriter, as the case may be,
for at least ninety (90) days after the effectiveness of the registration
statement filed in connection with such offering, or such longer period of time
as the Board of Directors may determine if all of the Company's directors and
officers agree to be similarly bound.
18. ARBITRATION. Any dispute, controversy, or claim arising out
of, in connection with, or relating to the performance of this Agreement or its
termination shall be settled by arbitration in the State of Mississippi,
pursuant to the rules then obtaining of the American Arbitration Association.
Any award shall be final, binding and conclusive upon the parties and a
judgment rendered thereon may be entered in any court having jurisdiction
thereof.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE. By signing this
Agreement the Employee acknowledges receipt of a copy of this Agreement and a
copy of the Plan.
20. MISCELLANEOUS.
(a) NOTICES. All notices hereunder shall be in writing
and shall be deemed given when sent by certified or registered mail,
postage prepaid, return receipt requested,
<PAGE> 6
- 6 -
to the address set forth below. The addresses for such notices may be
changed from time to time by written notice given in the manner
provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION. This Agreement
constitutes the entire agreement between the parties relative to the
subject matter hereof, and supersedes all proposals, written or oral,
and all other communications between the parties relating to the
subject matter of this Agreement. This Agreement may be modified,
amended or rescinded only by a written agreement executed by both
parties.
(c) SEVERABILITY. The invalidity, illegality or
unenforceability of any provision of this Agreement shall in no way
affect the validity, legality or enforceability of any other
provision.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, subject to the limitations set
forth in Section 10 hereof.
(e) GOVERNING LAW. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Delaware,
without giving effect to the principles of the conflicts of laws
thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
- 7 -
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
GULF SOUTH MEDICAL SUPPLY, INC.
One Woodgreen Place
Madison, MS 39110
- ------------------------------------
EMPLOYEE
(Employee) By:
- ------------------------------------ -----------------------------
Print Name of Employee
- ------------------------------------ --------------------------------
Street Address Title
- ------------------------------------
City State Zip Code
<PAGE> 1
EXHIBIT 10.11
GULF SOUTH MEDICAL SUPPLY, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
Gulf South Medical Supply, Inc., a Delaware corporation (the
"Company"), hereby grants as of (Date) to (Optionee) (the "Optionee"), an
option to purchase a maximum of (Number) shares (the "Option Shares") of its
Common Stock, $.01 par value ("Common Stock"), at the price of $(ExercisePrice)
per share, on the following terms and conditions:
1. GRANT UNDER THE COMPANY'S 1997 STOCK PLAN. This option is
granted pursuant to and is governed by the Company's 1997 Stock Plan (the
"Plan") and, unless the context otherwise requires, terms used herein shall
have the same meaning as in the Plan. Determinations made in connection with
this option pursuant to the Plan shall be governed by the Plan as it exists on
this date.
2. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This option
shall be treated for federal income tax purposes as a Non-Qualified Option
(rather than an incentive stock option). This option is in addition to any
other options heretofore or hereafter granted to the Optionee by the Company or
any Related Corporation (as defined in the Plan), but a duplicate original of
this instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If the
Optionee has continued to serve the Company or any Related Corporation in the
capacity of an employee, officer, director or consultant (such service is
described herein as maintaining or being involved in a "Business Relationship
with the Company") on the following dates, the Optionee may exercise this
option for the number of shares of Common Stock set opposite the applicable
date:
<TABLE>
<S> <C>
Less than one year from the date hereof - (VestingNumber) shares
One year but less than two years from - an additional (VestingNumber) shares
the date hereof
Two years but less than three years from - an additional (VestingNumber) shares
the date hereof
Three years but less than four years - an additional (VestingNumber) shares
from the date hereof
Four years or more from the date hereof - an additional (VestingNumber) shares
</TABLE>
Notwithstanding the foregoing, in accordance with and subject to the provisions
of the Plan, the Committee may, in its discretion, accelerate the date that any
installment of this Option becomes
<PAGE> 2
-2-
exercisable. The foregoing rights are cumulative and (subject to Sections 4 or
5 hereof) may be exercised up to and including the date which is ten years from
the date this option is granted.
4. TERMINATION OF BUSINESS RELATIONSHIP.
(a) TERMINATION OTHER THAN FOR CAUSE. If the Optionee's
Business Relationship with the Company and all Related Corporations is
terminated, other than by reason of death, disability or dissolution as defined
in Section 5 or other than for Cause as defined in Section 4(c), no further
installments of this option shall become exercisable, and this option shall
terminate (and may no longer be exercised) after the passage of three (3)
months from the date the Business Relationship ceases, but in no event later
than the scheduled expiration date. In such a case, the Optionee's only rights
hereunder shall be those which are properly exercised before the termination of
this option.
(b) TERMINATION FOR CAUSE. If the Optionee's Business
Relationship with the Company or any Related Corporation is terminated for
Cause (as defined in Section 4(c)), this option shall terminate at the time of
such termination of the Optionee's Business Relationship with the Company and
shall thereafter not be exercisable to any extent whatsoever. For the purposes
of this Section 4(b), termination of an Optionee's Business Relationship with
the Company or any Related Corporation shall be deemed to occur when the
Optionee receives notice of such termination.
(c) DEFINITION OF CAUSE. "Cause" shall mean conduct
involving one or more of the following: (i) the substantial and continuing
failure of the Optionee, after notice thereof, to render services to the
Company or Related Corporation in accordance with the terms or requirements of
the Optionee's Business Relationship with the Company; (ii) disloyalty, gross
negligence, willful misconduct, dishonesty or breach of fiduciary duty to the
Company or Related Corporation; (iii) the commission of an act of embezzlement
or fraud; (iv) deliberate disregard of the rules or policies of the Company or
Related Corporation which results in direct or indirect loss, damage or injury
to the Company or Related Corporation; (v) the unauthorized disclosure of any
trade secret or confidential information of the Company or Related Corporation;
or (vi) the commission of an act which constitutes unfair competition with the
Company or Related Corporation or which induces any customer or supplier to
break a contract with the Company or Related Corporation.
5. DEATH; DISABILITY; DISSOLUTION.
(a) DEATH. If the Optionee is a natural person who dies
while involved in a Business Relationship with the Company or any Related
Corporation, this option may be exercised, to the extent otherwise exercisable
on the date of his or her death, by the Optionee's estate, personal
representative or beneficiary to whom this option has been assigned pursuant to
Section 10, at any time within 180 days after the date of death, but not later
than the scheduled expiration date.
<PAGE> 3
-3-
(b) DISABILITY. If the Optionee is a natural person
whose Business Relationship with the Company or any Related Corporation is
terminated by reason of his or her disability (as defined in the Plan), this
option may be exercised, to the extent otherwise exercisable on the date the
Business Relationship was terminated, at any time within 180 days after such
termination, but not later than the scheduled expiration date.
(c) EFFECT OF TERMINATION. At the expiration of such
180-day period provided in paragraphs (a) or (b) of this Section 5 or the
scheduled expiration date, whichever is the earlier, this option shall
terminate (and shall no longer be exercisable) and the only rights hereunder
shall be those as to which the option was properly exercised before such
termination.
(d) DISSOLUTION. If the Optionee is a corporation,
partnership, trust or other entity that is dissolved, is liquidated, becomes
insolvent or enters into a merger or acquisition with respect to which the
Optionee is not the surviving entity, at a time when the Optionee is involved
in a Business Relationship with the Company or any Related Corporation, this
option shall immediately terminate as of the date of such event (and shall
thereafter not be exercisable to any extent whatsoever), and the only rights
hereunder shall be those as to which this option was properly exercised before
such dissolution or other event.
6. PARTIAL EXERCISE. This option may be exercised in part at any
time and from time to time within the above limits, except that this option may
not be exercised for a fraction of a share unless such exercise is with respect
to the final installment of stock subject to this option and cash in lieu of a
fractional share must be paid, in accordance with Paragraph 13(G) of the Plan,
to permit the Optionee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Optionee in accordance with the terms hereof.
7. PAYMENT OF PRICE.
(a) FORM OF PAYMENT. The option price shall be paid in
the following manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of
shares of the Company's Common Stock having a fair
market value (as determined by the Committee) equal
as of the date of exercise to the option price;
(iii) by delivery of an assignment satisfactory in
form and substance to the Company of a sufficient
amount of the proceeds from the sale of the Option
Shares and an instruction to the broker or selling
agent to pay that amount to the Company; or
(iv) by any combination of the foregoing.
<PAGE> 4
-4-
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If
the Optionee delivers Common Stock held by the Optionee (the "Old Stock") to
the Company in full or partial payment of the option price, and the Old Stock
so delivered is subject to restrictions or limitations imposed by agreement
between the Optionee and the Company, an equivalent number of Option Shares
shall be subject to all restrictions and limitations applicable to the Old
Stock to the extent that the Optionee paid for the Option Shares by delivery of
Old Stock, in addition to any restrictions or limitations imposed by this
Agreement. Notwithstanding the foregoing, the Optionee may not pay any part of
the exercise price hereof by transferring Common Stock to the Company unless
such Common Stock has been owned by the Optionee free of any substantial risk
of forfeiture for at least six months.
8. RESTRICTIONS ON RESALE. Option Shares may be of an illiquid
nature and may be deemed to be "restricted securities" for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). Accordingly, such
shares may be required to be sold in compliance with the registration
requirements of the Securities Act or an exemption therefrom.
9. METHOD OF EXERCISING OPTION. Subject to the terms and conditions
of this Agreement, this option may be exercised by written notice to the
Company, at the principal executive office of the Company, or to such transfer
agent as the Company shall designate. Such notice shall state the election to
exercise this option and the number of Option Shares for which it is being
exercised and shall be signed by the person or persons so exercising this
option. Such notice shall be accompanied by payment of the full purchase price
of such shares, and the Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the notice shall be
received. Such certificate or certificates shall be registered in the name of
the person or persons so exercising this option (or, if this option shall be
exercised by the Optionee and if the Optionee shall so request in the notice
exercising this option, shall be registered in the name of the Optionee and
another person jointly, with right of survivorship). In the event this option
shall be exercised, pursuant to Section 5 hereof, by any person or persons
other than the Optionee, such notice shall be accompanied by appropriate proof
of the right of such person or persons to exercise this option.
10. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution or
pursuant to a valid domestic relations order. Except as set forth in the
preceding sentence, during the Optionee's lifetime, only the Optionee can
exercise this option.
11. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of
this option imposes no obligation on the Optionee to exercise it.
12. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. Neither the
Plan, this Agreement, nor the grant of this option imposes any obligation on
the Company or any Related Corporation to continue to maintain a Business
Relationship with the Optionee.
<PAGE> 5
-5-
13. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have
no rights as a stockholder with respect to the Option Shares until such time as
the Optionee has exercised this option by delivering a notice of exercise and
has paid in full the purchase price for the number of shares for which this
option is to be so exercised in accordance with Section 9. Except as is
expressly provided in the Plan with respect to certain changes in the
capitalization of the Company, no adjustment shall be made for dividends or
similar rights for which the record date is prior to such date of exercise.
14. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains
provisions covering the treatment of options in a number of contingencies such
as stock splits and mergers. Provisions in the Plan for adjustment with
respect to stock subject to options and the related provisions with respect to
successors to the business of the Company are hereby made applicable hereunder
and are incorporated herein by reference.
15. WITHHOLDING TAXES. If the Company or any Related Corporation in
its discretion determines that it is obligated to withhold any tax in
connection with the exercise of this option, or in connection with the transfer
of, or the lapse of restrictions on, any Common Stock or other property
acquired pursuant to this option, the Optionee hereby agrees that the Company
or any Related Corporation may withhold from the Optionee's wages or other
remuneration the appropriate amount of tax. At the discretion of the Company
or Related Corporation, the amount required to be withheld may be withheld in
cash from such wages or other remuneration or in kind from the Common Stock or
other property otherwise deliverable to the Optionee on exercise of this
option. The Optionee further agrees that, if the Company or Related
Corporation does not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the withholding obligation of the Company or
Related Corporation, the Optionee will make reimbursement on demand, in cash,
for the amount underwithheld.
16. LOCK-UP AGREEMENT. The Employee agrees that in connection with an
underwritten public offering of Common Stock, upon the request of the Company
or the principal underwriter managing such public offering, the Option Shares
may not be sold, offered for sale or otherwise disposed of without the prior
written consent of the Company or such underwriter, as the case may be, for at
least 90 days after the effectiveness of the registration statement filed in
connection with such offering, or such longer period of time as the Board of
Directors may determine if all of the Company's directors and officers agree to
be similarly bound.
17. ARBITRATION. Any dispute, controversy, or claim arising out of,
in connection with, or relating to the performance of this Agreement or its
termination shall be settled by arbitration in the State of Mississippi,
pursuant to the rules then obtaining of the American Arbitration Association.
Any award shall be final, binding and conclusive upon the parties and a
judgment rendered thereon may be entered in any court having jurisdiction
thereof.
18. PROVISION OF DOCUMENTATION TO EMPLOYEE. By signing this Agreement
the Optionee acknowledges receipt of an original of this Agreement and a copy
of the Plan.
<PAGE> 6
-6-
19. MISCELLANEOUS.
(a) NOTICES. All notices hereunder shall be in writing and
shall be deemed given when sent by certified or registered mail, postage
prepaid, return receipt requested, to the address set forth below. The
addresses for such notices may be changed from time to time by written notice
given in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION. This Agreement
constitutes the entire agreement between the parties relative to the subject
matter hereof, and supersedes all proposals, written or oral, and all other
communications between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or rescinded only by a
written agreement executed by both parties.
(c) SEVERABILITY. The invalidity, illegality or
unenforceability of any provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the limitations set forth in Section 10
hereof.
(e) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware, without
giving effect to the principles of the conflicts of laws thereof. The
preceding choice of law provision shall apply to all claims, under any theory
whatsoever, arising out of the relationship of the parties contemplated herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
-7-
IN WITNESS WHEREOF, the Company and the Optionee have caused this
instrument to be executed as of the date first above written.
GULF SOUTH MEDICAL SUPPLY, INC.
- -------------------------------------- One Woodgreen Place
OPTIONEE Madison, MS 39110
(Optionee) By:
- -------------------------------------- -----------------------------
Print Name of Optionee
- -------------------------------------- --------------------------------
Street Address Title
- --------------------------------------
City State Zip Code
<PAGE> 1
EXHIBIT 11.1
GULF SOUTH MEDICAL SUPPLY, INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Average shares
outstanding .............. 15,287 13,841 12,877
Net effect of common
stock options --
based on the treasury
method using average
market value ............. 132 153 196
-------- -------- --------
Weighted average
number of
common shares ............ 15,419 13,994 13,073
======== ======== ========
Net income ................ $ 10,694 $ 8,160 $ 5,796
Interest on convertible
subordinated debt,
net of income tax
credit ................... -- -- 98
-------- -------- --------
$ 10,694 $ 8,160 $ 5,894
======== ======== ========
Net income per
share .................... $ .69 $ .58 $ .45
======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 33-83714; Form S-3, No. 333-10939; and Form S-3, No. 333-20395)
and related prospectuses of Gulf South Medical Supply, Inc. of our report dated
February 7, 1997, with respect to the consolidated financial statements and
schedule of Gulf South Medical Supply, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Jackson, Mississippi
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 76,054
<SECURITIES> 0
<RECEIVABLES> 50,055
<ALLOWANCES> 1,651
<INVENTORY> 27,189
<CURRENT-ASSETS> 155,746
<PP&E> 4,964
<DEPRECIATION> 1,092
<TOTAL-ASSETS> 197,971
<CURRENT-LIABILITIES> 53,672
<BONDS> 0
<COMMON> 163
0
0
<OTHER-SE> 144,136
<TOTAL-LIABILITY-AND-EQUITY> 197,971
<SALES> 177,710
<TOTAL-REVENUES> 177,710
<CGS> 136,344
<TOTAL-COSTS> 136,344
<OTHER-EXPENSES> 25,828
<LOSS-PROVISION> 924
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> 17,080
<INCOME-TAX> 6,386
<INCOME-CONTINUING> 10,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,694
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
