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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-27456
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EQUIMED, INC.
(Successor to EquiVision, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 25-1668112
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2171 Sandy Drive
State College, PA 16803
(Address of principal executive offices) (Zip Code)
(814) 238-0375
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001 per share
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 past 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 No X
--- ---
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 [ ].
The number of shares of the Registrant's Common Stock, par value $.0001 per
share, outstanding as of April 30, 1997 was 27,733,862. The aggregate market
value of voting stock held by nonaffiliates of the Registrant was $15,055,667 as
of April 30, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
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ITEM 1. BUSINESS
Company History
EquiMed, Inc., a Delaware corporation ("EquiMed" or the "Company") is
the legal successor to EquiVision, Inc., a Pennsylvania corporation
("EquiVision"), which was incorporated in October 1991 and commenced
operations as an ophthalmology-related and physician practice management
business, effective January 1, 1992. EquiVision completed its initial
public offering in November 1993 and has been a reporting company under the
Securities Exchange Act of 1934 (the "Exchange Act") since that time.
EquiMed is the result of the merger between EquiVision and Colkitt
Oncology Group, Inc., a Delaware corporation (the "Oncology Group"), and
the subsequent reincorporation merger of EquiVision with and into its
wholly owned Delaware subsidiary, EquiMed. These two mergers are referred
to collectively herein as the "Merger." The business combination of the
Oncology Group and EquiVision was accounted for as a reverse purchase. As a
result, the Oncology Group was considered for financial reporting purposes
as the acquiror. The Merger was consummated on February 2, 1996, and a
follow-on public offering was completed on February 15, 1996 consisting of
shares sold by the Company and a selling stockholder. The Oncology Group
was formed in order to facilitate the acquisition by EquiVision, of Equimed
Common Stock and the subsequent acquisition by EquiMed, of the stock and
assets of various corporations, partnerships and joint ventures owning or
controlling 30 radiation oncology centers comprising the Oncology Group.
Pursuant to the merger agreement the stockholders of the Oncology Group
received approximately 21 million shares of the Company's common stock
(the "Common Stock"). Douglas R. Colkitt, M.D., the principal stockholder
of the Oncology Group, is currently the Chairman, Chief Executive Officer
and also the principal stockholder of the Company. Dr. Colkitt became the
Chief Executive Officer of EquiMed on January 1, 1997. Pursuant to the
Merger, EquiMed succeeded to all of the assets, liabilities and contractual
obligations of EquiVision and of the Oncology Group.
In addition to the acquisition of the radiation oncology centers, the
Oncology Group had entered into management agreements (the "Management
Agreements") with the professional corporations affiliated with such
radiation oncology centers and owned by Dr. Colkitt. These professional
corporations employ physicians that maintain medical practices and provide
medical care to patients receiving treatment at the radiation oncology
centers.
In general, the Management Agreements provide that EquiMed, as the
surviving corporation of the Merger, must supply the professional
corporations with offices and facilities, non-professional personnel,
inventory, supplies and management and administrative services. Under the
terms of the Management Agreements, EquiMed is responsible for billing and
collecting the receivables of the professional corporations. Although each
professional corporation has legal title to its receivables and net
revenues from patient care, EquiMed is an agent of each of the professional
corporations for purposes of billing and collection activities. See "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Overview."
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The Company currently owns, operates or manages 35 radiation oncology
centers (the "Oncology Centers") and operates or manages the professional
corporations affiliated with such Oncology Centers. In addition, the
Company currently manages five complementary subspecialty medical practices
in medical oncology, urology and internal medicine. The professional
corporations and the subspecialty medical practices are hereinafter
collectively referred to as the "Affiliated Medical Practices."
General Overview
EquiMed is a transnational holding company for a group of companies
focused primarily on the provision of physician practice management
services, information technology and outsourcing services primarily to the
health care industry. The Company provides medical practice management
services to the Oncology Centers and Affiliated Medical Practices. In
addition, through its management services organization division (the "MSO
Division") the Company provides data processing, billing, accounting,
collections and other administrative and outsourcing services to the health
care industry and other businesses. The Oncology Centers and Affiliated
Medical Practices provide medical services in selected U.S. geographic
markets. Through wholly and majority owned subsidiaries, the Company also
engages in real estate leasing, provides medical and legal transcription
services, established and operates a cosmetic laser treatment center and is
involved, through a captive insurance company, in the reinsurance of
professional liability for the Oncology Centers and the Affiliated Medical
Pratices and workers' compensation insurance.
Effective November 1, 1996, the Company sold the centers comprising
its ophthalmology business (the "Ophthalmology Division") to Physicians
Resource Group, Inc. and its wholly owned subsidiary, PRG Georgia, Inc.,
both Delaware corporations (collectively, "PRG"). The consideration
received by the Company for the sale to PRG was approximately $55,077,000
in cash and the assumption by PRG of approximately $16,611,000 of
liabilities. In addition, the Company agreed to assist PRG in its
acquisition of additional ophthalmology practices from November 1996
until April 1997 in consideration for negotiated fees and expenses based
on the number of additional ophthalmology practice acquisitions
accomplished in such period. PRG has informed the Company that it does not
intend to pay such fees and expenses, and in May 1997 the Company initiated
an arbitration proceeding. See "ITEM 3. LEGAL PROCEEDINGS." There can be
no assurance that the Company will receive any of the fees and expenses
from PRG.
Effective June 1, 1996, EquiMed established two foreign subsidiaries,
EquiMed India Private Limited, an Indian company ("EquiMed India") and
EquiMed Pakistan (Private) Limited, a Pakistan company ("EquiMed Pakistan")
which provide a wide variety of functions related to the back-office
support of EquiMed's corporate and medical practice management operations.
EquiMed India and EquiMed Pakistan each maintain a 50% interest in Poseidon
Holdings LLC, a Nevis limited liability company ("Poseidon") formed to hold
all of the equity of Solemar Insurance Ltd., an insurer domiciled in the
Cayman Islands ("Solemar"). EquiMed India, EquiMed Pakistan and Poseidon
are hereinafter collectively referred to as "EquiMed Overseas." Through
contractual arrangements with EquiMed and its controlled or managed
entities, EquiMed Overseas provides a variety of billing-related services
and data processing support. Utilizing high-speed, direct telephone and
satellite links with EquiMed and its affiliated companies, English-speaking
personnel in India and Pakistan are now providing data processing in
support of EquiMed's corporate and medical practice management operations.
Business Strategy
EquiMed's business strategy is to continue to expand, add value to and
lower the operating costs of its medical practice management and
outsourcing operations, and to acquire additional medical transcription
services, court reporting businesses, and accounting, billing and
collection service providers, which can benefit from the cost advantage of
utilizing the overseas back-office support facilities of EquiMed Overseas.
There can be no assurance that EquiMed will acquire any such businesses or
if acquired that such acquisitions will be on terms favorable to the
Company. In addition, there can be no assurance that the Company will be
able to adequately integrate such acquisitions.
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The Company's long-term strategy is to continue to pursue synergistic
acquisitions for the Oncology Centers and Affiliated Medical Practices and
to expand its MSO Division and related business activities. In addition,
the Company intends to use its MSO Division to enhance the efficiency of
the Oncology Centers and Affiliated Medical Practices, as well as to
provide outsourcing, temporary staffing and recruiting services to the
health care industry.
Ongoing rapid advances in communications technology continue to
provide business organizations with new ways to organize and configure
their operations, particularly entities in the medical practice management
industry. The MSO Division assumes responsibility for the "back room"
administrative functions, which place burdens on physicians' time and
interfere with their ability to provide quality medical services to their
patients, by providing physicians, hospitals and other health care
providers with billing, collections, accounting and transcription services.
Recent Developments
In July 1996, the Company entered into a laser equipment, services and
revenue sharing agreement with a division of Palomar Medical Technologies,
Inc. ("Palomar") in connection with the Company's plans to establish
cosmetic laser treatment centers. In March 1997, the Company terminated its
revenue sharing agreement with Palomar and Rejuve, Inc. ("Rejuve"), a
wholly owned subsidiary of the Company will be responsible for the
acquisition of all laser equipment for the Company's cosmetic laser
treatment centers. The first new cosmetic laser treatment center was opened
in the second quarter of 1997 under the administration of Rejuve. Rejuve
expects to open additional cosmetic laser treatment centers. There can be
no assurance that the Company will be successful in establishing and
operating the planned cosmetic laser treatment centers or that the
anticipated benefits of operating such centers will be realized.
The Company is also expanding into the reinsurance business through
its recent establishment of Solemar. Solemar is a captive insurance company
whose equity is held by Poseidon. Solemar is currently involved in the
reinsurance of professional liability and workers' compensation policies
for the Company and anticipates expanding the scope of its business.
Effective January 1, 1997, Solemar's liability is capped at $250,000 per
occurrence/incident with a $1,000,000 aggregate limit for 1997.
As of January 1, 1997, the Company acquired several equipment and real
estate leasing companies from Douglas R. Colkitt, M.D., Chairman and CEO of
EquiMed. The companies involved are Nixon Equipment Corporation, ("Nixon")
which leases medical equipment to many of the Oncology Centers and the
George Washington Real Estate Corporation ("George Washington") and Thomas
Jefferson Real Estate Corporation ("Thomas Jefferson"), which own eight
buildings, seven of which are leased to the Oncology Centers.
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Nixon leases various equipment including linear accelerators,
simulators, High Dose Radiation units, tissue compensators and other
miscellaneous equipment. The 1996 revenues of Nixon were $2,319,438. The
total purchase price paid in cash by the Company in the Nixon transaction
was approximately $400,000. The Company obtained two independent appraisals
of the equipment to arrive at a fair market valuation for purposes of the
acquisition of the stock of Nixon.
The 1996 revenues of George Washington and Thomas Jefferson were
$574,107 and $102,480, respectively. The total purchase prices paid in cash
by the Company in the George Washington and Thomas Jefferson transactions
were approximately $2,000,000 and $339,000, respectively. An independent
opinion of the property value for the eight properties located in Salisbury
and Laurinburg, North Carolina, Ft. Pierce, Okeechobee and Tampa, Florida,
Vineland, New Jersey, Greenbelt, Maryland and Oneonta, New York was
obtained by the Company for purposes of the acquisition of the stock of
George Washington and Thomas Jefferson.
Effective April 1, 1997, the Company also acquired from Dr. Colkitt
all of the capital stock of a group of management services companies
including Russell Data Services, Inc. ("Russell"), Billing Services Inc.,
Trident International Accounting, Inc., Tiger Communications International,
LTD and an 80% interest in Nittany Decisions Services Private Limited
(collectively, the "Management Services Companies"). The Management
Services Companies provide outsourcing to health care clients for billing,
accounting, data processing, collections and other administrative services.
The 1996 combined revenues for the Management Services Companies was
approximately $9,565,000. Approximately 50% of the current clients of the
Management Services Companies are third parties not affiliated with the
Company. The total consideration paid for the Management Services Companies
was $6,000,000 in cash plus a potential earn-out of up to $9,300,000
payable in Common Stock in the event the Management Services Companies
achieve aggregate combined pre-tax earnings of $3,500,000 in 1997. The
purchase price was determined on the basis of an acquisition valuation
study undertaken by an independent appraiser and was approved by the
Company's independent directors.
The Affiliated Medical Practices currently have contracts with
National Medical Financial Services Corporation ("NMFS") for the provision
of billing, collection and accounts receivable management services, as well
as certain accounting services. NMFS is a Nevada corporation whose
securities are registered under the Exchange Act and traded on the Nasdaq
Stock Market. Dr. Colkitt is the Chairman of the Board and principal
shareholder of NMFS. NMFS subcontracts its obligations to Russell. In
conjunction with the acquisition of Russell, the Company is currently in
the process of renegotiating the contracts with NMFS to have NMFS provide
marketing services for the MSO Division rather than serving as a contractor
for outsourcing activities.
The Company is also expanding into the transcription services
business. On January 3, 1997, Transcriptions International Inc. ("TI"), a
wholly owned subsidiary of the Company, acquired the assets of Prophecy
Health Information Management, Inc., a medical transcription service
business serving hospitals, health maintenance organizations ("HMOs") and
private physician practices throughout the United States. The 1996
revenues of Prophecy Health Information Management, Inc. were $602,199.
The acquisition price was $500,000 in cash. The Company, through TI,
provides medical records dictation to clients. TI utilizes its employee
network of transcriptionists, telecommunications network equipment and
personal computers to convert free-form medical dictation into the
electronically-formatted patient records.
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The Company believes that medical transcription is a growth industry due to
an increasing demand for legible medical records by insurance companies, as
a result of health care quality improvement initiatives and by doctors for
legal defense purposes. The Company expects to acquire additional medical
transcription firms. However, there can be no assurance that the Company
will acquire any such businesses or if acquired that such acquisitions will
be on terms favorable to the Company. In addition, there can be no
assurance that the Company will be able to adequately integrate such
acquisitions.
On January 8, 1997, ALR Reporting, Inc. ("ALR"), a wholly owned
subsidiary of the Company, acquired all of the capital stock of Doyle
Reporting Inc., a New York court reporting company and of its related
support entities (collectively, "Doyle Reporting") that provide the legal
profession printed and computerized transcripts and video recordings of
testimony from depositions. The total purchase price was $4,473,000 plus a
potential earn-out of $300,000 payable in cash in the event Doyle Reporting
achieves combined gross revenues of $4,500,000 in 1997. The 1996 revenues
of Doyle Reporting were $4,594,988. ALR expects to acquire other court
reporting companies in major business markets around the country. There can
be no assurance that the Company will acquire any such businesses or if
acquired that such acquisitions will be on terms favorable to the Company.
In addition, there can be no assurance that the Company will be able to
adequately integrate such acquisitions.
EquiMed India has entered into a management agreement with Anesthesia
Solutions, Inc. ("ASI"), a provider of hospital-based anesthesia department
staffing services. On February 3, 1997, the Company approved the
acquisition of ASI, which is owned by Dr. Colkitt. The acquisition is not
yet complete.
Industry Overview
Oncology Treatment Centers. The Health Care Financing Administration
("HCFA") estimated health care expenditures in the United States for 1995
at $989 billion, representing more than 13.6% of gross domestic product
("GDP"), up from $600 billion, or 12.1% of GDP, in 1990. The aging of the
population and advances in medical technology have contributed to increases
in the demand for health care. Medicare and Medicaid, which provide for
the payment of health care services for approximately 39 million
individuals in the United States are estimated to have accounted for $214
billion and $98 billion, respectively, of federal expenditure in fiscal
1997.
Within the national health care budget, the provision of cancer
treatment is a large and growing market. According to the American Medical
Association, there are at least 6,000 physicians in the United States
specializing in oncology. According to the American Cancer Society, the
estimated number of cancer cases diagnosed annually in the United States,
excluding certain skin cancers, increased from approximately 782,000 in
1980 to approximately 1,252,000 in 1995. This increase can be attributed
to a number of factors, including a growing and aging population. In
addition, earlier diagnosis and more effective treatment have increased the
relative five-year survival rate of cancer patients from 39% in 1963 to 54%
in 1990. As a result, over eight million Americans living today have been
diagnosed with cancer. The National Cancer Institute estimates that total
cancer costs, including lost productivity and mortality costs, were
approximately $104 billion in 1994, with direct medical costs constituting
approximately $35 billion of that total. Of the approximately one-third of
all Americans who are expected to develop cancer, approximately 50% will
receive at least one course of radiation therapy and approximately 20% will
receive multiple courses of therapy.
Cancer is a group of more than 100 complex diseases characterized by
the uncontrolled growth and spread of abnormal cells. Cancer treatment is
provided primarily by physicians utilizing radiation
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therapy, chemotherapy, surgery and immunotherapy, depending on the type of
cancer involved. Radiation therapy, the treatment of cancer with high
energy radiation, is commonly used to destroy localized tumors and to
relieve pain and other symptoms. Chemotherapy, the treatment of cancer
with pharmaceuticals, is often complicated, requiring management not only
of the chemotherapy treatment itself, but also of its potentially adverse
side effects. Chemotherapy is commonly used to destroy cancer cells that
have spread to other parts of the body. Surgery is used in both the
diagnosis and the treatment of cancer. Immunotherapy, the treatment of
cancer by enhancing the patient's own disease-fighting mechanisms, involves
advanced therapies, such as interferon (a naturally occurring human protein
capable of stopping the growth of cancer) and other immune response
modifiers.
The Company historically has focused on providing radiation and
medical oncology treatment to cancer patients. The Company intends to
expand its range of cancer treatment services to include chemotherapy,
immunotherapy and surgery. The Company anticipates that these services
increasingly will be provided in an outpatient setting. In the Company's
view, the delivery of coordinated cancer care in an outpatient setting
improves the quality of life of patients by providing high-quality care and
services in a more convenient and cost-effective manner than in a
traditional hospital setting.
The Company believes that the recent national focus on cost-
containment has placed small physician groups and individual practices at a
disadvantage. These practices typically lack the capital to expand,
develop information and billing systems and purchase new technologies,
which are often required to improve quality of care and to reduce costs.
These practices also lack the cost accounting and quality management
systems necessary to allow physicians to enter into sophisticated risk-
taking contracts with private third party payors. Additionally, small to
mid-sized groups and individual practices often lack formal ties with other
medical care providers; nor do they have themselves the ability to offer a
variety of medical services. Small practices also have higher operating
costs because overhead must be spread over a relatively small revenue base.
In order to remain competitive in the changing health care industry,
physicians are increasingly affiliating with larger organizations, such as
EquiMed.
Management Services Organizations. Information collected by HCFA
indicates that the approximately 600,000 physicians located in the United
States billed between $134 billion and $175 billion for services in 1993
and that billings could have reached almost $195 billion in 1994. In
addition, it is estimated that physicians control another $600 billion per
year in referral business to hospitals, clinical labs, home health
organizations and nursing homes. Although most physician practice groups
have an office administrator who handles general administrative tasks,
recent estimates indicate that less than 25% of direct physician billings
is currently professionally managed by physician practice management
companies, hospitals, HMOs or insurance companies.
The MSO Division now offers a broad range of business services,
principally to health care providers, including accounting, corporate
development, managed care administration and quality assurance
administration. The Company believes that demand for these services is
significant due to an increasingly complex reimbursement process, downward
pressure on medical fees, rapid technological changes and processing system
obsolescence and the growth in hospital outpatient claims and receivables
owed by patients.
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The Company's recent acquisitions of the Management Services Companies
will provide the Company with the necessary infrastructure in its United
States facilities and the interface with EquiMed Overseas to offer
accounting, billing, collections and medical and legal transcription
services. The Company believes that it is uniquely positioned to enhance
its revenues through this augmentation of its MSO Division and to provide
services on an outsourcing basis to other companies.
Cosmetic Laser Treatment Industry. Until recently, plastic surgeons
and dermatologists have utilized a variety of chemical and surgical
procedures to treat a range of cosmetic skin conditions. While these
procedures have produced benefits in some patients, they are subject to
complications such as hypo-pigmentation, scarring, discomfort and lengthy
recovery times. The introduction of laser technology for cosmetic
treatment has dramatically improved patient outcomes while eliminating many
frequent complications. Laser cosmetic treatment is becoming a widely
accepted form of treatment because it involves non-invasive procedures with
the potential for rapid recovery and positive results.
National statistics on cosmetic surgery treatment in 1995 indicate a
national patient potential of approximately 2,600,000, with potential
revenues of $15 billion annually in the U.S., with the potential for an
additional $3 billion in annual revenues in the emerging laser hair removal
market. With the advent of laser-assisted operations, organizations such as
the American Academy of Cosmetic Surgery and the American Society of
Plastic and Reconstructive Surgeons have indicated that laser-assisted
treatment modalities may dominate this field. The Company believes its
plans to develop and operate cosmetic laser treatment centers will allow
the Company to compete in this expanding field, although there can be no
assurance that the Company will be successful.
Medical Transcription. For the year ended September 30, 1995, the
American Hospital Association estimated the number of hospital admissions
and outpatient visits in the United States to be 8.5 million. Each
hospital admission and outpatient visit generates a new patient record or
data to be added to an existing record. The Company believes the market
for outsourced transcription services will expand due in part to the trends
toward outsourcing, the general growth in information and technology, and
the need to increase the efficient delivery of patient care.
Medical transcription is the process by which free-form, dictated
patient data is captured in useable format, routed to the appropriate
location and inserted into a patient's medical record. Increasingly,
individual hospital departments, such as radiology, emergency, oncology,
pediatrics and cardiology, are dictating reports to improve their delivery
of care and administrative functions. HMOs, outpatient clinics and
physician practice groups are each generating their own set of medical
reports.
The medical transcription industry is highly fragmented. It has been
reported that there are approximately 1,500 providers of medical
transcription services in the United States. The majority are small,
local, or regional companies that lack the financial resources or the
capabilities necessary to provide outsourced services to health care
providers nationwide.
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Court Reporting. Court reporting is the verbatim transcription of the
spoken word into the written word, generally from sworn legal testimony.
The industry is divided into two distinct sectors -- the recording of
proceedings in court, or official court reporting, and all other legal
transcription services. Official court reporting is frequently performed
by civil servant court reporters employed by municipal, state or federal
courts. All other legal transcription services are performed outside the
courtroom by free-lance court reporters, who may be either self-employed or
employees or independent contractors affiliated with a court reporting
agency.
Court reporting firms range in size from sole practitioners to firms
with more than 100 free-lance court reporters. Although there are no
independently verified statistics with respect to the number of court
reporters or the total revenues of the court reporting industry, there are
approximately 22,000 members of the National Court Reporting Association
("NCRA"), a national professional association in the industry and an
estimated additional 50,000 court reporters in the United States.
Professional associations such as the NCRA and various national networks
facilitate both the development of personal relationships between agency
owners and the referral of business between agencies.
The Company believes that, by expanding nationally, ALR will be able
to more effectively serve new and existing clients, particularly law firms
and companies with multistate operations.
Company Operations
Oncology Centers. The Company currently owns, operates or manages 35
Oncology Centers. Each radiation Oncology Center contains a linear
accelerator and contains or has access to a treatment simulator and
treatment planning computer. The radiation Oncology Centers are staffed by
at least one board certified or board eligible radiation oncology
physician, one or more radiation therapy technologists, an oncology nurse
and other personnel, including secretarial and maintenance personnel, and
van drivers for patient transportation. Ownership and management
structures vary among the Oncology Centers, i.e., the Company wholly owns
certain of the centers, owns an interest in partnerships that own certain
other centers and has entered into long-term management services agreements
with certain other centers.
Options to purchase two of the Company's Oncology Centers in Holyoke,
Massachusetts and Key West, Florida, are presently held by third parties,
exercisable prior to 1999. The option price in each case is determined by a
market-value formula based on the center's income.
Practice Management and Quality Assurance. The Company has developed
operational procedures, management information systems, financial controls
and cost containment measures which are implemented in each Oncology Center
and Affiliated Medical Practice to improve operational and financial
performance. The Company also purchases supplies, equipment, drugs and
insurance at volume discounts for these entities. In addition, the Company
provides the regulatory expertise to assist these centers in complying with
increasingly complex laws and regulations applicable to oncology treatment.
With respect to subspecialty medical practices operations, the Company
operates or manages three medical oncology practices in Ogdensburg, New
York, St. Petersburg, Florida and Oaklane, Michigan, one urology practice
in Stuart, Florida and one internal medicine practice in Riverdale,
Maryland. The Company also operates a health care-related cosmetic laser
treatment center in New Orleans.
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The Company's comprehensive quality assurance program incorporates
peer review, patient satisfaction surveys, continuing medical and staff
development and regular continuing medical education seminars. The
physicians practicing at the Affiliated Medical Practices and Oncology
Centers, however, retain full authority and responsibility for the
treatment of patients.
Management Information Systems. The Company's management information
systems, including those operated by EquiMed Overseas, support both medical
practice and administrative functions. From a medical practice standpoint,
these systems are designed to enable physicians to devote their time to the
practice of medicine in a cost-effective and productive manner. The
Company's management information systems also support various
administrative functions, including appointment scheduling, insurance
verification, third party claims processing, billing, accounts payable and
receivable, electronic billing to Medicare, financial reporting,
determining and managing overhead ratios, marketing results, patient
demographics, purchasing patterns and procedure utilization. The Company
believes that timely information on utilization patterns improves physician
productivity and effectiveness. The data also play an integral role in
enabling the Company's medical directors to monitor case management
decisions, evaluate patient outcomes and monitor utilization trends. In
addition, the Company believes that this data can be used to support
negotiations with managed care payors.
Cancer Treatment Data Base. The Company has developed and implemented
a cancer treatment data base (the "Tumor Registry") in all of the Oncology
Centers. The Tumor Registry currently provides outcome analysis for
approximately 25,000 patients. Utilizing this data base, the Company is
able to determine the outcome of therapy of cancer patients based upon
their type of cancer, the stage of cancer, and the type of treatment
prescribed. The Company believes that the Tumor Registry provides the
Company with certain competitive advantages by allowing it to demonstrate
outcome analysis to payors, more fully understand patient demographics and
more accurately predict utilization.
Administrative Personnel. The Company employs and manages
substantially all non-medical personnel at each of the Oncology Centers and
Affiliated Medical Practices, including the administrator, secretarial and
other administrative personnel. The Company evaluates employees, makes
staffing decisions, provides and manages employee benefits and implements
personnel policies and procedures. These personnel assist in providing
routine and complex medical services in the Oncology Centers and Affiliated
Medical Practices. Support personnel are certified in their respective
specialties and receive continuing education to update and improve their
skills.
Strategic Planning Services. The Company's management team provides
each of the Oncology Centers and Affiliated Medical Practices with
strategic planning services by developing an overall plan for the
practice's growth and development. The strategic plan, with significant
physician input, identifies additional services and related equipment
needs, other possible acquisition or affiliation candidates, satellite
office opportunities and radiation center developments. The strategic plan
is implemented by an on-site full time administrator and regional manager.
Clinical Research Studies. The Company believes its commitment to
research through its clinical trial programs enhances its reputation and
ability to recruit physicians, and provides patients with access to
innovative therapies when more conventional therapies have not been
effective. The Company facilitates clinical research conducted by the
Affiliated Medical Practices and markets the physician's ability to manage
clinical trials to pharmaceutical and biotechnology companies.
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Government Regulation and Other Risk Factors
Reimbursement. The Company derives its revenue primarily from third
party payors. The Company attributes its high proportion of Medicare
payments to the fact that the incidence of cancer tends to increase with
age. Medicare is a federally funded and administered health insurance
program for all individuals age 65 and over. Medicare is comprised of
Parts A and B. Part A benefits primarily are for inpatient services, and
principally are made on the basis of the diagnostic related group ("DRG")
of the patient's diagnosis, not on the heath care provider's actual costs
or charges. In general, DRGs have created an incentive for health care
delivery to shift to the outpatient facilities such as the Oncology Centers
operated by the Company. Medicare Part B, which provides coverage for
physician and other professional services, generally covers outpatient care
delivered at such centers and by the Affiliated Medical Practices.
Medicaid is a joint federal-state program that provides medical
benefits for the financially needy, including many who are aged, blind and
disabled, and those families with dependent children who cannot pay for
such care. Medicaid benefits vary widely from state to state.
Group health insurance premiums are typically paid in part by
employers for their employees. Individuals (generally employees and their
dependents) covered by group health insurance tend to comprise a younger
population than those covered by Medicare. A leading method of controlling
health care expenditures for these populations is the HMO. HMOs provide
health care services to enrollees with minimal co-payments and deductibles.
HMOs generally require all services to be accessed through primary care
physicians who are reimbursed by the HMO with a fixed capitation amount
that generally does not vary with the frequency, cost or type of services
utilized.
The Company in general, and its MSO Division in particular, is
impacted by trends in the U.S. health care industry, particularly the
manner in which public and private health care cost containment measures
affect the margins of health care providers. While some payors continue to
pay the fees and costs established by providers, other payors, particularly
the government programs and managed care companies, negotiate for and pay
significantly reduced reimbursement rates. Accordingly, the Affiliated
Medical Practices continually evaluate their charges and fee structures to
appropriately maximize the reimbursement received from all third party
payors. Additionally, health care providers are affected by the increasing
complexity in the reimbursement system and assumption of greater payment
responsibility by individuals which have caused higher receivables, bad
debt levels and business office costs to health care providers.
Various proposals affecting federal and state regulation of the health
care industry, including limitations on Medicare and Medicaid payments,
have been introduced in the past, including provisions that would reduce
funds available for the Medicare program. Any limitation on Medicare,
Medicaid or other government sponsored payments may adversely affect the
Company. Furthermore, funds received under these programs are subject to
audit and retroactive review. In addition, many of the services and
procedures provided and performed at the Oncology Centers and Affiliated
Medical Practices are reimbursed pursuant to Resource Based Relative Value
Scale ("RBRVS") developed under the Medicare program. The Company believes
that the impact of RBRVS on the operations and financial condition of the
Oncology Centers and Affiliated Medical Practices has not been significant.
However, if future changes are adopted relating to the RBRVS fee structure,
the aggregate fee payments from Medicare for certain procedures could be
affected. If the result is a reduction in such fees, especially if
followed by
10
<PAGE>
reductions in reimbursement by commercial third party payors, the RBRVS
system could adversely affect the Company's operating results or financial
condition. There can be no assurance that the payments under any
governmental and private third party payor program will remain at levels
comparable to present levels or will be sufficient to cover the costs
allocable to patients eligible for reimbursement pursuant to such programs.
Furthermore, changes in reimbursement regulations, policies, practices,
interpretations or statutes could adversely affect the operations of the
Company.
Government Regulation. The health care industry is highly regulated,
and regulation of health care providers is increasing. There can be no
assurance that the regulatory environment in which the Company operates
will not change significantly and adversely affect the Company in the
future.
There are currently several federal and state initiatives designed to
amend regulations relating to the provision of health care services, the
access to health care, the costs of health care and the manner in which
health care providers are reimbursed for their services. However, it is
not possible to predict whether any such initiatives will be enacted as
legislation or, if enacted, what their form, effective dates or impact on
the Company will be.
Every state imposes licensing requirements on individual physicians
and on facilities and services operated by physicians. Many states require
regulatory approval before establishing or expanding certain types of
health care facilities, offering certain services or making expenditures
for equipment, facilities or programs. The execution of a management
agreement with a physician group currently does not require any health care
regulatory approval on the part of the Company or the Affiliated Medical
Practices. However, in connection with the expansion of existing
operations and the entry into new markets, the Company and its Affiliated
Medical Practices may become subject to additional regulation.
The Company believes its operations are in material compliance with
applicable law. The ability of the Company to operate profitably will
depend in part upon the Company and its Affiliated Medical Practices
obtaining and maintaining all necessary licenses, certificates of need and
other approvals and operating in compliance with applicable health care
regulations. The Company believes that it has obtained all licenses,
permits and approvals necessary for the operation of its business.
Fee-Splitting; Corporate Practice of Medicine. The laws of many
states prohibit physicians from splitting professional fees with non-
physicians and prohibit non-professional corporations from practicing
medicine. The laws in most states prohibiting the corporate practice of
medicine have been subjected to limited judicial and regulatory
interpretation. The Company believes its current and planned activities do
not constitute fee-splitting or the corporate practice of medicine as
contemplated by such state laws. However, there can be no assurance that
future interpretations of such laws will not require structural and
organizational modifications of the Company's existing relationships with
the Affiliated Medical Practices or that the Company will be able to make
changes to comply with future interpretations of such laws. In addition,
statutes in some states in which the Company does not currently operate
could restrict expansion of Company operations to those jurisdictions.
Medicare Referrals and Medicare Fraud and Abuse Provisions. Federal
law prohibits the offer, payment, solicitation or receipt of any form of
remuneration in return for, or in order to induce, (i) the referral of a
person, (ii) the furnishing or arranging for the furnishing of items or
services reimbursable under Medicare or Medicaid programs or (iii) the
purchase, lease, order, arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid.
The federal government has recently announced a policy of increased
scrutiny of joint ventures and other
11
<PAGE>
transactions among health care providers in an effort to reduce potential
fraud and abuse relating to Medicare costs. The applicability of these
provisions to many business transactions in the health care industry has
not yet been subject to definitive judicial and regulatory interpretation.
In addition, effective January 1, 1995, legislation enacted as part of the
Medicare and Medicaid programs restricts the ability of physicians to
refer patients to entities in which they have a financial interest for
several kinds of health care services including diagnostic services. Many
states have similar anti-kickback and self-referral laws.
Management believes that although it is receiving fees under the
service agreements for management services, it is not in a position to make
or influence referrals of patients or services reimbursed under Medicare or
Medicaid programs to the Affiliated Medical Practices. Such service fees
are intended by management to be consistent with fair market value in arm's
length transactions for the nature and amount of management services
rendered and therefore would not constitute unlawful remuneration under
anti-kickback laws and regulations. For these reasons, management does not
believe that fees payable to the Company would be viewed as remuneration
for referring or influencing referrals of patients or services covered by
such programs as prohibited by the statutes. If the Company is deemed to
be in a position to make or influence referrals from or the Affiliated
Medical Practices or to individual physicians, the operations of the
Company could be subject to scrutiny under federal and state anti-kickback
and anti-referral laws. In addition, management believes that the methods
used to acquire medical facilities and other assets and to recruit new
physicians do not violate anti-kickback and self-referral laws and
regulations. Specifically, management believes the consideration paid by
the Company to physicians to acquire assets in their practices is
consistent with fair market value in arm's length transactions and not
intended to induce the referral of patients. Should this practice be deemed
to constitute an arrangement designed to induce the referral of Medicare or
Medicaid patients, then such could be viewed as possibly violating anti-
kickback and anti-referral laws and regulations. A determination of
liability under any such law could have a material adverse effect on the
Company's revenue. The Company does not believe that its operations
generally are likely to be challenged or, if challenged, likely to be
subject to a successful enforcement action.
Prohibitions on Certain Referrals. The Omnibus Budget Reconciliation
Act of 1993 ("OBRA") significantly expands the prohibitions against
physician referrals. These prohibitions, commonly known as "Stark II,"
dramatically enlarged the field of physician-owned or physician-interested
entities to which the referrals prohibitions apply. Stark II prohibits a
physician from referring Medicare or Medicaid patients to an entity
providing "designated health services" in which the physician has an
ownership or investment interest, or with which the physician has entered
into a compensation arrangement. The designated health services include
radiology services and radiation therapy services and supplies. However,
the Company believes its activities fall within the range of permissible
activities defined in Stark II, including, but not limited to, the
provision of in-office technical services. The Company does not believe
that Stark II will adversely affect the operations of the Company.
Prohibitions on Certain Compensation Arrangements. The OBRA
legislation also prohibits physician group practices from developing
compensation or bonus arrangements that are directly related to the volume
or value of referrals by a physician in the group for designated health
services. While there are no regulatory guidelines or case law
interpretations of this provision of OBRA, the Company believes that the
compensation arrangements of the physicians owning and the physicians
employed by the Affiliated Medical Practices are in compliance with the
OBRA requirements.
12
<PAGE>
Cosmetic Laser Treatment. The cosmetic laser treatment industry is
subject to certain federal regulations established by the Food and Drug
Administration for the use of certain lasers for various procedures. In
addition, some states have established industry regulations adapted from
the standards set by national accrediting bodies such as the Conference of
Radiation Control Program Directors. With laser treatments emerging as the
principal trend in cosmetic skin care, Rejuve will operate in a highly
competitive climate. There are currently several well-capitalized
corporations who have entered this industry. The industry is also dominated
by individual physicians performing such procedures in small office
practice settings. There are also potential liabilities and exposure to
future litigation in this emerging industry in which the long term effects
of laser-based treatment are not fully known.
Antitrust Regulation. Because the Affiliated Medical Practices
associated with the Company remain separate legal entities, they may be
deemed competitors subject to a range of antitrust laws that prohibit anti-
competitive conduct, including price fixing, concerted refusals to deal and
division of market. If the Affiliated Medical Practices and Oncology
Centers are deemed by regulatory authorities or courts to be part of a
single entity or system, they may be subject to antitrust laws that
prohibit anti-competitive combinations or activities in excess of an
immaterial size. The Company believes that it is in compliance with the
antitrust laws, but there can be no assurance that the Company's
interpretation is consistent with that of federal or state authorities or
courts or that such circumstances will remain as the Company grows and
matures and as further regulation and interpretations are promulgated. The
impact of the antitrust laws in such circumstances could have a material
adverse effect on the Company's results of operations.
Regulatory Compliance. The Company believes that health care
regulations will continue to change and, as a result, regularly monitors
developments in health care law. The Company expects to modify its
agreements and operations from time to time as the business and regulatory
environments change. While the Company believes it will be able to
structure all its agreements and operations in accordance with applicable
law, there can be no assurance that its arrangements will not be
successfully challenged. Any such challenge could have a material adverse
effect on the Company's results of operations.
Federal and State Laws Regulating Insurance Companies, HMOs and Other
Managed Care Organizations. Many states also regulate the establishment
and operation of networks of health care providers. Generally, these laws
do not apply to the hiring and contracting of physicians by other health
care providers. There can be no assurance that regulators of the states in
which the Company operates would not apply these laws to require licensure
of the Company's operations as an HMO, an insurer or a provider network.
The Company believes that it is in compliance with these laws in the states
in which it does business, but there can be no assurance that
interpretations of these laws by the regulatory authorities in these states
or in the states in which the Company may expand will not require
licensure or a restructuring of some or all of the Company's operations.
In the event that the Company is required to become licensed under these
laws, the licensure process can be lengthy and time consuming and, unless
the regulatory authority permits the Company to continue to operate while
the licensure process is progressing, the Company could experience a
material adverse change in its business while the licensure process is
pending. In addition, many of the licensing requirements mandate strict
financial and other requirements which the Company may not immediately be
able to meet. Further, once licensed, the Company would be subject to
continuing oversight by and reporting to the respective regulatory
agencies.
Managed Care Contracts. As an increasing percentage of the population
is covered by HMOs and other managed care organizations, the Company
believes that its success will, in part, be dependent upon its ability to
negotiate contracts with HMOs, employer groups and other private third
party payors, pursuant to which services will be provided on a risk-sharing
or capitated basis. Under some of these
13
<PAGE>
agreements, the health care provider may accept a pre-determined amount per
month per patient in exchange for providing all necessary covered services
to the patients covered under the agreement. These contracts pass much of
the risk of providing care from the payor to the provider. The
proliferation of these contracts in markets served by the Company could
result in greater predictability of revenues, but less certainty with
respect to expenses. There can, however, be no assurance that the
Affiliated Medical Practices or the Company on their behalf will be able to
negotiate satisfactory arrangements on a risk-sharing or capitated basis.
In addition, to the extent that patients or enrollees covered by these
contracts require in the aggregate more frequent or extensive care than is
anticipated, operating margins may be reduced or the revenue derived from
these contracts may be insufficient to cover the costs of the services
provided. As a result, the Affiliated Medical Practices may incur
additional costs, which would reduce or eliminate anticipated earnings
under these contracts. Any such reduction or elimination of earnings of
the Affiliated Medical Practices would have a material adverse effect on
the Company's results of operations.
Confidentiality Requirements. Medical transcription services are
subject to statutory and common law requirements regarding the
confidentiality of patient medical information. The Company requires its
personnel to agree to keep all patient medical information confidential and
monitors compliance with applicable confidentiality requirements. Any
violation of such confidentiality requirements could have a material
adverse effect on the Company's results of operations.
Court Reporting Services. Due to the large volume, complexity and
high cost of litigation in the United States, various proposals are under
consideration to limit the number and length of pretrial depositions, and
to substitute audio and/or video-tape recording of stenographic
transcription of legal proceedings which may reduce or eliminate the use of
court reporters. In addition, alternatives to litigation, such as
mediation and arbitration, are increasingly being utilized. These or other
trends that reduce litigation and related pretrial depositions could
adversely impact ALR's revenues. ALR's revenues can also be adversely
affected by a general economic recession that reduces demand for court
reporters.
ALR currently competes with other companies offering many of the same
services. Competition is based on factors such as the existence of
personal relationships with clients and other reporting agencies, price and
the quality of services provided. Some of ALR's competitors are larger,
have greater resources and are more established than ALR. ALR's business
is also subject to changes in technology and new service introductions.
Accordingly, ALR's ability to compete will be dependent upon its ability to
adapt to technological changes in the industry and to develop services
based on those changes to satisfy client requirements.
The business strategy of ALR involves growth through acquisitions and
internal development. ALR is subject to various risks associated with its
growth strategy, including the risk that it will be unable to identify and
recruit suitable acquisition candidates in the future or to integrate and
manage acquired court reporting businesses. The costs associated with such
activities could adversely affect ALR's operating results.
Integration of Acquisitions. An important part of the Company's
strategy is to expand through acquisitions that either expand or complement
its business. There can be no assurance that the Company will be able to
identify and acquire acceptable acquisition candidates on terms favorable
to it or that it will be able to successfully integrate such acquisitions,
once acquired. A substantial portion of the Company's capital resources
could be used to fund these acquisitions. In addition, acquisitions involve
a number of special risks, including adverse short-term effects on the
Company's operating results, the diversion of management's attention, the
dependence on retention, hiring and training of key personnel and risks
associated with unanticipated problems or legal liabilities, some or all of
which could have a material adverse effect on the Company's operations and
financial performance. The failure to complete acquisitions or to integrate
such acquisitions, once acquired, also could have a material adverse effect
on the Company's operations and financial performance.
Dependence on Foreign Operations. The Company is dependent on the
continued operation and efficiency of the operations of EquiMed Overseas.
The ability of EquiMed Overseas to successfully provide billing,
information, technology and outsourcing services to its clients is subject
to interruption or disruption based on labor force issues, worldwide
telecommunications problems and failures and political upheaval in the
countries where EquiMed Overseas operates. In addition, changes in local
tax policies in such countries could adversely affect EquiMed Overseas'
operating results.
14
<PAGE>
Competition
The Company's oncology center and medical practice management
businesses operate in a highly competitive environment. The Company and
the Affiliated Medical Practices generally compete with other health care
providers for acquisitions of medical facilities, physician resources and
patients. As a result of several market factors and of the increasing
regulation of the health care industry, the Company believes that others in
the health care industry may adopt strategies similar to those of the
Company. Many of these potential competitors have significantly greater
resources than the Company.
The Company's net revenues are substantially dependent upon the
continued success of the Oncology Centers and the Affiliated Medical
Practices. These practices and centers face competition from several types
of health care service providers, including sole practitioners, single and
multi-specialty groups, hospitals and managed care organizations.
Employees
As of December 31, 1996, EquiMed employed 185 persons on a full-time
basis and 50 persons on a part-time basis. As of December 31, 1996, the
Affiliated Medical Practices employed 27 physicians. The Company provides a
variety of employment benefits and considers its relationship with its
employees to be good. There are no collective bargaining agreements to
which the Company is a party. As of May 31, 1997, as a result of the
acquisitions described in this Item 1, EquiMed and its subsidiaries employ
approximately 740 individuals, including approximately 500 individuals
employed by EquiMed Overseas.
Insurance
The Company maintains insurance in an amount, based on historical
claims and the nature and risk of its business, that it believes to be
sufficient, including insurance for any vicarious liability of the Company
that may result from its relationship with the Affiliated Medical
Practices. In addition, the Company requires each of the Affiliated Medical
Practices with which it contracts to maintain a designated level of
professional liability insurance coverage. Such coverage will be provided
in the future by Solemar, the Company's captive insurance company. The type
of medical services provided by the Affiliated Medical Practices and at the
Oncology Centers have inherent risks of liability and it can reasonably be
expected that medical malpractice claims will be made against the Company
in the future. The Company has been subject to malpractice claims in the
past, and its malpractice insurance has provided adequate coverage against
such claims. Any future claims could adversely effect the Company's
reputation in the medical community and also could have a material adverse
effect on the Company's financial condition depending upon the number, size
and insurance coverage for such claims.
Important Factors Regarding Forward-Looking Statements
Some of the information presented in this Form 10-K Report constitutes
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that
actual results of the Company's operations will not differ materially from
its expectations. Factors which could cause actual results to differ from
expectations include, among others, the risk factors discussed in this Item
1 and those risks and uncertainties described in the Company's prior
reports and registration statements filed with the Securities and Exchange
Commission. Specific reference is made to the risks and
15
<PAGE>
uncertainties described in the Company's Registration Statement on Form S-
4, Amendment No. 2, Registration No. 333-12773 (October 15, 1996).
ITEM 2. PROPERTIES
The Company leases office space from an entity wholly owned by Dr.
Colkitt at 2171 Sandy Drive, State College, PA 16803, where its executive
offices are located. The annual rental for 1996 was $80,231 and the lease
expires in March 2000. In addition, the Company leases space for its
centers and patient treatment locations under various lease arrangements.
The Company believes its existing space is adequate and suitable for its
current and anticipated needs. To the extent the Company requires
additional space, the Company believes that suitable additional space will
be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
On March 21, 1996, the Company entered an appearance as a plaintiff to
a declaratory judgment action commenced August 30, 1995, in the Delaware
Court of Chancery on behalf of eight corporations which were merged into
the Oncology Group prior to its Merger into the Company. The litigation
seeks a declaration that an August 1995 merger of the eight corporations
(described in detail in previous filings of the Company with the Securities
and Exchange Commission) were effected in accordance with applicable
Delaware law and that the merger consideration was fair to the former
minority stockholders. The former minority stockholders of the eight
corporations have filed answers and counterclaims in the Delaware action
against the Company and other counterclaim defendants, for breach of
fiduciary duty, breach of contract, fraud and violations of Delaware
statutory law. The counterclaims seek rescission of the August 1995 mergers
of the eight corporations and compensatory and/or rescissory damages.
Dr. Colkitt and the entities that were merged into the Company
pursuant to the Merger believe that they have meritorious defenses to the
allegations of the former minority stockholders. Dr. Colkitt has entered
into an agreement with the Company to fully indemnify the Company against
any damage, loss, expense or liability, including attorneys' fees and
expenses, incurred by the Company resulting from the litigation with the
former minority stockholders. Pursuant to pledge agreements securing such
indemnification, among other things, as of June 6, 1997 Dr. Colkitt has
pledged approximately 4,900,000 shares of Common Stock to secure the
indemnity obligation, having a value of approximately $16,080,00 as of May
30, 1997. Such value is less than the value of Common Stock Dr. Colkitt is
required to pledge pursuant to the pledge agreements, however, because of a
number of factors, Dr. Colkitt intends to ask the Company's Board of
Directors to re-evaluate the terms of the pledge agreements. See "ITEM 11.
EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider
Participation."
On May 15, 1997, the Company filed a Demand for Arbitration before the
American Arbitration Association in Philadelphia, Pennsylvania to enforce
certain terms of the Asset Purchase Agreement dated October 7, 1996 between
the Company and PRG (the "Agreement") and to recover damages for breach
16
<PAGE>
of the Agreement by PRG. Under the Agreement, the Company sold
substantially all of the assets of its Ophthalmology Division to PRG and
also agreed, during the period beginning November 1996 and ending April
1997, to assist PRG in the acquisition of additional ophthalmology
practices. In return for such additional services, the Company was entitled
to receive from PRG certain fees and expenses based upon the status of such
additional acquisitions as of May 15, 1997. PRG failed to make the May 15,
1997 payment to the Company and has advised the Company that it does not
intend to make such payment. Under the Demand for Arbitration, the Company
is also seeking damages in connection with PRG's refusal to provide the
Company's representatives with access to financial records of the
Ophthalmology Division, which refusal has delayed the Company's ability to
complete its annual audit and filings required under the Exchange Act.
There can be no assurance that PRG will not assert a material counterclaim
against the Company. In addition, there can be no assurance that the
Company will recover any money as a result of its arbitration claim.
The Company and its subsidiaries are not presently parties nor is the
Company's property subject to any other material litigation or proceedings,
other than the litigation described above and other litigation incidental
to business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table sets forth, for the periods indicated, the high
and low sale prices for the Common Stock of EquiMed or of EquiVision, its
legal predecessor. The Common Stock is traded under the symbol EQMD on the
Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1996
4th Quarter.................................... $ 8.13 $ 3.48
3rd Quarter.................................... 8.75 6.88
2nd Quarter.................................... 12.88 7.00
1st Quarter(1)................................. 16.00 12.25
1995
4th Quarter(1)................................. $14.75 $ 9.50
3rd Quarter(1)................................. 16.00 10.00
2nd Quarter(1)................................. 10.25 7.00
1st Quarter(1)................................. 10.00 7.00
------ ------
</TABLE>
----------------------
(1) The information for a portion of the first quarter of 1996 and for all
quarters in 1995 reflects the high and low sale prices for the Common
Stock of EquiVision, the Company's legal predecessor, and reflects the
one-for-two reverse stock split that was effective upon the
consummation of the Merger effective February 2, 1996. The common
stock of EquiVision was traded under the symbol EQVN on the Nasdaq
SmallCap Market until January 3, 1996, and thereafter on the Nasdaq
National Market until February 2, 1996.
As of April 30, 1997, there were approximately 225 holders of record
of the Common Stock.
The Company, including its legal predecessor, EquiVision, has never
declared or paid any cash dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. Any
payment of future dividends will be at the discretion of the Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
relevant factors.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following income statement and balance sheet data have been
derived from the audited consolidated financial statements of the Company
and of the Oncology Group, predecessor entity for financial reporting
purposes to the Company. The selected financial data below should be read
in conjunction with the consolidated financial statements and notes thereto
and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues.......... $31,076 $40,086 $52,266 $58,884 $ 99,115
Costs and expenses:
Professional
expenses........... 8,062 10,554 13,486 15,054 26,479
Center operating
expenses........... 8,993 12,089 14,738 18,120 42,422
General and
administrative
expenses........... 3,047 5,214 7,257 7,383 8,755
Depreciation and
amortization....... 1,680 2,176 2,563 2,682 6,040
Interest expense:
Related parties... 88 279 826 936 643
Other............. 1,301 1,366 1,357 1,028 1,905
Loss on sale of
receivables...... -- -- -- 885 640
Other income, net... (169) (115) (175) (637) (723)
Loss on sale of
division........... -- -- -- -- 31,112
-------------------------------------------------
Total costs and
expenses............. 23,002 31,563 40,052 45,451 117,273
-------------------------------------------------
Income (loss) before
minority interest
income taxes and
extraordinary
charge............... 8,074 8,523 12,214 13,433 (18,158)
Minority interest..... 668 995 1,947 831 1,171
-------------------------------------------------
Income (loss) before
income taxes and
extraordinary
charge............... 7,406 7,528 10,267 12,602 (19,329)
Provision for income
taxes................ 1,735 1,058 1,704 2,404 10,613
Cumulative effect of
change in income
tax status........... -- -- -- -- 1,277
-------------------------------------------------
Total provision for
income taxes......... 1,735 1,058 1,704 2,404 11,890
-------------------------------------------------
Income (loss) before
extraordinary charge. $ 5,671 $ 6,470 $ 8,563 $10,198 $(31,219)
Extraordinary charge
for early
extinguishment
of debt (net of
income taxes $85).... -- -- -- -- 127
-------------------------------------------------
Net income (loss)..... $ 5,671 $ 6,470 $ 8,563 $10,198 $(31,346)
=================================================
Earnings per share:
Net loss before
extraordinary
charge............. $ (1.13)
Extraordinary
charge for early
extinguishment
of debt............ (0.01)
--------
Net loss............ $ (1.14)
========
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding................. 27,577,000
Supplemental unaudited pro forma information:
Net income, as above.............................. $ 5,671 $ 6,470 $ 8,563 $ 10,198
Pro forma adjustment to income tax
expense......................................... 1,654 2,211 3,330 3,391
------------------------------------------------------
Pro forma net income.............................. $ 4,017 $ 4,259 $ 5,233 $ 6,807
======================================================
Pro forma net income per share.................... $ 0.19 $ 0.20 $ 0.25 $ 0.33
======================================================
Pro forma weighted average shares
outstanding...................................... 20,784,000 20,784,000 20,784,000 20,784,000
========================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
(in thousands)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................... $ 1,554 $ 1,824 $ 2,565 $ 824 $ 27,010
Intangibles......................................... -- -- 1,224 1,664 5,490
Total assets........................................ 20,380 24,262 27,361 20,579 71,591
Long-term debt and capital lease obligations, less
current portion................................... 11,431 11,593 13,034 10,349 5,829
Stockholders' equity(deficit)....................... (1,733) (2,304) (4,091) (10,145) 35,464
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto included elsewhere herein.
Some of the information presented in this Form 10-K constitutes
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that
actual results of the Company's physician practice management operations
and acquisition strategy and their effect on the Company's results of
operations will not differ materially from its expectations. See "ITEM 1.
BUSINESS - Important Factors Regarding Forward-Looking Statements."
Overview
The predecessor companies of the Oncology Group and of EquiMed
commenced operation in February 1987. As of December 31, 1995, the
Oncology Group owned or operated a total of 30 radiation oncology centers
located in Arizona, Florida, Illinois, Maryland, New Jersey, New York,
North Carolina, Ohio and Pennsylvania. The Oncology Group also managed
four radiation oncology centers in Maryland, New Jersey, New York and
Pennsylvania and planned to open an additional center in Massachusetts.
The Oncology Group was formed for the purpose of effecting the Merger
and, immediately prior to consummation of the Merger, acquired all of the
stock or assets of various corporations and certain partnership interests
which owned or controlled 30 radiation oncology centers. In addition, the
Oncology Group entered into Management Agreements with the Affiliated
Medical Practices associated with such centers. See "ITEM 1. BUSINESS -
Company History."
The Management Agreements are for an initial 40-year term and provide
for successive automatic renewals. While EquiMed can terminate the
Management Agreements without cause, the Affiliated Medical Practices can
terminate the Management Agreements only in the event of non-payment by
EquiMed of certain obligations of the Affiliated Medical Practices.
EquiMed has the unilateral right to not extend the renewal provisions of
the Management Agreements. Because of the provisions of the Management
Agreements, the Company currently records all revenue, expenses and results
of operations of the Affiliated Medical Practices in its financial
statements.
Dr. Colkitt has granted to the Company, or its designee, an
irrevocable option to acquire for a nominal amount the common stock of each
of the Affiliated Medical Practices that he owns. The exercise periods of
these option agreements coincide with the duration of the related
Management Agreements.
EquiMed and its predecessor companies have grown principally through
the development of new Oncology Centers either alone or jointly with other
entities such as hospitals. Such development is based on EquiMed's
internal assessment of market feasibility, design and construction of
centers, physician and staff recruitment and acquisition of equipment. In
addition, EquiMed acquired existing radiation oncology centers in Tampa,
Florida, Brooklyn, New York, Salisbury, North Carolina and Southampton,
Pennsylvania and expects that this strategy will become a more significant
factor in generating future
21
<PAGE>
growth. More recently, the Company has become a holding company for a
variety of entities providing a range of information technology,
transcription and outsourcing services.
The table below indicates, as of the dates noted, the number of
Oncology Centers operated by EquiMed and its predecessor companies and
full-time oncologists contracting with or employed by Affiliated Medical
Practices associated with such centers with which the Company has
Management Agreements. In 1996, the Company acquired interests in
one Oncology Center and entered into Management Agreements with two
complementary subspecialty medical practices in urology and internal
medicine.
<TABLE>
<CAPTION>
1993 1994 1995 1996
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C>
Oncologists 22 24 26 28 29 33 34 35 37 37 36 36 38 38 39 40
Oncology Centers 20 22 23 24 25 26 27 28 30 30 30 30 32 32 33 34
</TABLE>
A substantial portion of EquiMed's revenue is derived from government
health care reimbursement programs, commercial insurance carriers and other
third party payors, all of which payors have instituted cost containment
measures designed to limit payments made to health care providers such as
EquiMed. Continued cost containment efforts by private and government
insurers may have a material adverse effect on EquiMed. For example, the
recently implemented Medicare RBRVS payment system has reduced Medicare
reimbursement rates for certain of the procedures performed at the Oncology
Centers and Affiliated Medical Practices. Future implementation of such a
system with respect to third party payors, which has been advocated, would
adversely affect EquiMed's operating margins to the extent that the cost of
providing medical services could not be concomitantly reduced.
Results of Operations
The following table sets forth certain financial data of the Company
for the three years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------------------------------
1994 1995 1996
---- ---- ----
(dollars in thousands)
$ % $ % $ %
-------- ------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $52,266 100.0% $58,884 100.0% $ 99,115 100.0%
Costs and Expenses:
Professional expenses 13,486 25.8 15,054 25.6 26,479 26.7
Center operating expenses 14,738 28.2 18,120 30.8 42,422 42.8
General and administrative
expenses 7,257 13.9 7,383 12.5 8,755 8.8
Depreciation and amortization 2,563 4.9 2,682 4.6 6,040 6.1
Interest expense 2,183 4.2 2,849 4.8 3,188 3.2
Other (income) expense,
net (175) -0.3 (637) -1.1 (723) -0.7
Loss on sale of division - 0.0 - 0.0 31,112 31.4
------- ----- ------- ----- -------- -----
Total costs and expenses 40,052 76.6 45,451 77.2 117,273 118.3
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and minority interest 12,214 23.4 13,433 22.8 (18,158) -18.3
Minority interest 1,947 3.7 831 1.4 1,171 1.2
------- ----- ------- ----- -------- -----
Income (loss) before income taxes
and extraordinary charge 10,267 19.6 12,602 21.4 (19,329) -19.5
Provision for income taxes 1,704 3.3 2,404 4.1 11,890 12.0
Extraordinary charge for
early extinguishment
of debt -- 0.0 - 0.0 127 0.1
------- ----- ------- ----- -------- -----
Net Income (Loss) $ 8,563 16.4% $10,198 17.3% $(31,346) -31.6%
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
At December 31, 1996, the Company owned, operated or managed 34 Oncology
Centers and managed the Affiliated Medical Practices associated therewith,
compared with 30 owned, operated or managed Oncology Centers at December
31, 1995.
Net revenues increased for the year ended December 31, 1996 as compared
to December 31, 1995 by $40,231,000 or 68.3% from $58,884,000 in 1995 to
$99,115,000 in 1996. The increased net revenues in 1996 includes
$42,200,000 attributable to the Merger with EquiVision that was consummated
on February 2, 1996 and $2,100,000 in net revenues associated with the MSO
Division which was first established by the Company in 1996. Effective
November 1, 1996, the Company sold its Ophthalmology Division, formerly
doing business as EquiVision. Excluding revenues from the Ophthalmology
Division, net revenues of the Company decreased in 1996 as compared to 1995
by $1,969,000 or 3.3%. The decrease was due to (i) a reduction in
reimbursements from third party payors for services rendered, and (ii) the
discontinuance of the diagnostic radiology department associated with one
of the existing Oncology Centers. This reduction in revenues was partially
offset by the acquisition and opening of four additional Oncology Centers
in 1996.
Professional expenses increased in 1996 by $11,425,000 or 75.9% as
compared to 1995. The increase was entirely attributable to the Merger.
As a percentage of net revenues, professional expenses were 26.7% in 1996
as compared to 25.6% in 1995. Professional expenses excluding those
associated with the Merger decreased to $14,262,000 in 1996 as compared to
$15,054,000 in 1995, a decrease of 5.3%. This decrease corresponded to the
decrease in net revenues for the year ended December 31, 1996. Most of the
physicians affiliated with the Company are compensated under a contractual
formula based upon the profitability of the center at which they provide
medical services, and accordingly, professional expenses are directly
affected by revenue generation.
Center operating expenses for the oncology and ophthalmology centers
increased from $18,120,000 in 1995 to $42,422,000 in 1996, an increase of
$24,302,000 or 134.1%. This increase in expenses was attributable to the
ophthalmology centers acquired through the Merger. As a percentage of net
revenues, center operating expenses were 42.8% in 1996 as compared to 30.8%
in 1995. The increase in percentage was due to the higher costs associated
with operating ophthalmology centers as compared to Oncology Centers.
Excluding the ophthalmology centers, center operating expenses, increased
from $18,120,000 in 1995 to $18,761,000 in 1996, an increase of $641,000 or
3.5%. Such increase in expenses primarily resulted from the expenses
associated with the four additional Oncology Centers acquired or
23
<PAGE>
opened in 1996 and the offsetting decrease in expenses associated with the
diagnostic radiology department discontinued.
General and administrative expenses consist of legal, accounting,
billing, development and corporate administrative expenses. General and
administrative expenses increased to $8,755,000 in 1996 from $7,383,000 in
1995, an increase of $1,372,000 or 18.6%. As a percentage of net revenues,
general and administrative expenses decreased from 12.5% in 1995 to 8.8% in
1996. Excluding the general and administrative expenses associated with
the ophthalmology centers, expenses decreased to $6,756,000 in 1996 as
compared to $7,383,000 in 1995, a decrease of 8.5%. This decrease resulted
primarily from the cost reduction efforts instituted by the Company in
response to the reduction in net revenues.
Depreciation expense relates to property and equipment. Amortization
consists primarily of the excess costs of acquired businesses over the fair
value of the net identifiable assets acquired in connection with
acquisitions. Depreciation and amortization increased to $6,040,000 in
1996 from $2,682,000 in 1995, an increase of $ 3,358,000 or 125.2%. Of
such increase, $3,224,000, or 96%, was attributable to the ophthalmology
centers acquired in the Merger and sold in connection with the Company's
sale of its Ophthalmology Division.
Interest expense increased from $2,849,000 in 1995 to $3,188,000 in 1996,
an increase of 11.9%. The Merger accounted for $1,279,000 of the 1996
interest expense. Excluding these costs, interest expense decreased from
1995 to 1996 by $940,000, or 33.0%. This decrease resulted from the
elimination of certain debt and capital lease obligations paid with
proceeds received from the sale of Common Stock in the February 1996 public
offering.
Other income increased from $637,000 in 1995 to $723,000 in 1996, an
increase of $86,000 or 13.5%. Other income includes income generated from
management fees along with interest income earned on investments. The
increase from 1995 to 1996 was realized through an increase in interest
income, primarily earned through the investment of the proceeds received
from the sale of the Ophthalmology Division in November 1996.
For the year ended December 31, 1996, the Company recorded a loss on sale
of $31,112,000 related to the sale of the Ophthalmology Division effective
November 1, 1996.
Minority interest represents equity interests in individual Oncology
Centers held by entities other than the Company. Such entities include
hospitals and other health care providers which enter into affiliation
arrangements with the Company. Minority interest in the earnings of such
centers increased by $340,000 or 40.9% in 1996 as compared to 1995 due to
improved performance of these centers.
The Company has provided for income taxes of approximately $5,456,000 for
an estimated difference between the carrying amount of the assets sold for
financial reporting and tax purposes. For the year ended December 31,
1996, the Company also recorded a cumulative adjustment of approximately
$1,277,000 to establish deferred income taxes. Effective January 1, 1996,
certain of the entities which comprised the Oncology Group ceased to
qualify as S corporations and became subject to corporate income taxes.
The change from S corporation to C corporation status required the Company
to record the cumulative effect of deferred taxes due to this change in tax
status.
24
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
At December 31, 1995, the Oncology Group owned, operated or managed 30
Oncology Centers and managed the Affiliated Medical Practices associated
therewith, compared with 28 Oncology Centers at December 31, 1994. In
1995, the Oncology Group acquired one existing center and developed one new
center.
Net revenues increased for the year ended December 31, 1995 as compared
to December 31, 1994 by 13% to $58,884,000. The increase in 1995 was
primarily attributable to an increase in volume as measured by treatments
rendered. Treatment volume in 1995 exceeded that of 1994 by approximately
19%, with 42% of such increase produced by centers newly opened or acquired
during 1995.
Professional expenses increased in 1995 by 12% as compared to 1994,
rising from $13,486,000 to $15,054,000. This increase corresponded
closely with the increase in net revenues for the period. The affiliated
physicians are compensated under a contractual formula based upon the
profitability of the center at which they perform services and,
accordingly, professional expenses are directly affected by revenue
generation.
Center operating expenses increased 23% in 1995 as compared to 1994,
rising from $14,738,000 to $18,120,000. Of this increase of $3,382,000 (i)
approximately 69% resulted from an increase in non-personnel costs related
to new centers, (ii) approximately 23% resulted from an increase in the
number of non-physician personnel required to support both new centers and
an increase in volume at certain existing centers, and (iii) approximately
8% resulted from an increase in compensation earned by non-physician
personnel.
General and administrative expenses consist of legal, accounting,
billing, development and corporate administrative expenses. General and
administrative expenses increased to $7,383,000 in 1995 from $7,257,000 in
1994, or an increase of 2%. This increase resulted primarily from
increased volume and the number of centers, increased development efforts
and the effect of the engagement of NMFS to provide billing and accounting
services at a fee of 4% of cash collections. As a percentage of net
revenues, general and administrative expenses decreased to 12.5% in 1995
from 13.9% in 1994.
Depreciation consists of depreciation of property and equipment.
Amortization consists primarily of the excess costs of acquired businesses
over the fair value of the net identifiable assets acquired in connection
with acquisitions. Depreciation and amortization increased to $2,682,000
in 1995 from $2,563,000 in 1994 or an increase of 4.6%.
Interest expense increased in 1995 compared to 1994 as a result of
interest charges relating to the Company's factoring of its accounts
receivable during 1995.
Minority interest represents interests in individual oncology centers
held by entities other than the Oncology Group. Such entities have included
hospitals or other such health care providers which affiliate with the
Oncology Group. Minority interests in the earnings of such centers
decreased 57% in 1995 as compared to 1994. This decrease of $1,116,000 was
primarily the result of the Oncology Group acquiring increased ownership in
several such practices.
25
<PAGE>
Liquidity and Capital Resources
At December 31, 1996, the Company had cash and cash equivalents of
$27,010,000. The Company also had outstanding debt balances of $7,586,000,
which consisted of long-term debt and capital lease obligations.
During the year ended December 31, 1996, the Company used cash in
operating activities of $1,085,000, generated cash of $38,603,000 in
investing activities, and used $11,332,000 in cash through financing
activities. Cash flow from operating activities during the period ended
December 31, 1996 included adjustments for the loss on sale of the
Company's Ophthalmology Division of $31,112,000 and depreciation and
amortization of $6,040,000 offset by an increase in receivables from
affiliates of $8,960,000, an increase in accounts receivable of $1,319,000
and an increase in prepaid expenses and other current assets of $949,000.
Net cash from investing activities of approximately $38,603,000 related
primarily to the sale of the Company's Ophthalmology Division. The
consideration consisted of approximately $55,077,000 in cash and the
elimination of approximately $16,611,000 of liabilities related to the
Ophthalmology Division. The Company used approximately $14,845,000 and
$5,456,000 of the proceeds from the sale to pay off its line of credit
facility with First Union National Bank relating to its Ophthalmology
Division's operations and to pay taxes relating to the tax gain the Company
realized on the sale of its Ophthalmology Division, respectively. The
Company did not enter into any other credit facilities in 1996. Cash used
in its investing activities principally reflected payments of $4,622,000
for Oncology Centers and Affiliated Medical Practices acquired and
approximately $3,715,000 in purchases of property and equipment. Cash used
in financing activities primarily related to repayments of long-term debt
of $42,141,000 and repayments of obligations under capital leases totaling
$4,884,000 offset by proceeds from issuance of common stock of $24,227,000
and proceeds from long-term debt of $15,879,000.
The Company partially factors its accounts receivable. Proceeds to the
Company from receivables sold under its accounts receivable purchase
agreement with a factoring company were $27,393,000 and $45,726,000 for the
years ended December 31, 1995 and 1996, respectively. During 1995 and 1996,
the Company failed to comply with certain covenants of the receivable
purchase agreement. Remedies available to the purchaser of its accounts
receivable for these events of noncompliance include termination of the
accounts receivable purchase agreement. The balance of the receivables
transferred that remain uncollected was $4,250,000 and $4,896,000 at
December 31, 1995 and 1996, respectively.
At December 31, 1995, the Oncology Group had cash and cash equivalents of
$824,000. The Oncology Group also had outstanding debt balances of
$14,589,000, of which $10,349,000 consisted of long-term debt and capital
lease obligations.
During the period ended December 31, 1995, the Oncology Group generated
cash from operating activities of $18,196,000 and used cash of $328,000 and
$19,609,000 in investing and financing activities, respectively. Cash flow
from operating activities during the period ended December 31, 1995
principally included net income of $10,198,000 as well as $2,682,000 of
depreciation and amortization adjustments. Cash used in investing
activities principally reflected purchases of property and equipment. Cash
used in financing activities reflected the repayment of long-term debt and
capital lease obligations as well as distributions to the principal owner
and minority holders.
26
<PAGE>
At December 31, 1995, the Oncology Group had a capital deficiency of
$10,145,000, primarily as a result of distributions and deemed
distributions of available cash to the Oncology Group's shareholders and
partners.
In 1995, the Oncology Group made no material capital expenditures.
In 1995, the Oncology Group acquired or developed two Oncology Centers
and related Affiliated Medical Practices.
The Company believes that income from operations will be sufficient to
fund its capital expenditures and working capital requirements.
Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued Statement
of Accounting Standard No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" which becomes effective
for transactions occurring after December 31, 1996. The adoption of this
standard is not expected to have a material effect on the Company's
financial position or results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128 "Earnings per Share"
("SFAS 128"), which will change the current method of computing earnings
per share. The new standard requires presentation of "basic earnings per
share" and "diluted earnings per share" amounts, as defined. SFAS 128 will
be effective for the Company's quarter and year ending December 31, 1997,
and upon adoption, all prior-period earnings and per share data presented
will be restated to conform with the provisions of the new pronouncement.
Application earlier than the Company's quarter ending December 31, 1997 is
not permitted. The Company does not believe the application of the new
standard will materially impact the financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial data required by
this Item 8 are set forth following Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers, directors and other significant employees of
the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Douglas R. Colkitt, M.D.(1)(3) 43 Chairman of the Board of Directors and
Chief Executive Officer
Larry W. Pearson(1) 50 President and Director
Gene E. Burleson 56 Director
Jerome Derdel, M.D. 46 Director
Brian C. Smith(2) 38 Director
Daniel Beckett 38 Chief Financial Officer
Marcy L. Colkitt, Esquire 34 Secretary and General Counsel
</TABLE>
- ------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Dr. Colkitt resigned as a member of the Audit Committee effective
January 1, 1997.
The following sets forth certain information with respect to the
members of the Board of Directors, the executive officers and other
significant employees of the Company.
Douglas R. Colkitt, M.D. has been the Chairman of the Board of
Directors of the Company since the Merger in February 1996 and Chief
Executive Officer since January 1997. Prior to the Merger, Dr. Colkitt was
the Chairman of the Board of Directors of EquiVision since its inception in
October 1991. In addition to practicing medicine as a board certified
oncologist since 1979, Dr. Colkitt owns several medical businesses,
including the businesses comprising Colkitt Oncology Group, Inc. where he
served as Chairman, President and Chief Executive Officer from 1986 until
the Merger in February 1996. Dr. Colkitt is the Chairman of National
Medical Financial Services Corporation, a publicly traded company engaged
in medical billing services. Dr. Colkitt received a B.A. from Washington
and Jefferson College, an M.D. from the University of Pennsylvania and an
M.B.A. from the Wharton School of the University of Pennsylvania.
Larry W. Pearson has been President and a director of the Company
since the Merger in February 1996. From February 1996 until December 1996,
Mr. Pearson was also Chief Executive Officer of the Company. Mr. Pearson
was a founder of EquiVision and was President, Chief Executive Officer and
a director of EquiVision from its inception in October 1991 until the
Merger in February 1996. Mr. Pearson is a graduate of Georgia Institute of
Technology. Mr. Pearson has resigned his positions as President and a
director of the Company effective June 15, 1997.
Gene E. Burleson has been a director of the Company since December
1996. Mr. Burleson is Chairman of the Board, President and Chief Executive
Officer of GranCare, Inc. Mr. Burleson served as President and Director of
GranCare, Inc. from 1989 through December 1990 when he was named Chief
28
<PAGE>
Executive Officer. Mr. Burleson became the Chairman of the Board of
GranCare, Inc. in 1994. GranCare, Inc., a publicly traded company, is a
leading provider of specialty medical services and long term care,
operating 139 skilled nursing facilities in 15 states. Mr. Burleson is
also Chief Executive Officer and a director of Vitalink Pharmacy Services,
Inc., a publicly traded company that provides pharmacy services to skilled
nursing facilities. Mr. Burleson is also a director of Alternative Living
Services, Inc., Deckers Outdoor Corporation and Walnut Financial Services.
Mr. Burleson is a graduate of East Tennessee State University where he
received his B.S. in accounting. Mr. Burleson received his M.B.A. from the
University of Tennessee, in Knoxville, Tennessee. Mr. Burleson has
resigned as a director of the Company effective June 22, 1997.
Jerome Derdel, M.D. has been a director of the Company since June
1996. Dr. Derdel is a board certified radiation oncologist since 1983 and
currently serves as the Medical Director of the Radiation Oncology
Department at Centre Community Hospital in State College, Pennsylvania.
Dr. Derdel is a graduate of John Carroll University in Cleveland, Ohio,
where he received his B.S. in Physics. Dr. Derdel received his M.D. from
the University of Bologna, Italy.
Brian C. Smith has been a director of the Company since the Merger in
February 1996 and prior thereto served as a director of EquiVision from
November 1993 until February 1996. Since June 1994, Mr. Smith has served
as President and Chief Executive Officer of B. Castle Smith & Company, a
managed care advisory services firm. From 1988 until June 1994, Mr. Smith
served as Vice President, Network Development for Health Net, a federally
qualified HMO based in Woodland Hills, California. Mr. Smith received a
B.S. from the University of California at Riverside. Mr. Smith has resigned
as a director of the Company effective June 15, 1997.
Daniel L. Beckett has served as the Chief Financial Officer of the
Company since November 1996 having previously served from May through
November 1996 as Controller. From February through May 1996, Mr. Beckett
was in charge of financial analysis for the Company. Mr. Beckett previously
served as the Controller for Oncology Services Corporation, a corporation
affiliated with the Oncology Group prior to the Merger, from October 1991
to February 1996. Mr. Beckett is a graduate of Grace College in Winona
Lake, Indiana where he received his B.S. degree in Business Administration
and Accounting.
Marcy L. Colkitt, Esq. has served as Secretary of the Company since
November 1996 and as its general counsel since February of that year. Prior
to assuming the role as general counsel to the Company, Ms. Colkitt served
as general counsel to Oncology Services Corporation, a corporation
affiliated with the Oncology Group prior to the Merger, from 1992 through
1996. From 1988 through 1992 Ms. Colkitt was an associate of the Pittsburgh
law firm of Reed, Smith, Shaw & McClay. Ms. Colkitt currently participates
as a board member in several charitable cancer organizations and is a
member of the Pennsylvania and American Bar Associations. Ms. Colkitt is a
graduate of Washington and Jefferson College in Washington, Pennsylvania,
where she received dual degrees including a B.A. in Chemistry and a B.A. in
Business Administration. Ms. Colkitt received her J.D. from the University
of Pennsylvania in Philadelphia, Pennsylvania.
Stephen F. Brint, M.D., a director of EquiVision and a director of the
Company since the Merger in February 1996 resigned as a director of the
Company in November 1996 in connection with the sale of the Ophthalmology
Division to PRG.
29
<PAGE>
Classes of Directors
The Board of Directors currently has five members and is divided into
two classes. Class I Directors will serve until the Annual Meeting of
Stockholders in 1998 and thereafter for terms of two years until their
successors have been elected and qualified. Class II Directors will serve
until the Annual Meeting of Stockholders in 1997 and thereafter for terms
of two years until their successors have been elected and qualified.
Currently, Larry W. Pearson, Brian C. Smith and Jerome Derdel, M.D. are
Class I Directors and Douglas R. Colkitt and Gene E. Burleson are Class II
Directors.
Meetings and Committees of the Board of Directors
The Company has an Audit Committee and a Compensation Committee, but
does not have a Nominating Committee.
In 1996, the Audit Committee consisted of Mr. Smith and Dr. Colkitt.
The functions of the Audit Committee generally include reviewing with the
Company's independent auditors the scope and results of their engagement
and reviewing the adequacy of the Company's systems of internal accounting
controls. The Audit Committee held one meeting in 1996. Beginning as of
January 1, 1997, the Audit Committee consisted of Mr. Smith until his
resignation from the Board of Directors when Dr. Derdel will serve as the
member of the Audit Committee. The Board of Directors intends to appoint
additional independent directors and anticipates appointing new members to
the Audit Committee at that time.
In 1996, the Compensation Committee consisted of Mr. Pearson, Dr.
Derdel and Dr. Colkitt. Mr. Pearson resigned from the Compensation
Committee on March 2, 1996. The functions of the Compensation Committee are
to review and evaluate the compensation of the Company's executive
officers, administer the Company's Stock Option Plan and establish
guidelines for compensation of other personnel. The Compensation Committee
held two meetings in 1996.
The Board of Directors held one regular meeting and six special
meetings in 1996 and acted by written consent 25 times. Each director
attended at least 75% of the aggregate number of meetings of the Board of
Directors and committees on which he served while a member of the board or
such committee.
Compensation of Directors
No compensation is currently paid by the Company to its outside
directors but such directors are reimbursed for expenses incurred for
attendance at meetings. From time to time, however, outside directors have
been and may be granted options to purchase shares of Common Stock. In
1996, the Company issued to Dr. Derdel options to purchase 1,000 shares of
Common Stock, at an exercise price of $8.63 per share and to Mr. Smith
options to purchase a total of 15,500 shares of Common Stock at exercise
prices ranging from $8.00 to $13.13 per share as compensation for services
rendered as a director of the Company.
30
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the directors, certain
officers of the Company and beneficial owners of more than ten percent of
the Common Stock to file reports of securities ownership and changes in
such ownership with the Securities and Exchange Commission. Based solely
upon a review of the copies of such forms furnished to the Company and the
representations made by such persons to the Company, the Company believes
that during the last fiscal year its directors, officers and ten-percent
beneficial owners complied with all filing requirements under Section 16(a)
of the Exchange Act, except that Larry W. Pearson and P. Craig Hethcox, who
was Chief Operating Officer of the Company, had late filings related to
stock option regrants; Gene E. Burleson, David Crane, who was a director of
the Company, and Daniel L. Beckett had late filings related to appointments
as directors or executive officers of the Company; and Jerome Derdel, M.D.,
Brian C. Smith and Richard Holdren, who was a director of the Company, had
late filings related to stock option grants.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to
compensation paid or accrued by the Company subsequent to the date of the
Merger and by EquiVision prior to the date of the Merger for the years
ended December 31, 1996, 1995 and 1994 to the Company's Chief Executive
Officer and to each of the Company's other executive officers:
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
----------------------------- ----------------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) Options(#) ($)(1)
--------------------------- ---- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Larry W. Pearson............................... 1996 269,340 -- 9,375 8,973
President and Chief Executive Officer(2)(3) 1995 193,803 25,000 509,375(4) 9,240
1994 195,058 -- -- 7,985
P. Craig Hethcox............................... 1996 117,500 -- 3,516 7,500
Chief Operating Officer(2)(5) 1995 141,250 9,375 203,516(4) 8,750
1994 73,365 -- 25,000 --
William E. Pritts II........................... 1996 119,103 -- 50,000 9,500
Chief Financial Officer (2)(6) 1995 12,500 -- 50,000(4) --
</TABLE>
_______________________
(1) Amounts shown reflect contributions to the 401(k) plan of the Company
or of EquiVision as a pre-tax salary deferral.
(2) The compensation disclosed for the years ended December 31, 1995 and
1994 reflect compensation paid to the named executive officers by
EquiVision, the legal predecessor to the Company.
(3) Mr. Pearson resigned as Chief Executive Officer of the Company as of
January 1, 1997 and as President of the Company effective June 15,
1997.
(4) Of the stock options granted in 1995 to Messrs. Pearson, Hethcox and
Pritts, 9,375, 3,516 and 50,000, respectively, were forfeited in
return for stock option regrants issued as of June 26, 1996.
(5) Mr. Hethcox joined EquiVision in July 1994 and resigned from the
Company in November 1996.
(6) Mr. Pritts joined EquiVision on December 1, 1995 at an annual salary
of $150,000 and resigned from the Company in November 1996. In
November 1996, Daniel L. Beckett was named as Chief Financial Officer
of the Company.
32
<PAGE>
Stock Option Grants in 1996(1)
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
% of Total Potential Realizable Value
Number of Options at Assumed Annual Rates
Shares Granted to of Stock Price Appreciation
Underlying Employees for Option Term(3)
Options During Exercise Expiration -------------------------------
Name Granted(2) Fiscal Year Price Date 5% 10%
---- ---------- ----------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry W. Pearson........ 9,375 3.7% $ 8.00 6/06 $ 47,156 $ 119,531
P. Craig Hethcox(4)..... 3,516 1.4 8.00 6/06 17,685 44,829
William E. Pritts II(4).. 50,000 19.5 11.26 6/06 354,000 897,500
</TABLE>
-----------------------
(1) The option grants disclosed in this table do not reflect options
granted to the named executive officers prior to 1996 by EquiVision,
the legal predecessor to the Company prior to the Merger and assumed
by the Company pursuant to the Merger. For financial reporting
purposes, such options are treated as being granted in 1996.
(2) The options granted in 1996 to the named executive officers were
regrants based on the forfeiture of identical grants of stock options
issued between June 2, 1995 and November 29, 1995.
(3) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the price of the Common Stock and overall market
conditions. The amounts reflected in this table may not necessarily
be achieved.
(4) The stock options previously granted to Messrs. Hethcox and Pritts
were not exercised prior to their resignations and have been
forfeited.
Aggregated Stock Option Exercises in 1996
and Stock Option Values at December 31, 1996
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End Options at FY-End
Number of -------------------------- -----------------------------
Shares on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry W. Pearson 0 0 501,875 7,500 $0 $0
P. Craig Hethcox (1) 0 0 0 0 0 0
William E. Pritts II(1) 0 0 0 0 0 0
</TABLE>
-------------------
(1) The stock options previously granted to Messrs. Hethcox and Pritts
were not exercised prior to their resignations and have been
forfeited.
Employment Agreements
Effective January 1, 1996, EquiVision entered into a employment
agreement with Larry W. Pearson (assumed by the Company in connection with
the Merger), pursuant to which Mr. Pearson served as President and Chief
Executive Officer of EquiVision and subsequently served as President and
Chief Executive Officer of the Company until December 31, 1996. Effective
January 1, 1997, Mr. Pearson served as President of the Company and
effective June 15, 1997, Mr. Pearson has resigned that position. The
agreement provided for an annual salary of not less than $300,000 per year
plus a bonus of up to 50% of base salary, subject to the approval of the
Board of Directors, benefits and reimbursement of
33
<PAGE>
expenses. In addition, Mr. Pearson was entitled to severance and other
payments following the termination of his employment in certain
circumstances, including a breach by the Company of the agreement or a
change in control of the Company if, as a result of such change in control,
Mr. Pearson was required to accept a decrease in salary or responsibility
or a geographical relocation. Mr. Pearson will not be entitled to receive
severance pursuant to his voluntary resignation. The agreement contains
noncompetition and nonsolicitation provisions for up to one year following
termination of employment. In recognition of Mr. Pearson's contributions
to the development of the Company since its founding, on July 26, 1995, the
Compensation Committee of the Board of Directors granted to Mr. Pearson
options to purchase up to 500,000 shares of the Company's Common Stock at
an exercise price equal to the market value of the Common Stock. The
options are fully vested.
The Company has no other employment agreements (other than
arrangements terminable by the Company "at will") with any other officers
or employees.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is currently comprised of Dr. Colkitt.
None of the executive officers of the Company currently serves on the
compensation committee of another entity or on any other committee of the
board of directors of another entity performing similar functions.
In connection with the Merger, Dr. Colkitt, the Company's Chairman,
CEO and principal stockholder and the former Chairman and principal
stockholder of the Oncology Group, received 19,321,571 shares of Common
Stock, representing 81.5% of the shares of Common Stock outstanding
immediately following the Merger and 75.2% upon completion of a subsequent
public offering by the Company in February 1996 in which Dr. Colkitt sold
95,000 shares.
Pursuant to the terms of the merger agreement executed in connection
with the Merger, Dr. Colkitt has agreed to indemnify the Company against
certain losses that may arise in connection with the representations and
warranties of the Oncology Group and, as security for such obligation, has
agreed to pledge shares of Common Stock having a value of $7,500,000. This
indemnification is in addition to Dr. Colkitt's indemnification relating to
certain pending litigation.
Dr. Colkitt and the entities that were merged into the Company
pursuant to the Merger believe that they have meritorious defenses to the
allegations of the former minority stockholders described under "ITEM 3.
LEGAL PROCEEDINGS." Dr. Colkitt has entered into an agreement with the
Company to fully indemnify the Company, among other things, against any
damage, loss, expense or liability, including attorneys' fees and expenses,
incurred by the Company resulting from the litigation with the former
minority stockholders, which indemnity was to be secured, pursuant to a
pledge agreement, by a pledge of the number of shares of Common Stock
having a value of $25,000,000.
The pledge agreements provide that in the event the closing trading
price of the Common Stock increases or decreases such that the aggregate
value of the shares pledged pursuant to the pledge agreements fall below or
exceed the values required by the pledge agreements, an adjustment will be
made in the number of shares subject to the pledges to add shares to the
pledges in the event the closing trading price decreases or to release
shares from the pledges in the event the closing trading price increases.
At the time the pledge agreements were executed, Dr. Colkitt pledged to the
Company a total 2,888,889 shares of Common Stock with an aggregate value of
approximately $32,500,000. As of June 6, 1997, approximately 4,900,000
shares of Common Stock owned by Dr. Colkitt are held by the Company subject
to both pledge agreements. Based on the closing trading price of the Common
Stock as of May 30, 1997 (which was $3.28125), the value of such pledged
stock is approximately $16,080,000. The Company believes the value of such
pledged shares is sufficient based on the Company's estimate of any
potential damages, costs, expenses or liability, including attorneys' fees
and expenses, which may be incurred by the Company resulting from the
former minority stockholder litigation and income tax liability not
reflected in the financial statements of the Oncology Group related to any
period or periods prior to the Merger. However, there can be no assurance
that such potential damages, costs, expenses or liability will not exceed
the Company's good faith estimate or that the value of the pledged shares
will not decrease based on a decrease in the market price of the Common
Stock. Because of the Company's estimate of any potential liability related
to the former minority stockholder litigation and the resolution of certain
other litigation and tax events for which Dr. Colkitt has indemnified the
Company, Dr. Colkitt intends to ask the Company's Board of Directors to re-
evaluate the terms of the pledge agreements.
Pursuant to the terms of the merger agreement, Dr. Colkitt is required
to vote all of his shares of Common Stock to elect not less than three
independent members to the Board of Directors so long as Dr. Colkitt owns
in excess of 20% of EquiMed's outstanding Common Stock.
On July 1, 1993, in consideration of the substantial investment Dr.
Colkitt made in EquiVision, EquiVision granted Dr. Colkitt an option to
purchase 500,000 shares of EquiVision common stock at an
34
<PAGE>
exercise price of $50 per share. The option became exercisable on June 30,
1995 and expires on June 30, 2003.
Dr. Colkitt owns the common stock of six ophthalmic professional
corporations which entered into services agreements to be managed by
EquiVision and has an irrevocable option to acquire the common stock of 12
professional corporations for an exercise price of $1.00. Following the
Merger and prior to the sale of the Ophthalmology Division in November
1996, the Company was entitled to exercise an irrevocable option granted by
Dr. Colkitt to EquiVision, or its designee to acquire the common stock of
the six professional corporations he owns for an exercise price of $1.00
and an assignment of the stock option agreements with respect to the
professional corporations that he does not own. Prior to November 1996,
the Company's President and Chief Executive Officer had the authority to
exercise this right on behalf of the Company without prior approval of the
Board of Directors. The Company has no further rights under such options
subsequent to the November 1996 sale of the Ophthalmology Division to PRG.
On November 1, 1994, EquiVision entered into a 40-year services
agreement with an ambulatory surgery center ("ASC") in Chevy Chase,
Maryland that is 50% owned by Dr. Colkitt. Under the agreement, the
Company, as successor to EquiVision, managed the operations of the ASC
until November 1996 for a monthly fee of $4,000. In addition, in 1996 the
Company was entitled to receive the first $1,000,000 of the ASC's operating
income and 50% of the ASC's net income thereafter. Effective with the
November 1, 1996 sale of the Ophthalmology Division to PRG, the Company has
no further obligations or rights under the services agreement.
Dr. Colkitt owns the common stock of 30 of the Affiliated Medical
Practices which have entered into Management Agreements with the Company
and has granted the Company, or its designee, an irrevocable option to
acquire the common stock of the Affiliated Medical Practices for an
exercise price of $1.00. The term of the option agreements coincide with
the term of the related Management Agreements, which are for a initial 40-
year term and provide for successive automatic renewals. In 1996, the
Company's President and Chief Executive Officer had the authority to
exercise this option agreement on behalf of the Company without prior
approval of the Board of Directors. The Company's policy requires a
majority of the Company's independent directors to approve transactions
between the Company and Dr. Colkitt. Accordingly, there are limitations on
Dr. Colkitt's ability to amend or terminate any Management Agreements or
option agreements granted to the Company related to the common stock of the
Affiliated Medical Practices.
On June 1, 1996, EquiMed India, a wholly owned subsidiary of the
Company formed to obtain contracts for accounting and billing services,
began operations in Madras, India. EquiMed India had revenues and net
income of approximately $2,100,000 and $1,900,000, respectively,
principally related to a contract for accounting and billing services with
Anesthesia Solutions, Inc., a company wholly owned by Dr. Colkitt. Prior
to April 1, 1997, EquiMed India subcontracted with Nittany Decisions
Services Private Limited ("Nittany"), a company 80% owned by Dr. Colkitt,
to provide the accounting and billing services for Anesthesia Solutions,
Inc. According to the contract terms, EquiMed India retains approximately
10% of the revenues billed for Anesthesia Solutions, Inc. and pays Nittany
its costs and an agreed upon rate of return. Effective April 1, 1997, the
Company acquired Dr. Colkitt's interest in Nittany as part of its
acquisition of the Management Services Companies. See "ITEM 1. BUSINESS -
Recent Developments." EquiMed India is exempt from income taxes payable to
agencies of the Indian government and the local provincial government based
upon agreements with these agencies when EquiMed India was incorporated.
At December 31, 1996, EquiMed India has trade receivables of
35
<PAGE>
approximately $2,000,000 which primarily represent receivables for the
services from ASI. On February 2, 1997, the Company entered into an
agreement to acquire ASI.
In 1996, Dr. Colkitt was the Chairman and sole stockholder of George
Washington and Thomas Jefferson, which corporations lease premises occupied
by certain of the Oncology Centers. The Company made lease payments to
George Washington and Thomas Jefferson in the aggregate amount of $568,846.
In January 1997, the Company acquired George Washington and Thomas
Jefferson from Dr. Colkitt. See "ITEM 1. BUSINESS - Recent Developments."
In 1996, the Company leased certain equipment from D&T Leasing Limited
Partnership ("D&T") and Nixon, both controlled by Dr. Colkitt. The Company
made payments to D&T, in the aggregate, of $113,812 in 1996. The Company
made payments to Nixon, in the aggregate, of $160,040 during 1996. During
1996, the Company repaid approximately $3,218,000 of the principal amount
under these capital leases, thereby reducing its monthly payment
obligations. In January 1997, the Company acquired Nixon from Dr. Colkitt
for approximately $400,000. See "ITEM 1. BUSINESS - Recent Developments."
The Affiliated Medical Practices have contracts with NMFS for the
provision of billing, collection and accounts receivable management
services, as well as certain accounting services. The centers paid to
NMFS a aggregate of $2,619,470 during 1996 for such services. NMFS is a
publicly traded company of which Dr. Colkitt is the Chairman and principal
stockholder.
The Company entered into a receivable purchase agreement in April
1995. Under the terms of the agreement, receivables are transferred to
Oncology Funding Corporation (a company that is wholly owned by Dr.
Colkitt) which then factors the receivables with an unrelated financing
company, John Alden Asset Management Company ("Alden"). The factored
receivables may be denied by Alden for various reasons including nonpayment
by the payor. The transfer of receivables to Alden is recognized as a sale,
and the difference between the sales price (adjusted for the accrual of
probable adjustments) and the net receivables is recognized as a gain or
loss on the sale of receivables. Proceeds to the Company from receivables
sold under this agreement were approximately $45,726,000 for the year ended
December 31, 1996. During 1995 and 1996, the Company failed to comply with
certain covenants of the receivable purchase agreement. Remedies available
to Alden due to these events of noncompliance include termination of the
receivable purchase agreement. The balance of the receivables transferred
that remain uncollected was approximately $4,896,000 at December 31, 1996.
36
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of April 30, 1997 by (i)
each person known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each executive officer named in the table under the
caption "Executive Compensation" and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner (1)(2) Number Percent
----------------------- ------ -------
<S> <C> <C>
Douglas R. Colkitt, M.D/(3)/ 20,889,880 73.9%
Larry W. Pearson/(4)/ 1,121,802 3.9
Brian C. Smith/(5)/ 36,250 *
Jerome Derdel, M.D./(6)/ 1,000 *
Gene E. Burleson 1,000 *
All directors and executive officers as a
group (5 persons)/(7)/ 22,049,932 76.6
</TABLE>
--------------------------
* Less than 1%.
(1) The addresses of all such owners is in care of the Company at 2171
Sandy Drive, State College, PA 16803.
(2) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days upon the exercise of options
or warrants. Each beneficial owner's number of shares is determined
by assuming that options or warrants that are held by such person (but
not those held by any other person) and that are exercisable within 60
days have been exercised. The total outstanding shares used to
calculate each beneficial owner's percentage includes such options and
warrants. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) Includes exercisable options to purchase 500,000 shares of Common
Stock at an exercise price of $50 per share. Does not include
1,247,517 shares owned by Dr. Colkitt's spouse, of which Dr. Colkitt
disclaims beneficial ownership.
(4) Includes exercisable options to purchase 501,875 shares of Common
Stock at exercise prices ranging from $8.00 to $10.50 per share.
(5) Includes exercisable options to purchase 35,500 shares of Common Stock
at exercise prices ranging from $7.00 to $10.50 per share.
(6) Includes exercisable options to purchase 1,000 shares of Common Stock
at an exercise price of $8.63 per share.
(7) Includes exercisable options to purchase 1,038,375 shares of Common
Stock.
37
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is the legal successor to EquiVision, which merged with
the Oncology Group on February 2, 1996 pursuant to the Merger. See "ITEM
1. BUSINESS - Company History." EquiVision, the Oncology Group and the
Company have been parties to a number of transactions with their respective
officers and directors and individuals or entities which are affiliated
with such officers and directors. Pursuant to the Merger, the Company
succeeded to all continuing obligations and benefits of these transactions.
Effective November 1, 1996, the Company sold its Ophthalmology Division to
PRG. See "ITEM 1. BUSINESS - General Overview." This Item 13 describes
certain relationships and related transactions of which the Company had
some obligation or benefit in the year ended December 31, 1996. In the
future, any transactions between the Company and related parties, other
than the defense of actions for which Dr. Colkitt has indemnified the
Company, will be approved by a majority of the Company's independent
directors. See "ITEM 11. EXECUTIVE COMPENSATION - Compensation Committee
Interlocks and Insider Participation" for a description of certain
relationships and related transactions between the Company and Dr. Colkitt.
In connection with the Merger, the Company assumed the option plans of
EquiVision and converted those options into options to receive shares of
Common Stock. All EquiVision options described herein have been adjusted
to reflect the one-for-two reverse stock split of EquiVision common stock.
During 1996 and prior to the November 1, 1996 sale of the
Ophthalmology Division to PRG, the Company paid $95,184 as lease expenses
for a corporate office to a partnership in which Mr. Pearson is a general
partner. Effective November 1, 1996, the Company's obligations under the
lease were assigned to and assumed by PRG.
On September 1, 1992, EquiVision acquired certain assets of The Eye
Surgery Center of Louisiana, a professional medical corporation wholly
owned by Stephen F. Brint, M.D., a director of the Company from February
until November 1996. In 1996, the Company leased equipment from Dr. Brint
and employed Dr. Brint as Medical Director of the Eye Surgery Center of
Louisiana. During the year ended December 31, 1996, Dr. Brint received
compensation of $427,557. In addition, Dr. Brint is a limited partner of
the Ambulatory Eye Surgery Center of Louisiana of which the Company was a
general partner prior to November 1996. During the year ended December 31,
1996, Dr. Brint received partnership distributions of $52,900.
On November 12, 1993, in consideration of his election to the Board of
Directors of EquiVision, Brian C. Smith received an option to purchase
10,000 shares of EquiVision common stock at an exercise price of $7.00 per
share. The option became exercisable November 12, 1994 and expires
November 12, 2000. EquiVision entered into a one-year, renewable agreement
effective July 1, 1994 with B. Castle Smith & Co., Inc. ("BCSI"), a
consulting firm whose principal stockholder is Mr. Smith. The agreement
provides for BCSI to assist the Company with the development and
implementation of its managed care strategy. In connection with the
agreement, BCSI has been granted options covering an aggregate of 15,000
shares of EquiVision common stock. The options are exercisable on the
first anniversary date of their issuance and expire on the seventh
anniversary of issuance. For stock options granted by the Company to Mr.
Smith in 1996, see "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT - Compensation of Directors."
38
<PAGE>
The Company retained the services of Parkwood Motors, a corporation
owned by Sharon Pearson, Larry Pearson's wife, to assist in the sale of the
ophthalmic practices to PRG. Parkwood engaged financial staffing to gather
due diligence and other information regarding entities to be acquired.
Parkwood was entitled to a commission equal to 5% of the earn-out received
by EquiMed from PRG. In 1996, such commission totalled $150,000.
Certain legal services are provided on behalf of the Company by Marcy
L. Colkitt & Associates, P.C., a firm of which Marcy Colkitt, Secretary and
General Counsel of the Company and the sister of Dr. Colkitt, is a partner.
In addition to compensation of approximately $134,000 received by Ms.
Colkitt in 1996 for her services as General Counsel of the Company, Marcy
L. Colkitt & Associates, P.C. received $132,263 during 1996 for the legal
service provided by the firm. Fees for legal services were at a rate
commensurate with those available from independent third parties.
39
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Financial Statement Schedules
-----------------------------
II Valuation and Qualifying Accounts
Note: 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 have
therefore been omitted.
(b) Forms 8-K
---------
The Company filed the following Current Reports on Form 8-K during the
quarter ended December 31, 1996 and through May 31, 1997:
<TABLE>
<CAPTION>
Date of Report Items Reported
-------------- --------------
<S> <C>
October 7, 1996 5 and 7
October 10, 1996 5 and 7
January 24, 1997 5
May 28, 1997 2 and 7
</TABLE>
(c) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and among Douglas R. Colkitt,
Colkitt Oncology Group, Inc., EquiVision, Inc. and the Company,
as amended*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of certificate evidencing Common Stock, par value $.0001
per share, of the Company*
10.10 Form of Option to Purchase Stock of Professional Corporation,
as amended*
10.11 Employment Agreement between EquiVision, Inc. and Larry W.
Pearson dated January 1, 1996*
10.12 Stock Option Agreement between EquiVision, Inc. and Douglas R.
Colkitt, M.D. dated July 1, 1993**
10.13 Master Equipment Lease dated February 19, 1993 between D&T
Leasing Limited Partnership and EquiVision, Inc.**
10.14 Form of Billing Services Agreement with National Medical
Financial Services Corporation*
10.15 Form of Cancer Treatment Center Management Services Agreement*
10.16 Form of Practice Management Services Agreement (Type I)*
10.17 Form of Practice Management Services Agreement (Type II)*
10.18 Form of Stock Option Agreement*
10.19 Form of Master Assignment of the Stock Option Agreements*
10.20 Form of Stock Pledge Agreement between Colkitt and the
Company*
10.21 Asset Purchase Agreement dated as of October 9, 1996 by and
among EquiMed, Inc., Physicians Resource Group, Inc. and PRG
Georgia, Inc.***
10.22 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Russell Data Services, Inc. and Douglas
R. Colkitt, M.D.****
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
10.23 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Billing Services, Inc. and Douglas R.
Colkitt, M.D.****
10.24 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Trident International Accounting, Inc.
and Douglas R. Colkitt, M.D.****
10.25 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Tiger Communications International Ltd.
and Douglas R. Colkitt, M.D.****
10.26 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Nittany Decisions Services Private
Limited and Douglas R. Colkitt, M.D.****
10.27 Stock Purchase Agreement dated January 8, 1997 among ALR
Reporting, Inc. Charles Shapiro and Walter Shapiro
10.28 Asset Purchase Agreement dated as of January 1, 1997 among
Transcriptions International Inc., Prophecy Health Information
Management, Inc. and Edward J. Bilotti
10.29 Stock Purchase Agreement dated as of January 1, 1997 among
EquiMed, Inc., Thomas Jefferson Real Estate Corporation and
Douglas R. Colkitt, M.D.
10.30 Stock Purchase Agreement dated as of January 1, 1997 among
EquiMed, Inc., George Washington Real Estate Corporation and
Douglas R. Colkitt, M.D.
10.31 Stock Purchase Agreement dated as of January 1, 1997 among
EquiMed, Inc., Nixon Equipment Corporation and Douglas R.
Colkitt, M.D.
11.1 Statement re: computation of net earnings per share
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
</TABLE>
---------------------------------
* Incorporated by reference to the exhibit on the Company's
Registration Statement on Form SB-2 (No. 33-98058).
** Incorporated by reference to the exhibit on the Company's
Registration Statement on Form SB-2 (No. 33-66510-A).
*** Incorporated by reference to the exhibit on the Company's current
report on Form 8-K filed October 10, 1996.
**** Incorporated by reference to the exhibit on the Company's Current
Report on Form 8-K filed May 28, 1997.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EQUIMED, INC.
/s/ DOUGLAS R. COLKITT
-----------------------
By: Douglas R. Colkitt, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ DOUGLAS R. COLKITT Chairman of the Board and __________, 1997
---------------------- Chief Executive Officer
Douglas R. Colkitt (Principal Executive Officer)
/s/ DANIEL L. BECKETT Chief Financial Officer __________, 1997
--------------------- (Principal Financial and
Daniel L. Beckett Accounting Officer)
/s/ LARRY W. PEARSON Director __________, 1997
--------------------
Larry W. Pearson
/s/ GENE E. BURLESON Director __________, 1997
--------------------
Gene E. Burleson
/s/ BRIAN C. SMITH Director __________, 1997
------------------
Brian C. Smith
/s/ JEROME DERDEL Director __________, 1997
--------------------
Jerome Derdel, M.D.
</TABLE>
42
<PAGE>
Consolidated Financial Statements
EquiMed, Inc.
Years ended December 31, 1994, 1995 and 1996
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors........................................ F-1
Consolidated Financial Statements
Consolidated Balance Sheets........................................... F-2
Consolidated Statements of Operations................................ F-4
Consolidated Statements of Stockholders' Equity and Retained Deficit.. F-6
Consolidated Statements of Cash Flows................................. F-7
Notes to Consolidated Financial Statements............................ F-9
</TABLE>
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of EquiMed, Inc.
We have audited the accompanying consolidated balance sheets of EquiMed, Inc. as
of December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity and retained deficit, and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EquiMed, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Atlanta, Georgia
May 21, 1997
F-1
<PAGE>
EquiMed, Inc.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31
1995 1996
--------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 824 $ 27,010
Accounts receivable, less allowance for doubtful
accounts of $2,922 in 1995 and $4,787 in 1996 4,988 6,307
Receivables from affiliates - 9,718
Deferred income taxes 547 3,171
Prepaid expenses and other current assets 658 1,607
--------------------
Total current assets 7,017 47,813
Property and equipment, at cost:
Land 29 29
Buildings 3,446 5,230
Leasehold improvements 1,728 1,380
Equipment 17,973 20,252
--------------------
23,176 26,891
Less accumulated depreciation and amortization 11,839 14,512
--------------------
Net property and equipment 11,337 12,379
Advances to principal stockholder - 5,025
Management agreements net of accumulated amortization
of $44 in 1995 and $58 in 1996 1,664 5,490
Deferred income taxes 273 -
Other assets, net 288 884
--------------------
Total assets $ 20,579 $ 71,591
====================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
December 31
1995 1996
----------------------
<S> <C> <C>
Liabilities and capital deficiency
Current liabilities:
Note payable to related parties $ 725 $ -
Accounts payable 1,377 1,312
Accrued salaries and benefits 249 883
Accrued contractual fees payable 2,874 2,360
Other accrued expenses 1,997 6,006
Income taxes payable 7,236 7,921
Payable to affiliates 506 7,815
Current portion of long-term debt 2,048 686
Current portion of obligations under capital leases:
Related parties 596 354
Other 1,596 717
----------------------
Total current liabilities 19,204 28,054
Long-term debt 3,188 2,431
Obligations under capital leases:
Related parties 4,518 1,545
Other 2,643 1,853
Deferred income taxes - 771
Minority interest 1,171 1,473
Stockholders' Equity:
Common stock, 0.0001 par value, 100,000,000 shares
authorized and 28,591,474 issued and outstanding
as of December 31, 1996 - 3
Additional paid-in capital 1,105 81,600
Partners' Capital 657 657
Retained deficit (11,907) (46,796)
----------------------
Total stockholders' equity (deficit) $(10,145) $ 35,464
======================
Total liabilities and stockholders' equity (deficit) $ 20,579 $ 71,591
======================
</TABLE>
See accompanying notes.
F-3
<PAGE>
EquiMed, Inc.
Consolidated Income Statements
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
-------------------------------------
<S> <C> <C> <C>
Net revenues $52,266 $ 58,884 $ 99,115
Costs and expenses:
Professional expenses 13,486 15,054 26,479
Center operating expenses (including $896,
$860 and $ 481 of lease expenses with
related parties in 1994, 1995 and 1996,
respectively) 14,738 18,120 42,422
General and administrative expenses
(including $1,632, $2,532 and $2,255 of
expenses with related parties in 1994,
1995 and 1996, respectively) 7,257 7,383 8,755
Depreciation 2,400 2,496 3,829
Amortization 163 186 2,211
Interest expense:
Related parties 826 936 643
Other 1,357 1,028 1,905
Loss on sale of receivables - 885 640
Other income, net (175) (637) (723)
Loss on sale of division - - 31,112
-------------------------------------
Total costs and expenses 40,052 45,451 117,273
-------------------------------------
Income (loss) before minority interest,
income taxes and extraordinary charge 12,214 13,433 (18,158)
Minority interest 1,947 831 1,171
-------------------------------------
Income (loss) before income taxes and
extraordinary charge 10,267 12,602 (19,329)
Provision for income taxes 1,704 2,404 10,613
Cumulative effect of change in income tax
status - - 1,277
-------------------------------------
Total provision for income taxes 1,704 2,404 11,890
-------------------------------------
Income (loss) before extraordinary charge $ 8,563 $ 10,198 $ (31,219)
</TABLE>
F-4
<PAGE>
EquiMed, Inc.
Consolidated Income Statements (continued)
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
---------------------------------------
<S> <C> <C> <C>
Income (loss) before extraordinary
charge $ 8,563 $10,198 $(31,219)
Extraordinary charge for early
extinguishment of debt (net of
income taxes of $ 85) - - 127
---------------------------------------
Net income (loss) $ 8,563 $10,198 $(31,346)
=======================================
Earnings per share:
Net loss before extraordinary charge $ (1.13)
Extraordinary charge for early
extinguishment of debt (0.01)
-------------
Net loss $ (1.14)
=============
Weighted average shares outstanding 27,577,000
=============
Supplemental unaudited pro forma
information:
Net income, as above $ 8,563 $10,198
Proforma adjustment to income tax
expense 3,330 3,391
--------------------------
Proforma net income $ 5,233 $ 6,807
==========================
Pro forma net income per share $ 0.25 $ 0.33
==========================
Pro forma weighted average shares
outstanding 20,784,000 20,784,000
==========================
</TABLE>
See accompanying notes.
F-5
<PAGE>
EquiMed, Inc.
Consolidated Statements of Stockholders' Equity
and Retained Deficit
(In thousands)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------
Additional
Paid-in Partners' Retained
Shares Amount Capital Capital Deficit Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 - $ - - $ 277 $ (2,581) $ (2,304)
Net income - - - - 8,563 8,563
Cash and deemed distributions
to Dr. Colkitt and affiliates - - - - (10,730) (10,730)
Capital contributions by Dr.
Colkitt and affiliates - - 380 - 380
---------------------------------------------------------------------------------------------------
Balance at December 31, 1994 - - - 657 $ (4,748) $ (4,091)
Net income - - - - 10,198 10,198
Cash and deemed distributions
to Dr. Colkitt and affiliates - - - - (17,357) (17,357)
Capital contributions by Dr.
Colkitt and affiliates - - 1,105 - - 1,105
---------------------------------------------------------------------------------------------------
Balance at December 31, 1995 - - 1,105 657 (11,907) (10,145)
Cash and deemed distributions
to Dr. Colkitt and affiliates - - - - (3,543) (3,543)
Acquisition of EquiVision, Inc. 25,122,464 3 45,578 - - 45,581
Issuance of Common Stock in
connection with public
offering, net of issuance cost 2,000,000 - 24,200 - - 24,200
Issuance of Common Stock in
connection with acquisitions 1,464,078 - 10,690 - - 10,690
Issuance of Common Stock 4,932 - 27 - - 27
Net loss - - - - (31,346) (31,346)
---------------------------------------------------------------------------------------------------
Balance at December 31, 1996 28,591,474 $ 3 $ 81,600 $ 657 $(46,796) $ 35,464
===================================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
EquiMed, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
--------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income(loss) $ 8,563 $10,198 $(31,346)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,563 2,682 6,040
Deferred income taxes 496 127 (1,580)
Minority interest 1,947 831 1,171
Loss on sale of Ophthalmology Division - - 31,112
Changes in operating assets and liabilities,
net of acquired businesses:
Accounts receivable, net (844) 2,169 (1,319)
Receivables from/payables to affiliates (1,449) 874 (8,960)
Prepaid expenses and other current assets (507) 428 (949)
Accounts payable (22) 899 (68)
Accrued salaries and benefits 381 (530) 634
Accrued contractual fees payable 1,994 (1,984) (514)
Other accrued expenses 352 161 4,009
Income taxes payable 902 2,341 685
--------------------------------
Net cash provided by (used in) operating
activities 14,376 18,196 (1,085)
Cash flows from investing activities
Proceeds from sale of Ophthalmology Division - - 55,077
Payments for acquisition of oncology centers,
net of cash acquired (2,000) - (4,622)
Purchase of property and equipment (620) (446) (3,715)
Increases in advances to principal stockholder - - (5,025)
Decrease (increase) in other assets 74 118 (3,112)
--------------------------------
Net cash provided by (used in) investing
activities (2,546) (328) 38,603
</TABLE>
F-7
<PAGE>
EquiMed, Inc.
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
--------------------------------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from long-term debt $ 1,473 $ - $ 15,879
Repayment of long-term debt (1,173) (576) (41,416)
Net payments under line of credit (25) - -
Proceeds from related party sale-leaseback
transactions 2,709 - -
Repayment of obligations under capital leases:
Related parties (622) (570) (3,215)
Other (1,321) (1,240) (1,669)
Repayment of note payable - - (725)
Proceeds from issuance of common stock - - 24,227
Capital contributions:
Primary owner 380 230 -
Minority owners 250 - -
Distributions:
Primary owner (10,730) (17,357) (3,543)
Minority owners (2,030) (96) (870)
--------------------------------
Net cash used in financing activities (11,089) (19,609) (11,332)
--------------------------------
Net increase (decrease) in cash and cash
equivalents 741 (1,741) 26,186
Cash and cash equivalents, beginning of
period 1,824 2,565 824
--------------------------------
Cash and cash equivalents, end of period $ 2,565 $ 824 $ 27,010
================================
Supplemental disclosure of non cash investing
and financing activities
Related party capital lease obligations
incurred to acquire equipment: $ 152 $ - $ -
Issuance of capital stock for acquisitions $ - $ - $ 56,271
Liabilities assumed by the purchaser of the
Ophthalmology Division $ - $ - $ 16,611
</TABLE>
See accompanying notes.
F-8
<PAGE>
EquiMed, Inc.
Notes To Consolidated Financial Statements
1. Business, Organization and Basis of Presentation
On February 2, 1996, Colkitt Oncology Group, Inc. (the "Oncology Group") merged
with and into EquiVision, Inc. ("EquiVision") and, immediately thereafter,
effected an immediate reincorporation in Delaware and a 1-for-2 reverse stock
split through a merger (the "Reincorporation Merger") with and into EquiMed,
Inc. ("EquiMed" or the "Company"), a newly-formed Delaware subsidiary of
EquiVision, formed for the purpose of effecting the Reincorporation Merger and
reverse stock split. The Oncology Group was formed prior to consummation of the
Merger to acquire all of the stock or assets of various corporations,
partnerships and joint ventures which owned or controlled 30 radiation oncology
centers. All share and per share amounts in this report reflect the 1-for-2
reverse stock split that was effected upon consummation of the Reincorporation
Merger. The merger between the Oncology Group and EquiVision and the
Reincorporation Merger are referred to collectively as the "Merger". The
business combination was accounted for as a reverse purchase. As a result, the
Oncology Group is considered the acquiror. The combined financial statements of
the Oncology Group as the acquiring Company constitute the historical 1995 and
1994 financial statements of the Company. The consolidated financial statements
of EquiVision are included in the consolidated financial statements for the
period subsequent to February 2, 1996. The stockholder of the Oncology Group
received 20,783,633 shares of the common stock of EquiVision as consideration in
the Merger.
The purchase price of EquiVision was approximately $45,600,000 and has been
allocated to the assets purchased and the liabilities assumed based upon fair
market value at the date of acquisition. The excess of purchase price over the
fair market value of the net assets was approximately $38,000,000 and has been
recorded as goodwill.
On January 1, 1996, certain of the entities which comprised the Oncology Group
ceased to qualify as S corporations and became subject to corporate income
taxes. As a result, the Company recorded a cumulative adjustment of $1,277,000
to establish deferred income taxes for the change in tax status. These deferred
taxes represent the cumulative temporary differences between financial reporting
and tax reporting.
Subsequent to the Merger, long-term debt and capital lease obligations were
prepaid. As a result of this prepayment, the Company incurred approximately
$212,000 in prepayment fees which have been reflected as a $127,000
extraordinary charge, net of income taxes.
In order to effect the Merger and in connection therewith, the stockholders
approved an increase of the shares of common stock of the Company from
20,000,000 shares to 100,000,000 shares.
On February 14, 1996, the Company consummated the sale of 2,000,000 shares of
common stock in connection with a public offering at $14 per share. Net proceeds
from the offering were approximately $24,200,000. On October 15, 1996, the
Company registered 10,000,000 shares of its common stock, par value $ .0001 per
share.
F-9
<PAGE>
EquiMed, Inc.
Notes To Consolidated Financial Statements (continued)
1. Business, Organization and Basis of Presentation (continued)
Effective November 1, 1996, the Company consummated the sale of the
ophthalmology physician practice management and ambulatory center business of
the Company, formerly doing business as EquiVision (hereafter referred to as the
"Ophthalmology Division"), effective as of October 31, 1996. The consideration
consisted of approximately $55,077,000 in cash and the elimination of
approximately $16,611,000 of liabilities related to the Ophthalmology Division.
As a result of the sale, the Company recorded a loss of approximately
$31,112,000. Included in the loss on the sale of the Company's Ophthalmology
Division is an impairment charge of approximately $24,200,000 which the Company
previously reflected in its September 30, 1996 interim financial statements
based upon its estimate of the expected consideration to be received upon the
consummation of the sale on November 5, 1996. The operating results of the
Ophthalmology Division included in the Company's 1996 results of operations are
as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Net revenues $ 42,250
Costs and expenses
Professional expenses 12,217
Center operating expenses 23,787
General and administrative expenses 1,783
Depreciation and amortization 3,224
Interest expense 1,279
Other income, net (29)
Loss on sale of division 31,112
-----------
Total costs and expenses 73,373
-----------
Loss before income taxes (31,123)
Provision for income taxes 5,456
-----------
Net loss $(36,579)
===========
Net loss per share $ (1.33)
===========
</TABLE>
Since the date of the Merger and prior to the consummation of the sale, the
Ophthalmology Division acquired various ophthalmology medical practices for
approximately $12,880,000. The pro forma results of these acquisitions have not
been presented as they are not reflective of the Company's ongoing operations.
F-10
<PAGE>
EquiMed, Inc.
Notes To Consolidated Financial Statements (continued)
1. Business, Organization and Basis of Presentation (continued)
The Company is comprised of radiation and medical oncology centers and
affiliated medical practices located in Pennsylvania, New York, New Jersey,
Illinois, Florida, North Carolina, Arizona, Massachusetts and Maryland. Certain
of the centers are structured as limited partnerships. A corporation, wholly-
owned by Dr. Colkitt, principal shareholder of the Company, Oncology Services
Corporation ("OSC"), provided accounting, technical and management services
through the date of the Merger to the centers and has charged the centers a
management fee. OSC was not included in the Oncology Group and all of the
services previously provided by OSC were included within the Oncology Group,
except for accounting, billing and collections as disclosed in Note 13. For
purposes of the accompanying consolidated financial statements, the actual
expenses of OSC, which pertain to the Oncology Group are recorded in these
consolidated financial statements through the date of the Merger, and the
difference between the management fee charged by OSC and its actual expenses are
recorded as distributions to Dr. Colkitt.
In addition, the Company has entered into long term management agreements with
certain professional corporations ("PCS") owned or controlled by the Company.
These PCs employ physicians, who provide professional medical care to patients.
Under the terms of the management agreements, the Company is responsible for
billing and collecting the receivables of the PCs. Although the PCs have legal
title to all receivables, the Company is an agent of the PCs and, accordingly,
receivables, revenues and professional services of the PCs are included in the
consolidated financial statements.
Options to purchase two of the Company's oncology centers are presently held by
third parties, exercisable prior to 1999. The option price in each case is
derived from a market-value formula based on the center's income.
On June 1, 1996, EquiMed India Private Limited ("EquiMed India"), a subsidiary
of the Company formed to obtain contracts for accounting and billing services,
began operations in Madras, India. The Company had earnings in India from this
subsidiary of $1,881,000 during the year ended December 1996. As discussed in
Note 13, these earnings were derived from a contract to provide accounting and
billing services to Anesthesia Solutions, Inc., a company wholly-owned by Dr.
Colkitt. The United States dollar is the functional currency for EquiMed India.
All significant intercompany accounts and transactions have been eliminated.
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform to the 1996 presentation.
F-11
<PAGE>
EquiMed, Inc.
Notes To Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents include investments in highly liquid instruments with a
maturity of three months or less at the date of purchase.
Accounts Receivable
Accounts receivable include receivables from patients for medical services
provided. Such amounts are recorded net of contractual allowances and estimated
bad debts. These receivables are geographically dispersed throughout the United
States and are paid by government sponsored health care plans (primarily
Medicare and Medicaid), insurance companies, employer self-insurance plans, and
self-insured patients.
Concentration of Credit Risk
The Company's principal financial instrument subject to potential concentration
of credit risk is trade accounts receivable for which the Company does not
generally require collateral. The concentration of credit risk with respect to
trade accounts receivable is limited due to the large number of payors and their
dispersion across many different government sponsored health care plans,
insurance companies, individuals and geographic locations. Substantially all
accounts receivable at December 31, 1995 and 1996 are due from third party
payors.
Property and Equipment
Property and equipment are recorded at cost. Equipment under capital leases is
recorded at the net present value of the future minimum lease payments at the
inception of the related leases. Depreciation of property and equipment (which
includes amortization of assets under capital leases) is provided using the
straight-line method over the estimated useful lives (or the term of the related
lease, if less) ranging from five to eight years for equipment, from five to 15
years for leasehold improvements and from 30 to 39 years for buildings.
F-12
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Other Assets
Other assets consist primarily of costs of obtaining management agreements and
non-compete agreements. Costs of obtaining management agreements are amortized
on a straight-line basis over the non-cancelable term of the agreements, 40
years for the Company's current agreements. Non-compete agreements are amortized
on a straight-line basis over periods ranging from three to five years, which
represent the shorter of the economic value or the term of the respective
agreements. The carrying value of intangible assets and other long-lived assets
is reviewed whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If this review indicates
that the asset will not be recoverable, as determined based on the undiscounted
cash flows of the operating entity or asset over the remaining amortization
period, the carrying value of the asset will be reduced to its fair value.
Accrued Contractual Fees
Physicians associated with the Company received compensation in accordance with
a contractual formula based upon cash receipts. Accrued contractual fees of
approximately $950,000, $1,395,000 and $1,638,000 at December 31, 1994, 1995 and
1996, respectively, represent fees based on accounts receivable at the
respective dates.
Income Taxes
Prior to January 1, 1996, certain of the entities comprising the Company were S
corporations or partnerships. For these entities, the owners or partners assumed
responsibility for the income tax of such entities. Accordingly, income taxes
prior to January 1, 1996 excluded the taxable income of such entities. The
unaudited pro forma adjustment to income tax expense for the years ended
December 31, 1994 and 1995 represents the federal and state income taxes at the
applicable statutory rate for these entities.
For the entities comprising the Company that are C corporations or that are C
corporation subsidiaries, income taxes have been provided in accordance with
Statement of Financial Accounting Standards No. 109. Deferred taxes arise
primarily from the recognition of revenues and expenses in different periods for
income tax and financial reporting purposes. Effective January 1, 1996, the
Company became liable for income taxes for all of its subsidiaries and
accordingly provides for income taxes in accordance with Statement of Financial
Accounting Standards No. 109.
F-13
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Capital Deficiency
Prior to the Merger, as part of the primary owner's cash management strategy,
available cash generated at the centers comprising the Company was generally
transferred from the centers to OSC and other affiliates of Dr. Colkitt. Such
transfers have been treated as deemed distributions. In addition, for those
centers comprising the Oncology Group requiring cash for operations, cash was
generally transferred from OSC or other affiliates of Dr. Colkitt. These cash
transfers were recorded on the centers' books as amounts due to or from
affiliates. No interest income or expense was applied to these receivables and
payables. On a combined basis, the Oncology Group has been a net provider of
cash to OSC and other affiliates of Dr. Colkitt. As it is not the owner's
intention to repay or request repayment of certain of these amounts, such
amounts have been reflected as deemed distributions to Dr. Colkitt.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no
compensation expense for the stock option grants. A recently issued accounting
standard encourages, but does not require companies to record compensation cost
for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in previously issued standards.
Earnings Per Share
Earnings per share of common stock for 1996 is computed on the basis of the
weighted average shares of common stock outstanding plus common equivalent
shares arising from the effect of dilutive stock options using the treasury
stock method. The weighted average number of shares of common stock and common
equivalent shares outstanding for the calculation of primary and fully diluted
earnings per share was 27,577,000 in 1996.
F-14
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Pro Forma Financial Information (Unaudited)
Net income per share for the years ending December 31, 1994 and 1995 reflects
pro forma adjustments to income tax expense of $3,330,000 and $3,391,000,
respectively. The weighted average number of shares used to calculate the 1994
and 1995 pro forma net income per share amounts represent the number of shares
of EquiVision common stock that the Oncology Group received as part of the
Merger.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results inevitably will differ from those estimates and such differences
may be material to the financial statements.
Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard no. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" which becomes effective for
transactions occurring after December 31, 1996. The adoption of this standard is
not expected to have a material effect on the Company's financial position or
results of operations.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard no. 128 "Earnings per Share" ("SFAS 128"), which
will change the current method of computing earnings per share. The new standard
requires presentation of "basic earnings per share" and "diluted earnings per
share" amounts, as defined. SFAS 128 will be effective for the Company's quarter
and year ending December 31, 1997, and upon adoption, all prior-period earnings
and per share data presented will be restated to conform with the provisions of
the new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The Company does not believe the application
of the new standard will materially impact the financial statements.
F-15
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
3. Net Revenues
Net revenues are recorded at established rates reduced by allowances for
contractual adjustments. Contractual adjustments arise due to the difference
between the Company's established rates for services and the amounts allowed for
such services by government sponsored healthcare programs and by others.
The following represents amounts included in the determination of net revenues
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------
<S> <C> <C> <C>
Gross revenues $73,210 $93,525 $159,944
Less provision for
contractual adjustments 20,944 34,641 60,829
------------------------------
Net revenues $52,266 $58,884 $ 99,115
==============================
</TABLE>
The Group derived approximately 48%, 51% and 46% of its net revenue from
services provided under the Medicare and state Medicaid programs in 1994, 1995,
and 1996, respectively. Substantially all of the Company's accounts receivable
at December 31, 1994, 1995, and 1996 are due from third party payors. The
Company does not provide significant charity care to patients.
F-16
<PAGE>
EquiMed, Inc.
Notes To Consolidated Financial Statements (continued)
4. Acquisitions
In March 1994, the Company acquired substantially all the assets, other than
accounts receivable, of a radiation oncology and a diagnostic oncology practice
located in Brooklyn, New York. The selling physician entered into a non-compete
agreement for an aggregate consideration of $2,000,000 in cash and $1,000,000 in
notes. Concurrent with this acquisition, the equipment acquired with an
estimated fair value of $1,500,000 was sold to a related party for $2,709,000 in
cash. These cash proceeds were used to fund the cash portion of the Company's
consideration for the acquisition and for working capital of the Brooklyn
center. The equipment was leased from the related party under capital leases
with an aggregate obligation of $2,709,000. For purposes of the accompanying
financial statements, a gain was not recognized on the initial sale of the
equipment to the related party.
On January 1, 1995, the property and equipment of a radiation oncology practice
located in Tampa, Florida were acquired by a leasing company owned by Dr.
Colkitt. The Company purchased the accounts receivable of the center for
$250,000 and is leasing, under operating leases, the property and equipment of
the Tampa center from the related party leasing company.
On June 1, March 1, and August 29, 1996, the Company acquired the primary
operating assets of three medical practices and obtained 40 year management
agreements with the professional corporations of these medical practices for
approximately $5.5 million consisting of approximately 315,000 shares of the
Company's common stock with a market value at the time of acquisition of
approximately $3.0 million and $2.5 million in cash. Approximately $3,864,000 of
the consideration paid has been allocated to the management agreements and is
being amortized over the term of the management agreements.
The 1996 acquisitions were accounted for using the purchase method. The
financial results of the acquisitions have been included in the consolidated
financial statements of the Company from the date of their acquisition. The
unaudited pro forma effect of the acquisitions as if they occurred on January 1
of the year preceeding the year of acquisition are as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1995 1996
-------------------
<S> <C> <C>
Net revenue $61,554 $100,401
======= ========
Net income/(loss) before
extraordinary charge $11,148 $(30,757)
======= ========
Net income/(loss) $11,148 $(30,884)
======= ========
Net income/(loss) per share $ 0.53 $ (1.11)
======= ========
</TABLE>
F-17
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
4. Acquisitions (Continued)
Since the date of the Merger and prior to the consummation of the sale, the
Ophthalmology Division acquired various ophthalmology medical practices for
approximately $12,880,000. The pro forma results of these acquisitions have not
been presented as they are not reflective of the Company's ongoing operations.
5. Amendment of Revolving Credit Agreement
On May 14, 1996, the Company entered into an amendment of its $20,000,000
revolving Credit Agreement ("Credit Agreement") with a bank. The amendment
shortened the remaining term of the Credit Agreement to November 30, 1996 and
limited (i) future borrowings under the facility to $15,000,000 and (ii)
acquisitions to an aggregate of $50,000,000. In connection with the sale of the
Ophthalmology Division on November 5, 1996, the Company used a portion of the
proceeds from this transaction to repay and terminate the Credit Agreement.
F-18
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt
Long-term debt consists of the following at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
December 31
1995 1996
--------------------
<S> <C> <C>
Mortgages payable to
various institutional
lenders; bearing interest
at 7.19% to 10.96%;
payable in monthly
installments of principal
and interest ranging from
$3,000 to $12,000 due at
various dates through 2001 $1,617 $1,972
Notes payable to various
institutional lenders and
former minority
shareholders; bearing
interest at 10.22% to
11.5%; payable in monthly
installments of principal
and interest ranging from
$4,000 to $14,000; due at
various dates through 2001 1,569 $1,145
Term notes payable; bearing
interest at 8%; payable in
monthly installments of
principal and interest
ranging from $3,000 to
$7,000; due in 1999 1,213 -
Other 837 -
-----------------
5,236 3,117
Less amounts due within one year 2,048 686
-----------------
$3,188 $2,431
=================
</TABLE>
The above debt is secured by assets with a net book value of $2,405,000 and
$2,473,000 at December 31 1995 and 1996, respectively.
Certain debt obligations contain restrictive covenants which limit, among other
things, change of ownership of the centers. As of December 31, 1996, the
Company has complied with existing loan covenants.
F-19
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt (continued)
As of December 31, 1996, the aggregate amounts of annual principal maturities of
long-term debt (excluding capital lease obligations) are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------
<S> <C>
1997 $ 686
1998 452
1999 790
2000 175
2001 879
Thereafter 135
--------
$3,117
========
</TABLE>
Interest paid (including interest paid on capital lease obligations) during the
years ended December 31, 1994, 1995 and 1996 was $2,093,000, $3,081,000, and
$1,864,000 respectively.
7. Leases
The Company leases office space as well as certain equipment and automobiles
under capital leases and noncancelable operating lease agreements which expire
at various dates. Certain of these leases are with entities in which Dr. Colkitt
is the sole shareholder or a principal shareholder.
The Oncology Group, predecessor entity to the Company, entered into several
sale-leaseback transactions with D&T Leasing Limited Partnership ("D&T"), a
partnership in which Dr. Colkitt is the general and controlling partner. In
connection with this transaction, the Oncology Group, predecessor entity to the
Company, sold to D&T property and equipment with a net book value of
approximately $316,000 for cash consideration of approximately $1,359,000 and
leased the property and equipment back from D&T under capital leases. Due to the
related party nature of the sale-leaseback transactions, the property and
equipment are shown in the accompanying balance sheets at their historical cost
of $965,000 and are being depreciated based upon this historical cost and their
original purchase dates. The related capital lease obligation was approximately
$1,113,000 and $631,000 at December 31, 1995 and 1996, respectively and is
included in obligations under capital leases in the accompanying balance sheets.
No gain was recognized in the accompanying consolidated financial statements in
connection with these transactions
F-20
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
7. Leases (continued)
The Company is the lessee in two capital leases under which the lessor has the
option to require the Company to purchase the leased assets in 1998 for
approximately $1,273,000. In addition, the Company has the option to purchase
the leased assets in 1998 for approximately $1,403,000. The Company's obligation
under the lessor's put option is included in capital lease obligations in the
accompanying balance sheets.
At December 31, 1996, minimum annual lease commitments under capital leases are
as follows (in thousands):
<TABLE>
<CAPTION>
Related
Parties Others
---------------------
<S> <C> <C>
1997 $ 694 $ 1,066
1998 657 1,751
1999 651 113
2000 788 67
2001 - 67
Thereafter - 112
---------------------
Total minimum lease payments 2,790 3,176
Less - amounts representing
interest 891 606
---------------------
Present value of minimum capital
lease payments 1,899 2,570
Less - current portion of
obligations under capital leases 354 717
---------------------
Long-term obligations under capital
leases, net of current portion $ 1,545 $ 1,853
=====================
</TABLE>
Assets under capital leases at December 31, 1995 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
----------------------
<S> <C> <C>
Buildings $ 1,579 $ 1,579
Equipment 14,494 9,590
----------------------
16,073 11,169
Accumulated amortization (8,028) (6,939)
----------------------
$ 8,045 $ 4,230
======================
</TABLE>
F-21
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
7. Leases (continued)
At December 31, 1996, minimum annual rental commitments under noncancelable
operating leases with terms in excess of one year are (in thousands):
<TABLE>
<CAPTION>
Related
Parties Others
---------------------------
<S> <C> <C>
1997 $1,144 $ 1,273
1998 584 1,174
1999 412 1,083
2000 84 1,091
2001 84 1,080
Thereafter 1,229 6,859
---------------------------
$3,537 $12,560
===========================
</TABLE>
Rent expense related to all operating leases amounted to approximately
$2,075,000, $2,119,000 and $3,937,000 in 1994, 1995 and 1996, respectively.
Rent expense under operating leases with related parties amounted to
approximately $896,000, $860,000 and $575,000 in 1994, 1995 and 1996,
respectively.
F-22
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
8. Partnerships
At December 31, 1994 and 1995, and through the date of the Merger, the Oncology
Group, predecessor entity to the Company, included the accounts of 45 and 49
corporations, respectively. Each of these corporations had 1,500 authorized
common shares at no par value and had 100 common shares issued and outstanding
for which only nominal amounts were paid. Through the date of the Merger, the
Oncology Group, predecessor entity to the Company, also included partnerships of
which Dr. Colkitt or an entity wholly owned by Dr. Colkitt was the sole general
partner. Under the terms of the partnership agreements, Dr. Colkitt or an entity
wholly owned by Dr. Colkitt exercised unilateral control over these
partnerships. Effective with the Merger, the Company became the sole general
partner of these new partnerships. These partnerships were capitalized as
follows at December 31, 1995.
<TABLE>
<CAPTION>
Company's
Partnership Portion of
Outstanding Units Owned by Partnership
Partnership the Company Capital (in
Name of Partnership Units thousands)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Albemarle Regional Cancer
Center Limited Partnership 100 50 $201
Lawnwood Regional Cancer
Center Limited Partnership 100 50 $352
Jefferson Radiation Oncology
Center Limited Partnership 40 20 $85
St. Lucie County Radiation
Oncology Limited Partnership 100 50 $-
Greenbelt Cancer Treatment
Center 100 50 $19
</TABLE>
F-23
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
9. Stockholders' Equity
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 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, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Upon the acquisition of EquiVision, the Company adopted and amended the stock
based compensation plans of EquiVision to include all of its employees,
consultants, and directors. In connection with the adoption of these plans, the
chairman of the Company was granted nonqualified stock options to purchase
500,000 shares of the Company's stock at $50.00 per share. The options are
exercisable and expire in 2003. The Company granted a total of 1,092,500 options
including the options granted to the chairman of the Company, to certain
employees, directors and consultants to purchase shares of the Company's stock
in connection with the merger at prices ranging from $7.00 to $50.00. These
options expire in years beginning 2003 through 2006. The Company granted
subsequent to the merger non-qualified stock options to purchase 56,500 shares
of stock at prices ranging from $8.63 to $13.13 per share to directors and
consultants. These options vest within a one year period from the date of the
grant and expire in 2006.
Also in connection with the Merger, the Company adopted and maintains the former
EquiVision Stock Option Plan (the "Plan"). The Plan permits the Company to grant
up to 1,000,000 options to employees, directors and consultants at the fair
value of shares on the effective date of grant. In connection with the merger,
the Company granted 492,966 options to purchase shares of the Company's common
stock at prices ranging from $2.84 to $15.10. These options vest within a one
year period and expire in ten years. During 1996, the Company granted an
additional 199,358 options to purchase shares of the Company's stock at prices
ranging from $11.50 to $15.10. These options vest within a one year period and
expire in ten years. In connection with the sale of the Company's Ophthalmology
Division approximately 572,000 options were not exercised and subsequently
forfeited by the Company's former Ophthalmology Division employees. At December
31, 1996, there were approximately 10,000 options outstanding to employees and
directors, respectively, under the Plan. At December 31, 1996, approximately
990,000 shares were available for future grants under the Plan.
F-24
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
9. Stockholders' Equity (continued)
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The Company did
not grant stock options prior to January 1, 1996. 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: risk-free
interest rate of 6.7%; a dividend yield of 0%; volatility factors of the
expected market price of the Company's common stock of .464; and a weighted-
average expected life of the option of five 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.
For purposes of pro forma disclosures, the estimated fair value of the options
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
----
<S> <C>
Pro forma net loss $(31,419)
Pro forma net loss per share $ ( 1.14)
</TABLE>
A summary of the Company's stock option activity, and related information for
the year ended December 31, 1996 follows:
<TABLE>
<CAPTION>
Options Weighted-Average
(000) Exercise Price
----- --------------
<S> <C> <C>
Outstanding-beginning of year - $ -
Granted 1,841 21.98
Exercised (5) 5.47
Forfeited (769) 10.31
------ ------
Outstanding-end of year 1,067 $28.79
====== ======
Exercisable at end of year 1,065 $28.83
Weighted-average fair value of
options granted during the year $4.71
</TABLE>
F-25
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
9. Stockholders' Equity (continued)
Exercise prices for options outstanding as of December 31, 1996 ranged
from $5.68 to $50.00. The weighted-average remaining contractual life of
those options is 8 years.
In 1995, the Company issued to the bank a stock purchase warrant to
purchase 150,000 shares of its common stock at an exercise price of $4.31
per share. The warrant expires in February 2005 and may be exercised at
any time at the option of the warrant holder. Under the terms of the
warrant agreement, the warrant holder has certain registration rights and
antidilution protection from future equity securities issued at below fair
market value, and can restrict the payment of dividends to any class of
capital stock.
10. Income Taxes
Effective January 1, 1996, certain entities comprising the Oncology Group,
predecessor to the Company, terminated their election to be taxed as S
corporations. As a result of these terminations, the Company became
liable for income taxes relating to these entities. Accordingly, as a
required by generally accepted accounting principles, the Company recorded
deferred tax assets and liabilities on temporary differences between the
income tax basis and book basis of certain assets and liabilities. The
effect of recording these net deferred tax liabilities upon the results of
operations for the year ended December 31, 1996 was approximately
$1,277,000 ($0.05 per share). The provision (benefit) for income taxes
includes the following components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 942 $1,822 $12,005
State 266 455 2,119
Deferred:
Federal 382 102 (2,984)
State 114 25 (527)
-------------------------------------------
Total $1,704 $2,404 $10,613
===========================================
</TABLE>
F-26
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes (continued)
A reconciliation between reported income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% is as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------
<S> <C> <C> <C>
Computed tax
expense/(benefit) $ 4,148 $ 4,567 $(6,572)
State taxes 251 336 (1,160)
Nondeductible loss related
to sale of the
Ophthalmology Division - - 17,967
Income earned in
jurisdictions not taxed in
the United States - - (752)
Tax effect of S corporation
and partnership income (3,330) (3,391) -
Federal pro forma benefit
for certain losses 429 - -
State tax effect of S
corporation and
partnership income 500 500 -
Minority interest pro
forma taxes (514) (134) -
Penalties and interest 303 902 1,199
Other, net (83) (376) (69)
------------------------------
Total $ 1,704 $ 2,404 $10,613
==============================
</TABLE>
F-27
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of
December 31, 1995 and 1996 are (in thousands):
<TABLE>
<CAPTION>
December 31
1995 1996
-----------------
<S> <C> <C>
Deferred tax assets:
Accrued physicians' $ 175 $ 936
compensation
Accounts payable and
other accrued liabilities 475 497
Accrued liability
relating to the sale of
the Ophthalmology
Division - 2,000
Property and equipment 170 -
Net operating losses 29 -
-----------------
Total deferred tax assets 849 3,433
Deferred tax liabilities:
Property and equipment - 751
Other - 282
-----------------
- 1,033
Valuation allowance (29) -
-----------------
Net deferred tax assets $ 820 $ 2,400
=================
</TABLE>
The Company made federal and state income tax payments of approximately
$397,000, $0, and $12,600,000 in 1994, 1995 and 1996, respectively.
11. Employee Benefit Plans
In connection with the Merger, the Company merged its qualified defined
contribution plans with the qualified defined contribution plan of
EquiVision. The Company's merged qualified defined contribution plan
covers substantially all of the employees of the Company. The plan
permits participants to make voluntary contributions. The Company pays
all general and administrative expenses of the plan and makes matching
contributions on behalf of the employees. The Company made contributions
related to these plans totaling approximately $56,000, $57,000 and
$158,000 in 1994, 1995 and 1996, respectively.
F-28
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies
In connection with the Merger, Dr. Colkitt has indemnified the Company
from any income tax liabilities, if any, not reflected in the financial
statements of the Oncology Group related to any period or periods prior
to the Merger (the "General Indemnification Agreement").
On March 21, 1996, the Company entered an appearance as a plaintiff to a
declaratory judgment action commenced August 30, 1995, in the Delaware
Court of Chancery. The litigation seeks a declaration that the merger of
the non-professional component of eight oncology centers into the Oncology
Group prior to the Merger was effected in accordance with applicable
Delaware law and that the merger consideration was fair to the interests
held by minority shareholders (the "Minority Holders") in connection with
the purchase of their shares. The Minority Holders have filed answers and
counterclaims in the Delaware action against the Company and other
counterclaim defendants for breach of fiduciary duty, breach of contract,
fraud and other violations of Delaware statutory law. The counterclaims
seek rescision of the August 1995 mergers of the eight corporations and
compensatory and / or rescissory damages. The Minority Holders allege that
the value of their holdings that were cancelled pursuant to these mergers
exceeded $50,000,000.
While Dr. Colkitt and the entities that were merged into the Company
pursuant to the Merger believe they have meritorious defenses to the
allegations of the Minority Holders, Dr. Colkitt has entered into an
agreement with the Company to fully indemnify the Company against any
damage, loss, expense or liability, including attorneys' fees and
expenses, incurred by the Company resulting from the litigation with the
Minority Holders (the "MH Indemnification Agreement").
As a part of the General and MH Indemnification Agreements, Dr. Colkitt is
required to place shares of the Company's stock held by him with the
Company. Dr. Colkitt has placed shares of the Company's stock with the
Company based upon the Company's estimate of any potential damage, loss,
expense or liability, including attorneys' fees and expenses, which may be
incurred by the Company resulting from the litigation with the Minority
Holders and from any income tax liabilities not reflected in the financial
statements of the Oncology Group related to any period or periods prior to
the Merger.
F-29
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies (continued)
On May 15, 1997, the Company filed a Demand for Arbitration before the
American Arbitration Association in Philadelphia, Pennsylvania to enforce
certain terms of the Asset Purchase Agreement (the "Agreement") relating
to the sale of the Company's Ophthalmology Division and to recover damages
for breach of the Agreement by the purchaser of the Company's
Ophthalmology Business (the "Purchaser"). Under the Agreement, the
Company sold substantially all of the assets of its Ophthalmology Division
to the Purchaser and also agreed, during the period beginning November
1996 and ending April 1997, to assist the Purchaser in the acquisition of
additional ophthalmology practices. In return for such additional
services, the Company is entitled to receive from the Purchaser certain
fees and expenses based upon the status of such additional acquisitions as
of May 15, 1997. The Purchaser failed to make the May 15, 1997 payment to
the Company and has advised the Company that it does not intend to make
such payment. Under the Demand for Arbitration, the Company is also
seeking damages in connection with the Purchaser's refusal to provide the
Company's representatives with access to financial records of the
Ophthalmology Division. There can be no assurance that the Purchaser will
not assert a material counterclaim against the Company.
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Should these claims-made policies not be renewed or
replaced with equivalent insurance, claims based on occurrences during the
term of the respective policies, but asserted subsequently would be
uninsured.
The Company has been named in two actions relating to professional
liability claims at one of its ophthalmology centers. The claims pertain
to a period when the Company was partially self insured for that center.
The Company intends to defend these claims vigorously and believes it has
meritorious defenses. Management believes the ultimate disposition of
these matters will not have a material adverse effect on the Company's
financial position or the results of operations.
F-30
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies (continued)
At December 31, 1995 and 1996, the Company has several other malpractice
claims outstanding which have arisen in the normal course of business. In
addition, it is possible that certain incidents may have occurred which
have not been reported as of this date. The Company has policies and
procedures in place to track and monitor incidents of significance.
Based on management's knowledge of the facts to date, consultation with
its legal advisors and extent of existing insurance coverages, management
believes the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position or the results
of operations.
13. Related-Party Transactions
The receivable from affiliates of approximately $9,718,000 as of December
31, 1996 consists of amounts due from companies majority-owned by the
Company's primary shareholder.
The advances to the principal shareholder of $5,025,000 at December 31,
1996 consists of amounts advanced for the acquisition of companies wholly
owned by the principal shareholder.
Included in payables to affiliates is approximately $6,555,000 payable to
the principal owner of a medical practice acquired during 1996 which the
Company purchased for approximately $9,000,000 worth of the Company's
common stock. In connection with this acquisition, the Company guaranteed
that the market value of the common stock would not fall below the market
value of the stock at the time of acquisition. The $6,555,000 represents
amounts due as of December 31, 1996 in connection with the guarantee.
In July 1995, the Company terminated its $1,000,000 line of credit with a
bank. The outstanding balance of approximately $725,000 on the line of
credit was repaid by OSC in exchange for a note from the Company due in
one year and bearing interest at 9%. The note was paid during 1996.
F-31
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
13. Related-Party Transactions (continued)
On October 1, 1994, the Company contracted with National Medical Financial
Services ("NMFS"), a public company in which Dr. Colkitt is the Chairman
and primary and controlling shareholder, to perform billing services for
the Company. The contract provided that NMFS would receive a fee of 10%
of collected revenues for these services. In addition, NMFS agreed to
collect the Company's outstanding accounts receivable at October 1, 1994
for a fee of 3% of the amounts collected. Concurrent with this
transaction, the employees of the Company's in-house billing department
were transferred to Billing Services, Inc. ("BSI"), a company in which Dr.
Colkitt is the primary and controlling shareholder. NMFS contracted with
BSI to perform the billing services for the Company. Effective
January 1, 1995, the contract with NMFS was renegotiated and the fee for
billing services was reduced to 3% of collected revenues. In addition,
NMFS agreed to begin performing accounting services for the Company for a
fee of 1% of collected revenues.
As a result of the above, a portion of the Company's accounting personnel
were transferred to BSI. The Company expensed $1,673,000, $2,534,000 and
$2,255,000 for billing services provided by NMFS during the three months
ended December 31, 1994 and the years ended December 31, 1995 and 1996,
respectively. Included in payables to affiliates is approximately
$817,000 owed to NMFS by the Company relating to these services.
The actual costs of accounting, technical and management services provided
by OSC, as described in Note 1, of approximately $5,690,000, $4,849,000
and $595,000 for 1994, 1995, and for the month ended January 31, 1996,
respectively, are included in general and administrative expenses.
Subsequent to the Merger, these services were no longer provided by OSC.
On June 1, 1996, EquiMed India, a wholly-owned subsidiary of the Company
formed to obtain contracts for accounting and billing services, began
operations in Madras, India. EquiMed India had revenues and net income of
approximately $2,100,000 and $1,900,000, respectively principally related
to a contract for accounting and billing services with Anesthesia
Solutions, Inc., a company wholly-owned by Dr. Colkitt. EquiMed India
subcontracts with Nittany Decisions Private LTD, a company 80% owned by
Dr. Colkitt, to provide the accounting and billing services for Anesthesia
Solutions, Inc. According to the contract terms, EquiMed India retains
approximately 10% of the revenues billed for Anesthesia Solutions, Inc.
and pays Nittany Decisions Private LTD its costs and an agreed upon rate
of return. EquiMed India is exempt from income taxes payable to agencies
of the Indian government and the local provincial government based upon
agreements with these agencies when EquiMed India was incorporated. At
December 31, 1996, EquiMed India has trade receivables of approximately
$2,000,000 which primarily represent receivables for the services from
Anesthesia Solutions, Inc.
F-32
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
13. Related-Party Transactions (continued)
The Company entered into a receivable purchase agreement in April 1995.
Under the terms of the agreement, receivables are transferred to Oncology
Funding Corporation (a company that is wholly-owned by Dr. Colkitt) which
then factors the receivables with an unrelated financing company, John
Alden Asset Management Company ("Alden"). The factored receivables may be
denied by Alden for various reasons including nonpayment by the payor.
The transfer of receivables to Alden is recognized as a sale, and the
difference between the sales price (adjusted for the accrual of probable
adjustments) and the net receivables is recognized as a gain or loss on
the sale of receivables. Proceeds to the Company from receivables sold
under this agreement were approximately $27,393,000 and $45,726,000 for
the years ended December 31, 1995 and 1996, respectively. During 1995 and
1996, the Company failed to comply with certain covenants of the
receivable purchase agreement. Remedies available to Alden due to these
events of noncompliance include termination of the receivables purchase
agreement. The balance of the receivables transferred that remain
uncollected was approximately $4,250,000 and $4,896,000 at December 31,
1995 and 1996, respectively.
The Company retained the services of Parkwood Motors, a company owned by
the President and Chief Executive Officer's wife, to assist in the sale of
the Ophthalmology Division. Parkwood Motors provides staffing to gather
due diligence and other information regarding entities to be acquired.
Parkwood Motors was entitled to a commission equal to 5% of the earnout
received by EquiMed from the purchaser of the Ophthalmology Division. In
the year ended December 31, 1996, such commissions approximated $150,000.
Certain legal services are provided on behalf of the Company by a law firm
in which Dr. Colkitt's sister is a partner. This law firm received
approximately $132,000 for these services during the year ended December
31, 1996.
F-33
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
14. Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents, Accounts Receivable, Other Accounts
Receivable, Prepaid Expenses and Other Current Assets, Accounts
Payable and Accrued Expenses
The carrying amount reported in the balance sheet for cash and cash
equivalents, accounts receivable, other accounts receivable, prepaid
expenses and other current assets, accounts payable and accrued
expenses approximate fair values because of the short maturities of
the financial instrument.
Long Term Debt and Capital Leases
The carrying amounts reported in the balance sheet for long term debt
and capital leases approximate fair value since the debt and leases
bear interest at rates which approximate current market rates.
F-34
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
15. Quarterly Financial Data (unaudited)
The following is a summary of the unaudited quarterly financial
information for the years ended December 31, 1996 and 1995 (in thousands
except per share amounts).
<TABLE>
<CAPTION>
Year ended December 31, 1996
Quarters ended March 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $20,732 $29,410 $ 29,046 $ 19,927
Net (loss) income before
extraordinary charge 508 2,711 (21,673) (12,765)
Net (loss) income 381 2,711 (21,673) (12,765)
(Loss) earnings per share:
Net (loss) income before
extraordinary charge 0.02 0.10 (0.76) (0.49)
Net (loss) income 0.02 0.10 (0.76) (0.49)
<CAPTION>
Year ended December 31, 1995
Quarters ended March 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 15,014 $ 15,188 $ 13,963 $ 14,719
Net income 2,977 3,043 2,631 1,547
Pro forma net income 2,116 2,057 1,831 803
Pro forma earnings per share 0.10 0.10 0.09 0.04
</TABLE>
16. Loss on Sale of Division
The Company has reflected in its financial statements a pretax loss of
approximately $31,112,000 on the sale of its Opthalmology Division on
November 5, 1996. The Company had previously reflected approximately
$24,200,000 as an impairment charge in its September 30, 1996 interim
financial statements based upon its expectation of the final sales price
for this business.
17. Subsequent Events
In January 1997, the Company formed two wholly-owned subsidiaries for the
purpose of acquiring a medical transcription company and a court reporting
company. The two companies were acquired in January 1997 for approximately
$5,000,000 in cash plus a potential earn-out of $300,000 payable in cash.
These acquisitions have been accounted for as purchases. Revenues related
to these companies were approximately $5,200,000 for the year ended
December 31, 1996.
F-35
<PAGE>
EquiMed, Inc.
Notes to Consolidated Financial Statements (continued)
17. Subsequent Events (continued)
In February 1997, the Company acquired the primary operating assets of two
medical practices and obtained 40 year management agreements with the
professional corporations of these medical practices for approximately
$4,439,000 in cash. Approximately $4,100,000 of the consideration paid has
been allocated to the management agreements. These acquisitions have been
accounted for as purchases. Revenues related to these medical practices
were approximately $5,604,000 million for the year ended December 31,
1996.
In addition, during February 1997, the Company acquired several equipment
and real estate leasing companies wholly owned by Dr. Colkitt for
approximately $2,739,000 in cash. These acquisitions have been accounted
for as purchases. Revenues related to these equipment and real estate
leasing companies were approximately $2,996,000 for the year ended
December 31, 1996.
In May 1997, the Company acquired Russell Data Services, Inc., Nittany
Decisions Services Private Limited, Trident International Accounting,
Inc., Billing Services, Inc., and Tiger Communications International LTD.
for approximately $6,000,000 in cash and a potential earnout up to
$9,300,000 payable in the Company's common stock. These acquisitions have
been accounted for as purchases. Russell Data Services, Inc., Trident
International Accounting, Inc., Billing Services, Inc., and Tiger
Communications International LTD. were wholly owned by Dr. Colkitt. Dr.
Colkitt owned eighty percent of Nittany Decisions Services Private
Limited. These companies are engaged in a variety of businesses providing
outsourcing for accounting, billing, data processing, collections, and
other administrative services and had combined revenues for the year ended
December 31, 1996 of approximately $9,565,000.
F-36
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of EquiMed, Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, and have issued our report thereon dated May 21, 1997
(included elsewhere in this Form 10-K). Our audits also included the financial
statement schedule listed in the index Item 14(a) of this Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Atlanta, Georgia
May 21, 1997
<PAGE>
EquiMed, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Charges to
Balance at Charged to Other Accounts- Balance at End
Beginning Costs and Describe Deductions- of Period
Description of Period Expenses Describe
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $1,761,000 $ 523,000 $761,000 (a) $1,523,000
Valuation allowance for deferred tax assets 45,000 26,000 71,000
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts 1,523,000 1,472,000 73,000 (a) 2,922,000
Valuation allowance for deferred tax assets 71,000 42,000 (d) 29,000
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts 2,922,000 2,478,000 376,000 (c) 989,000 (b) 4,787,000
Valuation allowance for deferred tax assets 29,000 29,000 (d) 0
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Uncollectible accounts written off, net of recoveries
(b) Allowance for doubtful accounts relating to the receivables of the
Ophthalmology Business which were sold in November 1996 ($587,000) and
uncollectible accounts written off, net of recoveries ($402,000)
(c) Allowance for doubtful accounts relating to the receivables of the
Ophthalmology Business which were purchased in February 1996
(d) Use of net operating loss carryforwards relating to the valuation allowance
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EQUIMED, INC.
/s/ DOUGLAS R. COLKITT
-----------------------
By: Douglas R. Colkitt, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ DOUGLAS R. COLKITT Chairman of the Board and June 10, 1997
---------------------- Chief Executive Officer
Douglas R. Colkitt (Principal Executive Officer)
/s/ DANIEL L. BECKETT Chief Financial Officer June 10, 1997
--------------------- (Principal Financial and
Daniel L. Beckett Accounting Officer)
/s/ LARRY W. PEARSON Director June 10, 1997
--------------------
Larry W. Pearson
Director __________, 1997
--------------------
Gene E. Burleson
Director __________, 1997
------------------
Brian C. Smith
/s/ JEROME DERDEL Director June 10, 1997
--------------------
Jerome Derdel, M.D.
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and among Douglas R.
Colkitt, Colkitt Oncology Group, Inc., EquiVision, Inc. and
the Company, as amended*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of certificate evidencing Common Stock, par value
$.0001 per share, of the Company*
10.10 Form of Option to Purchase Stock of Professional
Corporation, as amended*
10.11 Employment Agreement between EquiVision, Inc. and Larry W.
Pearson dated January 1, 1996*
10.12 Stock Option Agreement between EquiVision, Inc. and Douglas
R. Colkitt, M.D. dated July 1, 1993**
10.13 Master Equipment Lease dated February 19, 1993 between D&T
Leasing Limited Partnership and EquiVision, Inc.**
10.14 Form of Billing Services Agreement with National Medical
Financial Services Corporation*
10.15 Form of Cancer Treatment Center Management Services
Agreement*
10.16 Form of Practice Management Services Agreement (Type I)*
10.17 Form of Practice Management Services Agreement (Type II)*
10.18 Form of Stock Option Agreement*
10.19 Form of Master Assignment of the Stock Option Agreements*
10.20 Form of Stock Pledge Agreement between Colkitt and the
Company*
10.21 Asset Purchase Agreement dated as of October 9, 1996 by and
among EquiMed, Inc., Physicians Resource Group, Inc. and PRG
Georgia, Inc.***
10.22 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Russell Data Services, Inc. and Douglas
R. Colkitt, M.D.****
10.23 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Billing Services, Inc. and Douglas R.
Colkitt, M.D.****
10.24 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Trident International Accounting, Inc.
and Douglas R. Colkitt, M.D. ****
10.25 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Tiger Communications International Ltd.
and Douglas R. Colkitt, M.D.****
10.26 Stock Purchase Agreement dated as of April 1, 1997 by and
among EquiMed, Inc., Nittany Decisions Services Private
Limited and Douglas R. Colkitt, M.D.****
10.27 Stock Purchase Agreement dated January 8, 1997 among ALR
Reporting, Inc. Charles Shapiro and Walter Shapiro
10.28 Asset Purchase Agreement dated as of January 1, 1997 among
Transcriptions International Inc., Prophecy Health
Information Management, Inc. and Edward J. Bilotti
10.29 Stock Purchase Agreement dated as of January 1, 1997 among
EquiMed, Inc., Thomas Jefferson Real Estate Corporation and
Douglas R. Colkitt, M.D.
10.30 Stock Purchase Agreement dated as of January 1, 1997 among
EquiMed, Inc., George Washington Real Estate Corporation and
Douglas R. Colkitt, M.D.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.31 Stock Purchase Agreement dated as of January 1, 1997 among
EquiMed, Inc., Nixon Equipment Corporation and Douglas R.
Colkitt, M.D.
11.1 Statement re: computation of net earnings per share
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
---------------------------------
* Incorporated by reference to the exhibit on the Company's Registration
Statement on Form SB-2 (No. 33-98058).
** Incorporated by reference to the exhibit on the Company's Registration
Statement on Form SB-2 (No. 33-66510-A) .
*** Incorporated by reference to the exhibit on the Company's current
report on Form 8-K filed October 10, 1996.
**** Incorporated by reference to the exhibit on the Company's Current
Report on Form 8-K filed May 28, 1997.
<PAGE>
EXHIBIT 10.27
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of January 8, 1997 (the "Signing Date"),
by and among ALR REPORTING, INC., a Delaware corporation (the "Buyer"), CHARLES
SHAPIRO ("Charles") and WALTER SHAPIRO ("Walter", and together with CHARLES, the
"Sellers").
Preliminary Statement
---------------------
Sellers are the sole shareholders of Doyle Reporting, Inc., a New York
corporation ("Doyle"), Herm Conversion and Duplicating Inc., a New York
corporation ("HCD"), and Twin Brothers Reporting, Inc., a New York corporation
("TBR", and together with Doyle and HCD, the "Companies"), as follows:
<TABLE>
<CAPTION>
Charles Walter Total
------- ------ -----
<S> <C> <C> <C> <C>
Doyle 50 50 100 (the Doyle Shares)
HCD 50 50 100 (the HCD Shares)
TBR 100 100 200 (the TBR Shares) and
together with the Doyle
Shares and the HCD
Shares the Shares);
</TABLE>
Buyer desires to acquire from Sellers, and Sellers desire to sell to
Buyer, the Shares, upon the terms and subject to the conditions hereinafter set
forth. Accordingly, in consideration of the premises, the parties agree as
follows:
1. Sale and Purchase of Shares. Upon the terms and subject to the
---------------------------
conditions hereinafter set forth, at the Closing referred to in Section 3
hereof, each Seller agrees to sell and deliver to the Buyer, and Buyer agrees to
purchase from Sellers, all of the Shares owned by Sellers, free and clear of all
security interests, liens, pledges, claims, mortgages, encumbrances, options and
rights of first refusal (collectively "Liens") against payment of the purchase
price referred to in Section 2 hereof.
2. Purchase Price. The total purchase price (the "Purchase Price") to be
--------------
paid by Buyer for the purchase of the Shares shall be an amount equal to the sum
of (i) $4,473,471 (the "Base Purchase Price") and (ii) the Additional Amount, as
defined in Section 2(b). The portion of the Purchase Price allocable to the
Doyle Shares, the HCD Shares and the TBR Shares is 90.4%, 8.8% and .8%,
respectively.
(a) The Buyer shall pay the Base Purchase Price to Sellers as follows:
(1) $2,023,471 in cash (the "Initial Cash Payment") at the Closing.
<PAGE>
(2) Five monthly installments of $60,000 payable commencing one month
after Closing, as defined below and a sixth installment of $150,000 payable on
the first anniversary of the Closing (the "Installments, which in the aggregate
total $450,000) and secured as provided herein. A failure to make any such
payment shall result in the acceleration of all Installments due thereafter.
(3) Buyer's secured promissory notes in the aggregate principal amount of
$2,000,000, in the forms annexed hereto as Exhibits A-1 and A-2 (the "Promissory
Notes"). The principal amount of the Promissory Notes, together with interest
thereon at the rate of eight (8%) percent per annum, shall be self-amortizing
and payable in thirty-four (34) equal consecutive monthly installments of
$66,816.02, commencing three months following the date of the Closing (the
"Closing Date") and thereafter on the respective monthly anniversaries of the
Closing Date until the entire principal amount of the Promissory Notes, and
accrued interest thereon, has been paid in full; provided, however, that in the
event Buyer fails to pay principal or interest on the Promissory Notes or
Installment payments when due, and the Buyer fails to cure the default within
ten days after the receipt of a written notice thereof, then the amount due
under the promissory note shall become immediately due and payable, with accrued
interest thereon recalculated assuming a rate of interest (the "Default Rate")
equal to the higher of 12% per annum and 3% per annum over the Prime Rate in
effect from time to time as reported in The Wall Street Journal.
(b) In the event the total gross revenues of the Companies, calculated on
an accrual basis, and work-in-process, calculated on an accrual basis for the
fiscal year commencing January 1, 1997 and ending December 31, 1997 ("Gross
Revenues") (as the same may be adjusted in accordance with the provisions of
Section 7.1(i)(C) hereof), exceeds $4,500,000, the Buyer shall pay the Sellers
(50% to Charles and 50% to Walter) an amount in cash (the "$300,000 Additional
Amount") equal to $300,000. Furthermore, to the extent Gross Revenues exceeds
$4,600,000, the Buyer shall pay the Sellers (50% to Charles and 50% to Walter)
an amount equal to $5,000 for each $100,000 of Gross Revenues in excess of
$4,600,000 ("Incremental Additional Amount which together with the $300,000
Additional Amount, the "Additional Amount"). The Additional Amount shall be
payable to Sellers within 20 days after the computation of Gross Revenues. Such
computation shall be completed no later than March 31, 1998. The Sellers shall
have the opportunity, at their own cost, to review such calculations, provided,
--------
however, that if it is determined that the amount of actual Gross Revenues is 5%
- -------
or greater of the amount reported by the Companies, the Buyer shall bear the
cost of such review. Anything to the contrary in the foregoing notwithstanding,
in the event of a Prohibited Event occurring prior to December 31, 1997,
2
<PAGE>
as defined below, Gross Revenues shall be the greater of (X) the actual Gross
Revenues for the fiscal year ending December 31, 1997 and (Y) the Gross Revenues
for the period commencing January 1, 1997 and ending on the Prohibited Event
redetermined on an annualized basis. As used herein, a "Prohibited Event" means
(i) the sale (involving stock or assets), liquidation, dissolution or other
transaction (including, without limitation, a merger or corporate
reorganization) as a result of which the identity of the Companies as separate
entities is no longer maintained or the nature of the business conducted by the
Companies prior to the Signing Date terminates or substantially terminates, (ii)
the acquisition by Buyer, directly or indirectly, of a Reporting Service (other
than the Target Reporting Service) in the Restricted Area or (iii) an initial
public offering (A) by the Buyer and/or the Companies, or (B) by an Affiliate
(as defined in Rule 405 under the Securities Act of 1933, as amended) of the
Buyer or the Companies in the court-reporting services business (in the case of
(A) or (B) of this clause (iii), a "Disqualifying IPO"). Anything to the
contrary notwithstanding, a Disqualifying IPO by an Affiliate will not
constitute a Prohibited Event, provided the Affiliate unconditionally assumes or
guarantees the obligations of Buyer hereunder. As used herein, the terms
"Reporting Service," "Restricted Area" and "Target Reporting Service" shall have
the meanings assigned to them in Section 7.1 hereof. The parties hereto
acknowledge that the ability of the Buyer to engage in a prohibited event is
limited by the rights granted to the Sellers under the Security Agreement, as
defined below.
(c) The Installments, all payments of principal and interest on the
Promissory Notes, the Additional Amount and the payments required under the
Employment agreements, as defined below (collectively, the "Obligations") shall
be secured by (X) a pledge of the Shares, (Y) the guarantee of Buyer's parent,
EquiMed, Inc., of payment of the last $1,000,000 of the Obligations (the
"Guarantee") and (Z) a valid and enforceable perfected first security interest
on all the assets of the Companies (the assets set forth in (X), (Y) and (Z)
above, together with the proceeds therefrom collectively referred to as the
"Collateral"), pursuant to a Security Agreement in the form annexed hereto as
Exhibit B-1, the Stock Pledge Agreements annexed hereto as Exhibits B-2 and the
Guarantee attached hereto as Exhibit B-3 (collectively the "Security
Documents"). Buyer and EquiMed, Inc. agree to execute and deliver to Sellers for
filing with the appropriate governmental authorities Uniform Commercial Code
financing statements so that Sellers may perfect their security interest in the
Collateral. In the event Buyer defaults in the payment, when due, of the
Obligations, for a period of ten days after written notice thereof, the Sellers
shall have the option, in its sole and absolute discretion, to pursue one or
more of its remedies under the Security Documents, including but
3
<PAGE>
not limited to enforcing its rights with respect to the Guarantee, the
Collateral and/or the Shares.
3. Closing. The closing of the transactions contemplated by this Agreement
-------
(the "Closing") shall take place at the offices of SNOW BECKER KRAUSS P.C., 605
Third Avenue, 25th floor, New York, New York at 5:00 p.m. on January 8, 1997
(the "Effective Time"). At Closing:
(a) The Buyer will deliver to a mutually acceptable escrow agent (the
"Escrow Agent"), pursuant to the Stock Pledge Agreement referred to above, stock
certificates evidencing the number of Shares transferred by Seller to Buyer at
Closing duly endorsed in blank or with stock powers attached and in proper form
for transfer, and evidence of payment of, or agreement to pay, any stock
transfer taxes as may be required. The Escrow Agent shall hold the Shares to
secure payment of the Obligations. The Escrow Agent shall deliver the Shares (x)
to Buyer upon receipt of joint written instructions from Buyer and Sellers or
other evidence acceptable to the Escrow Agent that Buyer has paid the
Obligations (provided the notice provisions of Section 14(b) hereof are complied
with), or (y) to Seller upon receipt of joint written instructions from Buyer
and Sellers or other evidence acceptable to the Escrow Agent that Buyer has
defaulted in the payment of the Obligations (provided the notice provisions of
Section 14.2 hereof are complied with). In the event of a bona fide dispute
----------
concerning whether payment of the Obligations has occurred, the Escrow Agent
shall continue to hold the Shares until the issue has been finally determined,
or it may commence an interpleader action in a court of competent jurisdiction,
and in connection therewith deposit the Shares. The Escrow Agent shall not be
liable for any action(s) taken, or the failure to take action(s), in good faith,
except for gross negligence or willful misconduct of the Escrow Agent. Sellers
and Buyer acknowledge that the Escrow Agent is merely a stakeholder. Upon
delivery of the Shares in accordance with the joint written instruction of the
parties or a final determination, the Escrow Agent shall be released from all
liability and obligations with respect to the Shares.
(b) Buyer will deliver to the Sellers:
(i) certified checks of Buyer or official bank cashier's check
payable to Sellers in the amount of the Initial Cash Payment (50% to Charles and
50% to Walter); and
(ii) Buyer's Promissory Notes (in the aggregate principal amounts of
$1,000,000 to Charles and $1,000,000 to Walter.
(c) Buyer shall elect each of the Sellers as directors of Buyer and the
Companies until the Obligations are paid in full
4
<PAGE>
and enter into indemnity agreements (the "Indemnity Agreements") with Sellers
pursuant to which Buyer agrees to indemnify each of Sellers to the fullest
extent permitted by the laws of the jurisdiction in which Buyer is incorporated
and any other applicable jurisdictions, from and against any and all damages,
expenses and liabilities arising from or in connection with the breach of duty
as a director, except for gross negligence or wilful misconduct. Each of the
Sellers may resign as a director of Buyer at any time.
(d) EquiMed, Inc. shall deliver its Guarantee.
(e) Sellers, Buyer and EquiMed, Inc. shall execute the respective
Employment Agreements and the Security Documents to which they are parties.
4. Representations and Warranties of Sellers. Sellers, jointly and
-----------------------------------------
severally, represent and warrant to Buyer as follows, except as stated with
respect to a specific representation or warranty in a disclosure letter dated
the date of this Agreement, delivered by Sellers to Buyer simultaneously with
the execution and delivery of this Agreement (the "Disclosure Letter"):
4.1 Organization. Standing and Corporate Power. Each of the Companies is a
------------------------------------------
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has full corporate power and
authority to carry on its business, and to own or lease its properties as and in
the places where such business is now conducted and such properties are now
owned, leased or operated; and is qualified to transact business as a foreign
corporation in the jurisdictions listed in the Disclosure Letter. No proceedings
for the bankruptcy or insolvency of any of the Companies are pending or, to the
Sellers' knowledge, are contemplated.
4.2 Ownership. The authorized capital stock and the number of issued and
---------
outstanding shares of each of the Companies is as set forth in the Disclosure
Letter, and all such issued and outstanding shares are owned by the Sellers and
are validly issued and outstanding, fully paid and nonassessable, and no third
person holds any proxy or similar right with respect thereto. Each of the
Sellers is the lawful owner, of record and beneficially, of the number of shares
of each of the Companies set forth above in the Preliminary Statement and has,
and will transfer to the Buyer at the Closing, good and marketable title to such
Shares, free and clear of any Liens and with no restriction on the voting rights
and other incidents of record and beneficial ownership pertaining thereto. No
stock transfer tax is imposed in connection herewith. There are no outstanding
options, warrants or rights to purchase or acquire any shares of the capital
stock or other securities of any of the Companies,
5
<PAGE>
and there are no agreements or understandings between any Seller and any other
person with respect to the voting of any of the Shares or any other matters.
None of the Companies has any subsidiaries or owns, directly or indirectly,
shares or other securities in any other corporation, or any interest in any
partnership, joint venture or other business entity.
4.3 Authorization and Binding Effect: No Governmental Consents Required.
-------------------------------------------------------------------
This Agreement constitutes a valid and binding agreement of each of the Sellers,
enforceable in accordance with its terms, and neither the execution and delivery
of this Agreement nor the consummation by the Sellers of the transactions
contemplated hereby, nor compliance with any of the provisions hereof, will (i)
conflict with or result in a breach of the Certificate of Incorporation or the
By-Laws of any of the Companies, each as in effect as of the date hereof
(including amendments, if any, thereto), true and complete copies of which have
previously been delivered to Buyer or its representatives, (ii) to the Sellers'
knowledge, violate any statute, law, rule or regulation or any order, writ,
injunction or decree of any court or governmental authority, or (iii) violate or
conflict with or constitute a default under (or give rise to any right of
termination, cancellation or acceleration under) the terms or conditions or
provisions of any note, bond, lease, mortgage, obligation, agreement,
understanding, arrangement or restriction of any kind to which the Company or
any of the Sellers is a party or by which the Company or any of the Sellers or
their respective assets or properties may be bound (it being understood that
with respect to any leases which require the consent of, or an assignment from,
the lessor (other than with respect to the lease of the premises where the
Company conducts business) in connection with the sale of the Shares
contemplated hereby, the representation and warranty of the Sellers contained in
this clause (iii) shall not be deemed to be breached as a result of the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby). To the Sellers' knowledge, no consent or approval by any
governmental authority is required in connection with the execution and delivery
by the Sellers of this Agreement or the consummation of the transactions
contemplated hereby.
4.4 Balance Sheet; No Undisclosed Liabilities; Absence of Changes; Signing
----------------------------------------------------------------------
Date Asset Schedule; Revenues. (a) Sellers have previously delivered to the
- -----------------------------
Buyer unaudited balance sheets of the Companies as at December 31, 1995 (the
"Balance Sheets") and profit and loss statements for the year ended December 31,
1995. The amount of the tangible assets and liabilities of the Companies set
forth on the Balance Sheets are true and correct. Except as set forth on the
Balance Sheets, as of December 31, 1995, the Companies did not have any claims,
liabilities or obligations of any material nature, fixed of contingent, matured
6
<PAGE>
or unmatured, liquidated or unliquidated, which were not shown or otherwise
provided for in the Balance Sheets, it being understood that no representation
or warranty is hereby made concerning any tax liability of the Companies for
which the Sellers have agreed to indemnify Buyer as provided in Section 10.1
hereof. Except as set forth on the Balance Sheets or in the Disclosure Letter,
or for changes reflected in the Signing Date Asset Schedule (as hereinafter
defined), subsequent to December 31, 1995, there has been no:
(i) Material and adverse change in the business, properties, assets or
liabilities, operations, condition (financial or otherwise) or prospects of the
Companies, nor has any event occurred or been threatened, which may have a
material and adverse effect on the Companies;
(ii) Sale, transfer or other disposition of any assets owned or used by
Companies (whether or not capitalized or expensed for tax or financial statement
purposes);
(iii) Claim, obligation or liability incurred by the Companies other than
in the ordinary course of business and consistent with past practice;
(iv) Transaction not in the ordinary course of business;
(v) Write-off as uncollectible of any notes or accounts receivable of the
Companies or any portion thereof, except in the ordinary course of business;
(vi) Dividend declared, paid or set aside for payment or other
distribution on the Companies' capital stock, or any redemption, purchase or
other acquisition by the Companies of any capital stock, except as contemplated
by the Signing Date Asset Schedule or consistent with past practice;
(vii) Issuance or sale of any shares of capital stock, or any securities
convertible into or exchangeable for capital stock of the Companies;
(viii) General uniform increase in the compensation (including bonuses and
other employee benefits) of employees, any increase in any such compensation
payable to any officer, employee, consultant or agent thereof having an annual
salary or remuneration in excess of $35,000, or loans made by any of the
Companies to any of their respective stockholders, directors, officers or
employees;
(ix) Capital expenditures or commitments in excess of $10,000 in the
aggregate for additions to property, plant or equipment of the Companies;
7
<PAGE>
(x) Change in the accounting methods or practices followed by any of
the Companies or any depreciation or amortization policies or rates theretofore
adopted;
(xi) Agreement or commitment, whether or not in writing, to do any of
the foregoing.
(b) The unaudited asset schedule of the Companies dated as of the Signing
Date (the "Signing Date Asset Schedule") annexed as Exhibit C hereto, which
reflect the assets of the Companies as of the Signing Date, without giving
effect to reserves for bad debts but after giving effect to the transactions
contemplated hereby, is true and correct in all material respects.
(c) The Companies' ledger accounts, as adjusted through the Closing, for
its taxable year ended December 31, 1995 allocates to one or more of the
accounts set forth on Exhibit B hereto, the recurring portion of the accrued
expenses of the Companies for such year. A recurring accrued expense means for
purposes hereof an item of expense contemplated to be incurred by the Companies
on a continuing basis after Closing, other than salaries and benefits payable to
Sellers and their Affiliates.
(d) Total gross revenues of the Companies in the aggregate, calculated on
a cash basis, for the fiscal years ended December 31, 1994 and 1995 and the
three quarters ending September 30, 1996 were $5,301,587, $4,881,009 and
$3,548,773, respectively.
4.5 Consents Required. Except as set forth in the Disclosure Letter, no
-----------------
consent of any party to any agreement, contract, instrument, lease, license,
note, bond, mortgage, indenture or other obligation to which the Companies or
Sellers is a party, or by which the Companies or Sellers, or any of the assets
of the Companies or Sellers, is subject, is required for the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby.
4.6 Account Receivable. (a) The Signing Date Asset Schedule sets forth the
------------------
accounts receivable of the Companies as of the Signing Date, on an aging basis
of 30-day intervals, including the name of the account debtor and the amount of
the receivable. At the Effective Time, the Companies aggregate accounts
receivable prior to deducting the usual and ordinary reserves for bad debts,
shall not be less than $1,786,695 (the "Accounts Receivable"). All Accounts
Receivable are for services actually provided in the ordinary course of
business. The aforementioned Accounts Receivable are collectible in full. To the
extent of any breach of this Section 4.6 and any resulting breach of Section
4.4(b) above, the sole remedy of Buyer shall be the reduction of the Purchase
Price by an amount ("Maximum Offset") not to exceed $446,674. The determination
of whether a breach has occurred
8
<PAGE>
under this Section 4.6 and the amount and the manner of applying any such offset
shall be made as follows: (X) upon the first anniversary of the Closing, the
Buyer may offset against the last Installment an amount equal to 25% of the
uncollected Accounts Receivable, but not to exceed 16.75% of the Maximum Offset
and (Y) upon the thirty second month from the Closing, the Buyer may offset
against the Promissory Notes the remainder of the Maximum Offset not otherwise
offset pursuant to (X) above. Notwithstanding the above, 25% of any such
Accounts Receivable collected by Buyer or an affiliate thereof after application
of such shortfall against the last Installment and/or 100% of such Accounts
Receivable with respect to Promissory Notes, shall be paid to the Sellers within
10 days after payment is received as a reinstatement of a portion of the
aforementioned reduction in the Purchase Price.
(b) The Signing Date Asset Schedule sets forth the clients of the
Companies for whom the Companies are providing stenographic-based court
reporting services as of the Signing Date, exclusive of any carrying value for
the Companies' work-in-process as at such date.
4.7 Material Contracts. True and complete copies of all contracts,
------------------
agreements, instruments and leases to which the Companies are a party or by
which the Companies or their respective assets or properties are bound and which
are material to the Companies' business, each as in effect as of the date hereof
(including all amendments thereto, if any), have previously been furnished to
Buyer or its representatives and are identified in the Disclosure Letter (the
"Material Contracts"). Each of the Material Contracts is in full force and
effect and is, to Sellers' knowledge, the legal, valid and binding obligation of
the parties thereto and is enforceable as to them in accordance with its terms.
None of the Companies has given or received notice of, and Sellers do not know
that there exists, any default or event of default under any of the Material
Contracts, or any event or condition which with or without notice or passage of
time or both would constitute an event of default under any of the Material
Contracts by the Companies or by any other party thereto. Each of the Companies
has performed in all material respects all obligations required to be performed
by it under the Material Contracts to which it is a party.
4.8 Title to Assets; Liens. Each of the Companies has good and marketable
----------------------
title to all the properties and assets reflected as being owned by it on the
Signing Date Asset Schedule, free and clear of all Liens, except liens for
current taxes not yet due and payable. To Sellers' knowledge, the machinery and
equipment of the Companies is in reasonable working condition and repair,
without any material defects, and without need of maintenance or repairs, except
for ordinary, routine maintenance and repairs
9
<PAGE>
which are not material in nature or cost, and all of the machinery and equipment
of the Companies is adequate for its use.
4.9 Litigation. There are no actions, suits, claims or legal,
----------
administrative or arbitration proceedings or investigations pending, or to
Sellers' knowledge threatened, against, involving or affecting the Companies,
which if adversely determined could individually or in the aggregate materially
and adversely affect the business, operations, condition (financial or
otherwise), or prospects of the Companies. To Sellers' knowledge, there are no
outstanding orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against, involving or affecting the Companies.
4.10 Taxes. Each of the Companies has filed with appropriate Federal,
-----
state and local authorities all tax returns required by law, regulation, or
otherwise to be filed by it for all taxable periods ending on or prior to the
date hereof, for which returns have become due, and will continue to file such
tax returns as they become due for tax periods ending on or prior to the Closing
Date. Sellers shall be responsible for the preparation of income tax returns
required to be filed with respect to taxable years ending on or prior to the
Closing Date, and the Companies will reimburse the Sellers for the preparation
of such returns. Sellers and the Companies shall mutually prepare income tax
returns for the taxable year in which the Closing occurs. Sellers shall have the
right to represent the Companies with respect to the audit of any tax returns of
the Companies relating to the aforementioned periods. Except as set forth in the
Disclosure Letter, none of the tax returns filed by the Company have been
audited by the relevant governmental tax authorities. All deficiencies proposed
as a result of such audits having been paid, reserved against, settled or as
described in the Disclosure Letter, are being contested in good faith by
appropriate proceedings. None of the Companies has executed or filed with any
taxing authority any agreement which is still in effect extending the period for
assessment or collection of any income or other taxes for which it may be
directly or indirectly liable, and no claim for assessment or collection of
taxes for which it may be directly or indirectly liable has been asserted or
threatened against it. Sales taxes have been withheld or collected and remitted,
to the extent required, in all jurisdictions in which the Companies are required
to pay sales taxes and none of the Companies nor either of the Sellers has
received any claim or notice, and Sellers do not have any knowledge that any of
the Companies have not withheld or collected and paid all required sales taxes.
4.11 Compliance with Law. To Seller's knowledge, the Companies are in
-------------------
substantial compliance in all material respects with all applicable Federal,
state and local laws, rules,
10
<PAGE>
regulations and orders (collectively, "Laws"), including without limitation, all
Laws relating to occupational health and safety standards, employment
discrimination and sexual harassment.
4.12 Labor Relations. Except as set forth in the Disclosure Letter, none
---------------
of the Companies have in effect with any employee or other person an employment
contract or other arrangement relating to the length or terms and conditions of
such employee's or other person's employment, and other commitments imposed by
applicable law which is not terminable within thirty (30) days. The Companies
have paid in full to their employees all wages, salaries, commissions, bonuses
and other direct compensation for all services performed by them, other than
amounts that have not yet become payable in accordance with the Companies'
customary practices. None of the Companies is liable for any severance pay or
other payments on account of termination of any former employee. Furthermore, if
after Closing, the Company lawfully terminates any person who was an employee or
independent contractor of the Company at Closing, the Company will not be liable
to pay any such person commissions not accrued at the date of termination,
provided the Company does not otherwise agree after Closing or termination of
engagement to pay same. Except as set forth in the Disclosure Letter, (a) each
of the Companies is in substantial compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and none of the Companies is or
has been engaged in any unfair labor practice, (b) there is no unfair labor
practice complaint against any of the Companies pending before the National
Labor Relations Board, (c) there is no labor strike, dispute, slowdown or
stoppage actually pending or threatened against or affecting any of the
Companies, (d) no representation question exists respecting the employees of any
of the Companies, (e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements relating to employees of any of the
Companies is pending and no claim therefor exists, (f) the Company is not a
party to any collective bargaining agreement with any union representing its
employees or independent contractors, and (g) no collective bargaining agreement
relating to employees of any of the Companies is currently being negotiated.
4.13 Employee Benefit Plans; ERISA. Except as set forth in the Disclosure
-----------------------------
Letter, none of the Companies has, none of its employees are covered by, and
none of the Companies has any obligation with respect to, any bonus, deferred
compensation, pension, profit-sharing, retirement, insurance, stock purchase,
stock option, or other fringe benefit plan, arrangement or practice, or any
other employee benefit plan, as defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether formal or
informal
11
<PAGE>
(collectively "Plans"). The Disclosure Letter contains an accurate and complete
description of, and sets forth the annual amount payable pursuant to, each of
those Plans. The Balance Sheets reflect in the aggregate an accrual of all
amounts accrued but unpaid under such Plans as of the date thereof. The
Companies have performed and complied with all of their obligations under or
with respect to such Plans and such Plans have operated in accordance with their
terms. Except as set forth in the Disclosure Letter, there are no accrued but
unpaid contributions to any of the Plans. The Plans have operated in accordance
with the applicable requirements of ERISA and the Internal Revenue Code of 1986,
as amended (the "Code"). No reportable event (as defined in section 4043(e) of
ERISA), prohibited transaction (as defined in section 406 of ERISA or section
4975 of the Code), accumulated funding deficiency (as defined in section 302 of
ERISA) or plan termination (as defined in Title IV of ERISA or section 411(d) of
the Code) has occurred with respect to any of the Plans. None of the Plans is a
multi-employer plan (as defined in section 3(37) of ERISA) and none of the
Companies has any actual or potential liability with respect to any multi-
employer plan or a past or present withdrawal therefrom. All of the Plans that
are pension plans (as defined in Section 3(2) of ERISA) are qualified under
section 401(a) of the Code and conform in all respects with the requirements of
the Code and ERISA. The present value or accrued benefits (valued on a
termination basis as of the Closing Date under Pension Benefit Guaranty
Corporation Regulations) under any of the Plans that is covered by Title IV of
ERISA does not exceed the value of the assets of such Plan. Except as set forth
in the Disclosure Letter, no filing, application or other matter with respect to
any of the Plans is pending with the Internal Revenue Service, Pension Benefit
Guaranty Corporation, United States Department of Labor or other governmental
agency or body, none of the Plans (other than a profit sharing plan) has been
terminated, the Pension Benefit Guaranty Corporation has not taken action to
terminate any of the Plans and no trustee has been appointed by any court to
administer any of the Plans. None of the Plans has been amended since the date
of the Balance Sheets or will be amended prior to the Closing Date.
4.14 Liabilities. As at the date of Closing, the Companies shall not have
-----------
any unpaid accrued expenses, whether contingent or non-contingent, other than
any accrued taxes for the 1996 and 1997 taxable years, the loans payable to
Sellers, amounts owed ZAGAT and the amount referred to in Section 7.7.
5. Representations and Warranties of Buyer. Buyer represents and warrants
---------------------------------------
to Sellers as follows:
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<PAGE>
5.1 Organization and Standing. Buyer is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.
5.2 Corporate Power. Buyer has full corporate power and authority to enter
---------------
into this Agreement and to consummate the transactions contemplated by this
Agreement and to perform its obligations under this Agreement.
5.3 Authorization; Binding Effect. The execution and delivery by Buyer of
-----------------------------
this Agreement, and the consummation by Buyer of the transactions contemplated
by this Agreement and the performance by Buyer of its obligations under this
Agreement, including without limitation, the execution and delivery of the
Employment Agreements, have been duly and validly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes, and the Employment Agreement when executed
and delivered at Closing in accordance with the terms hereof will constitute, a
legal, valid and binding obligation or agreement, as the case may be, of Buyer,
enforceable against Buyer in accordance with its terms.
6. Covenants of Sellers.
--------------------
6.1 Third Party Consents. Sellers will use their best efforts to obtain
--------------------
and deliver to Buyer all written consents of, or assignments from, third parties
which are required in connection with the sale of the Shares and the other
transactions contemplated by this Agreement.
6.2 Access. Prior to the Closing, Sellers will allow Buyer and its
------
representatives reasonable access to the books, records and properties of the
Companies and furnish such information concerning the Companies as Buyer
reasonably may request from time to time, subject to Buyer entering into
confidentiality agreements acceptable to Sellers.
6.3 Conduct of Business Until Closing. Except as set forth in the
---------------------------------
Disclosure Letter, Sellers agree that until the Closing Date they will:
(a) Operate the business of the Companies only in the usual, regular and
ordinary course, consistent with reasonable business practice;
(b) Use their best efforts to preserve the Companies' present relationship
with their respective suppliers, customers and others with which they have
business dealings;
13
<PAGE>
(c) Not permit the Companies to modify or change in any material respect
or terminate any Material Contract to which they are party;
(d) Not permit the Companies to incur any indebtedness for money borrowed;
(e) Not permit the Companies to make any loans or extensions of credit,
except to trade purchasers in the ordinary course of business consistent with
past practice;
(f) Continue all policies of insurance in full force and effect up to and
including the Closing Date;
(g) Not permit the Companies to declare or pay any dividend or other
distribution on their capital stock, or effect any redemption, purchase or other
acquisition of such capital stock, other than as contemplated by the Signing
Date Asset Schedule; or
(h) Not permit the Companies to issue or sell, or enter into any contract
for the issuance or sale, of any shares of capital stock, or securities
convertible or exchangeable for shares of capital stock.
(i) No change will be made in the Companies Articles of Incorporation or
By-laws, except as may be first approved in writing by Buyer.
(j) No change will be made affecting personnel, compensation payments, or
banking or safe deposit arrangements without the Buyer's written approval.
(k) No contract of commitment will be entered into by or on behalf of the
Companies extending beyond December 31, 1996, except normal commitments for the
purchase of materials and supplies which in any single case will not involve
payment by the Companies of more than $5,000.00.
(l) Except as otherwise requested by the Buyer, the Sellers will cause the
Companies to preserve the Companies' business organizations intact, to keep
available to the Companies the services of its present officers and employees,
and to preserve for the Companies the goodwill of its suppliers, customers, and
other having business relations with the Companies.
6.4 Updating of Representations and Warranties. Between the date of this
------------------------------------------
Agreement and the Closing Date, Sellers shall as necessary or appropriate update
the Disclosure Letter and give notice to Buyer promptly upon becoming aware of
(i) any inaccuracy of a representation or warranty set forth in Section 4 hereof
or in the Disclosure Letter, or (ii) any event or state of
14
<PAGE>
facts that, if it had occurred or existed on or prior to the date of this
Agreement, would have caused any such representation and warranty to be
inaccurate, any such notice to describe such inaccuracy, event or state of facts
in reasonable detail.
7. Covenants of Buyer.
------------------
7.1 Restrictions on Buyer Purchasing Competitive Companies. Through April
------------------------------------------------------
10, 1998, Buyer shall not establish, purchase or otherwise acquire, directly or
indirectly, a stenography-based court reporting service (the "Reporting
Service"), or a controlling interest in a Reporting Service, located in, or
which has an Affiliate located in, the Restricted Area. As used herein,
"Restricted Area" means the five boroughs of New York City; Westchester,
Rockland, Putnam, Nassau and Suffolk Counties in New York; and Passaic, Union,
Sussex, Warren, Essex, Bergen and Morris Counties in New Jersey. Notwithstanding
the foregoing, through April 10, 1998, within the Restricted Area (i) Buyer or
an Affiliate of Buyer (the "Acquiring Entity") may purchase the stenography-
based New York Reporting Service for which Buyer is currently negotiating (the
"Target Reporting Service"), provided that (A) prior to the execution of this
Agreement, the name of the Target Reporting Service is disclosed and is
acceptable to the Sellers, (B) the Acquiring Entity shall not solicit the
personnel of the Companies for employment or the law firms that have been
clients of the Companies at any time through December 31, 1997 as prospective
clients, (C) if the annual gross revenues of the Target Reporting Service
("Target Gross Revenues") following the acquisition by the Acquiring Entity (the
"Acquisition") on an annualized basis for the period commencing on January 1,
1997 and ending December 31, 1997 (the "Measuring Period") exceeds Target Gross
Revenues for the fiscal year ending on the last day of the month prior to the
Acquisition ("Base Target Gross Revenues") by more than 25%, then the excess of
the highest amount of Target Gross Revenues for the Measuring Period over 125%
of Base Target Gross Revenues shall be added to Gross Revenues of the Companies
for the purposes of calculating the Contingent Payments; (ii) if Sellers
introduce Buyer to a Reporting Service as a prospective acquisition, and Buyer
and the Sellers agree upon the terms of compensation for such introduction,
Buyer may acquire such Reporting Service; and (iii) Buyer may acquire any
electronic-based court reporting service.
7.2 Restricted Payments. Buyer agrees that until the Obligations are paid
-------------------
in full, that it will not, or will not permit the Companies to:
(i) Declare dividends or make any other distributions in respect of
the Shares or any shares of its capital stock;
15
<PAGE>
(ii) Redeem, purchase or otherwise acquire any shares of its capital
stock;
(iii) Guarantee, directly or indirectly, any obligations of Buyer or
the Affiliates of the Companies;
(iv) Make any advances or similar payments to Affiliates;
(v) Assign or otherwise encumber the revenues of the Companies; or
(vi) Pay remuneration to all officers and directors in an amount in
excess of $200,000 in the aggregate, excepting herefrom remuneration paid
to Sellers.
7.3 Accounts Receivable and Work In Process. Buyer agrees to use its best
---------------------------------------
efforts to collect the Accounts Receivable. No Account Receivable shall be
written-off, settled or compromised without the written consent of Sellers and
Buyer.
7.4 Access. Following the Closing and until such time as the Obligations
------
have been paid in full, Buyer will allow Sellers and their representatives
reasonable access to the books, records and properties of the Companies and
furnish such information concerning Buyer as Sellers reasonably may request.
7.5 Taxes. The Companies shall notify Sellers of any correspondence or
-----
other communication received by a taxing authority with respect to any period
ending on or before the Closing. Buyer agrees not to file any amended tax return
for any taxable year ending on or before December 31, 1996 without the prior
written consent of Sellers. Buyer shall reimburse Sellers for any after-tax
benefit the Companies may realize from any net operating loss of the Companies
for the period 1/1/97 to Closing.
7.6. Confidentiality. Prior to the Closing Date, Buyer shall maintain the
---------------
confidentiality of all confidential information furnished to it by Sellers
concerning the Companies and shall not disclose such information to others, or
use any such information for any purpose, except in furtherance of the
transactions contemplated by this Agreement and except as such information may
be required to be disclosed by subpoena or other court order or upon advice of
counsel that such disclosure is required by law or is necessary in connection
with the prosecution or defense of any judicial proceeding or any application
to, or proceeding before, any governmental body. As used herein, "confidential
information" does not include that (i) which was in the public domain prior to
receipt from Sellers, or (ii) which Buyer can demonstrate was in its possession
prior to receipt, or (iii) which subsequently becomes known to Buyer from third
parties not subject to any restriction on disclosure, or
16
<PAGE>
(iv) which subsequently comes into the public domain through no fault of
Buyer, or (v) which was specifically approved for disclosure by written consent
of Sellers.
7.7 Reimbursement of Fees. Buyer will cause Doyle to reimburse Sellers for
---------------------
expenses incurred by Sellers on Doyle's behalf, the sum of $2,000 each
immediately after the Closing.
8. Conditions Precedent to Obligations of Buyer. The obligations of Buyer
--------------------------------------------
under this Agreement are subject to the satisfaction at or prior to Closing of
each of the following conditions (which may be waived by Buyer):
8.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by Sellers in this Agreement shall be true and correct in all
material respects as of the Closing Date as though such representations and
warranties were restated and made at and as of the Closing Date, and Sellers and
shall have furnished Buyer with a certificate to that effect.
8.2 Compliance with Obligations. All of the terms, covenants and
---------------------------
conditions of this Agreement required to be complied with by Sellers at or prior
to the Closing, in connection with the sale of the Shares contemplated hereby,
shall have been duly complied with and Sellers shall have furnished Buyer with a
certificate to that effect and such other evidence of compliance as Buyer may
reasonably request.
8.3 No Action or Litigation. There shall be no order of any court or
-----------------------
governmental body restraining or prohibiting the transactions contemplated by
this Agreement, nor shall any litigation or other proceeding be pending or
threatened against the Companies, the Sellers or Buyer seeking to prohibit or
otherwise challenge the consummation of the transactions contemplated by this
Agreement or to obtain substantial damages in respect thereof.
8.4 Third Party Consents. Sellers shall have obtained all consents and
--------------------
assignments, if any, required for the consummation of the transactions
contemplated by this Agreement.
9. Conditions Precedent to Obligations of Sellers. The obligations of
----------------------------------------------
Sellers under this Agreement are subject to the satisfaction at or prior to
Closing of each of the following conditions (which may be waived by Sellers):
9.1 Representations and Warranties Correct. The warranties and
--------------------------------------
representations made by Buyer in this Agreement shall be true and correct in all
material respects as of the Closing Date, as though such warranties and
representations were restated and made as and at the Closing Date, and Buyer
shall have furnished
17
<PAGE>
Sellers with a certificate executed by its Chief Executive Officer to that
effect.
9.2 Compliance With Obligations. All of the terms, covenants and
---------------------------
conditions of this Agreement required to be complied with by Buyer at or prior
to Closing shall have been duly complied with and Buyer shall have furnished
Sellers with a certificate executed by its Chief Executive Officer to that
effect and such other evidence of compliance as Sellers may reasonably request.
9.3 Appointment of Sellers as Directors of Buyer. Buyer shall have
----------------------------------------------
appointed each of the Sellers as a director of the Buyer, and shall have entered
into the Indemnity Agreements.
9.4 Employment Agreements. Buyer shall have entered into the employment
---------------------
agreements with each of the Sellers, substantially in the forms annexed hereto
as Exhibit D-l and D-2, respectively (the "Employment Agreements"), pursuant to
which Buyer will employ the Sellers for a period of fifteen months, unless
terminated earlier by one or both of the Sellers upon the first anniversary
hereof (the "Term"), commencing on the Closing Date. During the Term, the
Sellers shall each devote an average of 32 hours per week to the affairs of the
Companies, provided that in no event will they be required, in the aggregate, to
be at Buyer's or the Companies' offices for more than four days per week, with
maximum hours (unless otherwise agreed to by Sellers) of 10:15 a.m. to 3:15 p.m.
per day (hereinafter referred to as "Full-Time Employment"). Notwithstanding the
above, to the extent feasible, the Sellers may perform executive services on
behalf of the Companies from their home, provided one of the two of them is
available to be at the Companies' offices during the period set forth above.
Each of the Sellers shall receive $10,000 per month during the Term as
compensation for his services, to be paid pursuant to the general payroll
practices of the Buyer, but no less than monthly. The Sellers shall be entitled
to six weeks of paid vacation per 12 month period, all standard holidays
observed by the Buyer or the Company and all sick leave and personal time
pursuant to the Buyer's policy. The Sellers shall also be entitled to full
benefits under a medical/health insurance plan of Buyer for the Term and for a
period of one year following the Term, which plan shall be comparable to the
plan currently provided the Sellers by the Companies. In the event Buyer or the
Companies are unable to include the Sellers in their medical/health insurance
plans, both the Buyer and the Companies jointly and severally agree to reimburse
the Sellers an amount equal to that which would have been paid by the Buyer or
Companies if the Sellers were able to be included.
18
<PAGE>
10. Indemnification
---------------
10.1 Obligation of Sellers to Indemnify. Sellers hereby agree, jointly and
----------------------------------
severally, to indemnify, defend and hold harmless Buyer and its successors and
assigns from and against the after-tax cost of any and all claims, damages,
losses, liabilities, deficiencies, actions, suits, proceedings, costs or legal
expenses (the after-tax cost of all such items being hereinafter referred to
individually as a "Loss", and collectively, as "Losses") arising out of or
resulting from: (i) any breach of a representation, warranty or covenant by
Sellers contained in this Agreement, as the same may be qualified by the
Disclosure Letter, Section 4.6 hereof, or other documents delivered to Buyer and
referred to herein (the "Collateral Documents"); or (ii) events occurring in the
course of or relating to the business of the Companies prior to Closing (a
"Third Party Claim") which are not disclosed in this Agreement (including the
Disclosure Letter) and the Collateral Documents or of which Buyer otherwise did
not have actual knowledge prior to Closing; or (iii) a liability finally
determined for Federal, state, local or foreign taxes that relates to periods up
to and including the Closing Date (a "Tax Claim") to the extent that such taxes
were not paid prior to the Closing Date or were not reflected on the Balance
Sheets, or (iv) any and all costs and expenses (including reasonable attorneys
fees) related to the foregoing.
10.2 Obligation of Buyer to Indemnify. Buyer hereby agrees to indemnify,
--------------------------------
defend and hold harmless the Sellers from and against after-tax costs: (i) any
and all Losses resulting from any breach of a representation, warranty or
covenant of Buyer contained in this Agreement, as the same may be qualified by
the Disclosure Letter or the Collateral Documents; (ii) any and all Losses
suffered by Sellers arising out of or relating to the conduct of the business of
the Companies after the Closing and (iii) any claims brought against Sellers as
directors of the Companies and/or Buyer with respect to their activities as such
after Closing, except for gross negligence or willful misconduct.
10.3 Notice of Claim. If any party (the "Indemnitee") receives written
---------------
notice of the commencement of any legal action, suit or proceeding with respect
to which any other party or parties is or may be obligated to provide
indemnification (the "Indemnitor") pursuant to Sections 10.1 or 10.2 of this
Agreement, the Indemnitee shall, within thirty (30) days of the receipt of such
written notice, give the Indemnitor written notice thereof (a "Claim Notice").
Failure to give such Claim Notice within such thirty (30) day period shall
constitute a waiver by the Indemnitee of its right to indemnity hereunder with
respect to such action, suit or proceeding.
19
<PAGE>
10.4 Defense of Claims. Except as otherwise provided in Section 4.10
-----------------
hereof, upon receipt by an Indemnitor of a Claim Notice from an Indemnitee with
respect to any claim for indemnification which is based upon a Third Party Claim
or a Tax Claim, such Indemnitor, either alone or together with any other
Indemnitor similarly notified, may assume the defense of the Third Party Claim
or Tax Claim with counsel of its or their own choosing. The Indemnitee(s) shall
cooperate in the defense of the Third Party Claim or Tax Claim and shall furnish
such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trial and appeals as may be reasonably required
in connection therewith. The Indemnitee(s) shall have the right to employ its or
their own counsel in any such action, but the fees and expenses shall be at the
expense of the Indemnitee unless the Indemnitor(s) shall not have promptly
employed counsel to assume the defense of the Third Party Claim or Tax Claim, in
which event such fees and expenses shall be borne by the Indemnitor(s). The
Indemnitor(s) shall have the right, in its or their sole discretion, to satisfy
or settle any Third Party Claim or Tax Claim for which indemnification has been
sought and is available hereunder. If the Indemnitor(s) shall fail with
reasonable promptness either to defend such Third Party Claim or Tax Claim or to
satisfy or settle the same, the Indemnitee(s) may defend, satisfy or settle the
Third Party Claim or Tax Claim at the expense of the Indemnitor(s) and the
Indemnitor(s) shall pay to the Indemnitee(s) the amount of any such Loss within
ten (10) days after written demand therefor.
10.5 Determination of After-Tax Cost. The after-tax cost of any Losses
-------------------------------
indemnifiable under this Section 10 shall initially be determined by accountants
(the "Indemnitee's Accountants") selected by the Indemnitee(s), after giving
effect to the effective tax rate of the Indemnitee(s) and the actual marginal
tax benefit realized by the Indemnitee(s) by reason of any such Losses, and
notice shall be given to the Indemnitor(s) setting forth the amount of the
after-tax cost so determined and the basis for such determination (the "After-
Tax Notice"). The determination of after-tax cost set forth in the After-Tax
Notice shall be binding absent a showing of manifest error or fraud.
10.6 Certain Limitations on Indemnification Obligations of Sellers. The
-------------------------------------------------------------
indemnification obligations of Sellers under Section 10.1 hereof and Buyer under
Section 10.2 hereof: (i) shall terminate on the second anniversary of the
Closing Date, except with respect to any Tax Claim, as to which Sellers'
obligation to indemnify shall survive until the end of the applicable statute of
limitations (the parties approval being required in order to extend such
statute); (ii) shall not apply to the first $25,000, in the aggregate, of
Losses, except for a breach of the representations and warranties of Sellers set
forth in Section 4 hereof as to which Sellers liability to indemnify Buyer shall
20
<PAGE>
apply to all Losses, beginning with the first dollar in Losses; (iii) shall not
apply to any Loss disclosed in writing to Buyer prior to Closing; (iv) shall not
in the aggregate exceed amounts paid to Sellers for the purchase of the Shares
pursuant to this Agreement; (v) shall not apply to any Loss to the extent
covered by insurance maintained by the Companies; and (vi) shall not relate to
Losses arising by reason of the breach of any representation or warranty by
Sellers of which Buyer had actual knowledge prior to the Closing.
11. Adjustment to Purchase Price. (a) The Base Purchase Price shall be
----------------------------
increased by the excess of the cash on hand at Closing and the amount of cash
reflected on the Signing Date Asset Schedule, but in no event more than the
excess, if any, of the Companies' working capital at Closing and the amount
reflected on the Signing Date Asset Schedule or decreased by any excess of the
Companies' working capital reflected on the Signing Date Asset Schedule at
Closing and the amount thereof at Closing.
(b) Within forty-five (45) days after Closing, the Sellers' and Buyers'
accountant shall complete a Post Closing Review of the Companies' working
capital as at Closing. In connection therewith, prepaid expenses (i.e. rent)
shall be allocated based on the number of days the parties owned the Shares in
such relevant period. The Purchase Price shall be increased or decreased to
reflect the difference between the estimated working capital at the Effective
Time and the amount of working capital determined pursuant to the aforementioned
review.
12. Termination.
-----------
12.1 Conditions. This Agreement may be terminated at any time on or prior
----------
to the Closing Date:
(a) by mutual consent of the Sellers and Buyer;
(b) By Buyer, in the event of a Seller's Breach. As used herein, a
"Seller's Breach means (i) a material misrepresentation or breach on the part of
the Sellers with respect to any representations or warranties of the Sellers set
forth herein, or (ii) any material failure on the part of the Sellers to comply
with any of their obligations or to perform any of their covenants hereunder, or
(iii) any of the conditions set forth in Section 8 hereof shall not have been
fulfilled in any material respect by the Closing Date and the fulfillment
thereof shall not have been waived by Buyer.
(c) By the Sellers, in the event of a Buyer's Breach. As used herein, a
"Buyer's Breach" means (i) a material misrepresentation or breach on the part of
the Buyer with respect to any misrepresentations or warranties of the Buyer set
forth
21
<PAGE>
herein, or (ii) any material failure on the part of the Buyer to comply with any
of its obligations or to perform any of its covenants hereunder, or (iii) any of
the conditions set forth in Section 9 hereof shall not have been fulfilled in
any material respect by the date scheduled for the Closing in Section 3 hereof
and the fulfillment thereof shall not have been waived by Sellers.
(d) By Buyer or Sellers, by notice to the other at any time after the date
scheduled for Closing in accordance with Section 3 hereof.
12.2 Termination Date.
----------------
A termination pursuant to Sections 12.1 (b) or (c) shall be effective
immediately upon delivery, by the party or parties having the right to
terminate, of a notice of termination to the other party or parties.
12.3 No Liability.
------------
In the event of a termination of this Agreement as provided above, this
Agreement shall forthwith terminate and there shall be no liability on the part
of either the Sellers or Buyer, except: (i) to the extent that such termination
results from the willful breach by a party hereto of any of its representations,
warranties, covenants or agreements set forth in this Agreement, in which event
the parties shall have all their remedies at law or in equity; and (ii) as set
forth in Section 20 hereof.
13. Survival. The representations, warranties, covenants and agreements
--------
of the parties set forth in this Agreement shall survive the Closing until the
second anniversary of the Closing Date, provided however, that representations,
warranties, covenants and agreements with respect to Federal, state, local and
foreign tax issues shall survive the Closing until the expiration of the
applicable statute of limitation for all filings for the periods up to and
including December 31, 1996.
14. Notices.
--------
14.1 How and When Given. All notices, requests, demands and other
------------------
communications which are required or permitted under this Agreement shall be in
writing and shall be deemed sufficiently given upon receipt if personally
delivered, faxed or mailed by certified mail, return receipt requested,
addressed to the party to be notified at the address hereafter set forth for
such party or to such other address as such party may hereafter designate in
writing:
22
<PAGE>
(i) If to Sellers:
Charles Shapiro, 6 Croton Lake Road Croton-On-Hudson, New York 10520,
Fax: (914) 271-5255
Walter Shapiro P.O. Box 67 Stanfordville, New York, 12581, Fax:
with a copy to:
Jack Becker, Esq. Snow Becker Krauss P.C. 605 Third Avenue 25th Floor
New York, New York 10158-0125 Fax: (212) 949-7052
(ii) If to Buyer:
ALR Reporting, Inc. 901 Dulaney Valley Road, Suite 400 Towson,
Maryland 21204 Attention: Douglas Colkitt, M.D. Fax: (410) 823-6017
with a copy to:
Iles Cooper, Esq. 10 Westwood Road Pottsville, Pennsylvania 17901
Fax: (717) 622-5033
14.2 Escrow Notices. (a) In the event the Escrow Agent receives notice
--------------
from Buyer that the Obligations have been paid in full, then the Escrow Agent
shall deliver a copy of the notice to Sellers. Unless the Escrow Agent has
received a written objection to Buyer's demand from one or both of the Sellers
within ten (10) business days after the Escrow Agent's delivery of a copy of
Buyer's notice to Sellers, the Escrow Agent shall deliver to Buyer all of the
Shares fifteen (15) business days after the Escrow Agent's delivery of a copy of
Buyer's notice to Sellers. If the Escrow Agent receives a written objection from
one or both of Sellers as provided above, Escrow Agent shall not consider there
to be for purposes of Section 3 (a' above, acceptable evidence that the
Obligation has been paid.
(b) In the event the Escrow Agent receives notice from Sellers that Buyer
has defaulted in the payment of the Obligations, then the Escrow Agent shall
deliver a copy of the notice to Buyer. Unless the Escrow Agent has received a
written objection to Sellers' demand from Buyer within ten (10) business days
after the Escrow Agent's delivery of a copy of Sellers' notice to Buyer, the
Escrow Agent shall deliver to Sellers all or a portion of the Shares fifteen
(15) business days after the Escrow Agent's delivery of a copy of Sellers'
notice to Buyer. If the Escrow Agent receives a written objection from Buyer as
provided above, Escrow Agent shall not consider there to be for purposes of
Section 3(a) above, acceptable evidence that Buyer has defaulted in the payment
of the Obligations.
23
<PAGE>
(c) Costs of the Escrow Agent shall be borne equally by the Buyer and
Sellers.
15. Binding Effect; Benefits. This Agreement shall inure to the benefit
------------------------
of, and be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns, and no other person shall
acquire or have any other rights under this Agreement or by virtue of this
Agreement.
16. Assignment. Neither this Agreement nor any right, remedy, obligation
----------
or liability arising hereunder or by reason hereof shall be assignable by
Sellers or Buyer without the prior written consent of the other, except that
Buyer, by an amendment to this Agreement, may assign all of its rights hereunder
to an entity all of the equity interests of which are owned by Buyer, provided
that entity assumes all of the obligations of Buyer hereunder and Buyer
guarantees the payment and performance of all of those obligations.
17. No Brokerage. Except for certain conversations disclosed to Sellers
------------
and their counsel, the Buyer represents and warrants that it has not dealt with
any broker or finder in connection with the transactions contemplated by this
Agreement. To the extent Sellers or the Companies have dealt with brokers in
connection herewith, the Sellers shall bear the Brokerage Commission. Insofar as
any claims for brokerage commission or finder's fees may be alleged to be based
on any arrangements or agreements made by, or on behalf of a party, such party
agrees to indemnify and hold the other harmless against all liability, damage or
expense, including reasonable attorneys' fees and expenses, arising therefrom.
18. Governing Law. This Agreement shall in all respects be governed by,
-------------
construed under and enforced in accordance with the laws of the State of New
York applicable to contracts executed and to be performed wholly within such
State.
19. Designation of Forum in the Event of Litigation. Sellers and Buyer
-----------------------------------------------
agree that any legal action or proceedings with respect to, or arising out of,
the negotiation, execution, performance or breach of, or the rights and
privileges provided by, or responsibilities and obligations under, this
Agreement must be brought in either the Supreme Court of the State of New York
for the County of New York or the United States District Court for the Southern
District of New York and in no other jurisdiction. By execution and delivery of
this Agreement, each of the Sellers and Buyer accept and submit to the
jurisdiction of such courts in any such legal action or proceeding and
irrevocably consent to service of process in any action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
each of the parties at its address for notices as specified herein, such service
to become effective thirty (30) days after such mailing. Nothing herein shall
affect the right to serve process in any other
24
<PAGE>
manner permitted by law. The parties hereby agree to be bound by the
determination of the aforesaid courts and hereby waive any right which they may
have to relitigate issues determined by the aforesaid courts or to raise new
issues not raised by it in the aforesaid courts.
20. Expenses. Each of the parties shall pay its or his own legal,
--------
accounting and other expenses in connection with the negotiation and preparation
of this Agreement and the consummation of the transactions contemplated hereby,
whether or not said transactions are consummated.
21. Severability. If any term, covenant or condition of this Agreement or
------------
the application thereof to any party or circumstance shall, to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
term, covenant or condition of this Agreement shall be valid and be enforced to
the fullest extent permitted by law.
22. Waiver. Any waiver by any party of a breach provisions of this
------
Agreement shall not operate as or be construed to be a waiver of any other
breach of that provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions will not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
23. Headings. The headings in this Agreement are for convenience only and
--------
shall not affect the construction of this Agreement.
24. Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
understanding between the parties with respect to its subject matter. It
supersedes and cancels all prior agreements and understandings among the parties
relating to its subject matter. This Agreement may not be amended or
supplemented, except by subsequent written agreement of the parties which
specifically states that it is intended to be an amendment or supplement to this
Agreement, signed by the parties hereto. No course of dealing or custom shall be
referred to as modifying any of the terms and conditions of this Agreement.
25. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be enforceable against the
25
<PAGE>
parties actually executing such counterparts, and all of which together shall
constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on this 8th day of January, 1997.
/s/ Charles Shapiro
---------------------------------
Charles Shapiro
/s/ Walter Shapiro
---------------------------------
Walter Shapiro
ALR REPORTING, INC.
By: /s/ Douglas Colkitt
------------------------------
Douglas Colkitt, M.D.
Chairman and
Chief Executive Officer
26
<PAGE>
INDEMNIFICATION
- ---------------
In order to induce the Buyer to execute this Stock Purchase Agreement, the
undersigned,the spouses of Sellers, agree in the event (i) of their respective
spouse's death prior to the time a Loss occurs with respect to a Tax Claim, as
defined in Section 10.1 hereof or (ii) their respective spouse has transferred
assets to her (in her individual name or jointly with the transferor) after the
date hereof and prior to death, to indemnify and hold Buyer harmless with
respect to fifty percent (50%) of any Tax Claim, to the extent provided and in
accordance with the terms of Section 10 hereof, provided, however, that (X) any
-------- -------
payment made by Sellers and the other signatory below under Section 10 shall be
deemed a payment made by the undersigned and (Y) in the event this
indemnification results from (ii) above, an amount not in excess of the amount
transferred.
/s/ Kathleen C. Shapiro
---------------------------------
/s/ Deanna Shapiro
---------------------------------
27
<PAGE>
DISCLOSURE LETTER
1. A Sales/Use Tax Audit for the years 1990/1995 is in process. An assessment in
the approximate amount of $17,500 was made and paid. Awaiting final interest
calculation from New York State.
2. The Labor Contract with Federation of Shorthand Reporters has technically
expired. No representation is made with respect to the terms and conditions of
any new or extended contract.
3. As at the Effective Time, the Companies have placed for collection with their
attorneys approximately $113,600.
28
<PAGE>
EXHIBIT 10.28
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of January 1, 1997 by and among PROPHECY TRANSCRIPTION SERVICES, INC., a
New Jersey corporation ("Purchaser"); and PROPHECY HEALTH INFORMATION
MANAGEMENT, INC., a New Jersey corporation ("Seller"); and EDWARD J. BILOTTI, a
resident of the State of New Jersey (the "Shareholder").
W I T N E S S E T H:
WHEREAS, Seller owns and operates a medical transcription business at
10 North Gaston Avenue, Somerville, New Jersey 18876 (the "Business");
WHEREAS, the Shareholder and his spouse own a substantial amount of
the outstanding stock of Seller;
WHEREAS, it is Seller's intention to cause the sale of Seller's assets
in order to liquidate Seller's investment in said assets;
WHEREAS, Purchaser desires to buy, and Seller desires to sell,
substantially all of the assets owned by Seller and used in the operation of the
Business, upon the terms and conditions hereinafter set forth; and
WHEREAS, to induce Purchaser to perform under this Agreement and as a
condition thereto, Seller and Shareholder have agreed to execute a
noncompetition agreement in favor of Purchaser ("Noncompetition Agreement").
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the sufficiency of which is hereby acknowledged, the parties
hereto, intending to be legally bound, do hereby agree as follows:
Section 1. Sale of Assets; Assumption of Specified Liabilities.
----------------------------------------------------------------
1.1 Sale of Assets. On the terms, subject to the conditions, and
--------------
for the consideration hereinafter stated, Seller hereby agrees to sell, convey,
transfer, assign and deliver to Purchaser, and Purchaser agrees to buy and
acquire as hereinafter provided, at the "Closing" (as hereinafter defined),
substantially all assets of Seller, tangible or intangible, real or personal,
including, without limitation, the following described assets owned and used by
Seller:
<PAGE>
(a) all equipment, business machines, computers, furniture,
furnishings, and other tangible personal property of Seller
including, without limitation, that listed in Exhibit 1.1(a)
hereto;
(b) DELETED
(c) all claims and rights under the contracts of Seller listed in
Exhibit 1.1(c) (the "Assigned Contracts");
(d) all patient transcribed reports as dictated by physicians (to the
extent permitted by law), and all personnel lists (whether past
or present, whether stored in computer memory or on hard copy);
(e) all sales literature, promotional material and other general
files and printed forms used by Seller;
(f) all goodwill, trademarks, services marks and trade names used by
Seller (including, without limitation, the name "Prophecy" when
used in connection with the Business).
(g) DELETED
(h) all telephone numbers and telephone and yellow pages directory
listings;
(i) all prepaid expenses and deposits of Seller, including any lease
deposits; Security Deposit on Lease will be adjusted at closing;
(j) all inventory and supplies of Seller;
(k) all rights to leasehold improvements and fixtures;
(l) all software and passwords to LAN networks used by Seller;
(m) all payroll records for all employees of Seller;
(n) all information and documentation relating to the names,
addresses, customer computer access codes, and telephone numbers
of Seller's referral sources;
2
<PAGE>
(o) all records and lists of third party payor and case manager
contacts including names, addresses and telephone numbers; and
(p) all records relating to vendors dealing with Seller, business
leads, and prospective customers and employees.
The foregoing assets may be referred to herein collectively as the
"Assets". The "Assets" shall not include any "Excluded Assets", as defined in
Section 1.2 below.
The "Assets" shall include, without limitation, all properties and
assets of Seller and the Business as reflected in the 1996 Financial Statement
referred to in Section 4.3 hereof and all properties and assets acquired by
Seller after November 30, 1996, except those properties and assets disposed of
thereafter in the ordinary course of business and except for the "Excluded
Assets" as defined below.
1.2 Excluded Assets. Notwithstanding the provisions of Section 1.1
---------------
hereof, the following described assets of Seller shall not be acquired by
Purchaser, shall not constitute "Assets," and shall be defined herein as the
"Excluded Assets":
(a) the minute books and stock ledger books of Seller;
(b) all cash of Seller as of midnight the day before the Closing
Date;
(c) all accounts receivable and all unbilled amounts for services of
Seller as of midnight of the day before the Closing Date;
(d) any land or buildings owned by Seller;
(e) all pension plan assets of Seller; and
(f) the assets described in Exhibit 1.2(g) hereof.
1.3 No Assumption of Liabilities. It is expressly acknowledged and
----------------------------
agreed that, except in respect of the Assigned Contracts, Purchaser is assuming
no obligations, debts or liabilities of Seller or Shareholder (and Seller and
Shareholder shall jointly and severally indemnify Purchaser against any and all
such debts, obligations and liabilities) including, without limitation, the
following described debts, obligations or liabilities:
3
<PAGE>
(a) any liability, indebtedness or obligation of Seller or
Shareholder for borrowed money, whether absolute or contingent,
direct or indirect;
(b) liabilities and obligations of Seller or Shareholder, the
existence of which constitute a breach of any of the
representations or warranties made by Seller or Shareholder in
this Agreement or in any document delivered by Seller or
Shareholder pursuant to this Agreement;
(c) any liabilities or obligations arising out of or in connection
with any litigation, claim, investigation or proceeding
(including, without limitation, losses, costs, expenses,
attorneys' fees, and damages incurred in connection therewith)
which relate to Seller or Shareholder or relate to services
performed or products delivered prior to the Closing or which
arise out of actions taken by, or omissions of, Seller or
Shareholder prior to the Closing (whether or not scheduled on
Exhibit 4.8);
(d) any federal, state, local or other income taxes payable by Seller
or Shareholder or any interest or penalties with respect thereto;
(e) any liability under any employee benefit or welfare plan or
regarding any compensation or withholding taxes owed to or with
respect to any employee or independent contractor of Seller or
Shareholder;
(f) liabilities and obligations of Seller or Shareholder for payroll,
wages, salaries, bonuses, vacation, sick pay and severance pay
and other like amounts due as of the Closing Date to officers,
directors, employees, contractors and agents of Seller or
Shareholder, all of which amounts are listed in Exhibit 1.3(f)
attached hereto;
(g) liabilities and obligations of Seller or Shareholder based upon
tortious or illegal conduct;
(h) liabilities and obligations of Seller or Shareholder for any
breach or violation, as of the Closing, of any contracts of
Seller or Shareholder including, without limitation, the Assigned
Contracts;
4
<PAGE>
(i) liabilities and obligations of Seller or Shareholder for
environmental or ecological matters, including those relating to
the use, transport, disposal, handling or storage of hazardous or
toxic materials, pollutants, contaminants, petroleum products, or
waste;
(j) any liability or obligation to Medicare, Medicaid, Blue
Cross/Blue Shield (or any other third party payor) as a result of
recapture of amounts paid by any such payor to Seller or
Shareholder or any overpayments made by such payor to Seller or
Shareholder or any disallowance of any claim of Seller or
Shareholder;
(k) liabilities and obligations of Seller or Shareholder incurred in
connection with the preparation of this Agreement and the
consummation of transaction contemplated hereby, including,
without limitation, legal and accounting fees; and
(l) trade payables and operating expenses of Seller incurred prior to
the Closing Date.
All of the foregoing items described in clauses (a) through (l) above are
referred to herein collectively as the "Excluded Liabilities".
Notwithstanding the foregoing, Purchaser will assume the obligations
of Seller under the "Assigned Contracts", but only to the extent that they
represent obligations which are by their stated terms to be performed, in the
ordinary course, subsequent to the Closing Date.
1.4 Freedom from Encumbrances. The conveyance of the Assets to
-------------------------
Purchaser hereunder shall be free and clear of all claims, security interests,
pledges, options, rights of first refusal, liens, financing statements, deeds of
trust, mortgages, charges, assessments, restrictions, leases, and encumbrances
(all such claims, security interests, pledges, options, rights of first refusal,
liens, financing statements, deeds of trust, mortgages, charges, assessments,
restrictions, leases and encumbrances being referred to individually as an
"Encumbrance" and collectively as "Encumbrances"), except solely for the
Assigned Contracts.
Section 2. Amount, Payment and Allocation of Consideration.
---------- ------------------------------------------------
2.1 Amount and Payment. At the "Closing" (as defined in Section 3.1
------------------
hereof), Purchaser shall deliver the following
5
<PAGE>
"Consideration" for the Assets and for the execution, delivery and performance
by Seller and Shareholder of the "Noncompetition Agreement" (as defined in
Section 3.4(i) hereof):
(i) $425,000.00 in cash or in bank or certified funds shall be
delivered to Seller at closing in consideration of the sale of the Assets to
Purchaser;
(ii) $50,000.00 in cash or in bank or certified funds shall be
delivered on or before March 1, 1997 in consideration of the sale of the Assets
to Purchaser. Said $50,000.00 will be secured by a Promissory Note signed by
Purchaser and guaranteed by EquiMed, Inc.; and
(iii) $25,000.00 in cash or in bank or certified funds shall be
delivered to Seller and Shareholder at closing in consideration of the
execution, delivery and performance by Seller and Shareholder of the
Noncompetition Agreement.
2.2 Allocation. The Consideration shall be allocated for tax
----------
purposes as provided in Exhibit 2.2 hereof and as otherwise required by Section
1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Each party
will timely file IRS Form 8594 as required under the Code, which shall be
completed in conformity with the allocations set forth in this Agreement.
Section 3. Closing.
-------------------
3.1 Closing and Closing Date. The closing (the "Closing") of the
------------------------
sale and purchase of the Assets and the execution and delivery of the other
agreements and documents contemplated herein shall take place on or before
January 3, 1997 (the "Closing Date") at 10:00 a.m., Somerville, New Jersey time
at 10 North Gaston Avenue, Somerville, New Jersey 08876, or at such other place
and time as may be deemed appropriate by the parties hereto, at which time the
cash consideration as stated in Section 2.1(I) and 2.1(iii) shall be delivered
in bank certified funds pursuant to Seller's further direction. For purposes of
this Agreement and for accounting purposes, the "Closing Date" shall be January
1, 1997. If the parties agree, the Closing may be consummated by exchange of
signature pages by facsimile transmission, with the originals thereof to be
delivered by mail as soon thereafter as practicable. At the Closing, all charges
for rent, utilities, payroll, payments under Assigned Contracts, and other
current operating expenses of the Business shall be prorated based on actual
days elapsed for the appropriate period, with Seller being responsible for its
share of such prorations through midnight of the day preceding the Closing Date.
6
<PAGE>
3.2 Action by Purchaser. Upon the terms and subject to the
-------------------
conditions herein contained, at the Closing on the Closing Date, Purchaser will
deliver to Seller and Shareholder the following:
(i) The certificate referred to in Section 6.1 hereof;
(ii) The opinion of counsel for Purchaser referred to in Section 6.3
hereof;
(iii) Resolutions of Purchaser, certified by an appropriate officer,
authorizing the execution, delivery and performance of this
Agreement and the other agreements to be delivered by Purchaser
in connection with the Closing hereunder; and
(iv) The Consideration in the manner specified in Section 2.1 hereof
and in the form specified in Section 3.1 hereof.
3.3 Action by Seller. Upon the terms and subject to the conditions
----------------
herein contained, at the Closing on the Closing Date, Seller and Shareholder
will deliver to Purchaser the following:
(i) A duly executed Bill of Sale and Assignment in substantially
the form of Exhibit 3.3(i) hereto;
(ii) The certificate referred to in Section 7.1 hereof;
(iii) The opinion of counsel for Seller and Shareholder referred to
in Section 7.3 hereof; and
(iv) Resolutions of Seller, certified by an appropriate officer,
authorizing the execution, delivery and performance of this
Agreement and the other agreements to be delivered by Seller in
connection with the Closing hereunder.
3.4 Action by All Parties. Upon the terms and subject to the
---------------------
conditions herein contained, at the Closing on the Closing Date, the parties
will, as appropriate, execute and deliver to each other the "Noncompetition
Agreement" in substantially the form attached hereto as Exhibit 3.4.
3.5 Further Acts and Assurances. From time to time and at any
---------------------------
time, at Purchaser's request, whether on or after the Closing Date, and without
further consideration, Seller shall, at its expense, execute and deliver such
further documents and instruments of conveyance and transfer and shall take such
further actions (i) as may be reasonably necessary to transfer
7
<PAGE>
and convey to Purchaser all of the right, title and interest in and to the
Assets, free and clear of any Encumbrance whatsoever, or (ii) as may be
reasonably necessary to carry out the intent of this Agreement and the
transactions contemplated hereby, or (iii) as may be reasonably necessary in
connection with any audit which Purchaser may conduct of Seller's financial
statements, which audit (if any) shall be at Purchaser's sole expense and
consistent with this Agreement.
3.6 Seller's Records. Following the Closing, Purchaser shall
----------------
cooperate reasonably in making available to Seller for its review the records of
the Business created prior to Closing and in the possession of Purchaser.
3.7 Collection of Seller's Accounts Receivable. From and after the
------------------------------------------
Closing, Purchaser will promptly forward to Seller all payments received by
Purchaser with respect to Seller's accounts receivable.
Section 4. Representations and Warranties of Seller and Shareholder.
--------------------------------------------------------------------
Seller and Shareholder hereby jointly and severally represent,
warrant, covenant and agree to and with Purchaser as follows:
4.1 Seller's Existence and Power. Seller is a corporation duly
----------------------------
organized, validly existing and in good standing under the laws of the State of
New Jersey. Seller has the corporate power to own its property and to carry on
the Business as now being conducted.
4.2 DELETED
4.3 Accuracy of Financial Statements. Seller has delivered to
--------------------------------
Purchaser as Exhibit 4.3 a copy of the financial statements of Seller for the
years ended December 31, 1994 and 1995 and a balance sheet and an income
statement for the eleven-month period ending November 30, 1996 (the "Financial
Statements"). The balance sheet and income statement for the eleven-month period
ending November 30, 1996 are referred to hereinafter as the "1996 Financial
Statement". The Financial Statements are complete and accurate and fairly
present, in all material respects, the financial condition of Seller and the
income and expenses of Seller as of the respective dates thereof. Except as
noted in Exhibit 4.3, the Financial Statements have been prepared on a cash
basis and are accurate. Seller has no material liabilities or obligations
(including, without limitation, any liability for federal, state or local taxes
of Seller), for any period ended on or prior to the 1996 Financial Statement or
any liability or obligation in connection with any
8
<PAGE>
transaction or state of affairs entered into or existing on or before the date
thereof, which is not fully reflected on the 1996 Financial Statement or
otherwise disclosed to Purchaser in the Exhibit 4.10 hereto.
4.4 Properties of Seller.
--------------------
(i) The 1996 Financial Statement reflects all of the properties
presently owned by Seller and used in the Business.
(ii) Exhibit 4.4(ii) attached hereto is an accurate and complete
list of all real or personal property which is used by Seller in the Business
and which either is not owned by Seller or is leased or rented by Seller.
4.5 Taxes and Tax Returns. Seller has filed all federal, state and
---------------------
local tax returns and reports of Seller which have become due to be filed
(including, without limitation, those due in respect of its properties, income,
franchises, licenses, sales and payrolls), and such returns are complete and
accurate in all material respects. A copy of Seller's most recent federal income
tax return is attached as Exhibit 4.5 hereto. Seller has paid all taxes,
assessments, fees, interest, penalties (if any) and other governmental charges
due with respect to the periods covered by such tax returns and reports and as
reflected on said returns and reports. Seller is not delinquent in the payment
of any taxes, assessments or governmental charges, and there are no assessments
of additional taxes threatened against Seller or any of Seller's properties. No
waiver of any statute of limitations or agreement for extension of time for
assessment in respect of any tax liability of Seller has been given by
Shareholder or Seller which is presently in effect. Without limiting the
foregoing, (a) Seller has timely filed all FICA, FUTA and similar state and
local tax returns and withholding of employee tax returns and reports of Seller
which have become due to be filed and has paid all amounts required to be paid
thereunder, and (b) Seller has paid over to the appropriate taxing authorities
all amounts required to have been withheld by Seller from employee compensation,
except such withheld amounts not yet due to have been paid over, all of which
amounts not yet paid over are being held by Seller for the account of the
appropriate taxing authority. The income tax returns of Seller have never been
audited by any taxing authority. Neither Seller nor Shareholder knows of any
questions which have been raised by any federal, state or local taxing authority
relating to taxes or assessments of Seller which, if determined adversely to
Seller, would result in the assertion of any tax deficiency.
4.6 Contracts. Exhibit 1.1(c) is a list of the Assigned Contracts.
---------
Exhibit 4.6 is a list of all agreements of Seller other than the Assigned
-----------
Contracts. Except as set forth in
9
<PAGE>
Exhibit 1.1(c) or in Exhibit 4.6 hereto, Seller is not a party to any material
contract, agreement, lease, or power of attorney of any kind whatsoever. As to
Seller, all Assigned Contracts are valid and are in full force and effect
according to their material terms, and no material default by Seller exists
under any such contract, lease or agreement and no condition or state of facts
exists which, with notice or the passage of time, or both, would constitute a
default under any such contract, lease or agreement. To Seller's knowledge, all
Assigned Contracts are valid as to the other contracting parties thereto and
there is no material default by any such party existing under the Assigned
Contracts and no condition or state of facts exists which, with notice or the
passage of time, or both would constitute a default by any such party
thereunder. All Assigned Contracts are enforceable in accordance with their
terms by Seller against all other parties thereto in all material respects.
Neither the execution, the delivery nor the performance of this Agreement by
Seller will cause any default in or breach of any provision of Seller's Articles
of Incorporation, as amended, bylaws or any agreement or commitment to which
Seller is a party or by which Seller is bound, and none of such actions will
result in either acceleration, or any similar right of any other party, under
any Assigned Contract, or constitute a default under any Assigned Contract, or
result in the creation or imposition of any Encumbrance against the Assets.
4.7 Compliance with Laws. To the best of Shareholder's knowledge,
--------------------
Seller is in compliance in all material respects with the laws, regulations,
rules and decrees of all governmental authorities whatsoever relating to the
conduct of its business, including, without limitation, the Fair Labor Standards
Act.
4.8 Litigation. Except as scheduled in Exhibit 4.8, there is no
----------
litigation, action, suit, proceeding or governmental investigation pending or
(to the best of Seller's or Shareholder's knowledge) threatened against Seller
or Shareholder or affecting Seller or its business or any of its assets, at law
or in equity or before any federal, state, municipal, local or other
governmental authority, or before any arbitrator, nor does Seller or Shareholder
know of any reasonable basis for any such litigation, action, suit, proceeding
or investigation. Neither Seller nor Shareholder is subject to any order, writ
or decree of any court or other governmental authority.
4.9 Employee Plans and Agreements. Seller is not a party to any
-----------------------------
collective bargaining or labor agreement or to any written employment agreement,
profit sharing, deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, welfare, or incentive plan or policy
or increases in the rate of remuneration entered into with
10
<PAGE>
or for the benefit of present or former employees, whether or not unionized, of
Seller or any other like agreement, plan or policy, other than as set forth in
Exhibit 4.9.
4.10 Liabilities. All liabilities and obligations of Seller, direct,
-----------
indirect or contingent, are either listed on the 1996 Financial Statement or on
Exhibit 4.10 attached hereto.
4.11 Insurance. All insurance maintained by Seller is listed and
---------
described on Exhibit 4.11 attached hereto.
4.12 Absence of Certain Changes. From November 30, 1996 until the
--------------------------
Closing, (a) the operations of Seller shall have been conducted in the ordinary
course of business, (b) no event shall have occurred or have been threatened
which has or would have a material and adverse affect upon Seller, and (c)
Seller shall not have sustained any loss or damage to its assets or property,
whether or not insured, or union activity that affects materially and adversely
its ability to conduct its business. Except as described in Exhibit 4.12, since
November 30, 1996, Seller has not:
(i) incurred or suffered any obligations or liabilities (absolute or
contingent) except current liabilities incurred in the ordinary
course of business;
(ii) issued any stock or other corporate securities or granted any
option or right with respect to the acquisition of any of its
corporate securities;
(iii) declared or made (or became obligated for) any payment or
distribution or dividend (other than cash or cash equivalents) to
shareholders or purchased or redeemed (or became obligated to
purchase or redeem) any shares of its capital stock;
(iv) mortgaged, pledged or subjected (whether or not voluntarily) to
any Encumbrance, any of its assets, other than Encumbrances
incidental to the conduct of its business or the ownership of its
property and assets which were not incurred in connection with
the borrowing of money, or the obtaining of advances or credit,
and which do not in the aggregate impair the use or value thereof
in the operation of the business of Seller;
(v) sold, assigned or transferred or agreed to sell, assign or
transfer any of its tangible assets or
11
<PAGE>
cancelled any debts or claims, except in each case in the
ordinary course of business;
(vi) sold, assigned, or transferred or agreed to sell, assign or
transfer any trade names, or other intangible assets, or
permitted existing rights with respect thereto to lapse;
(vii) suffered any extraordinary loss or knowingly waived or
permitted to lapse any right of substantial value;
(viii) made any capital expenditures, or otherwise entered into any
executory transactions or commitments to make any capital
expenditures, in excess of $5,000 per item or $25,000 in the
aggregate;
(ix) failed to comply in any material respect with any applicable
local, state or federal law, rule or regulation; or
(x) suffered any event or condition of any character, materially and
adversely affecting the business, properties or prospects of
Seller or the Business.
4.13 Employees. A listing of all employees (including their rates of
---------
pay and their accrued but unpaid vacation and sick days ) of Seller is attached
as Exhibit 4.13.
4.14 Authority. Seller has the corporate power to execute and deliver
---------
this Agreement and consummate the transactions contemplated hereby and has taken
(or by the Closing Date will have taken) all action required by law, its
Articles of Incorporation, bylaws or otherwise to authorize such execution and
delivery and the consummation of the transactions contemplated hereby,
including, without limitation, execution and delivery of the Bill of Sale and
Assignment.
4.15 Licenses. To the best knowledge of Seller and Shareholder, there
--------
are no licenses or permits required for Seller to operate the Business, and the
Seller has no notice of violation of any such licenses or permits.
4.16 No Finders or Brokers. Neither Shareholder, nor Seller, nor any
---------------------
officer or director thereof has engaged any finder or broker in connection with
the transactions contemplated hereunder. Seller and Shareholder will indemnify
and hold Purchaser harmless against claims (and attorneys' fees and expenses in
the defense thereof) of any person, firm or corporation for finder's fees,
broker's fees, brokerage
12
<PAGE>
commissions, sales commissions or the like alleged in connection with the
transactions contemplated hereunder due to acts of Seller or Shareholder.
4.17 Disclosure. No representation or warranty by Seller or Shareholder
----------
in this Agreement and no statement pertaining to Seller or Shareholder in this
Agreement or any document, exhibit or certificate furnished or to be furnished
to Purchaser pursuant hereto will contain any untrue statement which, if
corrected, would have a material adverse effect on the fair market value of the
property being transferred hereunder. There are no facts known to Seller or
Shareholder not described herein which would adversely affect the future
operations of the Business or the use of the Assets in the conduct of a similar
business at the same location.
4.18 Validity of Agreements. Upon execution and delivery by all
----------------------
parties, the obligations of Seller and Shareholder under this Agreement and all
other agreements to be executed by Seller or Shareholder in connection herewith,
will constitute the valid and binding obligation of Seller or Shareholder, as
the case may be, and be binding against them and enforceable in accordance with
their respective terms (except as enforceability may be restricted, limited, or
delayed by bankruptcy, insolvency, moratorium or similar laws affecting or
relating to the enforcement of creditors' rights in general and except as the
enforceability is subject to general principles of equity, regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.19 DELETED
4.20 Title to Assets. Except as described in the 1996 Financial
---------------
Statement referred to in Section 4.3 or in Exhibits 4.10 and 4.12 hereof, Seller
holds good and marketable title to the Assets, free and clear of restrictions on
or conditions to transfer or assignment, and free and clear of Encumbrances.
4.21 Transfer Not Subject to Encumbrances or Third-Party Approval.
------------------------------------------------------------
Except as disclosed in Exhibit 4.21 hereto, the execution and delivery of this
Agreement by Seller and Shareholder, and the consummation of the contemplated
transactions, will not result in the creation or imposition of any Encumbrance
on any of the Assets, and will not require the authorization, consent, or
approval of any third party, including any governmental subdivision or
regulatory agency.
4.22 Condition of Personal Property. Except as set forth in Exhibit
------------------------------
4.22 attached hereto, all tangible personal property, equipment, fixtures and
inventories included within the Assets or required to be used in the ordinary
course of Seller's
13
<PAGE>
business are in good condition and are suitable for the purposes for which they
are being used. No value in excess of applicable reserves has been given to any
inventory with respect to obsolete or discontinued products.
Section 5. Representations and Warranties of Purchaser.
-------------------------------------------------------
Purchaser represents, warrants, covenants and agrees to and with Seller
as follows:
5.1 Organization and Standing of Purchaser. Purchaser is a corporation
--------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of New Jersey and has full corporate power and authority to conduct its
business as now being conducted; and is duly qualified to do business in each
jurisdiction in which the nature of the property owned or leased or the nature
of the businesses conducted would require such qualification, specifically
including the State of New Jersey.
5.2 Authority. Purchaser has corporate power to execute and deliver
---------
this Agreement and consummate the transactions contemplated hereby and has taken
(or by the Closing Date will have taken) all action required by law, its
Articles of Incorporation, bylaws or otherwise to authorize such execution and
delivery and the consummation of the transactions contemplated hereby.
5.3 No Finders or Brokers. Neither Purchaser nor any officer or
---------------------
director thereof has engaged any finder or broker in connection with the
transactions contemplated hereunder. Purchaser will indemnify and hold Seller
harmless against claims (and attorneys' fees and expenses in the defense
thereof) of any person, firm or corporation for finder's fees, broker's fees,
brokerage commissions, sales commissions or the like alleged in connection with
the transactions contemplated hereunder due to acts of Purchaser.
5.4 Validity of Agreements. Upon execution and delivery by all parties
----------------------
hereto, this Agreement and all other agreements to be executed by Purchaser in
connection herewith will constitute the valid and binding obligation of
Purchaser and be binding against Purchaser and enforceable in accordance with
their respective terms (except as enforceability may be restricted, limited, or
delayed by bankruptcy, insolvency, moratorium or similar laws affecting or
relating to the enforcement of creditors' rights in general and except as the
enforceability is subject to general principles of equity, regardless of whether
enforceability is considered in a proceeding at law or in equity).
14
<PAGE>
Section 6. Conditions Precedent to the Obligations of Seller.
-------------------------------------------------------------
All obligations of Seller which are to be discharged under this
Agreement at the Closing are subject to the performance, at or prior to the
Closing, of all covenants and agreements contained herein which are to be
performed by Purchaser at or prior to the Closing and to the fulfillment at, or
prior to, the Closing, of each of the following conditions (unless expressly
waived in writing by Seller at any time at or prior to the Closing):
6.1 Representations and Warranties True. All of the representations and
-----------------------------------
warranties made by Purchaser contained in Section 5 of this Agreement shall be
true as of the date of this Agreement, shall be deemed to have been made again
at and as of the date of Closing, and shall be true at and as of the date of
Closing in all material respects; Purchaser shall have performed and complied
with all covenants and conditions required by this Agreement to be performed or
complied with by Purchaser prior to or at the Closing; and Seller shall have
been furnished with a certificate of the President or any Vice President of
Purchaser dated the Closing, certifying to the truth of such representations and
warranties as of the Closing and to the fulfillment of such covenants and
conditions.
6.2 Authority. All action required to be taken by or on the part of
---------
Purchaser to authorize the execution, delivery and performance of this Agreement
by Purchaser and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Board of Directors of Purchaser.
6.3 Opinion of Counsel. Seller shall have been furnished with an
------------------
opinion, dated as of the Closing Date, of Marcy Colkitt, Esq., general counsel
to Purchaser, to the effect set forth in Exhibit 6.3 attached hereto.
6.4 No Obstructive Proceeding. No action or proceedings shall have been
-------------------------
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against Seller which
seeks to, or would, render it unlawful as of the Closing to effect the
transactions contemplated hereby, and no such action shall seek damages in a
material amount by reason of the transactions contemplated hereby. Also, no
substantive legal objection to the transactions contemplated by this Agreement
shall have been received from or threatened by any governmental department or
agency.
15
<PAGE>
Section 7. Conditions Precedent to the Obligations of Purchaser.
----------------------------------------------------------------
All obligations of Purchaser which are to be discharged under this
Agreement at the Closing are subject to the performance, at or prior to the
Closing, of all covenants and agreements contained herein which are to be
performed by Seller and Shareholder at or prior to the Closing and to the
fulfillment at or prior to the Closing of each of the following conditions
(unless expressly waived in writing by Purchaser at any time at or prior to the
Closing):
7.1 Representations and Warranties True. All of the representations and
-----------------------------------
warranties of Seller and Shareholder contained in Section 4 of this Agreement
shall be true as of the date of this Agreement, shall be deemed to have been
made again at and as of the Closing, and shall be true at and as of the date of
Closing in all material respects; Seller and Shareholder shall have performed or
complied with all covenants and conditions required by this Agreement to be
performed or complied with by Seller or Shareholder prior to or at the Closing;
and Purchaser shall be furnished with a certificate of an officer of Seller and
of Shareholder, dated the Closing, certifying to the truth of such
representations and warranties as of the time of the Closing and to the
fulfillment of such covenants and conditions.
7.2 Authority. All action required to be taken by or on the part of
---------
Seller to authorize the execution, delivery and performance of this Agreement by
Seller and the consummation of the transactions contemplated hereby shall have
been duly and validly taken by the Board of Directors of Seller.
7.3 Opinion of Counsel. Seller and Shareholder shall have delivered to
------------------
Purchaser an opinion, dated as of the Closing Date, of Robert A. Gaccione, Esq.,
of Gaccione, Pomaco & Beck, counsel to Seller and Shareholder, in form and
substance to the effect set forth in Exhibit 7.3 attached hereto or as otherwise
acceptable to Purchaser.
7.4 No Obstructive Proceeding. No action or proceedings shall have been
-------------------------
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against Purchaser or
its affiliates which seeks to, or would, render it unlawful as of the Closing to
effect the asset sale in accordance with the terms hereof, and no such action
shall seek damages in a material amount by reason of the transactions
contemplated hereby. Also, no substantive legal objection to the transactions
contemplated by this Agreement shall have been received from or threatened by
any governmental department or agency.
16
<PAGE>
7.5 Consents and Approvals. Each of the parties to any of the Assigned
----------------------
Contracts under which the asset sale contemplated hereby would constitute or
result in a default or acceleration of obligations shall have given such consent
as may be necessary to permit the consummation of the transactions contemplated
hereby without constituting or resulting in a default or acceleration under such
agreement, and any consents required from any public or regulatory agency or
organization having jurisdiction shall have been given.
7.6 Release of Encumbrances. All Encumbrances shall have been released
-----------------------
at or prior to the closing.
7.7 Employment Contract with Susanne Bilotti. Purchaser shall enter
----------------------------------------
into an employment agreement with Susanne Bilotti for a term of two months, with
a compensation rate equal to $27,500 per annum.
Section 8. Indemnification.
---------------------------
8.1 Indemnity by Shareholder and Seller. Shareholder and Seller jointly
-----------------------------------
and severally shall indemnify, defend and hold harmless Purchaser and each
affiliate of Purchaser from and against:
(a) all Excluded Liabilities;
(b) any and all losses, damages; costs or deficiencies resulting from
any and all misrepresentations or breaches of warranty or
failures to perform agreements or undertakings by Seller or
Shareholder contained in or made pursuant to this Agreement or in
other agreements executed by Seller or Shareholder in connection
with this Agreement; and
(c) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses (including, without
limitation, attorneys' fees, interest, penalties and amounts paid
in settlement of any such claim) relating to any of the
foregoing.
Seller and Shareholder shall jointly and severally pay to Purchaser or any
affiliate of Purchaser, as the case may be, all amounts owed to Purchaser
pursuant to subparagraphs (a), (b) and (c) above of this Section 8.1 which, in
the aggregate, exceed $10,000.00, within thirty (30) days after written demand
therefor. In the event that any third person, including, without limitation,
any governmental taxing authority, shall assert any claim or action in excess of
$1,000 against Purchaser or an
17
<PAGE>
affiliate of Purchaser which, if successful, might result in a claim for
indemnity hereunder (collectively, an "indemnifiable loss"), Purchaser shall
notify Seller, in writing, of such claim or action; and at Shareholder's and
Seller's option, Shareholder and Seller may, at their sole expense, assume
control over the defense of such claim or action, but in any event Purchaser
(and its affiliate, as the case may be) shall have the right to participate in
the defense of any such claim or action. If, after notice thereof, Shareholder
and Seller shall not assume the defense of, or if after so assuming such defense
they shall fail to continue to defend, any such claim or action, Purchaser (and
its affiliate, as the case may be) may defend any such claim or action and
Purchaser (and its affiliate as the case may be) may then settle or compromise
such claim or action on terms it deems reasonable. Shareholder and Seller shall
promptly satisfy and pay any final judgment rendered with respect to any such
claim or action or any compromise or settlement thereof and shall pay the
reasonable expenses, legal or otherwise of Purchaser (and its affiliate, as the
case may be) in the defense of any such claim or action. If Seller and
Shareholder do not pay any such indemnifiable loss pursuant to any such
judgment, settlement or compromise within thirty (30) days after written demand,
Purchaser may pay the same and set off the amount paid against payments
otherwise due to Shareholder or Seller. If Purchaser (or an affiliate of
Purchaser) suffers an indemnifiable loss directly (not as a result of a third
party claim or action), Purchaser may set off the amount of the same against
payments otherwise due to Shareholder or Seller or demand payment therefor from
Shareholder or Seller.
8.2 Remedies Cumulative. The remedies provided herein shall be
-------------------
cumulative and shall not preclude any party from asserting any other rights or
seeking any other remedies to which such party is entitled by law.
Section 9. Miscellaneous.
-------------------------
9.1 Expenses. All expenses incurred by the parties in connection with
--------
the preparation of this Agreement and the other agreements contemplated hereby
and in connection with the closing of the transactions contemplated hereby,
including, without limitation, attorneys' fees, accounting fees, investment
advisor's fees and disbursements, shall be borne by the respective parties
incurring such expense.
9.2 Notices. All notices, demands and other communications hereunder
-------
shall be written and shall be deemed to have been duly given if delivered in
person or mailed by certified mail, postage prepaid, to the address set forth
below:
18
<PAGE>
To Purchaser: Purchaser, Inc.
3754 LaVista Road
Tucker, Georgia 30084
Attention: Larry Pearson, President
with a copy to: Marcy Colkitt, Esq.
Purchaser General Counsel
2171 Sandy Drive
State College, PA 16803
To Seller: Prophecy Health Information
Management, Inc.
10 North Gaston Avenue
Somerville, New Jersey 08876
Attention: Edward J. Bilotti
with a copy to: Robert A. Gaccione, Esq.
Gaccione, Pomaco & Beck
524 Union Avenue
P.O. Box 98
Belleville, NJ 07109
To Shareholder: Edward J. Bilotti
110 North Bridge Street
Somerville, New Jersey 08876
with a copy to: Robert A. Gaccione, Esq.
Gaccione, Pomaco & Beck
524 Union Avenue
P.O. Box 98
Belleville, NJ 07109
or to such other address as Purchaser or Seller may designate by written notice
to the other. Notices delivered in person shall be deemed delivered on the date
of delivery and notices mailed, as aforesaid, shall be deemed delivered forty-
eight (48) hours after the date mailed. Rejection or other refusal to accept or
inability to deliver because of a changed address of which no notice was given
shall be deemed to be a receipt of the notice, request or other communication.
Any notice, request or other communication required or permitted to be given by
any party may be given by such party's legal counsel.
9.3 Form of Transaction. If after the execution hereof, Purchaser
-------------------
determines that the sale of the Assets can be better achieved through a
different form of transaction without economic injury to Seller or Shareholder,
or delay or the consummation of the transaction, Seller and Shareholder shall
cooperate in revising the structure of the transaction to a stock sale or merger
or similar transaction and shall negotiate in good faith to so amend this
Agreement; provided, that Purchaser shall
19
<PAGE>
reimburse Seller and Shareholder at Closing for all reasonable additional
expenses, including attorneys' fees, incurred by Seller and Shareholder as a
result of such change in form.
9.4 Entire Agreement. This Agreement and the Exhibits, and the other
----------------
agreements, schedules and documents delivered pursuant hereto, constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersede all prior and contemporaneous agreements, understandings,
letters of intent negotiations and discussions, whether written or oral, of the
parties, and there are no representations, warranties or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the parties to be bound
thereby.
9.5 Governing Law: Arbitration. This Agreement shall be construed and
--------------------------
interpreted under the laws of the State of New Jersey, exclusive of the
principles of conflicts of laws. The parties agree that all disputes concerning
this Agreement shall be submitted to binding arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association and the
provisions contained herein. The arbitration shall be conducted in Trenton, New
Jersey, by one arbitrator. The party initiating arbitration shall give the
other notice of the matter in dispute. If the parties fail to agree upon an
arbitrator within ten days after notice of initiation of the arbitration is
given, the American Arbitration Association shall select the arbitrator. All
determinations and the final decision of the arbitrator shall be made in
writing. The fees and expenses of the arbitrator shall be awarded by the
arbitrator in his discretion as part of the award. The arbitrator's award shall
be binding on the parties hereto and may be entered in any court of competent
jurisdiction. The parties reserve the right to seek a judicial temporary
restraining order, preliminary injunction, or other similar short term equitable
relief prior to the appointment of the arbitrator. The arbitrator will have the
right to make a final determination of the parties' rights including, without
limitation, whether to make permanent, modify or dissolve the judicial order.
9.6 Section and Exhibit Headings. The Section and Exhibit headings are
----------------------------
for reference only and shall not limit or control the meaning of any provisions
of this Agreement.
9.7 Waiver. No delay or omission on the part of any party hereto in
------
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Agreement.
20
<PAGE>
9.8 Nature and Survival of Representations. All statements contained in
--------------------------------------
any certificate delivered by or on behalf of a party to this Agreement pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
to be representations and warranties made by such party hereunder. The
covenants, representations and warranties made by the parties each to the other
in this Agreement or pursuant hereto shall survive for two (2) years following
the Closing.
9.9 Exhibits. All Exhibits, schedules and documents referred to in or
--------
attached to this Agreement are integral parts of this Agreement as if fully set
forth herein and all statements appearing therein shall be deemed to be
representations. All items disclosed hereunder shall be deemed disclosed only
in connection with the specific representation to which they are explicitly
referenced.
9.10 DELETED
9.11 Binding on Successors and Assigns. Subject to Section 9.10, this
---------------------------------
Agreement shall inure to the benefit of and bind the respective heirs,
administrators, successors and assigns of the parties hereto. Nothing expressed
or referred to in this Agreement is intended or shall be construed to give any
person other than the parties to this Agreement or their respective successors
or permitted assigns any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein, it being the
intention of the parties to this Agreement that this Agreement shall be for the
sole and exclusive benefit of such parties or such successors and assigns and
not for the benefit of any other person.
9.12 Amendments. This Agreement may be amended, but only in writing,
----------
signed by the parties hereto.
9.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
9.14 Nonarbitral Attorneys' Fees. In the event that a suit, action, or
---------------------------
other proceeding of any nature whatsoever (other than arbitration), including,
without limitation, any proceeding under the U.S. Bankruptcy Code and involving
issues peculiar to federal bankruptcy law, any action seeking a declaration of
rights or any action for rescission, is instituted to interpret or enforce this
Agreement or any provision of this Agreement, the prevailing party shall be
entitled to recover from the losing party the prevailing party's reasonable
attorneys', paralegals', accountants', and other experts' professional fees and
all other fees, costs, and expenses actually incurred and reasonably
21
<PAGE>
necessary in connection therewith, as determined by the judge or arbitrator at
trial or other proceeding, or on any appeal or review, in addition to all other
amounts provided by law.
9.15 Rules of Construction. All references herein to the singular shall
---------------------
include the plural, and vice versa, and all references herein to the neuter
shall include the masculine or feminine, as the case may be, and vice versa.
When general words or terms are used herein followed by the word "including" (or
another form of the word "include") and words of particular and specific
meaning, the general words shall be construed in their widest extent, and shall
not be limited to persons or things of the same general kind or class as those
specifically mentioned in the words of particular and specific meaning. All
parties have participated in the drafting of this Agreement. No provision of
this Agreement shall be construed against or interpreted to the disadvantage of
a party by reason of such party having or being deemed to have drafted,
structured or dictated such provisions. Time is of the essence of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PROPHECY TRANSCRIPTION
SERVICES, INC., a New Jersey
corporation ("Purchaser")
By: /s/ Douglas R. Colkitt
-----------------------
Title: President
--------------------
/s/ Edward J. Bilotti (SEAL)
----------------------------
EDWARD J. BILOTTI (" Shareholder")
PROPHECY HEALTH INFORMATION
MANAGEMENT, INC., a New
Jersey corporation ("Seller")
By: /s/ Edward J. Bilotti
------------------------------
Title: President
---------------------------
22
<PAGE>
EXHIBIT 10.29
STOCK PURCHASE AGREEMENT
------------------------
Thomas Jefferson Real Estate Corporation
AGREEMENT made as of January 1, 1997, between DOUGLAS R. COLKITT, M.D. of
2171 Sandy Drive, State College PA 16803 (the "Seller") and EQUIMED, INC., a
Delaware corporation with offices at 2171 Sandy Drive, State College PA 16803
(the "Buyer").
The parties have reached an understanding with respect to the sale and
purchase of all the outstanding corporate shares of Thomas Jefferson Real Estate
Corporation, a Delaware corporation, engaged in the ownership, management and
leasing of real estate (the "Company").
It is therefore agreed:
1.1 Sale of Corporate Shares. The Seller shall sell to the Buyer and the
------------------------
Buyer shall purchase from the Seller all of the issued and outstanding shares of
stock in the Company for the purchase price described in Section 1.2 below. The
Seller is the owner of all the issued and outstanding stock of the Company as
listed on Schedule 1.1 which is attached hereto and incorporated herein by
-------------
reference (the "Shares").
1.2 Purchase Price. The purchase price for the Shares shall be Three
--------------
Hundred Thirty-Eight Thousand Seven Hundred Fifty-Five ($338,755.00) Dollars
(the "Purchase Price"). The Purchase Price payable to the Seller shall be
reduced by all funds advanced by Buyer to Seller on December 31, 1996.
2.1 Closing. The closing of the sale and transfer of the Shares shall
-------
take place at the location agreed upon by Seller and Buyer (the "Closing"). At
the Closing, Seller shall deliver to the Buyer, free and clear of all
encumbrances, certificates for the Shares which he is required to sell in
negotiable form, with all requisite transfer stamps attached. Upon such
delivery, the Buyer shall deliver to Seller the Purchase Price payable at
Closing by a certified or bank cashier's check or wire transfer.
3.1 Access, Information and Documents. Seller and Company shall give to
---------------------------------
Buyer and to Buyer's counsel, accountants and other representatives full access
during normal business hours to all the properties, books, tax returns,
contracts, commitments, records, officers, personnel and accountants of the
Company and will furnish to Buyer all such documents and copies of documents
(certified to be true copies if requested) and all information with respect to
the affairs of the Company as Buyer may reasonably request. All such information
furnished to Buyer in connection with the transactions contemplated herein shall
be
<PAGE>
kept confidential, unless the Buyer is compelled to disclose such information by
judicial or administrative process or by other requirements of law, including
but not limited to any applicable securities laws or regulations.
3.2 Disclosure Schedules. Seller shall deliver at or prior to Closing,
--------------------
all schedules described in this Agreement.
4. Representations and Warranties. The Seller represents and warrants to
------------------------------
Buyer as follows:
4.1 Organization and Standing of Company. The Company is a corporation
------------------------------------
duly organized, validly existing, and in good standing under the laws of
Delaware. Copies of the Company's Certificate of Incorporation, and all
amendments thereof to date, certified by the Secretary of State of Delaware, and
of the Company's Bylaws as amended to date, certified by the Company's
Secretary, have been delivered to the Buyer, and are complete and correct as of
the date of this Agreement. The Company is duly licensed or qualified and in
good standing as a foreign corporation in the states listed in Schedule 4.1,
------------
which are the only states where the character of the properties owned by the
Company, or the nature of the business transacted by it, make such license or
qualification necessary.
4.2 Subsidiaries. The Company has no subsidiaries.
------------
4.3 Capitalization. The aggregate number of shares which the Company is
--------------
authorized to issue is 1500 common shares, of which 100 shares are issued and
presently outstanding as shown on Schedule 1.1. All such issued shares have
------------
been validly issued and are fully paid and nonassessable. The Company has no
outstanding subscriptions, contracts, options, warrants, or other obligations to
issue, sell, or otherwise dispose of, or to purchase, redeem or otherwise
acquire any of its shares.
4.4 Share Ownership. Seller represents and warrants that he is the owner,
---------------
free and clear of any encumbrances, of the number of the Company's common shares
set opposite his name on Schedule 1.1. Seller has full right and authority to
------------
transfer said shares to Buyer, and there are no other shares of the Company
owned or claimed by any other person or entity.
4.5 Financial Statement. The Seller has delivered to the Buyer copies of
-------------------
the following financial statements, all of which are true and complete, to the
best of Seller's knowledge and have been prepared on an accrual basis:
(a) Unaudited balance sheets of the Company as of December 31, 1995,
December 31, 1994 and December 31, 1993, together with related unaudited
statements of income and retained
2
<PAGE>
earnings and cash flows for the fiscal years ended on such dates, and the notes
thereto,
(b) The unaudited balance sheets of the Company as of December 31,
1996, together with the related unaudited statements of income and retained
earnings and cash flows for the twelve (12) month period ended on such date, and
the notes thereto;
(c) Federal tax returns of the Company as of December 31, 1995,
December 31, 1994 and December 31, 1993.
The above financial statements are hereinafter referred to as the
"Financial Statements."
To the best of Seller's knowledge the Financial Statements: (i) are correct
and complete in accordance with the books and records of the Company: and (ii)
fairly present the financial condition, assets and liabilities of the Company as
of their respective dates and the results of the Company's operations and cash
flows for the periods covered thereby.
4.6 Absence of Undisclosed Liabilities. Except to the extent listed on
----------------------------------
Schedule 4.6, the Company has no liabilities of any nature, whether accrued
- ------------
absolute, contingent, or otherwise, including, without limitation, tax
liabilities due or to become due, and whether incurred in respect of or measured
by the Company's income for any period prior to December 31, 1996, or arising
out of transactions entered into, or any state of facts existing, prior thereto.
Seller represents and warrants that he does not know or have reasonable grounds
to know of any basis for the assertion against the Company of any liability,
except as listed in Schedule 4.6.
------------
4.7 Absence of Certain Changes. Since December 31, 1996, to the best of
--------------------------
Seller's knowledge, there has not been (i) any change in the Company's financial
condition, assets, liabilities, or business, other than changes in the ordinary
course of business, none of which has been materially adverse; (ii) any
declaration, or setting aside, or payment of any dividend or other distribution
in respect of the Company's shares, or any direct or indirect redemption,
purchase, or other acquisition of any of such shares; (iii) any increase in the
compensation payable or to become payable by the Company to any of its officers,
employees, or agents, or any bonus payment or arrangement made to or with any of
them; or (iv) any labor trouble, or any event, damage, loss or condition of any
character, materially and adversely affecting the Company's business or
prospects.
3
<PAGE>
4.8 Taxes; Tax Audit. The Company has (i) timely filed all tax returns
----------------
required to be filed by it with respect to all taxes payable by the Company
including, but not limited to, income, capital stock, franchise, sales or use,
personal property and real estate taxes ("Taxes"); (ii) timely paid in full all
Taxes shown to have become due pursuant to such tax returns; and (iii) paid all
other Taxes for which a notice of assessment or demand for payment has been
received. All taxes that the Company is required by the law to pay, withhold or
collect including, but not limited to, payroll taxes and sales and use taxes on
any of the Company's sales or leases of tangible personal property or services,
have been timely paid over to the appropriate tax authority. All taxes of the
Company have been paid or are adequately reserved against on the books of
account of the Company as of December 31, 1996 or reflected on Schedule 4.6 with
------------
respect to any liabilities accruing between December 31, 1996 and Closing. To
the best of Seller's knowledge, the Company has timely filed all information
returns or reports, including Forms 1099, which are required to be filed and has
accurately reported all information required to be included on such returns or
reports.
Except as disclosed in Schedule 4.8, the Company's federal income tax
------------
returns and state income tax returns have not been audited by the Internal
Revenue Service or any state. The Seller has not received any notice of any tax
audits being conducted by any taxing authority with respect to any tax
liabilities of the Company, including income, sales or other taxes, and Seller
and Company have not received any notice from any taxing authority of an
intention of any taxing authority to conduct any audits.
4.9 Title to Properties; Mortgages; Liens Compliance. The Company has good
------------------------------------------------
and marketable title to all its properties and assets, real and personal, listed
on Schedule 4.9, subject to no security interests, mortgage, pledge, lien,
------------
encumbrance, or charge, except for mortgages and liens shown on Schedule 4.6 as
------------
securing specified liabilities set forth therein (with respect to which no
default exists), and except for minor imperfections of title and encumbrances,
if any, which are not substantial in amount, do not materially detract from the
marketability or the value of the properties subject thereto, or materially
impair the Company's operations, and have arisen only in the ordinary course of
business. All the mortgages, liens, security interests and encumbrances against
the real estate, machinery, equipment and other property owned or leased by the
Company are listed on Schedule 4.6. To the best of Seller's knowledge, all
------------
Company buildings and equipment are in confirmation with all applicable
ordinances and regulations and environmental, building, zoning and other laws
and the real estate is in good operating condition, reasonable wear and tear
accepted.
4
<PAGE>
4.10 Accounts Receivable. The Accounts Receivable of the Company as of
-------------------
December 31, 1996 are as shown on Schedule 4.10. Except as disclosed in Schedule
------------- --------
4.10, the Seller is not aware of anything that would indicate that these
- ----
Accounts Receivable are not collectible.
4.11 Leases; Contracts. The Company has no leases, contracts, or other
-----------------
agreements or commitments involving annual payments by or to the Company in
excess of $10,000 each, except as listed in Schedule 4.11. True and complete
-------------
copies of all the foregoing have been made available to the Buyer. To the best
of Seller's knowledge, the Company has complied with all the provisions of such
instruments and of all other contracts, leases, agreements and commitments to
which it is a party, and is not in default under any of them.
4.12 Directors and Officers' Compensation; Banks. The Seller has made or
-------------------------------------------
will make available to Buyer (i) the names of all the Company's directors and
officers, (ii) the names of all persons whose compensation from the Company for
the year 1996 will equal or exceed $50,000, together with a statement of the
full amount paid or payable to each such person for services rendered or to be
rendered in 1996, and the basis therefor; (iii) the name of each bank in which
the Company has an account, or safe deposit box, and the names of all persons
authorized to draw thereon, or to have access thereto; and (iv) the names of all
persons holding powers of attorney from the Company, and a summary statement of
the terms thereof.
4.13 Litigation. Except for suits of a character incident to the normal
----------
conduct of the Company's business and involving not more than $5,000 in the
aggregate and except as disclosed in Schedule 4.13, there is no litigation or
-------------
proceeding pending (except for litigation or proceedings which may have been
initiated, but notice of which has not been received by the Seller), or to the
Seller's knowledge threatened, against or relating to the Company, its
properties, or business, nor do the Sellers know or have reasonable grounds to
know of any basis for any such action, or of any governmental investigation
relative to the Company, its properties, or business.
4.14 Leases, Contracts, and Licenses. To the best of Seller's knowledge,
-------------------------------
Seller represents and warrants that the transfer of its shares in accordance
with the terms of this agreement will not constitute a prohibited assignment or
transfer of any of its licenses, leases, or contracts, and that all of the
foregoing will remain in full force and effect without acceleration as a result
of this transaction.
4.15 Authorization and Enforceability. This Agreement has been duly
--------------------------------
executed and delivered by Seller and constitutes
5
<PAGE>
the legal, valid and binding obligation of Seller, enforceable against him in
accordance with its terms.
4.16 No Violation of Laws or Agreements. To the best of Seller's
----------------------------------
knowledge, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the
compliance with the terms, conditions and provisions of this Agreement by Seller
and Company will not (a) contravene any provision of the certificate or articles
of incorporation or bylaws of the Company; or (b) conflict with or result in a
breach of or constitute a default (or an event which is reasonably likely to,
with the passage of time or the giving of notice, or both, constitute a default)
under, or result in or permit the modification or termination of any provision
of, or result in or permit the acceleration of the maturity or the cancellation
of the performance of any obligation under, or result in the creation or
imposition of any liens of any nature whatsoever upon the Company's assets or
give to others any interests or rights therein under, any indenture, mortgage,
loan or credit agreement, license, contract, lease or other agreement or
commitment to which the Company or Seller is a party or by which any of them or
any of their assets may be bound or affected, or any judgment or order of any
court or authority, domestic or foreign, or any applicable law, rule or
regulation.
4.17 Disclosure. No representation or warranty by the Seller in this
----------
Agreement or the Schedules to this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
5. Representations and Warranties of Buyers. Buyer represents and
----------------------------------------
warrants to Seller as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The copies of Buyer's certificate of incorporation and by-laws, as
amended to date, which have been delivered to Seller, are true and correct and
complete and are in full force and effect.
5.2 Authorization and Enforceability. Buyer has full corporate power and
--------------------------------
authority to make, execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement by Buyer have been duly authorized by
all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable in accordance with its terms.
6
<PAGE>
5.3 Brokerage. Buyer has not made any agreement or taken any other action
---------
which might cause anyone to become entitled to a broker's fee or commission as a
result of the transactions contemplated hereunder.
6. Conduct of Business Pending Closing. The Seller covenants that,
-----------------------------------
pending the Closing:
(a) The Company's business will be conducted only in the ordinary course.
(b) No change will be made in the Company's authorized or issued corporate
shares.
(c) No dividend or other distribution or payment will be declared or made
in respect of the Company's corporate shares.
(d) All debts will be paid as they become due.
(e) No contract right of the Company will be waived.
(f) No obligations except current liabilities under contracts entered into
the ordinary course of business will be incurred.
7. Company Personnel. At the closing, the Seller shall make available to
-----------------
the Buyer, unless otherwise requested by it, the written resignations of the
Company's directors and officers and shall take, or cause to be taken, such
action as the Buyer may request with respect to changes in directors and
officers.
8. Conditions Precedent for Buyer. All obligations of the Buyer under
------------------------------
this Agreement are, at its option, subject to the fulfillment, prior to or at
the closing, of each of the conditions described in this Section 8.
8.1 Representations and Warranties True at Closing. The Seller's
----------------------------------------------
representations and warranties contained in this Agreement shall be true at the
time of Closing as though such representations and warranties were made at
Closing and shall continue to be true at the time payment is due under the Note.
8.2 Performance. The Seller shall have performed and complied with all
-----------
agreements and conditions required by this Agreement to be performed or complied
with by him prior to or at the Closing.
8.3 Opinion of Company's Counsel. The Seller shall have delivered to the
----------------------------
Buyer an opinion of counsel that the Company was incorporated and is in good
standing under the laws
7
<PAGE>
of the State of its incorporation and, that to the best of their knowledge,
there is no litigation pending against the Company which is not listed in
Schedule 4.13.
- -------------
9. Indemnification. The Seller shall indemnify and hold harmless the
---------------
Company and the Buyer, at all times after the date of this agreement, against
and in respect of:
(a) Undisclosed Liabilities. All liabilities of the Company of any
-----------------------
nature, whether accrued, absolute, contingent, or otherwise, existing as of the
date of Closing excepting those listed on Schedules 4.6 and 4.11, including,
------------- ----
without limitation, any tax liabilities, accrued in respect of, or measured by
the Company's income for any period prior to December 31, 1996, or arising out
of transactions entered into, or any state of facts existing, prior to such
date,
(b) Interim Liabilities. All liabilities of, or claims against, the
-------------------
Company arising out of the conduct of the Company's business between December
31, 1996 and the Closing, otherwise than in ordinary course, or arising out of
any presently existing contract or commitment listed in Schedule 4.11.
-------------
(c) Taxes. All the Company's Taxes attributable to or apportioned to
-----
any period on or before December 31, 1996 and Seller's Taxes (including, but not
limited to, those Taxes arising on account of the transactions contemplated in
this Agreement). For the purposes of this section, Taxes shall be deemed
attributable to or apportioned to a period on or before December 31, 1996 if (i)
such Taxes are for the taxable year or other tax reporting period that ends on
or before December 31, 1996 or (ii) such Taxes are apportionable to the pre-
Closing portion of a straddle year.
(d) Misrepresentations. Any damage or deficiency resulting from any
------------------
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of the Seller, under this agreement, or from any misrepresentation in or
omission from this Agreement or any Schedule to this Agreement; and
(e) Incidental Expenses. All actions, suits, proceedings, demands,
-------------------
assessments, judgments, costs, reasonable attorney's fees, and expenses incident
to any of the foregoing, to the extent that such items described in this Section
9(d) exceed in the aggregate $10,000.00.
The Seller shall reimburse the Company or the Buyer, on demand, for any
payment made by the Company or the Buyer at any time after the date of this
Agreement, in respect of any liability or claim to which the foregoing indemnity
relates.
8
<PAGE>
Seller and Buyer agree that any indemnification payments made pursuant
to this Section 9 shall be treated for tax purposes as an adjustment to the
Purchase Price unless otherwise required by applicable law.
Seller shall not be obligated to indemnify the Buyer and the Company
pursuant to this Section 9 unless the aggregate of all such indemnification
claims exceeds $10,000.00 (the "Threshold"), in which event the Seller shall be
liable for all amounts in excess of the Threshold.
10. Brokerage. The Seller represents and warrants that all
---------
negotiations relative to this agreement have been carried on by him directly
with the Buyer, without the intervention of any person, and the Seller shall
indemnify the Buyer and hold it harmless against and in respect of any claim for
brokerage or other commissions relative to this agreement, or to the
transactions contemplated hereby, and also in respect of all expenses of any
character incurred by the Seller in connection with this agreement or such
transactions.
11. Purchase for Investment. The Buyer represents that its purchase
-----------------------
hereunder is being made for its own account for investment, and with no present
intention of resale. All stock certificates presenting the shares purchased
under this Agreement shall be endorsed with the following restrictive legend:
The Shares represented by this certificate have not been registered
under the Securities Act of 1933, and said Shares may not be offered or
sold and no transfer will then be made by the Company or its transferee
except in compliance with the Securities Act of 1933 and the rules and
regulations promulgated thereunder.
12. Nature and Survival of Representations. All statements contained
--------------------------------------
in any schedule, certificate or other instrument delivered by or on behalf of
the Seller pursuant hereto, or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties by the Seller hereunder.
All representations, warranties, and agreements made by the Seller in this
Agreement, or pursuant hereto, shall survive the closing and any investigation
at any time made by or on behalf of the Buyer.
13. Benefit. This Agreement shall be binding upon, and inure to the
-------
benefit of, the legal representatives of the Seller, and the successors and
assigns of the Buyer. Without limiting the foregoing, the Company's rights
hereunder may be enforced by it in its own name. In the event that the Buyer
causes the assets and business of the Company to be transferred to some other
corporation, the rights of the Buyer and of the
9
<PAGE>
Company hereunder may be enforced by such other corporation in its own name.
14. Construction. This Agreement is being delivered and is intended
------------
to be performed in the Commonwealth of Pennsylvania, and shall be construed and
enforced in accordance with the laws of that state.
15. Notices. All notices, requests, demands, and other
-------
communications hereunder shall be in writing, and shall be deemed to have been
duly given if delivered or mailed, first class postage prepaid, if to Seller, at
2171 Sandy Drive, State College PA 16803, Attn: Douglas R. Colkitt, or at such
other address as he may have furnished to the Buyer in writing, or, if to the
Buyer at 3754 LaVista Road, Tucker, GA 30084-5637.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Approval of Buyer's Board of Directors. This Stock Purchase
--------------------------------------
Agreement is contingent upon the approval of the disinterested members of the
Board of Directors of the Buyer, which approval shall be obtained prior to
Closing.
In witness whereof the parties have duly executed this agreement.
/s/ Douglas R. Colkitt
- ------------------------------ -------------------------------------
WITNESS DOUGLAS R COLKITT, M.D., SELLER
ATTEST: EQUIMED, INC.
BY: /s/ Larry Pearson
- ------------------------------ ----------------------------------
(Assistant) Secretary LARRY PEARSON, PRESIDENT and
CHIEF EXECUTIVE OFFICER
The Company hereby consents to the transactions described in this
Stock Purchase Agreement to the extent such consent is necessary and joins in
those representations and warranties in Article 4 related to the Company.
ATTEST: THOMAS JEFFERSON REAL ESTATE
CORPORATION
BY: /s/ Douglas R. Colkitt
- ------------------------------ ---------------------------------
10
<PAGE>
EXHIBIT 10.30
STOCK PURCHASE AGREEMENT
------------------------
George Washington Real Estate Corporation
AGREEMENT made as of January 1, 1997, between DOUGLAS R. COLKITT, M.D. of
2171 Sandy Drive, State College PA 16803 (the "Seller") and EQUIMED, INC., a
Delaware corporation with offices at 2171 Sandy Drive, State College PA 16803
(the "Buyer").
The parties have reached an understanding with respect to the sale and
purchase of all the outstanding corporate shares of George Washington Real
Estate Corporation, a Delaware corporation, engaged in the ownership, management
and leasing of real estate (the "Company").
It is therefore agreed:
1.1 Sale of Corporate Shares. The Seller shall sell to the Buyer and the
------------------------
Buyer shall purchase from the Seller all of the issued and outstanding shares of
stock in the Company for the purchase price described in Section 1.2 below. The
Seller is the owner of all the issued and outstanding stock of the Company as
listed on Schedule 1.1 which is attached hereto and incorporated herein by
------------
reference (the "Shares").
1.2 Purchase Price. The purchase price for the Shares shall be Two
---------------
Million ($2,000,000.00) Dollars (the "Purchase Price"). The Purchase Price
payable to the Seller shall be reduced by all funds advanced by Buyer to Seller
on December 31, 1996.
2.1 Closing. The closing of the sale and transfer of the Shares shall
-------
take place at the location agreed upon by Seller and Buyer (the "Closing"). At
the Closing, Seller shall deliver to the Buyer, free and clear of all
encumbrances, certificates for the Shares which he is required to sell in
negotiable form, with all requisite transfer stamps attached. Upon such
delivery, the Buyer shall deliver to Seller the Purchase Price payable at
Closing by a certified or bank cashier's check or wire transfer.
3.1 Access, Information and Documents. Seller and Company shall give to
---------------------------------
Buyer and to Buyer's counsel, accountants and other representatives full access
during normal business hours to all the properties, books, tax returns,
contracts, commitments, records, officers, personnel and accountants of the
Company and will furnish to Buyer all such documents and copies of documents
(certified to be true copies if requested) and all information with respect to
the affairs of the Company as Buyer may reasonably request. All such
information furnished to Buyer in connection with the transactions contemplated
herein shall be kept confidential, unless the Buyer is compelled to disclose
such information by judicial or administrative process or by other requirements
of law, including but not limited to any applicable securities laws or
regulations.
<PAGE>
3.2 Disclosure Schedules. Seller shall deliver at or prior to Closing,
--------------------
all schedules described in this Agreement.
4. Representations and Warranties. The Seller represents and warrants to
------------------------------
Buyer as follows:
4.1 Organization and Standing of Company. The Company is a corporation
------------------------------------
duly organized, validly existing, and in good standing under the laws of
Delaware. Copies of the Company's Certificate of Incorporation, and all
amendments thereof to date, certified by the Secretary of State of Delaware, and
of the Company's Bylaws as amended to date, certified by the Company's
Secretary, have been delivered to the Buyer, and are complete and correct as of
the date of this agreement. The Company is duly licensed or qualified and in
good standing as a foreign corporation in the states listed in Schedule 4.1,
-------------
which are the only states where the character of the properties owned by the
Company, or the nature of the business transacted by it, make such license or
qualification necessary.
4.2 Subsidiaries. The Company has no subsidiaries.
------------
4.3 Capitalization. The aggregate number of shares which the Company is
--------------
authorized to issue is 1500 common shares, of which 100 shares are issued and
presently outstanding as shown on Schedule 1.1. All such issued shares have
-------------
been validly issued and are fully paid and nonassessable. The Company has no
outstanding subscriptions, contracts, options, warrants, or other obligations to
issue, sell, or otherwise dispose of, or to purchase, redeem or otherwise
acquire any of its shares.
4.4 Share Ownership. Seller represents and warrants that he is the owner,
---------------
free and clear of any encumbrances, of the number of the Company's common shares
set opposite his name on Schedule 1.1. Seller has full right and authority to
------------
transfer said shares to Buyer, and there are no other shares of the Company
owned or claimed by any other person or entity.
4.5 Financial Statement. The Seller has delivered to the Buyer copies of
-------------------
the following financial statements, all of which are true and complete, to the
best of Seller's knowledge and have been prepared on an accrual basis:
(a) Unaudited balance sheets of the Company as of December 31, 1995,
December 31, 1994 and December 31, 1993, together with related unaudited
statements of income and retained earnings and cash flows for the fiscal years
ended on such dates, and the notes thereto,
(b) The unaudited balance sheets of the Company as of December 31,
1996, together with the related unaudited statements of income and retained
earnings and cash flows for the twelve (12) month period ended on such date, and
the notes thereto;
2
<PAGE>
(c) Federal tax returns of the Company as of December 31, 1995, December
31, 1994 and December 31, 1993.
The above financial statements are hereinafter referred to as the
"Financial Statements."
To the best of Seller's knowledge the Financial Statements: (i) are correct
and complete in accordance with the books and records of the Company; and (ii)
fairly present the financial condition, assets and liabilities of the Company as
of their respective dates and the results of the Company's operations and cash
flows for the periods covered thereby.
4.6 Absence of Undisclosed Liabilities. Except to the extent listed on
----------------------------------
Schedule 4.6, the Company has no liabilities of any nature, whether accrued,
absolute, contingent, or otherwise, including, without limitation, tax
liabilities due or to become due, and whether incurred in respect of or measured
by the Company's income for any period prior to December 31, 1996, or arising
out of transactions entered into, or any state of facts existing, prior thereto.
Seller represents and warrants that he does not know or have reasonable grounds
to know of any basis for the assertion against the Company of any liability,
except as listed in Schedule 4.6.
4.7 Absence of Certain Changes. Since December 31, 1996, to the best of
--------------------------
Seller's knowledge, there has not been (i) any change in the Company's financial
condition, assets, liabilities, or business, other than changes in the ordinary
course of business, none of which has been materially adverse; (ii) any
declaration, or setting aside, or payment of any dividend or other distribution
in respect of the Company's shares, or any direct or indirect redemption,
purchase, or other acquisition of any of such shares, (iii) any increase in the
compensation payable or to become payable by the Company to any of its officers,
employees, or agents, or any bonus payment or arrangement made to or with any of
them; or (iv) any labor trouble, or any event, damage, loss or condition of any
character, materially and adversely affecting the Company's business or
prospects.
4.8 Taxes; Tax Audit. The Company has (i) timely filed all tax returns
----------------
required to be filed by it with respect to all taxes payable by the Company
including, but not limited to, income, capital stock, franchise, sales or use,
personal property and real estate taxes ("Taxes"), (ii) timely paid in full all
Taxes shown to have become due pursuant to such tax returns; and (iii) paid all
other Taxes for which a notice of assessment or demand for payment has been
received. All taxes that the Company is required by the law to pay, withhold or
collect including, but not limited to, payroll taxes and sales and use taxes on
any of the Company's sales or leases of tangible personal property or services,
have been timely paid over to the appropriate tax authority. All taxes of the
Company have been paid or are adequately reserved against on the books of
account of the Company as of December 31, 1996 or reflected on Schedule 4.6 with
respect to any liabilities accruing between December 31, 1996
3
<PAGE>
and Closing. To the best of Seller's knowledge, the Company has timely filed
all information returns or reports, including Forms 1099, which are required to
be filed and has accurately reported all information required to be included on
such returns or reports.
Except as disclosed in Schedule 4.8, the Company's federal income tax
--------------
returns and state income tax returns have not been audited by the Internal
Revenue Service or any state. The Seller has not received any notice of any tax
audits being conducted by any taxing authority with respect to any tax
liabilities of the Company, including income, sales or other taxes, and Seller
and Company have not received any notice from any taxing authority of an
intention of any taxing authority to conduct any audits.
4.9 Title to Properties; Mortgages; Liens; Compliance. The Company has
-------------------------------------------------
good and marketable title to all its properties and assets, real and personal,
listed on Schedule 4.9, subject to no security interests, mortgage, pledge,
lien, encumbrance, or charge, except for mortgages and liens shown on Schedule
4.6 as securing specified liabilities set forth therein (with respect to which
no default exists), and except for minor imperfections of title and
encumbrances, if any, which are not substantial in amount, do not materially
detract from the marketability or the value of the properties subject thereto,
or materially impair the Company's operations, and have arisen only in the
ordinary course of business. All the mortgages, liens, security interests and
encumbrances against the real estate, machinery, equipment and other property
owned or leased by the Company are listed on Schedule 4.6. To the best of
------------
Seller's knowledge, all Company buildings and equipment are in confirmation with
all applicable ordinances and regulations and environmental, building, zoning
and other laws and the real estate is in good operating condition, reasonable
wear and tear accepted.
4.10 Accounts Receivable. The Accounts Receivable of the Company as of
-------------------
December 31, 1996 are as shown on Schedule 4.10. Except as disclosed in
Schedule 4.10, the Seller is not aware of anything that would indicate that
these Accounts Receivable are not collectible.
4.11 Leases; Contracts. The Company has no leases, contracts, or other
-----------------
agreements or commitments involving annual payments by or to the Company in
excess of $10,000 each, except as listed in Schedule 4.11. True and complete
--------------
copies of all the foregoing have been made available to the Buyer. To the best
of Seller's knowledge, the Company has complied with all the provisions of such
instruments and of all other contracts, leases, agreements and commitments to
which it is a party, and is not in default under any of them.
4.12 Directors and Officers, Compensation; Banks. The Seller has made or
-------------------------------------------
will make available to Buyer (i) the names of all the Company's directors and
officers; (ii) the names of all persons whose compensation from the Company for
the year 1996 will equal or exceed $50,000, together with a statement of the
full amount paid or payable to each such person for services rendered or to be
rendered in 1996, and the basis therefor; (iii) the name
4
<PAGE>
of each bank in which the Company has an account, or safe deposit box, and the
names of all persons authorized to draw thereon, or to have access thereto; and
(iv) the names of all persons holding powers of attorney from the Company, and a
summary statement of the terms thereof.
4.13 Litigation. Except for suits of a character incident to the normal
----------
conduct of the Company's business and involving not more than $5,000 in the
aggregate and except as disclosed in Schedule 4.13, there is no litigation or
-------------
proceeding pending (except for litigation or proceedings which may have been
initiated, but notice of which has not been received by the Seller), or to the
Seller's knowledge threatened, against or relating to the Company, its
properties, or business, nor do the Sellers know or have reasonable grounds to
know of any basis for any such action, or of any governmental investigation
relative to the Company, its properties, or business.
4.14 Leases, Contracts, and Licenses. To the best of Seller's knowledge,
-------------------------------
Seller represents and warrants that the transfer of its shares in accordance
with the terms of this agreement will not constitute a prohibited assignment or
transfer of any of its licenses, leases, or contracts, and that all of the
foregoing will remain in full force and effect without acceleration as a result
of this transaction.
4.15 Authorization and Enforceability. This Agreement has been duly
--------------------------------
executed and delivered by Seller and constitutes the legal, valid and binding
obligation of Seller, enforceable against him in accordance with its terms.
4.16 No Violation of Laws or Agreements. To the best of Seller's
----------------------------------
knowledge, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the
compliance with the terms, conditions and provisions of this Agreement by Seller
and Company will not (a) contravene any provision of the certificate or articles
of incorporation or bylaws of the Company; or (b) conflict with or result in a
breach of or constitute a default (or an event which is reasonably likely to,
with the passage of time or the giving of notice, or both, constitute a default)
under, or result in or permit the modification or termination of any provision
of, or result in or permit the acceleration of the maturity or the cancellation
of the performance of any obligation under, or result in the creation or
imposition of any liens of any nature whatsoever upon the Company's assets or
give to others any interests or rights therein under, any indenture, mortgage,
loan or credit agreement, license, contract, lease or other agreement or
commitment to which the Company or Seller is a party or by which any of them or
any of their assets may be bound or affected, or any judgment or order of any
court or authority, domestic or foreign, or any applicable law, rule or
regulation.
4.17 Disclosure. No representation or warranty by the Seller in this
----------
Agreement or the Schedules to this Agreement, contains or will contain any
untrue statement of a material
5
<PAGE>
fact, or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
5. Representations and Warranties of Buyers. Buyer represents and
----------------------------------------
warrants to Seller as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The copies of Buyer's certificate of incorporation and by-laws, as
amended to date, which have been delivered to Seller, are true and correct and
complete and are in full force and effect.
5.2 Authorization and Enforceability. Buyer has full corporate power and
--------------------------------
authority to make, execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement by Buyer have been duly authorized by
all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable in accordance with its terms.
5.3 Brokerage. Buyer has not made any agreement or taken any other action
---------
which might cause anyone to become entitled to a broker's fee or commission as a
result of the transactions contemplated hereunder.
6. Conduct of Business Pending Closing. The Seller covenants that,
-----------------------------------
pending the Closing:
(a) The Company's business will be conducted only in the ordinary
course.
(b) No change will be made in the Company's authorized or issued
corporate shares.
(c) No dividend or other distribution or payment will be declared or
made in respect of the Company's corporate shares.
(d) All debts will be paid as they become due.
(e) No contract right of the Company will be waived.
(f) No obligations except current liabilities under contracts entered
into the ordinary course of business will be incurred.
7. Company Personnel. At the closing, the Seller shall make available to
-----------------
the Buyer, unless otherwise requested by it, the written resignations of the
Company's directors
6
<PAGE>
and officers and shall take, or cause to be taken, such action as the Buyer may
request with respect to changes in directors and officers.
8. Conditions Precedent for Buyer. All obligations of the Buyer under
------------------------------
this agreement are, at its option, subject to the fulfillment, prior to or at
the closing, of each of the conditions described in this Section 8.
8.1 Representations and Warranties True at Closing. The Seller's
----------------------------------------------
representations and warranties contained in this agreement shall be true at the
time of closing as though such representations and warranties were made at
closing and shall continue to be true at the time payment is due under the Note.
8.2 Performance. The Seller shall have performed and complied with all
-----------
agreements and conditions required by this Agreement to be performed or complied
with by him prior to or at the Closing.
8.3 Opinion of Company's Counsel. The Seller shall have delivered to the
----------------------------
Buyer an opinion of counsel that the Company was incorporated and is in good
standing under the laws of the State of its incorporation and, that to the best
of their knowledge, there is no litigation pending against the Company which is
not listed in Schedule 4.13.
9 Indemnification. The Seller shall indemnify and hold harmless the
---------------
Company and the Buyer, at all times after the date of this agreement, against
and in respect of:
(a) Undisclosed Liabilities. All liabilities of the Company of any
-----------------------
nature, whether accrued, absolute, contingent, or otherwise, existing as of the
date of Closing excepting those listed on Schedules 4.6 and 4. 11, including,
without limitation. any tax liabilities, accrued in respect of, or measured by
the Company's income for any period prior to December 31, 1996, or arising out
of transactions entered into, or any state of facts existing, prior to such
date;
(b) Interim Liabilities. All liabilities of, or claims against, the
-------------------
Company arising out of the conduct of the Company's business between December
31, 1996 and the Closing, otherwise than in ordinary course, or arising out of
any presently existing contract or commitment listed in Schedule 4.11.
(c) Taxes. All the Company's Taxes attributable to or apportioned to
-----
any period on or before December 31, 1996 and Seller's Taxes (including, but not
limited to, those Taxes arising on account of the transactions contemplated in
this Agreement). For the purposes of this section, Taxes shall be deemed
attributable to or apportioned to a period on or before December 31, 1996 if (i)
such Taxes are for the taxable year or other tax reporting
7
<PAGE>
period that ends on or before December 31, 1996 or (ii) such Taxes are
apportionable to the pre-Closing portion of a straddle year.
(d) Misrepresentations. Any damage or deficiency resulting from any
------------------
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of the Seller, under this agreement, or from any misrepresentation in or
omission from this Agreement or any Schedule to this Agreement; and
(e) Incidental Expenses. All actions, suits, proceedings, demands,
-------------------
assessments, judgments, costs, reasonable attorney's fees, and expenses incident
to any of the foregoing, to the extent that such items described in this Section
9(d) exceed in the aggregate $10,000.00.
The Seller shall reimburse the Company or the Buyer, on demand, for any
payment made by the Company or the Buyer at any time after the date of this
Agreement, in respect of any liability or claim to which the foregoing indemnity
relates.
Seller and Buyer agree that any indemnification payments made pursuant to
this Section 9 shall be treated for tax purposes as an adjustment to the
Purchase Price unless otherwise required by applicable law.
Seller shall not be obligated to indemnify the Buyer and the Company
pursuant to this Section 9 unless the aggregate of all such indemnification
claims exceeds $10,000.00 (the "Threshold"), in which event the Seller shall be
liable for all amounts in excess of the Threshold.
10. Brokerage. The Seller represents and warrants that all negotiations
---------
relative to this agreement have been carried on by him directly with the Buyer,
without the intervention of any person, and the Seller shall indemnify the Buyer
and hold it harmless against and in respect of any claim for brokerage or other
commissions relative to this agreement, or to the transactions contemplated
hereby, and also in respect of all expenses of any character incurred by the
Seller in connection with this agreement or such transactions.
11. Purchase for Investment. The Buyer represents that its purchase
-----------------------
hereunder is being made for its own account for investment, and with no present
intention of resale. All stock certificates presenting the shares purchased
under this agreement shall be endorsed with the following restrictive legend:
The Shares represented by this certificate have not been registered under
the Securities Act of 1933, and said Shares may not be offered or sold and no
transfer will then be made by the Company or its transferee except in compliance
with the Securities Act of 1933 and the rules and regulations promulgated
thereunder.
8
<PAGE>
12. Nature and Survival of Representations. All statements contained in
--------------------------------------
any schedule, certificate or other instrument delivered by or on behalf of the
Seller pursuant hereto, or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties by the Seller hereunder.
All representations, warranties, and agreements made by the Seller in this
agreement, or pursuant hereto, shall survive the closing and any investigation
at any time made by or on behalf of the Buyer.
13. Benefit. This agreement shall be binding upon, and inure to the
-------
benefit of, the legal representatives of the Seller, and the successors and
assigns of the Buyer. Without limiting the foregoing, the Company's rights
hereunder may be enforced by it in its own name. In the event that the Buyer
causes the assets and business of the Company to be transferred to some other
corporation, the rights of the Buyer and of the Company hereunder may be
enforced by such other corporation in its own name.
14. Construction. This agreement is being delivered and is intended to be
------------
performed in the Commonwealth of Pennsylvania, and shall be construed and
enforced in accordance with the laws of that state.
15. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing, and shall be deemed to have been duly given if
delivered or mailed, first class postage prepaid, if to Seller, at 2171 Sandy
Drive, State College PA 16803, Attn: Douglas R. Colkitt, or at such other
address as he may have furnished to the Buyer in writing, or, if to the Buyer at
3754 LaVista Road, Tucker, GA 30084-5637.
16. Counterparts. This agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Approval of Buyer's Board of Directors. This Stock Purchase Agreement
--------------------------------------
is contingent upon the approval of the disinterested members of the Board of
Directors of the Buyer, which approval shall be obtained prior to Closing.
9
<PAGE>
In witness whereof the parties have duly executed this agreement.
/s/ Douglas R. Colkitt
- ------------------------------ -----------------------------------
WITNESS DOUGLAS R. COLKITT, M.D., SELLER
ATTEST: EQUIMED, INC.
BY: /s/ Larry Pearson
- ------------------------------ -----------------------------------
(Assistant) Secretary LARRY PEARSON, PRESIDENT and
CHIEF EXECUTIVE OFFICER
The Company hereby consents to the transactions described in this Stock
Purchase Agreement to the extent such consent is necessary and joins in those
representations and warranties in Article 4 related to the Company.
ATTEST: GEORGE WASHINGTON REAL ESTATE
CORPORATION
BY: /s/ Douglas R. Colkitt
- ------------------------------ -----------------------------------
10
<PAGE>
EXHIBIT 10.31
STOCK PURCHASE AGREEMENT
------------------------
Nixon Equipment Corporation
AGREEMENT made as of January 1, 1997, between DOUGLAS R. COLKITT, M.D. of
2171 Sandy Drive, State College PA 16803 (the "Seller") and EQUIMED, INC., a
Delaware corporation with offices at 2171 Sandy Drive, State College PA 16803
(the "Buyer").
The parties have reached an understanding with respect to the sale and
purchase of all the outstanding corporate shares of Nixon Equipment Corporation,
a Delaware corporation, engaged in the ownership, management and leasing of real
estate (the "Company").
It is therefore agreed:
1.1 Sale of Corporate Shares. The Seller shall sell to the Buyer and the
------------------------
Buyer shall purchase from the Seller all of the issued and outstanding shares of
stock in the Company for the purchase price described in Section 1.2 below. The
Seller is the owner of all the issued and outstanding stock of the Company as
listed on Schedule 1.1 which is attached hereto and incorporated herein by
-------------
reference (the "Shares").
1.2 Purchase Price. The purchase price for the Shares shall be Four Hundred
--------------
Thousand ($400,000.00) Dollars (the "Purchase Price"). The Purchase Price
payable to the Seller shall be reduced by all funds advanced by Buyer to Seller
on December 31, 1996.
2.1 Closing. The closing of the sale and transfer of the Shares shall take
-------
place at the location agreed upon by Seller and Buyer (the "Closing"). At the
Closing, Seller shall deliver to the Buyer, free and clear of all encumbrances,
certificates for the Shares which he is required to sell in negotiable form,
with all requisite transfer stamps attached. Upon such delivery, the Buyer shall
deliver to Seller the Purchase Price payable at Closing by a certified or bank
cashier's check or wire transfer.
3.1 Access, Information and Documents. Seller and Company shall give to
---------------------------------
Buyer and to Buyer's counsel, accountants and other representatives full access
during normal business hours to all the properties, books, tax returns,
contracts, commitments, records, officers, personnel and accountants of the
Company and will furnish to Buyer all such documents and copies of documents
(certified to be true copies if requested) and all information with respect to
the affairs of the Company as Buyer may reasonably request. All such information
furnished to Buyer in connection with the transactions contemplated herein shall
be kept confidential, unless the Buyer is compelled to disclose such information
by judicial or administrative process or by other requirements of law, including
but not limited to any applicable securities laws or regulations.
<PAGE>
3.2 Disclosure Schedules. Seller shall deliver at or prior to Closing, all
--------------------
schedules described in this Agreement.
4. Representations and Warranties. The Seller represents and warrants to
------------------------------
Buyer as follows:
4.1 Organization and Standing of Company. The Company is a corporation duly
------------------------------------
organized, validly existing, and in good standing under the laws of Delaware.
Copies of the Company's Certificate of Incorporation, and all amendments thereof
to date, certified by the Secretary of State of Delaware, and of the Company's
Bylaws as amended to date, certified by the Company's Secretary, have been
delivered to the Buyer, and are complete and correct as of the date of this
agreement. The Company is duly licensed or qualified and in good standing as a
foreign corporation in the states listed in Schedule 4.1, which are the only
--------------
states where the character of the properties owned by the Company, or the nature
of the business transacted by it, make such license or qualification necessary.
4.2 Subsidiaries. The Company has no subsidiaries.
------------
4.3 Capitalization. The aggregate number of shares which the Company is
--------------
authorized to issue is 1500 common shares, of which 100 shares are issued and
presently outstanding as shown on Schedule 1.1. All such issued shares have
-------------
been validly issued and are fully paid and nonassessable. The Company has no
outstanding subscriptions contracts, options, warrants, or other obligations to
issue, sell, or otherwise dispose of, or to purchase, redeem or otherwise
acquire any of its shares.
4.4 Share Ownership. Seller represents and warrants that he is the owner,
---------------
free and clear of any encumbrances, of the number of the Company's common shares
set opposite his name on Schedule 1.1. Seller has full right and authority to
transfer said shares to Buyer, and there are no other shares of the Company
owned or claimed by any other person or entity.
4.5 Financial Statement. The Seller has delivered to the Buyer copies of
-------------------
the following financial statements, all of which are true and complete, to the
best of Seller's knowledge and have been prepared on an accrual basis:
(a) Unaudited balance sheets of the Company as of December 31, 1995,
December 31, 1994 and December 31, 1993, together with related unaudited
statements of income and retained earnings and cash flows for the fiscal years
ended on such dates, and the notes thereto;
(b) The unaudited balance sheets of the Company as of December 31, 1996,
together with the related unaudited statements of income and retained earnings
and cash flows for the twelve (12) month period ended on such date, and the
notes thereto;
2
<PAGE>
(c) Federal tax returns of the Company as of December 31, 1995, December
31, 1994 and December 31, 1993.
The above financial statements are hereinafter referred to as the "Financial
Statements."
To the best of Seller's knowledge the Financial Statements: (i) are correct
and complete in accordance with the books and records of the Company; and (ii)
fairly present the financial condition, assets and liabilities of the Company as
of their respective dates and the results of the Company's operations and cash
flows for the periods covered thereby.
4.6 Absence of Undisclosed Liabilities. Except to the extent listed on
----------------------------------
Schedule 4.6, the Company has no liabilities of any nature, whether accrued,
absolute, contingent, or otherwise, including, without limitation, tax
liabilities due or to become due, and whether incurred in respect of or measured
by the Company's income for any period prior to December 31, 1996, or arising
out of transactions entered into, or any state of facts existing, prior thereto.
Seller represents and warrants that he does not know or have reasonable grounds
to know of any basis for the assertion against the Company of any liability,
except as listed in Schedule 4.6.
4.7 Absence of Certain Changes. Since December 31, 1996, to the best of
--------------------------
Seller's knowledge, there has not been (i) any change in the Company's financial
condition, assets, liabilities, or business, other than changes in the ordinary
course of business, none of which has been materially adverse, (ii) any
declaration, or setting aside, or payment of any dividend or other distribution
in respect of the Company's shares, or any direct or indirect redemption,
purchase, or other acquisition of any of such shares; (iii) any increase in the
compensation payable or to become payable by the Company to any of its officers,
employees, or agents, or any bonus payment or arrangement made to or with any of
them; or (iv) any labor trouble, or any event, damage, loss or condition of any
character, materially and adversely affecting the Company's business or
prospects.
4.8 Taxes; Tax Audit. The Company has (i) timely filed all tax returns
----------------
required to be filed by it with respect to all taxes payable by the Company
including, but not limited to, income, capital stock, franchise, sales or use,
personal property and real estate taxes ("Taxes"); (ii) timely paid in full all
Taxes shown to have become due pursuant to such tax returns; and (iii) paid all
other Taxes for which a notice of assessment or demand for payment has been
received. All taxes that the Company is required by the law to pay, withhold or
collect including, but not limited to, payroll taxes and sales and use taxes on
any of the Company's sales or leases of tangible personal property or services,
have been timely paid over to the appropriate tax authority. All taxes of the
Company have been paid or are adequately reserved against on the books of
account of the Company as of December 31, 1996 or reflected on Schedule 4.6 with
respect to any liabilities accruing between December 31, 1996 and Closing. To
the best of Seller's knowledge, the Company has timely filed all information
returns or reports, including Forms 1099, which are required to be filed and has
accurately reported all information required to be included on such returns or
reports.
3
<PAGE>
Except as disclosed in Schedule 4.8, the Company's federal income tax
--------------
returns and state income tax returns have not been audited by the Internal
Revenue Service or any state. The Seller has not received any notice of any tax
audits being conducted by any taxing authority with respect to any tax
liabilities of the Company, including income, sales or other taxes, and Seller
and Company have not received any notice from any taxing authority of an
intention of any taxing authority to conduct any audits.
4.9 Title to Properties; Mortgages; Liens; Compliance. The Company has good
-------------------------------------------------
and marketable title to all its properties and assets, real and personal, listed
on Schedule 4.9, subject to no security interests, mortgage, pledge, lien,
encumbrance, or charge, except for mortgages and liens shown on Schedule 4.6 as
securing specified liabilities set forth therein (with respect to which no
default exists), and except for minor imperfections of title and encumbrances,
if any, which are not substantial in amount, do not materially detract from the
marketability or the value of the properties subject thereto, or materially
impair the Company's operations, and have arisen only in the ordinary course of
business. All the mortgages, liens, security interests and encumbrances against
the real estate, machinery, equipment and other property owned or leased by the
Company are listed on Schedule 4.6. To the best of Seller's knowledge, all
------------
Company buildings and equipment are in confirmation with all applicable
ordinances and regulations and environmental, building, zoning and other laws
and the real estate is in good operating condition, reasonable wear and tear
accepted.
4.10 Accounts Receivable. The Accounts Receivable of the Company as of
-------------------
December 31, 1996 are as shown on Schedule 4.10. Except as disclosed in Schedule
4.10, the Seller is not aware of anything that would indicate that these
Accounts Receivable are not collectible.
4.11 Leases; Contracts. The Company has no leases, contracts, or other
-----------------
agreements or commitments involving annual payments by or to the Company in
excess of $25,000 each, except as listed in Schedule 4.11. True and complete
copies of all the foregoing have been made available to the Buyer. To the best
of Seller's knowledge, the Company has complied with all the provisions of such
instruments and of all other contracts, leases, agreements and commitments to
which it is a party, and is not in default under any of them.
4.12 Directors and Officers, Compensation, Banks. The Seller has made or
-------------------------------------------
will make available to Buyer (i) the names of all the Company's directors and
officers; (ii) the names of all persons whose compensation from the Company for
the year 1996 will equal or exceed $50,000, together with a statement of the
full amount paid or payable to each such person for services rendered or to be
rendered in 1996, and the basis therefor; (iii) the name of each bank in which
the Company has an account, or safe deposit box, and the names of all persons
authorized to draw thereon, or to have access thereto; and (iv) the names of all
persons holding powers of attorney from the Company, and a summary statement of
the terms thereof.
4.13 Litigation. Except for suits of a character incident to the normal
----------
conduct of the Company's business and involving not more than $5,000 in the
aggregate and except as
4
<PAGE>
disclosed in Schedule 4.13, there is no litigation or proceeding pending (except
---------------
for litigation or proceedings which may have been initiated, but notice of which
has not been received by the Seller), or to the Seller's knowledge threatened,
against or relating to the Company, its properties, or business, nor do the
Sellers know or have reasonable grounds to know of any basis for any such
action, or of any governmental investigation relative to the Company, its
properties, or business.
4.14 Leases, Contracts, and Licenses. To the best of Seller's knowledge,
-------------------------------
Seller represents and warrants that the transfer of its shares in accordance
with the terms of this agreement will not constitute a prohibited assignment or
transfer of any of its licenses, leases, or contracts, and that all of the
foregoing will remain in full force and effect without acceleration as a result
of this transaction.
4.15 Authorization and Enforceability. This Agreement has been duly
--------------------------------
executed and delivered by Seller and constitutes the legal, valid and binding
obligation of Seller, enforceable against him in accordance with its terms.
4.16 No Violation of Laws or Agreements. To the best of Seller's knowledge,
----------------------------------
the execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and the compliance with the terms,
conditions and provisions of this Agreement by Seller and Company will not (a)
contravene any provision of the certificate or articles of incorporation or
bylaws of the Company; or (b) conflict with or result in a breach of or
constitute a default (or an event which is reasonably likely to, with the
passage of time or the giving of notice, or both, constitute a default) under,
or result in or permit the modification or termination of any provision of, or
result in or permit the acceleration of the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any liens of any nature whatsoever upon the Company's assets or give to others
any interests or rights therein under, any indenture, mortgage, loan or credit
agreement, license, contract, lease or other agreement or commitment to which
the Company or Seller is a party or by which any of them or any of their assets
may be bound or affected, or any judgment or order of any court or authority,
domestic or foreign, or any applicable law, rule or regulation.
4.17 Disclosure. No representation or warranty by the Seller in this
----------
Agreement or the Schedules to this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
5. Representations and Warranties of Buyers. Buyer represents and warrants
----------------------------------------
to Seller as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The copies of
5
<PAGE>
Buyer's certificate of incorporation and by-laws, as amended to date, which have
been delivered to Seller, are true and correct and complete and are in full
force and effect.
5.2 Authorization and Enforceability. Buyer has full corporate power
--------------------------------
and authority to make, execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement by Buyer have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes the
legal, valid and binding obligation of Buyer, enforceable in accordance with its
terms.
5.3 Brokerage. Buyer has not made any agreement or taken any other
---------
action which might cause anyone to become entitled to a broker's fee or
commission as a result of the transactions contemplated hereunder.
6. Conduct of Business Pending Closing. The Seller covenants that,
-----------------------------------
pending the Closing:
(a) The Company's business will be conducted only in the ordinary
course.
(b) No change will be made in the Company's authorized or issued
corporate shares.
(c) No dividend or other distribution or payment will be declared or
made in respect of the Company's corporate shares.
(d) All debts will be paid as they become due.
(e) No contract right of the Company will be waived.
(f) No obligations except current liabilities under contracts entered
into the ordinary course of business will be incurred.
7. Company Personnel. At the closing, the Seller shall make available to
-----------------
the Buyer, unless otherwise requested by it, the written resignations of the
Company's directors and officers and shall take, or cause to be taken, such
action as the Buyer may request with respect to changes in directors and
officers.
8. Conditions Precedent for Buyer. All obligations of the Buyer under this
------------------------------
agreement are, at its option, subject to the fulfillment, prior to or at the
closing, of each of the conditions described in this Section 8.
8.1 Representations and Warranties True at Closing. The Seller's
----------------------------------------------
representations and warranties contained in this agreement shall be true at the
time of closing
6
<PAGE>
as though such representations and warranties were made at closing and shall
continue to be true at the time payment is due under the Note.
8.2 Performance. The Seller shall have performed and complied with all
-----------
agreements and conditions required by this Agreement to be performed or complied
with by him prior to or at the Closing.
8.3 Opinion of Company's Counsel. The Seller shall have delivered to
----------------------------
the Buyer an opinion of counsel that the Company was incorporated and is in good
standing under the laws of the State of its incorporation and, that to the best
of their knowledge, there is no litigation pending against the Company which is
not listed in Schedule 4.13.
9. Indemnification. The Seller shall indemnify and hold harmless the
---------------
Company and the Buyer, at all times after the date of this agreement, against
and in respect of:
(a) Undisclosed Liabilities. All liabilities of the Company of any
-----------------------
nature, whether accrued, absolute, contingent, or otherwise, existing as of the
date of Closing excepting those listed on Schedules 4.6 and 4.11, including,
without limitation, any tax liabilities, accrued in respect of, or measured by
the Company's income for any period prior to December 31, 1996, or arising out
of transactions entered into, or any state of facts existing, prior to such
date;
(b) Interim Liabilities. All liabilities of, or claims against, the
-------------------
Company arising out of the conduct of the Company's business between December
31, 1996 and the Closing, otherwise than in ordinary course, or arising out of
any presently existing contract or commitment listed in Schedule 4.11.
(c) Taxes. All the Company's Taxes attributable to or apportioned to
-----
any period on or before December 31, 1996 and Seller's Taxes (including, but not
limited to, those Taxes arising on account of the transactions contemplated in
this Agreement). For the purposes of this section, Taxes shall be deemed
attributable to or apportioned to a period on or before December 31, 1996 if (i)
such Taxes are for the taxable year or other tax reporting period that ends on
or before December 31, 1996 or (ii) such Taxes are apportionable to the pre-
Closing portion of a straddle year.
(d) Misrepresentations. Any damage or deficiency resulting from any
--------------------
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of the Seller, under this agreement, or from any misrepresentation in or
omission from this Agreement or any Schedule to this Agreement; and
(e) Incidental Expenses. All actions, suits, proceedings, demands,
---------------------
assessments, judgments, costs, reasonable attorney's fees, and expenses incident
to any of the foregoing, to the extent that such items described in this Section
9(d) exceed in the aggregate $10,000.00.
7
<PAGE>
The Seller shall reimburse the Company or the Buyer, on demand, for any
payment made by the Company or the Buyer at any time after the date of this
Agreement, in respect of any liability or claim to which the foregoing indemnity
relates.
Seller and Buyer agree that any indemnification payments made pursuant to
this Section 9 shall be treated for tax purposes as an adjustment to the
Purchase Price unless otherwise required by applicable law.
Seller shall not be obligated to indemnify the Buyer and the Company
pursuant to this Section 9 unless the aggregate of all such indemnification
claims exceeds $50,000.00 (the "Threshold"), in which event the Seller shall be
liable for all amounts in excess of the Threshold.
10. Brokerage. The Seller represents and warrants that all negotiations
---------
relative to this agreement have been carried on by him directly with the Buyer,
without the intervention of any person, and the Seller shall indemnify the Buyer
and hold it harmless against and in respect of any claim for brokerage or other
commissions relative to this agreement, or to the transactions contemplated
hereby, and also in respect of all expenses of any character incurred by the
Seller in connection with this agreement or such transactions.
11. Purchase for Investment. The Buyer represents that its purchase
-----------------------
hereunder is being made for its own account for investment, and with no present
intention of resale. All stock certificates presenting the shares purchased
under this agreement shall be endorsed with the following restrictive legend:
The Shares represented by this certificate have not been registered under
the Securities Act of 1933, and said Shares may not be offered or sold and no
transfer will then be made by the Company or its transferee except in compliance
with the Securities Act of 1933 and the rules and regulations promulgated
thereunder.
12. Nature and Survival of Representations. All statements contained in any
--------------------------------------
schedule, certificate or other instrument delivered by or on behalf of the
Seller pursuant hereto, or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties by the Seller hereunder.
All representations, warranties, and agreements made by the Seller in this
agreement, or pursuant hereto, shall survive the closing and any investigation
at any time made by or on behalf of the Buyer.
13. Benefit. This agreement shall be binding upon, and inure to the benefit
-------
of, the legal representatives of the Seller, and the successors and assigns of
the Buyer. Without limiting the foregoing, the Company's rights hereunder may be
enforced by it in its own name. In the event that the Buyer causes the assets
and business of the Company to be transferred to some other corporation, the
rights of the Buyer and of the Company hereunder may be enforced by such other
corporation in its own name.
8
<PAGE>
14. Construction. This agreement is being delivered and is intended to be
------------
performed in the Commonwealth of Pennsylvania, and shall be construed and
enforced in accordance with the laws of that state.
15. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing, and shall be deemed to have been duly given if
delivered or mailed, first class postage prepaid, if to Seller, at 2171 Sandy
Drive, State College PA 16803, Attn: Douglas R. Colkitt, or at such other
address as he may have furnished to the Buyer in writing, or, if to the Buyer at
3754 LaVista Road, Tucker, GA 30084-5637.
16. Counterparts. This agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Approval of Buyer's Board of Directors. This Stock Purchase Agreement
--------------------------------------
is contingent upon the approval of the disinterested members of the Board of
Directors of the Buyer, which approval shall be obtained prior to Closing.
9
<PAGE>
In witness whereof the parties have duly executed this agreement.
/s/ Douglas R. Colkitt
- ------------------------------- ---------------------------------------
WITNESS DOUGLAS R. COLKITT, M.D., SELLER
ATTEST: EQUIMED, INC.
BY: /s/ Larry Pearson
- ------------------------------- ------------------------------------
(Assitant) Secretary LARRY PEARSON, PRESIDENT and
CHIEF EXECUTIVE OFFICER
The Company hereby consents to the transactions described in this Stock
Purchase Agreement to the extent such consent is necessary and joins in those
representations and warranties in Article 4 related to the Company.
ATTEST: NIXON EQUIPMENT CORPORATION
BY: /s/ Douglas R. Colkitt
- ------------------------------- ------------------------------------
10
<PAGE>
EXHIBIT 11
EQUIMED, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Primary:
Weighted average common shares outstanding 27,570,000
Net effect of dilutive stock options and warrants -
based on the treasury stock method 7,000
------
Weighted average common share and equivalents
outstanding 27,577,000
===========
Net loss $(31,346,000)
=============
Net loss per share $ (1.14)
======
Fully Diluted:
Weighted average common shares outstanding 27,570,000
Net effect of dilutive stock options and warrants -
based on the treasury stock method 7,000
------
Weighted average common share and equivalents
outstanding 27,577,000
===========
Net loss $(31,346,000)
=============
Net loss per share $ (1.14)
======
Pro forma weighted average common shares
outstanding 20,784,000 20,784,000
Pro forma net effect of dilutive stock
options and warrants -
based on the treasury stock method - -
---------- ----------
Pro forma weighted average common share
and equivalents outstanding 20,784,000 20,784,000
========== ==========
Pro forma net income $5,233,000 $6,807,000
========= =========
Pro forma net income per share $ 0.25 $ 0.33
</TABLE>
<PAGE>
EXHIBIT 21
EQUIMED, INC.
SUBSIDIARIES
EquiMed, Inc. owns 100% of the outstanding capital stock of the following
entities:
ALR Reporting, Inc.
Billing Services, Inc.
EquiMed India Private Limited
EquiMed Pakistan (Private) Limited
George Washington Real Estate Corporation
Nixon Equipment Corporation
Rejuve, Inc.
Russell Data Services, Inc.
Thomas Jefferson Real Estate Corporation
Tiger Communications International, LTD.
Transcriptions International Inc.
Trident International Accounting, Inc.
ALR Reporting, Inc. owns 100% of the outstanding capital stock of the
following entities:
Doyle Reporting, Inc.
Herm Conversion and Duplicating Inc.
Twin Brothers Reporting, Inc.
EquiMed, Inc. owns 80% of the outstanding capital stock of Nittany
Decisions Services Private Limited.
EquiMed India Private Limited and EquiMed Pakistan (Private) Limited each
hold a 50% interest in Poseidon Holdings LLC.
Poseidon Holdings LLC holds 100% of the equity of Solemar Insurance Ltd.,
an insurer domiciled in the Cayman Islands.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-01112) pertaining to the EquiVision, Inc. Stock Option Plan
and all non-qualified stock options and in the Registration Statements and in
the related prospectuses of EquiMed, Inc. (successor to EquiVision, Inc.) on
Form S-3 (No. 333-01096 and No. 333-12595) and on Form S-4 (No. 333-12773) of
our reports dated May 21, 1997 related to the consolidated financial statements
and financial statement Schedule II of EquiMed, Inc. (successor to EquiVision,
Inc.) included in this Annual Report on Form 10-K for the year ended December
31, 1996.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Atlanta, Georgia
June 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQUIMED, INC. FOR THE YEAR ENDED DECEMBER 31, 1996, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 27,010
<SECURITIES> 0
<RECEIVABLES> 6,307
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,813
<PP&E> 12,379
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,591
<CURRENT-LIABILITIES> 28,054
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 35,461
<TOTAL-LIABILITY-AND-EQUITY> 71,591
<SALES> 0
<TOTAL-REVENUES> 99,115
<CGS> 0
<TOTAL-COSTS> 83,696
<OTHER-EXPENSES> 30,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,188
<INCOME-PRETAX> (19,329)
<INCOME-TAX> 10,613
<INCOME-CONTINUING> (31,219)
<DISCONTINUED> 0
<EXTRAORDINARY> (127)
<CHANGES> 0
<NET-INCOME> (31,346)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
