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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended: December 31, 1998
Commission File Number: 0-24260
AMEDISYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3131700
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3029 S. Sherwood Forest Boulevard, Suite 300
Baton Rouge, Louisiana 70816
(Address of principal executive offices, including zip code)
(225) 292-2031 or (800) 467-2662
(Registrant's telephone number, including area code)
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 $.001 per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 past 90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulations S-K in this form, and if no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Issuer's revenues for the year ended December 31, 1998 were $ 38,086,337.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price as quoted by the OTC Bulletin Board
on March 26, 1999 was $5,790,730. As of March 29, 1999 registrant has
3,071,797 shares of Common Stock outstanding.
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TABLE OF CONTENTS
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PART I................................................................... 3
ITEM 1. BUSINESS.................................................... 3
ITEM 2. PROPERTIES.................................................. 12
ITEM 3. LEGAL PROCEEDINGS........................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 13
PART II.................................................................. 13
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS..................................................... 13
ITEM 6. SELECTED FINANCIAL DATA..................................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.................. 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 19
PART III................................................................. 19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 19
ITEM 11. EXECUTIVE COMPENSATION...................................... 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 20
PART IV.................................................................. 20
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.................................................... 20
SIGNATURES............................................................... 22
FINANCIAL STATEMENTS..................................................... F-1
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PART I
ITEM 1. BUSINESS
General
Amedisys, Inc., a Delaware corporation ("the Company"), is a leading multi-
regional provider of alternate-site health care services including home health
care nursing, home infusion therapy and ambulatory surgery centers. The
Company operates 71 offices within a network of subsidiaries in the southern
and southeastern United States.
Amedisys was incorporated in Louisiana in 1982. The Company consolidated the
holdings of its subsidiaries through stock transfers pursuant to Section 351
of the Internal Revenue Code causing these subsidiaries to be 100% owned by
Amedisys, Inc. in 1992. In 1993 the Company became public through a merger
with M & N Capital, a New York corporation. In 1994, it moved its state of
incorporation from New York to Delaware. Amedisys currently trades on the OTC
Bulletin Board under the symbol "AMED."
The Company seeks to differentiate itself from its competitors by providing
a high level of quality medical care to its patients and a work environment
that respects and values its employees. Its growth objective is to enhance its
position in each of its markets and to provide its menu of services to
patients, physicians and payors in a cost effective manner while maintaining a
high level of quality. Amedisys will continue to penetrate its markets and
increase patient admissions to its programs through its strong reputation for
quality care and focused marketing and sales efforts.
Recent Developments
Recent Acquisitions
On November 2, 1998, Amedisys, Inc. signed a definitive agreement to
purchase certain assets, subject to the assumption of certain liabilities, of
83 home care offices including 35 provider numbers in Alabama, Georgia,
Louisiana, North Carolina, Oklahoma and Tennessee from Columbia/HCA Healthcare
Corporation. The Company had no material relationship with Columbia/HCA
Healthcare Corporation prior to this transaction. The purchase price of
$24,000,000 was calculated using various factors consistent with industry
practice, including but not limited to: (i) a dollar figure per home care
visit, (ii) number of patients, and (iii) state certificate of need
requirements. A portion of the consideration, $9,994,000, less certain
liabilities, was paid November 3, 1998 with the balance of $14,006,000 payable
pursuant to a one-year promissory note at the prime rate of Union Planter's
Bank of Louisiana plus 0.75%. The source for the cash portion of the
consideration was from the sale of certain assets. The assets purchased
consisted primarily of furniture, fixtures, and equipment; prepaid expenses;
advances and deposits; inventory; office supplies; records and files;
transferable governmental licenses and permits authorizations; and rights in,
to and under specified licenses, contracts, leases, and agreements. The
liabilities assumed were the paid-time-off balances of the Columbia/HCA
employees and obligations arising on or subsequent to the closing dates under
the assumed contracts. The closing of the transaction occurred in two stages.
Assets located in Louisiana and Oklahoma were acquired November 16, 1998, and
the remaining assets were acquired November 30, 1998. Columbia/HCA has agreed
that for a period of two years from the date of closing it will not compete
with the Company in the business of providing skilled intermittent home care
services in the counties/parishes currently served by the acquired offices.
Such covenant does not apply to a home health agency that is acquired as part
of an acquisition of a general acute care hospital, skilled nursing facility,
ambulatory surgical facility, physician practice management company or
assisted living facility.
On November 1, 1998, the Company acquired certain assets of Tanglewood
Surgery Center in Odessa, Texas in exchange for $50,000 cash, a $50,000 note
at 8.5% payable monthly over a one year period, and a $450,000 note at 10%
payable monthly over a five year period. The assets acquired consisted of
accounts receivable, inventory, and medical equipment. The liabilities assumed
included a capital lease
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collateralized by the acquired medical equipment. The Company contributed this
facility to West Texas Ambulatory Surgery Center, LLC in exchange for a 67%
ownership interest. The remaining ownership interest is held by local
physicians.
Recent Dispositions
On September 21, 1998, the Company sold certain assets, subject to the
assumption of certain liabilities, of its wholly-owned subsidiaries of
Amedisys Staffing Services, Inc., Amedisys Nursing Services, Inc., and
Amedisys Home Health, Inc. to Nursefinders, Inc. The Company had no material
relationship with Nursefinders, Inc. prior to this transaction. The purchase
price of $7,200,000 was calculated using a multiple of earnings before
interest, taxes, depreciation, and amortization (EBITDA). At closing,
$6,480,000 was payable immediately with the balance of $720,000 placed in an
escrow account. The escrow funds were to be held for an initial ninety (90)
day period. The assets sold consisted primarily of all accounts and notes
receivable; prepaid expenses; advances and deposits; on-site hardware and
software; furniture, fixtures, and leasehold improvements; office supplies;
records and files; transferable governmental licenses, permits, and
authorizations; and rights in, to and under specified licenses, contracts,
leases, and agreements. The liabilities assumed were the trade accounts
payable, accrued expenses, and other liabilities as of the closing date. The
Company has agreed to a five-year non-competition covenant.
On November 3, 1998, Amedisys, Inc. (the "Company") and CPII Acquisition
Corp. ("CPII") entered into an Asset Purchase Agreement whereby the Company
sold certain of the assets, subject to the assumption of certain liabilities,
of its proprietary software system (Analytical Medical Systems) and home
health care management division (Amedisys Resource Management) to CPII in
exchange for $11,000,000 cash. The assets sold consisted primarily of
proprietary rights with respect to the home health information system
developed and used by the Company and its subsidiaries; deposits, prepayments
or prepaid expenses relating to the business; contracts; fixtures and
equipment; books and records; rights under warranties; and claims, causes of
action, chooses in action, rights of recovery and rights to set-off. The
liabilities assumed were those associated with the assumed contracts. The
Company has also agreed to provide limited support services to CPII for the
period of one year from the date of the agreement. The Company has retained a
licensing agreement with CPII for the software for a period of five years.
On January 1, 1999, the Company sold all of the issued and outstanding stock
of Amedisys Durable Medical Equipment, Inc. d/b/a Care Medical and Mobility
(ADME) to Ace Drug Medical Equipment, Inc. (ACE), a Texas Corporation. The
sales price was $672,385 of which $100,000 was paid at closing; $418,318 was a
payable pursuant to a two year note, payable in eight equal quarterly payments
of principal and interest at prime plus 2%, adjusted annually; and $154,067
was payable pursuant to a one year note, payable in four quarterly payments of
principal plus accrued interest at prime plus 2%. Each note is solitarily
guaranteed by Terry Huckabee, a principal of ACE. ACE acquired substantially
all of the assets and liabilities of ADME. This transaction was accounted for
as a sale by the Company.
Recent Financing
In December 1998, the Company secured a $25 million asset-based line of
credit with National Century Financial Enterprises, Inc. (NCFE) of Dublin,
Ohio. The line of credit is collateralized by eligible accounts receivable.
Eligible receivables are defined as receivables, exclusive of workers'
compensation and self-pay, that are aged less than 181 days. The ongoing fees
associated with this line of credit equate to 1% of eligible billed
receivables generated during each billing period. The Company also obtained
from NCFE a $3,000,000 loan at 20% interest, payable in equal monthly
installments of principal and interest for a period of three years.
Industry Overview
The health care industry continues to undergo changes. Today's focus is on
managing cost and utilization, as opposed to the hospital/physician centered
focus that has dominated healthcare since the early 1950's. Beginning in the
mid-1980's, health care shifted from providing care at any cost to learning to
manage costs. The industry is now experiencing another shift, which requires
health care providers to work with payors to balance the management of care
with cost.
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In an effort to manage health care expenditures, a strong focus has been
placed on moving the primary source of health care from the traditional
institutional settings (hospitals), causing home health care to play a more
dynamic role. As a result, the number of services that can be provided safely
and effective in sites alternate to the hospital have dramatically increased.
Managed care, Medicare, Medicaid and other payor reimbursement pressures
continue to drive patients through the continuum of care until they reach a
setting where the appropriate level of care can be provided most cost
effectively. Over the past several years, home care has evolved as an
acceptable (and often preferred) alternative in this continuum. In addition to
patient comfort and convenience, substantial cost savings can be realized
through treatment at home as an alternative to institutional settings.
To compete in this evolving environment, it is critical that providers not
only provide high quality, cost effective care, but implement clinically-based
management information systems to reduce costs, improve productivity, produce
and analyze clinical outcomes data, and position themselves as partners in the
health care continuum.
Strategy
The Company's business objective is to enhance its position in its market
areas as a primary provider of high quality, low cost alternate site health
care services. To accomplish this, it will do the following:
Focus on its employees. Because the Company is engaged in a service
business, the essence of the Company is its people. The Company's emphasis
on communication, education, empowerment, and competitive benefits allow it
to attract some of the most highly skilled and experienced people in its
markets.
Focus on Selective Geographic Markets. The Company is targeting selected
markets in the southern and southeastern United States. Through expansion
of existing services, it plans to dominate these markets, to increase
utilization of its services by payors and referral sources and to enhance
its overall market position. Since many of the areas in which the Company
operates are rural, home health care is an ideal delivery system.
Manage Costs Through Disease State Management. Payors are focusing on the
management of patients who suffer from chronic disease states which
represent substantial costs. Some of the major disease states include:
diabetes, congestive heart failure, HIV, cancer, and asthma. The Company's
disease state management programs include patient and family education,
frequent monitoring and coordinated care with other medical professionals
involved in the care of the patient.
Manage Costs Through Technology. The Company licenses a software system
that had been developed internally by the Company which reduces its cost to
operate its business, as well as integrates a number of financial and
operating functions into a single entry system. By enhancing its operations
through the use of information technology, the Company is positioned to not
only operate more efficiently, but to compete in an environment
increasingly influenced by cost containment.
Business Development
The Company is committed to growth in each of its divisions, however, its
current and future primary focus is in its home health care nursing services
division. The Company has an active team of professionals who support business
development of new and ongoing service areas. The team provides support
services including market analysis; planning; research; and community, public
and media relations which impact Company wide and region specific growth and
budget goals. The professionals on this team also provide advertising, public
relations and educational campaigns.
The local office level of the Company, community relations and sales
professionals work with administrators and branch managers to capture
additional market share and enhance growth in each local market.
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Service Divisions
Home Health Care Nursing
Services provided in home health care include four broad categories: (1)
nursing and allied health services, (2) infusion therapy, (3) respiratory
therapy and, (4) home medical equipment. Accounting for $28 billion in
expenditures in 1997, nursing and allied services represent the largest sector
or 70% of all home health care services. Medicare reimbursements account for
approximately 65.2% of home care nursing. The Balanced Budget Act of 1997
established a new reimbursement system for Medicare home care nursing services
for cost reporting periods beginning on or after October 1, 1997 known as the
Interim Payment System ("IPS"). This change has had a significant effect on
the home care industry since Medicare is its largest payor source. On March
31, 1998, the Federal Government released its final determination and
definitions of IPS, which was retroactive to October of 1997. In addition to
changes in the home care nursing per visit rate, it imposed a per beneficiary
limit. Industry experts predicted that 40%-50% of existing home care companies
would no longer be in business by the end of 1998. At the end of 1998, it was
estimated that over 1,000 companies had ceased operations. In June, 1998, the
Budget Committee of the U.S. House of Representatives unanimously adopted a
resolution that required revision of the Medicare IPS. The amendment called
for recognition that IPS is inherently unfair to many home care providers and
caused cuts in needed services, and directed the House Ways and Means Commerce
Committee to revise IPS during the legislative session. Additionally, the
Executive branch joined the House and Senate in supporting IPS reform. This
amendment instructed the authorizing committees to ensure that the Prospective
Payment System ("PPS") go into effect no later than October 1, 1999, however
the Health Care Financing Administrations ("HCFA") recommended that this be
postponed to July of 2000 due to their Y2K issues. These changes have had and
will continue to have a significant effect on the home care nursing industry
since Medicare is its largest payor source (see Billing and Reimbursement).
The Company operates 57 home care nursing offices consisting of 28 parent
offices with Medicare provider numbers, and 29 branch offices. Serving this
market for the past 7 years, the Company has built an excellent reputation
based on quality care and specialty nursing services. Because its services are
comprehensive, cost-effective and can be accessed 24 hours a day, seven days a
week, the Company's home care nursing services are attractive to payors and
physicians. All of its offices are either accredited or in the process of
accreditation by the Joint Commission on Accreditation of Health Care
Organizations ("JCAHO"). The Company provides a wide variety of home health
care services including:
Registered nurses who provide specialty services such as infusion
therapy, skilled monitoring, assessments, and patient education. Many of
the Company's nurses have advanced certifications.
Licensed practical (vocational) nurses who perform technical procedures,
administer medications and change surgical and medical dressings.
Physical and occupational therapists who work to strengthen muscles and
restore range of motion and help patients to perform the activities of
daily living.
Speech pathologists/therapists who work to restore communication and oral
skills.
Social workers who help families address the problems associated with
acute and chronic illnesses.
Home health aides who perform personal care such as bathing or assistance
in walking.
Ambulatory Surgery Centers
Ambulatory Surgery Centers ("Centers") offer an alternative to hospital
surgical suites or operating rooms. The number of procedures offered in these
Centers has increased due to advances in technology, including the use of
endoscopic procedures and laser equipment. These techniques are less invasive
and require shorter recovery periods than traditional hospital services. The
Centers offer a high quality, cost effective benefit for insurers, as well as
patients who are responsible for co-payments for their procedures. Facility
fees are lower
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than similar hospital procedures and the atmosphere is less institutional.
Physicians who operate at the Centers can participate in ownership, and enjoy
block scheduling and faster turnaround times, allowing them more time with
their patients.
According to a recent report by SMG Marketing Group, in 1997 the market
share for freestanding surgery centers has increased in comparison to the
outpatient surgical hospital market. Of the 32.1 million total surgical
procedures performed in the nation last year, hospitals performed an estimated
24.1 million, of which 14.1 million or 58% occurred on an outpatient basis. It
is projected that hospitals will perform 64% of all outpatient surgical
procedures for the nation this year, a significant decrease from the 76%
performed in 1990. Meanwhile, the shift in total outpatient surgical volume
continues to increase. This shift is due, in large part, to technological
advances which allow more procedures to be done in outpatient settings and
payors seeking cost effective services for their health plans.
The Company operates and has ownership interests in six ambulatory surgery
centers. Each of its Centers are at the forefront of technology for a variety
of out-patient surgical procedures. The Centers provide patients, physicians,
and payors with an efficient and flexible alternative source for quality
multi-specialty medical care. Each Center is either accredited or in the
process of accreditation by the Accreditation Association of Ambulatory Health
Care and staffed with highly talented and experienced multi-disciplinary
teams, allowing them to enjoy an excellent reputation for delivering
outstanding patient care.
Infusion Therapy Services
Infusion therapy is the intravenous, intramuscular, or subcutaneous
administration of medications and nutrition. These procedures were once
confined to hospital environments, however, with the portability of technology
and the expanded training and certification standards for registered nurses,
infusion procedures can be safely and effectively performed in the home
setting, physician office and ambulatory infusion suites.
According to Alex Brown in their Home Care Industry Perspective report, the
total home infusion therapy market is approximately $5 billion or 13% of the
total home health care expenditure, representing the second largest and
fastest growing segment of the home care industry. Beginning as a cottage
industry in the 1970's, the home infusion business experienced explosive
growth in the mid-1980's. The industry became saturated in the 1990's. At that
time, managed care, which now represents approximately 2/3 of revenues in this
segment, began to negotiate lower pricing. This caused many companies to be
driven out of business or acquired by the large national providers. As a
result of questionable success in the integration of these combined companies,
it appears that regional and local providers have benefitted as the larger,
most visible companies continue to lose revenues and market share.
The Company opened its first infusion therapy office in December, 1997. It
currently operates five offices and offers a large menu of services including:
Antibiotic therapy which is the infusion of antibiotic medications to
treat various infections and diseases.
Total parenteral nutrition which involves the provision of nutrients
through catheters to patients who cannot absorb nutrients through the
digestive tract due to chronic gastrointestinal conditions. This is
typically a long term therapy.
Enteral nutrition which is the infusion of nutrients through a feeding
tube directly into the digestive tract. This can be a long term therapy for
patients who cannot eat or drink normally.
Pain management which is the infusion of drugs used to relieve chronic
pain.
Chemotherapy to treat various forms of cancer.
Hydration therapy which is the infusion of fluids to patients who have
disease states which deplete their normal balance of fluids.
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Referrals for these and other therapies are received primarily from managed
care organizations and specialty physicians.
Billing and Reimbursement
Revenues generated from the Company's home health care services are paid by
Medicare, Medicaid, private insurance carriers, managed care organizations,
individuals, and other local health insurance programs. Medicare is a
federally funded program available to persons with certain disabilities and
persons aged 65 or older. Medicaid, a program jointly funded by federal,
state, and local governmental health care programs, is designed to pay for
certain health care and medical services provided to low income individuals
without regard to age. The Company has several statewide contracts for
negotiated fees with insurers and managed care organizations.
The Company submits all Medicare claims to a single insurance company acting
as a fiscal intermediary for the federal government. Outpatient surgery and
infusion therapy fees are collected from commercial insurance systems, managed
care organizations, Medicare, Medicaid, and individuals.
Medicare Reimbursement Reductions and Related Restructuring
The Company derives 73% of its revenues from the Medicare system. In 1997,
Congress approved the Balanced Budget Act of 1997 (the "Budget Act"). The
Budget Act established an interim payment system (the "IPS") that provided for
the lowering of reimbursement limits for home health visits. For cost
reporting periods beginning on or after October 1, 1997, Medicare-reimbursed
home health agencies' cost limits were determined as the lesser of (i) their
actual costs, (ii) per visit cost limits based on 105% of median costs of
freestanding home health agencies, or (iii) a per beneficiary limited
determined for each specific agency based on whether the agency was an "old"
or "new" provider. An old provider was defined as an agency which filed a
twelve month cost report in Federal FY 1994 and a new agency as one that did
not. An old provider per beneficiary limit was based on 75% of 98% of the 1994
agency cost adjusted for inflation, plus 25% of a regional average as
determined by Health Care Financing Administration ("HCFA"). A new provider
per beneficiary limits was based on a national average, as determined by HCFA,
adjusted for regional labor costs. The schedule of per visit limits for cost
reporting periods ending on or after October 1, 1997 was published by HCFA on
January 2, 1998 and the schedule of per-beneficiary limits for cost reporting
periods beginning on or after October 1, 1997 was not published until March
31, 1998, by HCFA. The new IPS cost limits apply to the Company for the cost
reporting period beginning January 1, 1998. The release of the final cost
limit information well into the current fiscal year's operations created
difficulty in projecting or restructuring home care operations to adjust to
the lower IPS cost limits. After consolidation of offices and cost reductions,
it is estimated the aggregate reduction in reimbursement for 1998, due to the
effect of the per beneficiary limit, was in excess of $5.0 million for the
Company's Medicare certified nursing agencies. Current operations are
constantly monitored to ensure quality care is provided at the most efficient
cost.
In addition to reimbursement changes, HCFA has also established guidelines
for the frequency and duration of reimbursable Medicare home health visits.
These guidelines are intended to establish a clinical path for chronically ill
patients to better measure their progress and/or stability. The clinical paths
include a median frequency and duration of care in order to provide the most
cost-effective treatment possible. These clinical paths will be a critical
component in determining reimbursement under the Prospective Payment System
(PPS). The Company is monitoring these guidelines and making adjustments as
appropriate in order to ensure the smoothest possible transition to PPS for
both the patients and the Company.
Data Processing
In connection with the acquisition of the home healthcare agencies from
Columbia/HCA in November, 1998, the Company decided to out-source its home
health care billing and payroll processing functions to create greater
operating and financial efficiencies. On November 2, 1998, the Company and
CareSouth Home Health Services, Inc. ("CareSouth"), an affiliate of CPII
Acquisition Corp., entered into a Master Corporate Guaranty
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of Service Agreement whereby the Company agreed to act as guarantor for each
Agency Service Agreement between CareSouth and home health agencies which are
owned or managed by the Company. Under the Agency Service Agreements,
CareSouth has agreed to provide payroll processing, billing services,
collection services, cost reporting services and software maintenance and
support for the home health agencies.
The Company continues to use the internally-developed home health care
software program which was sold in November, 1998 (See Recent Dispositions) in
accordance with a license agreement. This software system features a single
entry system that allows data to flow through accounting, general ledger,
payroll and billing and meet the extensive cost reporting requirements for
Medicare reimbursement of home health care services. It also provides clinical
documentation for tracking clinical outcome results.
Each regional office can link via modem to the corporate accounting and
information systems, as well as the to the company to whom its billing and
payroll services have been out-sourced. This feature allows management to
routinely monitor business activities and produce management reports.
Quality Control and Improvement
As a medical service business, the quality and reputation of the Company's
personnel and operations are critical to its success. The Company has
implemented quality management programs as well as policies and procedures in
each of its divisions at both the corporate and field levels. The Company
strives to meet guidelines set forth by the Joint Commission on Accreditation
of Health Care Organizations (JCAHO), as well as state and federal guidelines
for Medicare and Medicaid licensure.
The Company maintains an active quality management team who makes periodic
on-site inspections of field offices to review systems, operations, and
clinical procedures. An educational division is also part of quality
management operations and conducts educational and training sessions at field
offices, as well as disseminating continuing education materials to employees
in its field offices.
Year 2000 Compliance Issues
The Company is continuing to evaluate its entire operation as a result of
potential problems associated with Year 2000 (Y2K). A task force was
established within the Company to evaluate all areas for compliance issues and
develop correction plans if necessary. Some internal areas and processes being
evaluated include initial charge entry through billing and collections;
accounts payable invoice receipt through processing and payment; bank
processing of receipts and disbursements; computer hardware and software
functionality; and time and/or date-sensitive office and medical equipment
functionality. In preparation for Y2K, the Company has replaced, or is in the
process of replacing, all of its mission critical computer systems that are
not Y2K compliant. The general accounting system was replaced and has been in
use since October, 1998. The Company's home health care nursing, outpatient
surgery center, and infusion division software systems are Y2K compliant. At
present, the Company does not anticipate any material disruption in its
operations or significant costs to be incurred to attain compliance. There can
be no assurance, however, that the Company will identify or adequately assess
all aspects of the business that may be affected. Due to this uncertainly, a
contingency plan is being developed as each area is evaluated to minimize any
negative impact to the Company. In the event that any of the Company's
significant payors, suppliers, or customers does not successfully and timely
achieve Year 2000 compliance, the Company's business and/or operations could
be adversely affected.
Recruiting and Training
The Company's Human Resources Department coordinates recruiting efforts for
corporate and field personnel. Employees are recruited through newspaper
advertising, professional recruiters, the Company's web page, networking, and
word-of-mouth referrals. The Company believes it is competitive in the
industry and offers its employees upward mobility, health insurance, an
Employee Stock Option program, an Employee Stock Purchase Plan, a 401K plan,
and a cafeteria plan.
Uniform procedures for screening, testing, and verifying references,
including criminal checks where appropriate, have been established. All
employees receive a formalized orientation program, including familiarization
with the Company's policies and procedures.
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The Company believes it is in compliance with all Department of Labor, Wage
and Hour regulations.
Government Regulation
The Company's home health care business is highly regulated by federal,
state and local authorities. Regulations and policies frequently change and
the Company monitors changes through trade and governmental publications and
associations. Managers participate on various licensing and association
boards. The Company's home health care subsidiaries are certified by the
Health Care Financing Administration (HCFA) and are therefore eligible to
receive reimbursement for services through the Medicare system. As a provider
under the Medicare system, the Company is subject to the various "anti-fraud
and abuse" laws, including the federal health care programs anti-kickback
statute. This law prohibits any offer, payment, solicitation or receipt of any
form of remuneration to induce the referral of business reimbursable under a
federal health care program or in return for the purchase, lease, order,
arranging for, or recommendation of items or services covered by any federal
health care programs or any health care plans or programs that are funded by
the United States (other than certain federal employee health insurance
benefits) and certain state health care programs that receive federal funds
under various programs, such as Medicaid. A related law forbids the offer or
transfer of any item or service for less than fair market value, or certain
waivers of copayment obligations, to a beneficiary of Medicare or a state
health care program that is likely to influence the beneficiary's selection of
health care providers. Violations of the anti-fraud and abuse laws can result
in the imposition of substantial civil and criminal penalties and,
potentially, exclusion from furnishing services under any federal health care
programs. In addition, the states in which the Company operates generally have
laws that prohibit certain direct or indirect payments or fee-splitting
arrangements between health care providers where they are designated to obtain
the referral of patients to a particular provider.
Congress adopted legislation in 1989, know as the "Stark" Law, that
generally prohibits a physician ordering clinical laboratory services for a
Medicare beneficiary where the entity providing that service has a financial
relationship (including direct or indirect ownership or compensation
relationships) with the physician (or a member of his immediate family), and
prohibits such entity from billing for or receiving reimbursement for such
services, unless a specified exemption is available. Additional legislation
became effective as of January 1, 1993 know as "Stark II," that extends the
Stark law prohibitions to services under state Medicaid programs, and beyond
clinical laboratory services to all "designated health services," including
home health services, durable medical equipment and supplies, and parenteral
and enteral nutrients, equipment, and supplies. Violations of the Stark Law
may also trigger civil monetary penalties and program exclusion. Pursuant to
Stark II, physicians who are compensated by the Company will be prohibited
from seeking reimbursement for services rendered to such patients unless an
exception applies. Several of the states in which the Company conducts
business have also enacted statutes similar in scope and purpose to the
federal fraud and abuse laws and the Stark laws.
Various federal and state laws impose criminal and civil penalties for
making false claims for Medicare, Medicaid or other health care
reimbursements. The Company believes that it bills for its services under such
programs accurately. However, the rules governing coverage of, and
reimbursements for, the Company's services are complex. There can be no
assurance that these rules will be interpreted in a manner consistent with the
Company's billing practices.
Home health care offices have licenses granted by the health authorities of
their respective states. Additionally, some state health authorities require a
Certificate of Need (CON). Tennessee, Georgia, Alabama and North Carolina do
require a CON to establish and operate a home health care agency, while Texas,
Louisiana and Oklahoma currently do not. In every state, each location license
and/or CON, issued by the health authority, determines the service areas for
the home health care agency. Currently JCAHO accreditation of home health care
agencies is voluntary. However, Managed Care Organizations (MCO's), use JCAHO
accreditation as a minimum standard for regional and state contracts.
Ambulatory surgery centers require a Certificate of Need in some states and
are regulated by state and federal guidelines, as well as Medicare standards.
While accreditation is not mandatory, the majority of managed
10
<PAGE>
care companies will only contract with accredited centers. All of the
Company's ambulatory surgery centers have been or are in the process of being
accredited by the Accreditation Association for Ambulatory Health Care.
The Company strives to comply with all federal, state and local regulations
and has satisfactorily passed all federal and state inspections and surveys.
The ability of the Company to operate properly will depend on the
Company's ability to comply with all applicable healthcare regulations.
Competition
The services provided by the Company are also provided by competitors at the
local, regional, and national level. Home health care providers compete for
referrals based primarily on scope and quality of services, geographic
coverage, pricing, and outcomes data.
The Company believes its favorable competitive position is attributable to
its reputation for over a decade of consistent, high quality care; its
comprehensive menu of services; its state-of-the-art information management
systems; and its widespread service network.
Seasonality
The demand for the Company's home health care nursing, infusion therapy, and
outpatient surgery are not typically influenced by seasonal factors.
Employees
As of December 31, 1998, the Company had 1,554 full-time employees,
excluding part time field nurses and other professionals in the field. The
Company currently employs the following classifications of personnel:
Administrative level employees which consist of a senior management team (CEO,
COO, CIO, product line and department presidents and vice presidents); office
administrators; nursing directors; controllers; accountants; sales executives;
licensed and certified professional staff (RN'S, LPN's, therapy assistants);
and non-licensed care givers (aides).
The Company complies with the Fair Labor Standards Act in establishing
compensation methods for its employees. Select positions within the Company
are deemed to be bonus eligible based on the achievement of pre-determined
budget criteria. The Company sponsors and contributes toward the cost of a
group health insurance program for its eligible employees and their
dependents. The group health insurance program is self-funded by the Company;
however, there is an aggregate stop loss policy in place to limit the
liability for the Company. In addition the Company provides a group term life
insurance policy and a long term disability policy for eligible employees. The
Company also offers a 401K retirement plan as well as Cafeteria 125 plan, and
an Employee Stock Purchase plan.
The Company believes its employee relations are good. It successfully
recruits employees and many of its employees are shareholders.
Insurance
The Company maintains casualty coverages for all of its operations,
including professional and general liability, workers' compensation,
automobile, property, and fiduciary liability. The insurance program is
reviewed periodically throughout the year and thoroughly on an annual basis to
insure adequate coverage is in place. The Company is approved through the
State of Louisiana to self-insure its workers' compensation program. All other
states are covered on a fully insured basis through "A+" rated insurers. In
January 1999, the Company changed from the self-insured workers' compensation
plan to a fully-insured, guaranteed cost plan. All of the Company's employees
are bonded. The Company is self-insured for its employee health benefits.
11
<PAGE>
ITEM 2. PROPERTIES
The Company presently leases approximately 15,724 square feet for its
corporate office located at 3029 South Sherwood Forest Boulevard, Baton Rouge,
Louisiana. The lease provides for a basic annual rental rate of approximately
$11 per square foot through the expiration date on September 30, 2002. The
Company has an aggregate of 463,153 feet of leased space for regional offices
pursuant to leases which expire between April, 1999 and August, 2005. Rental
rates for these regional offices range from $2 per square foot to $22 per
square foot with an average of $10 per square foot. Following the recent
acquisition of 83 physical offices from Columbia/HCA, the Company has
consolidated or is in the process of consolidating offices that cover the same
patient service area in an overall effort to decrease costs and gain operating
efficiencies, while still providing quality and accessible home health
services. The Company has retained the services of a national real estate
advisory firm to facilitate sub-leasing the unoccupied office space for the
remaining lease terms.
The following is a list of the Company's offices. Unless otherwise
indicated, the Company has one office in each city.
<TABLE>
<S> <C>
Texas (6) Virginia (1)
Louisiana (11) Dallas Gate City
Baton Rouge (4) Houston (2)
Hammond (2) Pasadena
Lafayette (2) San Antonio
Metairie Odessa North Carolina (3)
Monroe Chapel Hill
Bossier City Tennessee (18) Raleigh
Hendersonville Morrisville
Georgia (18) Carthage
Macon Portland
Covington Johnson City Oklahoma (9)
Douglasville Bristol Stilwell
Fayetteville Kingsport Tahlequah
Atlanta Athens Gore
Forest Park Ducktown Tulsa
Decatur McMinnville Hominy
Lawrenceville Dayton Claremore
Lavonia Pikeville Vinita
Clayton Jasper Oklahoma City
Toccoa Winchester Lawton
Gainesville Dickson
Ft. Oglethorpe Ashland Alabama (4)
Summerville Livingston Selma
Dalton Nashville Demopolis
Rome Chattanooga Huntsville
Cedartown Montgomery
Cartersville
Florida (1)
St. Petersburgh
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are defendants to
lawsuits arising in the ordinary course of the Company's business. While the
outcome of these lawsuits cannot be predicted with certainty, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of 1998.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From August 1997, through September 1998, the Company's common stock traded
on the Nasdaq National Market. Since September 1998, the Company has been
trading on the OTC Bulletin Board. As of March 29, 1999, there were
approximately 151 holders of record of the Company's Common Stock and the
Company believes there are approximately 977 beneficial holders. The Company
has not paid any dividends on its Common Stock and expects to retain any
future earnings for use in its business development. The following table
provides the high and low prices of the Company's Common Stock during 1997 and
1998 as quoted by Nasdaq and the OTC Bulletin Board. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1st Quarter 1997......................................... $7 7/8 $4 3/8
2nd Quarter 1997......................................... 7 1/4 4 5/8
3rd Quarter 1997......................................... 7 1/4 4 5/16
4th Quarter 1997......................................... 7 4 5/16
1st Quarter 1998......................................... $5 1/4 $3 13/16
2nd Quarter 1998......................................... 4 9/16 3 5/8
3rd Quarter 1998......................................... 4 1/4 1 13/16
4th Quarter 1998......................................... 4 1 1/2
</TABLE>
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical data relating to the
Company. For all years presented, the data was derived from audited
consolidated financial statements. Data for the years of 1994, 1995, 1996, and
1997 have been restated as a result of a discontinued operation in 1998, but
in the opinion of management, presents fairly the financial condition and
results of operation for these periods.
<TABLE>
<CAPTION>
Selected Historical 1997 1996 1995(1) 1994(1)
Statement of Income Data 1998 Restated Restated Restated Restated
- ------------------------ --------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Service Revenue..... $ 38,086 $ 37,204 $ 33,522 $ 23,815 $ 17,326
Cost of Service Revenue. 22,923 19,074 17,931 12,766 8,826
--------- --------- --------- --------- ---------
Gross Margin.......... 15,163 18,130 15,591 11,049 8,500
General/Administrative
Expenses............... 44,441 22,361 16,232 11,746 8,097
--------- --------- --------- --------- ---------
Operating Income
(Loss)............... (29,278) (4,231) (641) (697) 403
Other Income and
Expense................ (1,281) (753) (1,104) (330) (270)
Income Tax Expense
(Benefit).............. (1,374) (1,293) (121) (183) 1
--------- --------- --------- --------- ---------
Income (Loss) before
Cumulative Effect of
Change in Account
Principle and
Discontinued
Operations............. (29,185) (3,691) (1,624) (844) 132
Cumulative Effect of
Change in Accounting
Principle.............. -- (235) -- -- --
Discontinued Operations
Income from
discontinued
operations, net of
income tax............. 1,137 2,732 1,642 1,786 1,773
Gain on Disposition, net
of income taxes........ 3,177 -- -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss)....... $ (24,871) $ (1,194) $ 18 $ 942 $ 1,905
========= ========= ========= ========= =========
Basic Earnings (Loss)
Per Common Share....... $ (8.12) $ (0.43) $ 0.01 $ 0.37 $ 0.75
========= ========= ========= ========= =========
Weighted Avg. Common
Shares Outstanding..... 3,061,184 2,735,000 2,575,000 2,570,000 2,525,000
========= ========= ========= ========= =========
Proforma Information
(Unaudited)(1)
Net Income (Loss)
(Historical)........... $ (24,871) $ (1,194) $ 18 $ 942 $ 1,905
Proforma adjustments:
Income Taxes on SCC
Results................ -- -- -- 191 646
--------- --------- --------- --------- ---------
Proforma Net Income
(Loss)................. $ (24,871) $ (1,194) $ 18 $ 751 $ 1,259
========= ========= ========= ========= =========
Proforma Earnings
(Losses)/Common Share.. $ (8.12) $ (0.43) $ 0.01 $ 0.29 $ 0.50
========= ========= ========= ========= =========
Balance Sheet Data
Total Assets............ $ 44,428 $ 22,870 $ 16,858 $ 11,537 $ 9,160
Total Long-Term
Obligations............ $ 14,394 $3,129 $ 3,223 $ 1,490 $ 1,537
Total Convertible
Preferred Stock........ $ 1 $ 1 $ -- $ -- $ --
</TABLE>
- --------
(1) Surgical Care Centers of Texas, LC ("SCC"), acquired on June 30, 1995, was
a limited liability company. Prior to the transaction with Amedisys, the
individual owners were responsible for all income taxes and no income tax
expense was recorded on SCC through June, 30, 1995.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere herein.
General
The Company is a fully integrated provider of outpatient health services
that operated in two basic industry segments: alternate-site provider services
and management services operations. The Company's alternate-site provider
segment includes the following services: home health care nursing, alternate-
site infusion therapy, and ambulatory surgery centers. Its management services
operations encompass: home health care management, software systems, staffing
services, and physician support services. During 1998, the Company divested of
its management services operations of home health care management, software
systems, and staffing services and discontinued its physician support
services.
The Company's focus going forward will be on its home health care nursing
division which as of December 1998, constituted 80% of net revenues. In an
effort to operate most cost-efficiently in this business line following the
recent acquisition of 83 physical offices from Columbia/HCA in November and
December, 1998, the Company began consolidating or closing offices that cover
the same patient service area in an overall attempt to decrease costs and gain
operating efficiencies, while continuing to provide quality and accessible
home health services. Based on office consolidations and adjustments to meet
its staffing model, the Company expects to reduce salary and benefit expenses
by approximately $5.5 million annually, or $458,000 per month. In addition,
the Company expects to eliminate an additional $888,000 annually, or $74,000
per month in non-salary items such as car and computer leases and will
continue to focus on areas of operations in which it can make additional
adjustments.
Gross revenue is recorded on an accrual basis based upon the date of service
at amounts equal to the Company's established rates or estimated cost
reimbursement rates, as applicable. Allowances and contractual adjustments
representing the difference between the established rates and the amounts
estimated to be payable by third parties are also recorded on an accrual basis
and deducted from gross revenue to determine net service revenues.
Reimbursement for home health care nursing services to patients covered by
the Medicare program, is based on reimbursement of costs, subject to the lower
of costs, per visit limits, or per beneficiary limits. Final reimbursement is
determined after the submission of annual cost reports, 150 days after cost
report year end, and final audits of the cost reports by the fiscal
intermediary. Final closure of a cost report may not occur for as much as 24
to 30 months subsequent to fiscal year end. Effective October 1, 1997, home
health cost limits were reduced and per beneficiary limits were established
which have reduced payments to home health care providers. Additional proposed
regulations are expected to change the payment methodology for home health
care nursing providers for Medicare patients from a cost based reimbursement
system to a prospective payment system in Federal FY 2000.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
included in the Company's consolidated statements of operations as a
percentage of net revenues:
<TABLE>
<CAPTION>
Years Ended December
31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net services revenues............................... 100.00 % 100.00 % 100.00 %
Cost of service revenues............................ 60.19 51.27 53.49
Gross margin........................................ 39.81 48.73 46.51
General and administrative expenses:
Salaries and benefits............................. 48.63 30.30 27.22
Other............................................. 68.05 29.81 21.20
------ ------ ------
Total general and administrative expenses......... 116.68 60.11 48.42
Operating (loss).................................... (76.87) (11.38) (1.91)
Other income and expense............................ (3.36) (2.02) (3.30)
------ ------ ------
Net (loss) before taxes and cumulative effect of
change in accounting principle and discontinued
operations......................................... (80.23) (13.40) (5.21)
------ ------ ------
Income tax (benefit)................................ (3.61) (3.48) (0.36)
------ ------ ------
Net (loss) before cumulative effect of change in
accounting principle and discontinued operations... (76.62) (9.92) (4.85)
Cumulative effect of change in accounting principle. -- (0.63) --
Discontinued operations
Income from discontinued operations, net of income
tax.............................................. 2.99 7.34 4.90
------ ------ ------
Discontinued operations
Gain on disposition, net of income tax............ 8.33 -- --
------ ------ ------
Net Income(loss).................................... (65.30)% (3.21)% 0.05 %
====== ====== ======
</TABLE>
Years Ended December 31, 1998 and 1997
Net Service Revenues
For the year ended December 31, 1998 as compared to the year ended December
31, 1997, the Company=s revenues increased to $38,086,000 from $37,204,000, a
2% increase. This change is primarily attributable to increased revenues in
the provider services line.
Provider services net revenues increased to $36,712,000 in 1998 from
$32,104,000 in 1997, an increase of 14%. This increase is primarily attributed
to growth in infusion therapy services which began operations in December
1997. Infusion therapy services increased from $7,000 in net revenues in 1997
to $5,021,000 in 1998 due to the acquisition of three infusion companies and
the start-up of four additional infusion offices. Revenues for home medical
equipment, which was purchased in August 1997, increased from $465,000 for the
four months ended December, 1997 to $2,566,000 for the twelve months ended
December, 1998. Home health care nursing, representing 60% of consolidated net
revenue, decreased from $25,345,000 in 1997 to $22,901,000 in 1998, or 9.64%.
This decrease was a result of changes in Medicare reimbursement coupled with a
reduction in patient utilization, both of which where due to the
implementation of IPS (See Billing and Reimbursement). Visits for our home
health agencies in 1997 totaled 338,540. For the comparable agencies in 1998,
visits decreased to 232,849, a decrease of 31.22%. Offsetting this dramatic
reduction in visits were acquisitions completed in 1998 which added 184,416
visits, of which 104,398 visits, or 57%, were attributed to the month of
December, 1998.
Management services net revenues decreased to $1,374,000 in 1998 from
$5,100,000 in 1997. This decrease is directly attributable to a decrease in
home health care management and physician support service revenues. Home
health care management recorded revenues declined as a result of the Medicare
reimbursement changes,
16
<PAGE>
causing many home health care agencies to either go out of business or to cut
costs not associated with direct patient care. In November, 1998, the Company
sold its home health care management division. Physician support service
revenues decreased from 1997 due to the loss of several management contracts.
The Company has concluded that the resources used in this line of business
would add greater value in other lines of business within the Company, so the
physician support services were discontinued in 1998.
Cost of Service Revenues
Cost of Service Revenues increased $3,849,000, or 20%, to $22,923,000 in
1998 from $19,074,000 in 1997. This increase is attributed to additional
expenses resulting from the acquisitions and growth of the infusion therapy
division of $2,692,000 and a full year of operation for the home medical
equipment division. Home medical equipment expenses increased from $209,000
for the four months ended December, 1997 to $1,454,000 for the twelve months
ended December, 1998.
General and Administrative Expenses
General and administrative expenses increased to $44,441,000 in 1998
compared to $22,361,000 in 1997. This increase is attributed to several
factors: a write-down of goodwill for acquisitions completed in 1998 of
$9,522,000, additional expenses in the home health care nursing division
incurred as a result of acquisitions completed during the year of $5,710,637,
and additional administrative expenses incurred with the continued development
of the infusion therapy division of $4,955,000.
Other Income/Expense
Other income (expense) increased to ($1,290,000) in 1998 from ($962,000) in
1997, a 34% increase. The increase is mainly attributed to additional interest
expense incurred during 1998 in connection with debt agreements.
Discontinued Operations
In September, 1998, the Company sold its staffing division and has reflected
this sale as a discontinued operation in the accompanying consolidated
statements of operations. Net revenues for the staffing division were
$12,607,000 for the nine months ended September, 1998 as compared to
$17,292,000 for the twelve months ended December 31, 1997. Net Income from
discontinued operations, net of income tax, was $1,137,000 for the nine months
ended September 30, 1998 as compared to $2,732,000 for the twelve months ended
December 31, 1997. Upon disposition, a gain, net of income tax, was recorded
in the amount of $3,177,000.
Net (Loss)
Net (loss) increased to ($24,871,000) or ($8.12) per share for 1998 from
($1,194,000) or ($.43) per share in 1997.
Years Ended December 31, 1997 and 1996
Net Service Revenues
For the year ended December 31, 1997 and the year ended December 31, 1996,
the Company's revenues, restated for the discontinued operations, increased to
$37,204,000 from $33,522,000, an 11% increase. This change is primarily
attributable to increased revenues in the management services line.
Provider services net revenues increased to $32,104,000 in 1997 from
$30,126,000 in 1996, an increase of 7%. The increase is primarily attributed
to continued growth in home health care nursing as well as a full year of
operations for St. Luke's SurgiCenter. Home medical equipment was added as a
product line in August 1997 with revenues of $465,000.
17
<PAGE>
Management services net revenues increased to $5,100,000 in 1997 from
$3,396,000 in 1996, an increase of 50%. This increase in primarily attributed
to growth in home health care management. Home health care management revenues
increased due to agencies seeking solutions to the expected changes in
Medicare reimbursement.
Cost of Service Revenues
Cost of service revenues include all costs directly associated with the
generation of net revenues, including salaries and employee benefits and
medical supply costs. In 1997, cost of service revenues increased 6% to
$19,074,000 from $17,931,000 in 1996. As a percentage of net service revenues,
cost of service revenues decreased from 53% in 1996 to 51% in 1997. This
decrease is primarily a result of increased revenues in the home care
management and outpatient surgery divisions, which have lower direct costs.
General and Administrative Expenses
General and administrative expenses increased to $22,361,000 or 60% of
revenue in 1997 compared to $16,232,000 or 48% of revenue in 1996. This
increase is attributed to the write-off of previously recorded goodwill,
increased expenses resulting from the growth in the Outpatient Surgery
Division, as well as increased overhead expenses resulting from the
development of the infusion therapy division. Start-up costs related to the
development of this new division of $299,000 were expensed as incurred. The
Company also developed an Employee Stock Ownership Plan (ESOP) for the home
health care division with accrued contributions of $721,000 for 1997.
Other Income/Expense
Other income (expense) decreased from ($1,159,000) in 1996 to ($962,000) in
1997. This decrease is primarily attributed to a one-time charge to earnings
in 1996 of $623,000 related to merger discussions with Complete Management,
Inc. (CMI), offset by additional interest expense incurred in 1997.
Cumulative Effect of Change in Accounting Principle
During the fourth quarter of 1997, the Company changed its accounting policy
to expense start-up costs which were previously capitalized as Other Assets.
The Company has reflected this adjustment as a change in accounting principle
from one acceptable method to another acceptable method. The cumulative effect
of this change in accounting principle, as if the change were made effective
January 1, 1997, is $235,000, net of an income tax benefit.
Discontinued Operations
In September, 1998, the Company sold its staffing division and has reflected
this sale as a discontinued operation in the accompanying consolidated
statements of operations. Net revenues for the staffing division were
$17,292,000 for 1997 as compared to $12,538,000 for 1996. Net Income from
discontinued operations, net of income tax, was $2,732,000 for 1997 as
compared to $1,642,000 for 1996.
Net Income (Loss)
Net (loss) for 1997 was ($1,194,000) or ($0.43) per share as compared to net
income of $18,000 or $.01 per share for 1996.
Liquidity and Capital Resources
At December 31, 1998, the Company had notes payable consisting primarily of
a one-year $14,006,000 note payable to Columbia/HCA as a result of an
acquisition consummated in November 1998 and borrowings under bank lines of
credit of $3,450,000 and $750,000 bearing interest at bank prime plus 1.5% and
bank prime plus 1%, respectively. Subsequent to year end, the $3,450,000 line
of credit was decreased to $2,500,000 for 120 days. At December 31, 1998,
approximately $223,000 was unused under these lines of credit. These lines of
18
<PAGE>
credit are collateralized by 80% of eligible receivables in the staffing and
outpatient surgery divisions and 75% in the home health care nursing division.
Eligible receivables are defined principally as trade accounts that are aged
less than 90 days for the staffing and outpatient surgery divisions and 120
days for the home health care nursing division. The bank lines of credit are
subject to certain covenants, including a monthly borrowing base calculation,
a debt service coverage ratio, and a leverage ratio. The Company was not in
compliance with the debt service ratio requirement at December 31, 1998 and
1997, which defaults were waived by the bank through March 31, 1999. In
December 1998, the Company secured a $25 million asset-based line of credit
with National Century Financial Enterprises, Inc. of Dublin, Ohio. The line of
credit is collateralized by eligible accounts receivable. Eligible receivables
are defined as receivables, exclusive of workers' compensation and self-pay,
that are aged less than 181 days. The ongoing fees associated with this line
of credit equate to 1% of eligible billed receivables generated during each
billing period.
Net cash used by operating activities was ($141,000) in the year ended
December 31,1997 as compared to net cash provided by operating activities of
$7,626,000 in the year ended December 31,1998. The change was due to a non-
cash write-off of goodwill of $9,522,000, an increase in deferred revenue of
$10,240,000 and increases in accounts payable and accrued expenses, offset by
the loss incurred during the year and the gain on disposition of the staffing
division. Net cash used in investing activities increased from ($1,241,000) in
the year ended December 31, 199 to ($3,072,000) in the year ended December 31,
1998. This decrease is attributed to an increase in the fixed asset
acquisitions made during 1998.
Net cash provided by financing activities was $5,349,000 in the year ended
December 31, 1997 as compared to net cash used by financing activities of
$8,052,000 in the year ended December 31, 1998. This increase is primarily
attributed to cash used in purchase acquisitions of $11,647,000.
At December 31, 1998, the Company had a working capital deficit of
($31,280,000) and a stockholders equity deficit of ($11,684,000). The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company experienced significant losses
from operations in 1998 and 1997 and has a deficit in stockholders' equity of
$11,684,000 at December 31, 1998. In addition, at December 31, 1998, the
Company has $22,120,000 in debt repayment obligations coming due within one
year and Management's current projections indicate that operations will not
produce sufficient cash flow to fund those obligations. These matters, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The Company has undertaken a significant restructuring effort
to reduce operating costs by closing unprofitable locations and reducing
components of overhead expenses to minimize this deficit. The Company is
negotiating the restructuring of certain of its debt obligations and is
considering the possible sale of certain operating assets to generate cash to
fund its obligations. Management believes that the strategies it has
undertaken will enable the Company to satisfy its obligations as they become
due; however, there can be no assurance that these strategies will succeed.
The financial statements do not include any adjustments relating to the
recoverability or classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable
to continue as a going concern. The loan agreement with Columbia/HCA restricts
the Company's ability to, among other things, incur additional indebtedness or
sell or transfer any of its property unless the cash proceeds from such sale
are applied to reduce the balance due on the note payable.
Inflation
The Company does not believe that inflation has had a material effect on its
results of operations for the twelve months ended December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS
See Index to Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file its definitive Proxy Statement for its Annual Meeting
of Shareholders to be held June 25, 1999 pursuant to Regulation 14A of the
Securities Exchange Act of 1934 (the "Proxy Statement") no later than 120 days
after the end of the fiscal year covered by this Report, and certain
information included in the Proxy Statement is incorporated herein by
reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) Executive Officers--The information required by this Item is
incorporated by reference to the section entitled "Executive Officers" in the
Proxy Statement.
(b) Directors--The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
section "Compensation of Executive Officers" and "Compensation of Directors"
in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
sections entitled "Record Date and Principle Ownership" and "Security
Ownership of Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Identification of Exhibit
------- -------------------------
<C> <S>
2.1(1) --Acquisition Agreement dated December 20, 1993 between the Company
and M & N Capital Corp.
2.2(3) --Plan of Merger dated August 3, 1994 between M & N Capital Corp.
and the Company
2.3(4) --Certificate of Merger dated August 3, 1994 between M & N Capital
Corp. and the Company
2.4(7) --Acquisition Agreement dated August 1,1997 between the Company and
Allgood Medical Services, Inc.
2.5(7) --Exchange Agreement dated January 1, 1998 between the Company and
Alliance Home Health, Inc. and University Capital Corp. dated
December 10, 1997.
2.6(7) --Stock Purchase Agreement by and among Amedisys, Alternate-Site
Infusion Therapy Services, Inc., PRN, Inc. d/b/a Home IV Therapy,
Joseph W. Stephens, and Terry I. Stevens dated February 23, 1998.
2.7(7) --Agreement to Purchase by and between Amedisys, Alternate-Site
Infusion Therapy Services, Inc. and Precision Health Systems,
L.L.C. dated February 27, 1998.
2.8(7) --Promissory note in the amount of $250,000 to Precision Health
Solutions, L.L.C. in connection with the purchase of the company.
2.9(7) --Stock Purchase Agreement by and among Amedisys Alternate-Site
Infusion Therapy Services, Inc., Infusion Care Solutions, Inc. and
Daniel D. Brown dated February 27,1998.
2.10(7) --Promissory note in the amount of $125,000 to Daniel D. Brown in
connection with the purchase of the company.
2.11(8) --Stock Purchase Agreement by and among Amedisys Specialized Medical
Services, Inc., Quality Home Health Care, Inc., Frances Unger, and
James Unger dated May 1, 1998.
2.12(8) --Asset Purchase Agreement by and among Amedisys Specialized Medical
Services, Inc., and Precision Home Health Care, Inc. dated May 1,
1998.
2.13(8) --Promissory note in the amount of $800,000 to Precision Home Health
Care, Inc. in connection with the purchase of the company.
2.14(8) --Promissory note in the amount of $400,000 to Precision Home Health
Care, Inc. in connection with the purchase of the company.
2.15(9) --Asset Purchase agreement among Nursefinders, Inc., Amedisys
Staffing Services, Inc., Amedisys Nursing Services, Inc., and
Amedisys Home Health, Inc. and Amedisys, Inc.
2.16(10) --Asset Purchase Agreement by and between CPII Acquisition Corp. and
Amedisys, Inc.
2.17(10) --Asset Purchase Agreement by and between Columbia/HCA Healthcare
Corporation and Amedisys, Inc.
2.18(13) --Asset Purchase Agreement among Amedisys Surgery Centers, LC and
Permian Surgical Care Center, Inc. d/b/a Tanglewood Surgery Center
3.1(4) --Certificate of Incorporation
3.2(4) --Bylaws
4.1(4) --Common Stock Specimen
4.2(7) --Certificate of Designation for the Series A Preferred Stock
4.3(7) --Preferred Stock Specimen
4.4(7) --Form of Placement Agent's Warrant Agreement
5.1(7) --Opinion regarding Legality
10.1(4) --Master Note with Union Planter's Bank of Louisiana
10.2(4) --Merrill Lynch Term Working Capital Management Account
10.3(5) --Promissory Note with Deposit Guaranty National Bank
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Identification of Exhibit
------- -------------------------
<C> <S>
10.4(7) --Amended and Restated Stock Option Plan
10.5(7) --Registration Rights Agreement
10.6(11) --Master Corporate Guaranty of Service Agreements between CareSouth
Home Health Services, Inc. and Amedisys, Inc. dated November 2,
1998.
18.1(8) --Letter regarding Change in Accounting Principles
21.1(7) --List of Subsidiaries
23.1(7) --Consent of Counsel (contained in Exhibit 5.1)
23.2(7) --Consents of Arthur Andersen, LLP and Hannis T. Bourgeois & Co.,
L.L.P., independent public accountants
27.1(13) --Financial Data Schedule
</TABLE>
- --------
(1) Previously filed as an exhibit to the Current Report on Form 8-K dated
December 20, 1993.
(2) Previously filed as an exhibit to the Current Report on Form 8-K dated
February 14, 1994.
(3) Previously filed as an exhibit to the Current Report on Form 8-K dated
August 11, 1994.
(4) Previously filed as an exhibit to the Annual Report on Form 10-KSB for
the year ended December 31, 1994.
(5) Previously filed as an exhibit to the Current Report on Form 8-K dated
June 30, 1995.
(6) Previously filed as an exhibit to the Registration Statement on Form S-1
(333-8329) dated July 18, 1996.
(7) Previously filed as an exhibit to the Registration Statement on Form S-3
dated March 11, 1998.
(8) Previously filed as an exhibit to the Quarterly Report on Form 10-Q dated
August 14, 1998.
(9) Previously filed as an exhibit to the Current Report on Form 8-K dated
October 5, 1998.
(10) Previously filed as an exhibit to the Current Report on Form 8-K dated
November 10, 1998.
(11) Previously filed as an exhibit to the Quarterly Report on Form 10-Q dated
December 30, 1998.
(12) Previously filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1997.
(13) Filed herewith.
(b) Report on Form 8-K
The Company filed a Current Report on Form 8-K with the SEC on October 5,
1998 in connection with the disposition of its Staffing Division to
Nursefinders, Inc. on September 21, 1998. Pro forma financial information,
required pursuant to Article 11 of Regulation S-X, was included in the filing.
The pro forma financial information was comprised of a pro forma consolidated
balance sheet as of June 30, 1998, a pro forma consolidated statement of
operations for the six months ended June 30, 1998 and the year ended December
31, 1997, and explanatory notes.
The Company filed a Current Report on Form 8-K with the SEC on November 10,
1998 in connection with the sale of its proprietary software system and home
health care management division to CPII Acquisition Corp. on November 3, 1998,
the acquisition of 83 home care offices of Columbia/HCA Healthcare Corporation
on November 2, 1998, and the Master Corporate Guaranty of Service Agreement
entered into with CareSouth Home Health Services, Inc. on November 2, 1998 .
Pro forma financial information for the sale of the proprietary software
system and health care management division, required pursuant to Article 11 of
Regulation S-X, was included in the filing. This pro forma financial
information was comprised of a pro forma consolidated balance sheet as of June
30, 1998, a pro forma consolidated statement of operations for the six months
ended June 30, 1998 and the year ended December 31, 1997, and explanatory
notes. The audited financial statements and pro forma financial information
for the acquisition of the home care offices of Columbia/HCA Healthcare
Corporation were not available to be included in the Current Report on Form 8-
K filed on November 10, 1998, but were subsequently filed as of part of the
Current Report on Form 8-K/A filed on January 19, 1999.
22
<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, there unto duly authorized, on the 31st day
of March, 1999.
AMEDISYS, INC.
By: /s/ William F. Borne
----------------------------------
William F. Borne,
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
Signature Title Date
/s/ William F. Borne Chief Financial March 31, 1999
- ----------------------------------- Officer and Chairman
William F. Borne of the Board
/s/ Larry R. Graham Chief Operating March 31, 1999
- ----------------------------------- Officer (Principal
Larry R. Graham Financial and
Accounting Officer)
/s/ Jake L. Netterville Director March 31, 1999
- -----------------------------------
Jake L. Netterville
Director March 31, 1999
- -----------------------------------
David R. Pitts
Director March 31, 1999
- -----------------------------------
Peter F. Ricchiuti
/s/ Ronald A. LaBorde Director March 31, 1999
- -----------------------------------
Ronald A. LaBorde
23
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
[To Come]
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Amedisys, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Amedisys,
Inc. (a Delaware Corporation) and Subsidiaries (the Company) as of December
31, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amedisys,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company experienced significant losses from
operations in 1998 and 1997 and has a deficit in stockholders' equity of
$11,684,000 at December 31, 1998. In addition, at December 31, 1998, the
Company has $22,120,000 in debt repayment obligations coming due within one
year and Management's current projections indicate that operations will not
provide sufficient cash flow to fund those obligations. These matters, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
relating to the recoverability or classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
As explained in Note 5 to the financial statements, effective January 1,
1997, the Company changed its method of accounting for start-up costs.
ARTHUR ANDERSEN LLP HANNIS T. BOURGEOIS & CO., LLP
New Orleans, Louisiana Baton Rouge, Louisiana
March 29, 1999
F-2
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(in 000's except share data)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 572 $ 4,070
Accounts receivable, net of allowance for doubtful
accounts of $3,095 in 1998 and $1,617 in 1997............ 7,456 9,630
Prepaid expenses.......................................... 604 247
Income tax receivable (Note 9)............................ -- 118
Inventory and other current assets........................ 1,703 536
-------- -------
Total current assets.................................... 10,335 14,601
NOTES RECEIVABLE FROM RELATED PARTIES (Note 10)............. 89 252
OTHER INVESTMENTS (Note 4).................................. 689 399
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 3 and 8).......... 8,574 4,785
DEFERRED TAX ASSET (Note 9)................................. -- 926
OTHER ASSETS, NET (Note 5).................................. 24,741 1,907
-------- -------
Total assets............................................ $ 44,428 $22,870
======== =======
CURRENT LIABILITIES:
Accounts payable.......................................... $ 7,295 $ 1,338
Accrued expenses--
Payroll and payroll taxes................................ 5,257 2,025
Insurance (Note 12)...................................... 368 521
Other.................................................... 4,456 847
Notes payable (Note 6).................................... 18,979 5,806
Deferred revenue, current portion (Note 2)................ 2,119 --
Current portion of notes payable to related parties (Note
10)...................................................... 45 45
Current portion of long-term debt (Note 7)................ 2,633 690
Current portion of obligations under capital leases (Note
8)....................................................... 463 192
-------- -------
Total current liabilities............................... 41,615 11,464
LONG-TERM DEBT (Note 7)..................................... 4,759 2,995
DEFERRED REVENUE (Note 2)................................... 8,121 --
OBLIGATIONS UNDER CAPITAL LEASES (Note 8)................... 688 134
OTHER LONG-TERM LIABILITIES................................. 826 --
-------- -------
Total liabilities....................................... 56,009 14,593
-------- -------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 12).............. -- --
-------- -------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES.............. 103 3
-------- -------
STOCKHOLDERS' EQUITY (Note 11):
Common stock--$.001 par value; 30,000,000 shares
authorized; 3,064,918 and 2,850,067 shares outstanding in
1998 and 1997, respectively.............................. 3 3
Preferred stock--$.001 par value; 5,000,000 shares
authorized; 750,000 and 400,000 shares outstanding in
1998 and 1997, respectively.............................. 1 1
Additional paid-in capital................................ 12,005 7,092
Treasury stock--4,167 shares at $6.00 per share........... (25) (25)
Retained earnings (deficit)............................... (23,668) 1,203
-------- -------
Total stockholders' equity.............................. (11,684) 8,274
-------- -------
Total liabilities and stockholders' equity.............. $ 44,428 $22,870
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in 000's except share data)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
INCOME:
Net service revenues....................... $ 38,086 $ 37,204 $ 33,522
Cost of service revenues................... 22,923 19,074 17,931
--------- --------- ---------
Operating revenues........................ 15,163 18,130 15,591
--------- --------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and benefits...................... 18,522 11,271 9,124
Other (Notes 2 and 5)...................... 25,919 11,090 7,108
--------- --------- ---------
Total general and administrative expenses. 44,441 22,361 16,232
--------- --------- ---------
Operating income (loss)................... (29,278) (4,231) (641)
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense........................... (1,155) (863) (574)
Interest income............................ 46 31 24
Write-off of investments (Note 4).......... -- -- (566)
Miscellaneous.............................. (181) (130) (43)
--------- --------- ---------
Total other expense....................... (1,290) (962) (1,159)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST, CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, AND DISCONTINUED
OPERATIONS.................................. (30,568) (5,193) (1,800)
INCOME TAX EXPENSE (BENEFIT) (Note 9)........ (1,374) (1,293) (121)
--------- --------- ---------
Income (loss) before minority interest in
net income of consolidated subsidiaries,
cumulative effect of a change in
accounting principle, and discontinued
operations................................ (29,194) (3,900) (1,679)
MINORITY INTEREST IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES................... 9 209 55
--------- --------- ---------
Net income (loss) before cumulative effect
of change in accounting principle and
discontinued operations................... (29,185) (3,691) (1,624)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note 1)............................ -- (235) --
DISCONTINUED OPERATIONS
Income from discontinued operations, net of
income tax................................ 1,137 2,732 1,642
Gain on disposition, net of income tax..... 3,177 -- --
--------- --------- ---------
Net income (loss)......................... $ (24,871) $ (1,194) $ 18
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING................................. 3,061,184 2,735,000 2,575,000
--------- --------- ---------
BASIC EARNINGS (LOSS) PER COMMON SHARE (Notes
1 and 2):
Income (loss) before cumulative effect of
change in accounting principle and
discontinued operations................... $ (9.53) $ (1.35) $ (0.63)
Cumulative effect of change in accounting
principle................................. -- (0.08) --
Income from discontinued operations, net of
income tax................................ 0.37 1.00 .64
Gain on disposition, net of income tax..... 1.04 -- --
--------- --------- ---------
Net income (loss)......................... $ (8.12) $ (0.43) $ 0.01
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in 000's, except share data)
<TABLE>
<CAPTION>
Preferred
Common Stock Stock Additional Stock Total
----------------- -------------- Paid-In Retained Subscriptions Treasury Stockholders'
Shares Amount Shares Amount Capital Earnings Receivable Stock Equity
--------- ------ ------- ------ ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995................... 2,583,864 $ 3 -- $-- $ 1,977 $ 2,379 $(84) $ -- $ 4,275
Issuance of stock in
connection with
warrants (Note 11)... 1,190 -- -- -- 9 -- -- -- 9
Payments received on
and write-off of
stock subscriptions.. (8,863) (1) -- -- (70) -- 83 -- 12
Net income............ -- -- -- -- -- 18 -- -- 18
--------- --- ------- --- ------- -------- ---- ---- --------
BALANCE, December 31,
1996................... 2,576,191 2 -- -- 1,916 2,397 (1) -- 4,314
Payments received on
stock subscriptions.. -- -- -- -- -- -- 1 -- 1
Issuance of stock in
connection with
private placement
stock offering,
acquisition, and
401(k) plan (Notes 2,
11, and 13).......... 273,876 1 -- -- 1,596 -- -- -- 1,597
Cost of private
placement............ -- -- -- -- (110) -- -- -- (110)
Purchase of treasury
stock................ -- -- -- -- -- -- -- (25) (25)
Issuance of preferred
stock (Note 11)...... -- -- 400,000 1 3,999 -- -- -- 4,000
Costs of preferred
stock issuance (Note
11).................. -- -- -- -- (309) -- -- -- (309)
Net loss.............. -- -- -- -- -- (1,194) -- -- (1,194)
--------- --- ------- --- ------- -------- ---- ---- --------
BALANCE, December 31,
1997................... 2,850,067 $ 3 400,000 $ 1 $ 7,092 $ 1,203 $ -- $(25) $ 8,274
Issuance of stock in
connection with
acquisitions and
401(k) plan.......... 214,851 -- -- -- 964 -- -- -- 964
Issuance of preferred
stock................ -- -- 350,000 -- 3,500 -- -- -- 3,500
Costs of preferred
stock issuance....... -- -- -- -- (256) -- -- -- (256)
Issuance of stock for
ESOP................. -- -- -- -- 705 -- -- -- 705
Net loss.............. -- -- -- -- -- (24,871) -- -- (24,871)
--------- --- ------- --- ------- -------- ---- ---- --------
BALANCE, December 31,
1998................... 3,064,918 $ 3 750,000 $ 1 $12,005 $(23,668) $ -- $(25) $(11,684)
========= === ======= === ======= ======== ==== ==== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in 000's)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $(24,871) $(1,194) $ 18
Adjustments to reconcile net income to net cash
(used) provided by operating activities--
Depreciation and amortization.................... 1,707 1,240 945
Provision for bad debts.......................... 1,642 1,427 878
Write-off of goodwill (Note 2)................... 9,522 1,028 --
(Gain) loss on disposal of property and
equipment....................................... 208 (12) 8
Gain on disposition of staffing division......... (3,177) -- --
Other, net....................................... 13 37 --
Deferred income tax (benefit) expense............ 926 (566) (240)
Minority interest................................ (9) (209) (55)
Cumulative effect of change in accounting
principle....................................... -- 326 --
Changes in assets and liabilities--
(Increase) decrease in accounts receivable....... 1,684 (2,549) (3,025)
(Increase) decrease in inventory and other
current assets.................................. (1,043) 46 (54)
(Increase) decrease in other assets.............. 891 (406) (1,734)
Increase (decrease) in accounts payable.......... 5,003 (143) 1,014
Increase in accrued expenses..................... 4,890 834 308
Increase in deferred revenue..................... 10,240 -- --
-------- ------- -------
Net cash (used) provided by operating
activities..................................... 7,626 (141) (1,937)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable...................... (290) -- --
Proceeds from sale of property, plant and
equipment........................................ 430 191 12
Purchase of property, plant and equipment......... (3,321) (1,456) (2,965)
Minority interest investment in subsidiary........ 109 24 240
-------- ------- -------
Net cash used by investing activities........... (3,072) (1,241) (2,713)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in purchase acquisitions............ 125 -- --
Cash used in purchase acquisitions................ (11,647) (465) --
Net borrowings on line of credit agreements....... (92) 1,428 1,922
Proceeds from issuance of notes payable and
capital leases................................... 4,000 992 2,596
Payments on notes payable and capital leases...... (3,845) (1,037) (699)
Decrease in notes payable--related parties........ -- (1) (44)
(Increase) decrease in notes receivable--related
parties.......................................... 163 (62) 85
Proceeds from issuance of stock................... 3,244 4,518 9
Payments received on stock subscriptions
receivable....................................... -- 1 14
Purchase of treasury stock........................ -- (25) --
-------- ------- -------
Net cash provided (used) by financing
activities..................................... (8,052) 5,349 3,883
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (3,498) 3,967 (767)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 4,070 103 870
======== ======= =======
CASH AND CASH EQUIVALENTS AT END OF YEAR........... 572 $ 4,070 $ 103
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(See also Note 2):
Cash payments for--
Interest......................................... $ 914 $ 846 $ 495
======== ======= =======
Income taxes..................................... $ -- $ -- $ 586
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Organization and Operations
Amedisys, Inc. (the Company) is incorporated in the state of Delaware and
operates in nine states including Louisiana, Texas, Tennessee, North Carolina,
Georgia, Oklahoma, Alabama, Florida and Virginia. The Company provides a
variety of home health care, infusion therapy, and outpatient surgery
services. During 1998, the Company disposed of its supplemental staffing, home
care management, and primary care services operations (see Note 2).
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company experienced significant
losses from operations in 1998 and 1997 and has a deficit in stockholders'
equity of $11,684,000 at December 31, 1998. In addition, at December 31, 1998,
the Company has $22,120,000 in debt repayment obligations coming due within
one year and Management's current projections indicate that operations will
not produce sufficient cash flow to fund those obligations. These matters,
among others, raise substantial doubt about the Company's ability to continue
as a going concern. The Company has undertaken a significant restructuring
effort to reduce operating costs by closing unprofitable locations and
reducing components of overhead expenses to minimize this deficit. The Company
is negotiating the restructuring of certain of its debt obligations and is
considering the possible sale of certain operating assets to generate cash to
fund its obligations. Management believes that the strategies it has
undertaken will enable the Company to satisfy its obligations as they become
due; however, there can be no assurance that these strategies will succeed.
The financial statements do not include any adjustments relating to the
recoverability or classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable
to continue as a going concern.
Use of Estimates
The accounting and reporting policies of the Company and its subsidiaries
conform with generally accepted accounting principles. In preparing the
consolidated financial statements, the Company is required to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
and its wholly and majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in these financial statements.
Business combinations accounted for as purchases are included in the
consolidated financial statements from the respective dates of acquisition.
Revenue Recognition Policy
Gross revenue is recorded on an accrual basis based upon the date of service
at amounts equal to the Company's established rates or estimated cost
reimbursement rates, as applicable. Allowances and contractual adjustments are
recorded for the difference between the established rates and the amounts
estimated to be payable by third parties and are deducted from gross revenue
to determine net service revenues.
Reimbursement for home health care services to patients covered by the
Medicare program is based on reimbursement of allowable costs subject to
certain limits. Final reimbursement is determined after submission of annual
cost reports and audits thereof by the fiscal intermediaries. Effective
January 1, 1998, home health cost
F-7
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
limits were reduced and per beneficiary limits were established which have
reduced payments to home health service providers. Additional proposed
regulations are expected to change the payment methodology for home health
care services to Medicare patients as the Medicare system prepares to
transition from a cost-based reimbursement system to a prospective payment
system in the future.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash includes certificates of deposit
and all highly liquid debt instruments with maturities of three months or less
when purchased.
Inventory
Inventories consist of medical supplies that are utilized in the treatment
and care of home health and outpatient surgery patients. Inventories are
stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment is generally carried at cost. Additions and
improvements are capitalized, but ordinary maintenance and repair expenses are
charged to income as incurred. The cost of property sold or otherwise disposed
of and the accumulated depreciation thereon are eliminated from the property
and related accumulated depreciation accounts, and any gain or loss is
credited or charged to income.
Capitalized leases, primarily consisting of medical equipment, computer
equipment, phone systems, and vans are included in property and equipment.
Capital leases are recorded at the present value of the future rentals at
lease inception and are amortized over the lesser of the applicable lease term
or the useful life of the equipment.
For financial reporting purposes, depreciation and amortization of property
including those subject to capital leases ($1,376,000 in 1998, $1,101,000 in
1997 and $788,000 in 1996) is included in other general and administrative
expenses and is provided utilizing the straight-line method based upon the
following estimated useful service lives:
<TABLE>
<S> <C>
Buildings....................................................... 40 years
Leasehold Improvements.......................................... 5 years
Equipment and furniture......................................... 5-7 years
Vehicles........................................................ 5 years
Computer software............................................... 5 years
</TABLE>
Accounting for the Impairment of Long-Lived Assets And Long-Lived Assets to
be Disposed of:
Whenever recognized events or changes in circumstances indicate the carrying
amount of an asset, including intangible assets, may not be recoverable,
management reviews the asset for possible impairment. In accordance with SFAS
No. 121, management uses undiscounted estimated expected future cash flows to
assess the recoverability of the asset. If the expected future net cash flows
are less than the carrying amount of the asset, an impairment loss, measured
as the amount by which the carrying amount of the asset exceeds the fair value
of the asset, would be recognized.
F-8
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
Accounting for Start-Up Costs
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 ("SOP"), "Reporting on the Costs of Start-Up
Activities" which requires costs of start-up activities and organization costs
to be expensed as incurred. The Company elected to write off previously
capitalized start-up costs in the fourth quarter of 1997 in anticipation of
the issuance of the SOP. The cumulative effect of this change in accounting
principle, as if the change were made effective January 1, 1997, of $235,000
(net of a $91,000 tax benefit), is shown in the 1997 statement of operations.
Start-up costs of $299,000 incurred during 1997 were expensed as incurred in
general and administrative expense.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Company does not expect the adoption of this accounting
pronouncement will have a material effect on its financial position or results
of operations.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which simplifies the computation of earnings per share (EPS). The
Company adopted SFAS No. 128 in the fourth quarter of 1997. SFAS No. 128
requires the restatement of prior years' EPS data; however, application of the
statement has no impact on the Company's prior years' EPS data.
Basic net income per share of common stock is calculated by dividing net
income applicable to common stock by the weighted-average number of common
shares outstanding during the year. Diluted net income per share is not
presented as all stock options and convertible securities outstanding during
the periods presented (see Note 11) were not dilutive.
Reclassifications
Certain amounts previously reported in the 1997 and 1996 financial
statements have been reclassified to conform to the 1998 presentation.
2. ACQUISITIONS AND DISPOSITIONS:
On January 1, 1998, the Company acquired all of the issued and outstanding
stock of Alliance Home Health, Inc. (Alliance), a home health business with
locations throughout Oklahoma, in exchange for $300,000 and 194,286 shares of
common stock. Of the 194,286 shares of Company common stock issued to the
former owners of Alliance, 122,857 shares were placed in escrow as
consideration for certain contingent liabilities which may be asserted against
the former stockholder of Alliance to the extent such claims exceed $500,000
(singularly and/or in aggregate). The escrow period expires December 31, 2003.
The Company performed management services for Alliance during 1997 and
received revenues totaling approximately $1.3 million of which $695,000 is
included in accounts receivable at December 31, 1997. In addition, the Company
had advanced $1,465,000 to Alliance for cash flow purposes which was included
in other assets at December 31, 1997.
F-9
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
The following unaudited pro forma information has been prepared as if the
acquisition of Alliance had occurred on January 1, 1997, in thousands of
dollars, except per share data. This pro forma information has been prepared
for comparative purposes only and is not necessarily indicative of what would
have occurred had the acquisition of Alliance taken place on the date
indicated, nor does it purport to be indicative of the future operating
results of the Company.
<TABLE>
<CAPTION>
Caption 1997
------- -------
<S> <C>
Operating Revenues.................................................... $21,528
Net loss before cumulative effect of change in accounting principle... (3,443)
Basic earnings (loss) per common share before cumulative effect of
change in accounting principle....................................... (1.18)
</TABLE>
During 1998, management decided to close substantially all of the home
health agencies acquired from Alliance based on estimates of certain
reimbursement reductions (see below), and, accordingly, goodwill totaling
$7,228,000 recorded in connection with this acquisition was written-off as
other general and administrative expense.
On February 23, 1998, the Company acquired all of the issued and outstanding
capital stock of PRN, Inc. (PRN), a home infusion pharmacy business, in
exchange for $430,000 and assumption of $71,000 debt. The Company has agreed
to pay additional consideration of up to $150,000 upon PRN reaching certain
revenue goals ("Additional Consideration"). The Company has retained the right
to offset certain indemnifiable liabilities against the Additional
Consideration.
On February 27, 1998, the Company acquired all of the issued and outstanding
capital stock of Infusioncare Solutions, Inc. ("ICS") a home health care and
infusion business, based in Baton Rouge, Louisiana, in exchange for aggregate
consideration of $500,000, of which $375,000 was payable in cash at closing
and $125,000 was payable pursuant to a two year promissory note. The Company
has retained the right to offset certain indemnifiable liabilities against the
sums payable pursuant to the promissory note.
On February 27, 1998, the Company acquired substantially all of the assets
of Precision Health Solutions, L.L.C. ("PHS") a home health care and infusion
business, based in Baton Rouge, Louisiana, in exchange for aggregate
consideration of $1,000,000, of which $750,000 was payable in cash at closing
and $250,000 was payable pursuant to a two year promissory note. The Company
has retained the right to offset certain indemnifiable liabilities against the
sums payable pursuant to the promissory note.
On April 1, 1998, the Company acquired certain assets of Precision Home
Health Care, Inc., (Precision), a home health care business based in Baton
Rouge, Louisiana in exchange for $1,250,000. The purchase price consisted of
an $800,000 note payable at 9.5% paid on July 1, 1998, a $400,000 note payable
at 9.5% payable monthly for a period of two years, and $50,000 in liabilities
for capital improvements.
On November 1, 1998, the Company acquired certain assets of Tanglewood
Surgery Center in Odessa, Texas in exchange for $50,000, a $50,000 note
payable at 8.5% payable monthly over a one-year period, and a $450,000 note
payable at 10% payable monthly over a five-year period. The Company
contributed this facility to West Texas Ambulatory Surgery Center, LLC in
exchange for a 67% interest in the Venture.
On November 2, 1998, the Company signed a definitive agreement to purchase
certain assets, subject to the assumption of certain liabilities, of 83 home
care offices including 35 provider numbers of Columbia/HCA Healthcare
Corporation ("Columbia/HCA") located in Alabama, Georgia, Louisiana, North
Carolina, Oklahoma and Tennessee. The Company had no material relationship
with Columbia/HCA Healthcare Corporation prior to
F-10
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
this transaction. A portion of the $24,000,000 purchase price, $9,994,000 less
certain liabilities, was paid November 3, 1998 with the balance of $14,006,000
payable pursuant to a one-year promissory note with interest calculated at the
prime rate of Union Planter's Bank of Louisiana plus 0.75%. The loan agreement
with Columbia/HCA restricts the Company's ability to, among other things,
incur additional indebtedness or sell or transfer any of its property unless
the cash proceeds from such sale are applied to reduce the balance due on the
note payable. The cash portion of the consideration was provided by the
Company's sale of certain assets (see below) in 1998. The assets purchased
consist primarily of furniture, fixtures, and equipment; prepaid expenses;
advances and deposits; inventory; office supplies; records and files;
transferable governmental licenses and permits authorizations; and rights in,
to and under specified licenses, contracts, leases, and agreements. The
liabilities being assumed are the paid-time-off balances of the Columbia/HCA
employees and obligations arising on or subsequent to the closing dates under
the assumed contracts. Assets located in Louisiana and Oklahoma were acquired
November 16, 1998, and the remaining assets were acquired November 30, 1998.
Columbia/HCA has agreed that for a period of two years from the date of
closing, it will not compete with the Company in the business of providing
skilled intermittent home care services in the counties/parishes currently
served by the acquired by Columbia/HCA offices. This covenant does not apply
to a home health agency that is acquired by Columbia/HCA as part of an
acquisition of a general acute care hospital, skilled nursing facility,
ambulatory surgical facility, physician practice management company or
assisted living facility. Subsequent to the acquisition, several of the home
health agencies acquired were closed, and accordingly, goodwill totaling
approximately $2.3 million which had been recorded for these locations, was
written off as other general and administrative expense in 1998. In addition,
lease abandonment costs of $307,000 were recorded as other general and
administrative expense, representing the Company's estimated cost of remaining
lease obligations at these locations.
On August 1, 1997, the Company acquired substantially all of the assets of
Allgood Medical Services, Inc. d/b/a Care Medical and Mobility Equipment
Company for $1,165,000. The purchase price consisted of $465,000 in cash,
$100,000 note payable, and $600,000 in common stock which represented 115,518
common shares. This transaction has been accounted for as a purchase and the
excess of the total acquisition cost over the fair value of net assets
acquired (goodwill) of $852,000 was being amortized over twenty years using
the straight-line method. Subsequent to this purchase, certain reimbursement
reductions were announced to implement the Balanced Budget Act of 1997. Based
on management's estimate of the expected impact of these changes in
reimbursement on future cash flows, this goodwill was fully written off as
Other General and Administrative Expense at December 31, 1997 as required
under Statement of Financial Accounting Standard No. 121.
Each of the above transactions was accounted for as a purchase.
Effective September 21, 1998, the Company sold certain assets, subject to
the assumption of certain liabilities, of its staffing division to
Nursefinders, Inc. The sale price of $7,200,000 consisted of $6,480,000
payable immediately upon closing with the balance of $720,000 placed in an
escrow account. The assets sold consist primarily of all accounts and notes
receivable; prepaid expenses; advances and deposits; on-site hardware and
software; furniture, fixtures, and leasehold improvements; office supplies;
records and files; transferable governmental licenses, permits, and
authorizations; and rights in, to and under specified licenses, contracts,
leases, and agreements. The liabilities being assumed are the trade accounts
payable, accrued expenses, and other liabilities as of the closing date.
Amedisys has agreed to a five-year non-competition covenant. The sale of the
staffing division resulted in a pre-tax gain of $5,041,000. The Company has
reflected the results of operations for the staffing division as a
discontinued operation for all periods presented in the accompanying
statements of operations.
On November 3, 1998, the Company and CPII Acquisition Corp. ("CPII") entered
into an Asset Purchase Agreement whereby the Company sold certain of the
assets, subject to the assumption of certain liabilities, of its
F-11
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
proprietary software system (Analytical Medical Systems) and home health care
management division (Amedisys Resource Management) to CPII in exchange for
$11,000,000 cash. The assets sold consist primarily of proprietary rights with
respect to the home health information system developed and used by the
Company and its subsidiaries; deposits, prepayments or prepaid expenses
relating to the business; contracts; fixtures and equipment; books and
records; rights under warranties; and claims, causes of action, rights of
recovery and rights to set-off. The liabilities assumed are associated with
the assumed contracts. The Company has also agreed to provide limited support
services to CPII for the period of one year from the date of the agreement. An
affiliate of CPII will utilize the assets to provide certain management
services to the Company's home health agencies (see Note 12). Due to the
Company's continuing involvement with the assets sold, the gain on the sale of
the software system totaling $10,593,000 was deferred and is being amortized
over the term of the management services agreement referred to above. The
$10,240,000 unamortized gain at December 31, 1998 is reflected as deferred
revenue on the accompanying balance sheet.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of (000's):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Land...................................................... $ 220 $ 220
Buildings and leasehold improvements...................... 1,285 717
Equipment, furniture and vehicles......................... 10,172 6,721
Computer software......................................... 230 114
------ ------
Total................................................... 11,907 7,772
Accumulated depreciation.................................. (3,333) (2,987)
------ ------
Net..................................................... $8,574 $4,785
====== ======
</TABLE>
4. OTHER INVESTMENTS:
The Company has a 42% interest in a surgery center in Houston, Texas which,
as of December 31, 1998, has a carrying value of $500,000. As of December 31,
1997, the Company had made advances totaling $366,000 in connection with this
facility. The surgery center opened in May, 1998 and is managed by the Company
under a long-term management contract. The Company accounts for this
investment using the equity method.
The Company has developed a $3.6 million surgery center in Lafayette,
Louisiana with a group of physician investors. As of December 31, 1998, the
Company's investment in the surgery center totaled $189,000, representing a
21% interest in this development. The Company manages the development under a
management contract for a fee based on 4% of revenue. This facility began
operations in March 1999.
Management concluded in December, 1996, that the realization of certain
previously recorded assets might not be assured and, accordingly, wrote off
the portion of these investments (approximately $623,000 believed to be
unrealizable through future operations.) These investments were primarily
comprised of advances made to develop FutureCare, Inc., a proposed managed
care organization, of $391,000, certain non-operating equipment of $132,000
believed to be unrealizable through future operations, and $100,000 in notes
receivable due from a related party. The $391,000 advance to FutureCare, Inc.
was to be reimbursed upon completion of a securities offering of its stock.
Due to the uncertainty of a successful offering, the Company chose to expense
these amounts. The $132,000 was comprised of opthamology and processing
kitchen equipment that the Company was attempting to sell. None of these
assets were producing, or expected to produce, a benefit in current or future
years. The $100,000 was written off because of a dispute between the Company
and Internal Medicine Clinic of Tangipahoa, Inc. ("IMC"). Subsequent to
December 31, 1998, this dispute was resolved and amounts due were recovered by
the Company.
F-12
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
5. OTHER ASSETS:
Other assets include the following for the years ended December 31, 1998 and
1997 (000's):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
NOTES RECEIVABLE.......................................... $ 699 $1,530
GOODWILL, net of accumulated amortization of $406 and $70. 23,712 71
OTHER..................................................... 330 306
------- ------
$24,741 $1,907
======= ======
</TABLE>
Notes receivable at December 31, 1997, consist primarily of advances of
$1,465,000 due from Alliance Home Health, Inc. which was acquired on January
1, 1998 (see Note 2).
"Other" consists primarily of deposits on leased properties and advances
made in connection with various other business development projects.
6. NOTES PAYABLE:
Notes payable consist primarily of a one-year $14,006,000 note payable to
Columbia/HCA as a result of the acquisition consummated in November 1998 (see
Note 2) and borrowings under $3,450,000 and $750,000 lines of credit that bear
interest at bank prime plus 1.5% (10.0% at December 31, 1998) and bank prime
plus 1% (9.5% at December 31, 1998), respectively. Both lines are secured by
accounts receivable, life insurance on the major stockholder and personal
guarantees of several stockholders. Subsequent to year-end, the $3,450,000
line of credit was decreased to $2,500,000 for 120 days bearing interest at
bank prime plus 1.5%. As of December 31, 1998, approximately $223,000 was
unused under these lines of credit. The weighted average monthly interest on
short-term borrowings was 9.94%, 9.79% and 9.78% in 1998, 1997 and 1996,
respectively.
The revolving lines of credit are subject to certain covenants, including a
monthly borrowing base or margin requirement calculation, a debt service
coverage ratio and a leverage ratio. The Company was not in compliance with
the debt service ratio requirement at December 31, 1998 and 1997, which
defaults were waived by the bank through March 31, 1999.
In December 1998, the Company secured a $25 million asset-based line of
credit with National Century Financial Enterprises, Inc. of Dublin, Ohio. The
line of credit is collateralized by eligible accounts receivable. Eligible
receivables are defined as receivables, exclusive of workers' compensation and
self-pay, that are aged less than 181 days. The ongoing fees associated with
this line of credit equate to 1% of eligible billed receivables generated
during each billing period.
F-13
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
7. LONG-TERM DEBT:
Long-term debt consists of notes payable to banks and other financial
institutions that are due in monthly installments through 2003 (000's):
<TABLE>
<CAPTION>
Payee 1998 1997
----- ------ ------
<S> <C> <C>
Notes payable to finance and equipment companies that
accrue interest at 8.00-11.25%............................ $7,301 $3,154
Notes payable to banks that accrue interest at 8.00-14.39%. 91 531
------ ------
Total.................................................... 7,392 3,685
Current portion............................................ 2,633 690
------ ------
Long-Term.................................................. $4,759 $2,995
====== ======
</TABLE>
These borrowings are secured by equipment, vehicles and the personal
guarantee of a stockholder. Maturities of debt as of December 31, 1998, are as
follows (000's):
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
December 31, 1999.................................................. $2,633
December 31, 2000.................................................. 1,731
December 31, 2001.................................................. 1,804
December 31, 2002.................................................. 331
December 31, 2003.................................................. 344
Thereafter......................................................... 549
------
$7,392
======
</TABLE>
The fair value of long-term debt as of December 31, 1998 and 1997, estimated
based on the Company's current borrowing rate of 10%, was approximately
$7,982,000 and $3,582,000, respectively.
8. CAPITAL LEASES:
The Company acquired certain equipment under capital leases for which
related liabilities have been recorded at the present value of future minimum
lease payments due under the leases. The present minimum lease payments under
the capital leases and the net present value of future minimum lease payments
are as follows (000's):
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
December 31, 1999................................................. $ 556
December 31, 2000................................................. 335
December 31, 2001................................................. 153
December 31, 2002................................................. 102
December 31, 2003................................................. 102
Thereafter........................................................ 130
------
Total future minimum payments..................................... 1,378
Amount representing interest...................................... 227
------
Present value of future minimum lease payments.................. 1,151
Current portion................................................... 463
------
Long-term portion................................................. $ 688
======
</TABLE>
F-14
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
9. INCOME TAXES:
The Company files a consolidated federal income tax return, including all
subsidiaries that are owned more than 80%. State income tax returns are filed
individually by the subsidiaries in accordance with state statutes.
The Company utilizes the liability approach to measuring deferred tax assets
and liabilities based on temporary differences existing at each balance sheet
date using currently enacted tax rates in accordance with SFAS No. 109.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
The total provision (benefit) for income taxes consists of the following
(000's):
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
Current portion........................................ $ -- $ 93 $ 242
Deferred portion....................................... 926 (566) (239)
---- ----- -----
$926 $(473) $ 3
==== ===== =====
</TABLE>
Total income tax expense (benefit) is included in the following financial
statement captions for the years ended December 31, (000's):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
Continuing operations........................... $(1,374) $(1,293) $(121)
Discontinued operations:
Income from discontinued operations........... 436 911 124
Gain on disposition of discontinued
operations................................... 1,864 -- --
Cumulative effect of change in accounting
principle...................................... -- (91) --
------- ------- -----
$ 926 $ (473) $ 3
======= ======= =====
</TABLE>
Net deferred tax assets consist of the following components (000's):
<TABLE>
<CAPTION>
1998 1997
------- -----
<S> <C> <C>
Deferred tax assets:
Receivable allowance................................... $ 462 $ 523
Self-insurance reserves................................ 139 161
Deferred revenue....................................... 3,584 --
Losses of consolidated subsidiaries not consolidated
for tax purposes, expiring beginning in 2010.......... 195 57
Amortization of intangible assets...................... 1,164 453
Expenses not currently deductible for tax purposes..... 177 --
Other.................................................. 43 --
Deferred tax liabilities:
Property and equipment................................. (161) (268)
Less: valuation allowance................................ (5,603) --
------- -----
$ -- $ 926
======= =====
</TABLE>
The valuation allowance was recorded against net deferred tax assets due to
the significant operating losses incurred by the Company for the last two
years.
F-15
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
Total tax expense (benefit) on income before taxes resulted in effective tax
rates that differed from the federal statutory income tax rate. A
reconciliation of these rates is as follows for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income taxes computed on federal statutory rate........ 34% 34% 34%
State income taxes..................................... -- (5) (1)
Nondeductible goodwill................................. (10) -- --
Valuation allowance.................................... (28) -- --
Nondeductible expenses and other....................... -- (4) (40)
--- --- ---
Total................................................ (4)% 25% (7)%
=== === ===
</TABLE>
10. RELATED PARTY TRANSACTIONS:
Notes Receivable
Notes receivable from related parties consist primarily of unsecured and
non-interest bearing notes from certain stockholders of the Company totaling
approximately $102,000 at December 31, 1997, and receivables from an internal
medicine clinic totaling approximately $89,000 and $150,000 at December 31,
1998 and 1997, respectively. Subsequent to December 31, 1998, the amounts due
from the internal medicine clinic were collected.
Notes Payable
Notes payable to related parties at December 31, 1998 and 1997 ($45,000)
consists of unsecured notes to certain stockholders of the Company that are
due on demand and bear interest at rates from 0%-12%. The fair value of these
notes approximates the recorded balance due to the short-term nature of the
notes.
Other
The Company paid consulting fees to stockholders of $32,000 in 1998 and
medical directors fees to stockholders of $115,000 and $156,000 in 1998 and
1997, respectively.
Amedisys Surgery Centers, LC (ASC) paid fees associated with a medical
foundation to a stockholder of $12,000 and $12,000 in 1998 and 1997,
respectively.
In 1998 and 1997, ASC paid $10,800 for equipment rental to a stockholder of
the Company.
11. CAPITAL STOCK:
Common Stock
On April 17, 1997, the Company completed, in two phases, a placement of
common stock with Plymouth Partners, LP under which the Company issued 37,500
shares of Common Stock to Plymouth Partners, LP, pursuant to a shelf
registration statement for gross proceeds of $262,500 and also issued 112,500
shares of Common Stock to Plymouth Partners, LP, pursuant to a shelf
registration statement for gross proceeds of $675,000. The net proceeds from
both of these offerings was $831,000.
F-16
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
Preferred Stock
In December, 1997, the Company completed a private placement of 400,000
shares of $.001 par value convertible preferred stock pursuant to Regulation D
of the Securities Act of 1933 at $10 per share for gross proceeds of $4
million. The Company used the proceeds of this placement to fund acquisitions
and accelerate the growth of its fully integrated network of outpatient health
care services, including home health care offices, alternate site infusion
therapy divisions and outpatient surgery centers. These shares are convertible
into 864,865 shares of common stock which is equivalent to $4.625 per share.
On March 3, 1998, the Company completed a secondary phase of its private
placement of preferred stock and issued an additional 350,000 shares for gross
proceeds of $3.5 million. These shares are convertible into 756,757 shares of
common stock which is equivalent to $4.625 per share. Warrants to purchase
52,500 shares of preferred stock at $10 per share, convertible into 113,514
shares of common stock, were issued to the placement agent, Hudson Capital
Partners, L.P. in connection with the offering. In February 1999, the Company
offered preferred shareholders an option to reduce the conversion price from
$4.625 to $3.00 in exchange for an agreement by these shareholders not to
sell, transfer or otherwise dispose of any Company securities until December
31, 1999.
Stock Options
The Company's Statutory Stock Option Plan provides incentive stock options
to key employees. The Plan is administered by a Compensation Committee
(appointed by the Board) which is to determine, within the provisions of the
Plan, those eligible employees to whom, and the times at which, options shall
be granted. Each option granted under the Plan is to be convertible into one
(1) share of common stock, unless adjusted in accordance with the provisions
of the Plan. Options may be granted for a number of shares not to exceed, in
the aggregate 1,000,000 shares of common stock at an option price per share of
no less than 85% of the fair market value of a share of common stock on the
date the option is granted. If the option is granted to any owner of 10% or
more of the total combined voting power of the Company and its subsidiaries,
the option price is to be at least 110% of the fair market value of a share of
common stock on the date the option is granted. Each option vests ratably over
a two-to-three year period and may be exercised during a period as determined
by the Compensation Committee, not to exceed 10 years from the date such
option is granted. The aggregate fair market value of common stock subject to
an option granted to a participant by the Committee in any calendar year shall
not exceed $100,000.
A summary of the Company's stock options as of December 31, 1998, 1997 and
1996, and changes during the year ended on those dates follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------- -------------- -------- -------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 957,065 $6.14 288,723 $6.66 27,650 $7.00
Granted..................... 105,000 5.63 794,422 6.01 261,073 6.62
Exercised................... -- -- -- -- -- --
Cancelled/forfeited/expired. (600,014) 6.08 (126,080) (6.48) -- --
-------- ----- -------- ----- ------- -----
Outstanding at end of year.. 462,051 6.11 957,065 $6.14 288,723 $6.66
======== ===== ======== ===== ======= =====
Exercisable at end of year.. 273,421 $6.34 205,446 $6.49 88,741 $6.65
======== ===== ======== ===== ======= =====
Weighted average fair value
of options granted during
the year................... $ 1.85 $ 1.99 $ 3.11
======== ======== =======
</TABLE>
F-17
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
Of the 462,051 options outstanding at December 31, 1998, 151,562 become
exercisable in 1999 and 37,086 in 2000.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Weighted
Number Weighted Average Average Number Average
Outstanding Remaining Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/98 Contractual Life Price at 12/31/98 Price
- ------------------------ ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.63--$7.00............ 462,051 6 years $6.11 273,421 $6.34
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued by the FASB in 1995 and
changes the methods for recognition of cost on plans similar to those of the
Company. Adoption of SFAS 123 is optional; however, pro forma disclosures, as
if the Company had adopted the cost recognition requirements under SFAS 123 in
1997 and 1996, are presented below.
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions: (i) dividend yield of 0%, (ii) expected
volatility of 53.0% for options issued in 1998, a range of 51.23%-53.69% for
the options issued in 1997, 40.02% and 45.44% for options issued in 1996, and
27.63% for options issued in 1995, (iii) risk-free interest rate of 5.7% in
1998, a range of 5.70%-6.22% in 1997, 6.22% in 1996 and 5.23% in 1995,
respectively, and (iv) expected life of 3 to 5 years.
Had compensation cost for the Company's 1998, 1997, 1996 and 1995 options
been determined consistent with SFAS 123, the Company's net income (loss), net
income (loss) applicable to common stockholders and net income (loss) per
common share for 1998 and 1997 would approximate the pro forma amounts below
(000's, except share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- ---------------
As Pro As Pro As Pro
Reported forma Reported forma Reported forma
-------- -------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $(24,871) $(25,565) $(1,194) $(1,813) $ 18 $ (59)
======== ======== ======= ======= ===== ======
Net income (loss)
applicable to common
stockholders........... $(24,871) $(25,565) $(1,194) $(1,813) $ 18 $ (59)
======== ======== ======= ======= ===== ======
Net income (loss) per
common share........... $ (8.12) $ (8.35) $ (0.43) $ (0.66) $0.01 $(0.02)
======== ======== ======= ======= ===== ======
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
Amedisys Specialized Medical Services, Inc. (ASM) Employee Stock Ownership
Plan
ASM, a wholly-owned subsidiary, developed an Employee Stock Ownership Plan
(ESOP) effective January 1, 1997 to enable participating employees of ASM to
share in the ownership of ASM. Under the ESOP, the Company may make annual
contributions to a trust for the benefit of eligible employees, in the form of
either cash or common stock of ASM. The amount of the annual contribution is
discretionary. The Company's contribution for the year ended December 31, 1997
was $721,000 which was funded in 1998. No contribution will be made for the
year ended December 31, 1998.
F-18
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
12. COMMITMENTS AND CONTINGENCIES:
Leases
The Company and its subsidiaries have leased office space at various
locations under noncancelable agreements which expire between February 28,
1999 and August 31, 2005, and require various minimum annual rentals. Total
minimum rental commitments at December 31, 1998, are due as follows (000's):
<TABLE>
<S> <C>
1999................................................................ 8,054
2000................................................................ 6,699
2001................................................................ 4,100
2002................................................................ 2,497
2003................................................................ 1,169
Due thereafter...................................................... 3,153
</TABLE>
Rent expense for all non-cancelable operating leases was $3,255,000,
$1,706,000 and $1,351,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
Management Agreement
On November 2, 1998, the Company and CareSouth Home Health Services, Inc.
("CareSouth"), an affiliate of CPII Acquisition Corp., entered into agreements
under which CareSouth has agreed to provide payroll processing, billing
services, collection services, cost reporting services and software
maintenance and support for the Company's home health agencies with a
consolidated fee structure. Under the consolidated fee structure, fees are
collected for services provided on a per visit basis, which may be adjusted
depending on the cumulative number of annual visits.
Self-Funded Insurance Plans
During 1995, the Company became self-insured for workers' compensation
claims in the State of Louisiana up to certain policy limits. Claims in excess
of $200,000 per incident and $1,300,000 in the aggregate over a two-year
policy period are insured by third party reinsurers. The Company has accrued a
liability for outstanding and incurred, but not reported claims based on
historical experience. In connection with the self-insurance plan and as
required by the State of Louisiana, the Company issued a $175,000 letter of
credit in favor of the Louisiana Department of Labor, which expired February
17, 1998, and was renewed to February, 1999. In January, 1999, the Company
changed from a self-insured workers' compensation plan to a fully insured,
guaranteed cost plan.
During 1997, the Company became self-insured for health claims up to certain
policy limits. Claims in excess of $35,000 per incident and approximately
$64,000 aggregate per month are insured by third party reinsurers. The Company
has accrued a liability of approximately $589,000 and $78,000 at December 31,
1998 and 1997, respectively for outstanding and incurred, but not reported
claims based on historical experience.
Employment Contracts
The Company has commitments related to employment contracts with a number of
its top executives. Such contracts generally commit the Company to pay bonuses
on the attainment of certain operating goals and severance benefits under
certain circumstances.
F-19
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
Other
The Company is subject to various types of claims and disputes arising in
the course of its businesses. While the resolution of such issues is not
presently determinable with certainty, management believes that the ultimate
resolution of such matters will not have a significant effect on the Company's
financial position or results of operations.
13. BENEFIT PLAN:
The Company adopted a plan qualified under Section 401(k) of the Internal
Revenue Code for all employees who are 21 years of age and have at least 90
days of service. Under the plan, eligible employees may elect to defer a
portion of their compensation, subject to internal revenue service limits. The
Company may make matching contributions equal to a discretionary percentage of
the employee's salary reductions. No matching contribution was made for the
year ended December 31, 1995. A matching contribution of $59,000 for the year
ended December 31, 1996 was made in 1997, a matching contribution of $71,000
was made for 1997 in 1998, and a matching contribution of $129,000 was made
for 1998 in 1999. Such contributions were made in the form of common stock of
the Company, valued based upon the fair market value of the stock at the end
of the applicable year.
14. SEGMENT INFORMATION:
The Company operates principally in two business segments: Provider Services
(consisting of home health care and outpatient surgery) and Management
Services (consisting of staffing/professional services and physician support
and home health care management). The following shows industry segment
information for the fiscal years ended December 31, 1998, 1997 and 1996 (1997
and 1996 amounts have been restated as a result of the reclassification of the
staffing/professional services division as a discontinued operation as
discussed in Note 2) (in 000's):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
Restated Restated
<S> <C> <C> <C>
Net Service Revenues:
Provider Services
Home health care................................. $ 30,488 $25,817 $25,500
Outpatient surgery............................... 6,224 6,287 4,626
Physician support and home health care management
services........................................ 1,374 5,100 3,396
Corporate support................................. -- -- --
-------- ------- -------
Total.......................................... $ 38,086 $37,204 $33,522
======== ======= =======
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating Income (Loss):
Provider Services
Home health care................................. ($20,423) $ 831 $ 2,038
Outpatient surgery............................... 659 (960) 1,175
Physician support and home health care management
services.......................................... (942) 1,494 347
Corporate support................................. (8,572) (5,596) (4,201)
-------- ------- -------
Total.......................................... (29,278) (4,231) (641)
Other expenses.................................... (1,290) (962) (1,159)
-------- ------- -------
Income (loss) before income taxes, minority
interest, cumulative effect of change in
accounting principle and discontinued operations.. $(30,568) $(5,193) $(1,800)
======== ======= =======
</TABLE>
F-20
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Capital Expenditures
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Provider services
Home health care..................................... $ 1,767 $ 348 $ 135
Outpatient surgery................................... 696 631 2,233
Physician support and home health care management
services.............................................. 122 18 89
Corporate support...................................... 993 459 508
------- ------- -------
Total.............................................. $ 3,578 $ 1,456 $ 2,965
======= ======= =======
<CAPTION>
Depreciation and
Amortization
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Provider services
Home health care..................................... $ 761 $ 344 $ 319
Outpatient surgery................................... 659 609 271
Physician support and home health care management
services.............................................. 44 129 201
Corporate support...................................... 243 158 154
------- ------- -------
Total.............................................. $ 1,707 $ 1,240 $ 945
======= ======= =======
<CAPTION>
Long-lived Assets
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Provider services
Home health care..................................... $10,636 $ 5,164 $ 4,489
Outpatient surgery................................... 6,840 6,135 6,296
Physician support and home health care management
services.............................................. 476 2,290 1,200
Corporate support...................................... 2,209 9,157 4,211
------- ------- -------
Total.............................................. $20,161 $22,746 $16,196
======= ======= =======
</TABLE>
15. SUBSEQUENT EVENT:
On January 1, 1999, the Company sold all of the issued and outstanding stock
of Amedisys Durable Medical Equipment, Inc. d/b/a Care Medical and Mobility
(ADME) to Ace Drug Medical Equipment, Inc. (ACE), a Texas Corporation. The
sales price was $672,385 of which $100,000 was paid at closing; $418,318 was
payable pursuant to a two year note in eight equal quarterly payments of
principal and interest at prime plus 2%, adjusted annually; and $154,067 was
payable pursuant to a one year note in four quarterly payments of principal
plus accrued interest at prime plus 2%. Each note is guaranteed by Terry
Huckabee, a principal of ACE. ACE acquired substantially all of the assets and
liabilities of ADME. This transaction was accounted for as a sale by the
Company.
F-21
<PAGE>
EXHIBIT 2.18
ASSET PURCHASE AGREEMENT
among
AMEDISYS SURGERY CENTERS, LC
a Texas Limited Liability Company
and
PERMIAN SURGICAL CENTER, INC.
dba
TANGLEWOOD SURGERY CENTER
a Texas Corporation
Dated as of October 23, 1998
1
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE I
PURCHASE OF ASSETS................... 1
1.1 Assets To Be Acquired............................... 1
1.2 Employees........................................... 3
ARTICLE II
PURCHASE PRICE.................... 3
2.1 Payment of Purchase Price........................... 3
ARTICLE III
CLOSING........................ 3
3.1 Closing............................................. 3
ARTICLE IV
4.1 Representations of PURCHASER........................ 4
4.2 Representations of SELLER........................... 5
ARTICLE V
COVENANTS....................... 10
5.1 Covenants of SELLER................................. 10
5.1.1 Existence and Rights................................ 10
5.1.2 Consents............................................ 10
5.1.3 Closing Documents................................... 11
5.2 Covenants and Agreements of PURCHASER............... 11
5.3 Mutual Covenants and Agreements..................... 11
5.4 Forwarding of SELLER's Collected Receivables........ 13
5.5 Forwarding of Telephone Calls....................... 13
5.6 Risk of Loss........................................ 13
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS.......... 14
6.1 Conditions to SELLER's Obligations.................. 14
6.2 Conditions to Obligations of PURCHASER.............. 15
ARTICLE VII
BULK SALES COMPLIANCE................. 17
7.1 Bulk Sales Compliance............................... 17
2
<PAGE>
ARTICLE VIII
INDEMNIFICATION................... 17
8.1 Indemnification by SELLER........................... 17
8.3 Indemnification by PURCHASER........................ 17
8.5 Procedure for Indemnification....................... 18
ARTICLE IX
MISCELLANEOUS..................... 19
9.1 Notices............................................. 19
9.2 Captions............................................ 19
9.3 Waivers............................................. 20
9.4 No Third-Party Beneficiaries........................ 20
9.5 Counterparts........................................ 20
9.6 Severability........................................ 20
9.7 Remedies of PURCHASER............................... 20
9.8 Governing Law....................................... 20
9.9 Attorneys' Fees..................................... 20
SCHEDULES
- ------------------
Schedule 1.1(b) - September 30, 1998 Balance Sheet
Schedule 1.1(c) - Machinery and Equipment
Schedule 1.1(d) - Supplies and Inventory
Schedule 1.1(e) - Licenses and Permits
Schedule 1.1(f) - Contracts
Schedule 1.1(g) - Personal Property Leases, Sub Leases
and Assignments
Schedule 1.1(h) - Real Property Leases
Schedule 1.1(k) - Manuals and Marketing Materials
Schedule 1.2 - Employee Benefits
Schedule 2.1(c) - Term Note
Schedule 2.1(d) - Guaranty
Schedule 2.1(e) - Security Agreement
Schedule 4.2(b) - Governmental Consents
Schedule 4.2(i) - Hazardous Materials
Schedule 4.2(l) - Physician Utilization
Schedule 4.2(n) - Litigation
Schedule 4.2(p) - Employees
Schedule 5.5(a) - Bill of Sale
Schedule 5.5(b) - Assignment of Contracts
Schedule 5.5(c) - Assignment of Leases
Exhibit A - Promissory Note
3
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made by and among
[Permian Surgical Center, Inc. a Texas corporation] doing business as Tanglewood
Surgery Center, ("SELLER"), and Amedisys Surgery Centers, LC., a Texas limited
liability company ("PURCHASER").
RECITALS
WHEREAS, SELLER owns and operates an outpatient ambulatory surgery
center known as Tanglewood Surgery Center located at 4241 Tanglewood, Odessa,
Texas 79762 (the "Surgery Center").
WHEREAS, PURCHASER is a Texas limited liability company formed for the
purpose of acquiring and operating an ambulatory surgery center;
WHEREAS, PURCHASER is willing to buy and SELLER is willing to sell
upon the terms and conditions as hereinafter set forth certain assets of the
Surgery Center;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.1 Assets To Be Acquired. Subject to the terms of this Agreement, SELLER
shall transfer to PURCHASER on the Closing Date (as hereinafter defined) all
right, title and interest of SELLER, in and to the following to the extent and
only to the extent assignable:
(a) All accounts receivable set forth on the October 31, 1998
balance sheet of the Surgery Center.
(b) The prepaid items listed on the SELLER's Balance Sheet dated
October 31, 1998, (the "Balance Sheet") attached hereto as Schedule 1.1(b) and
made a part hereof.
4
<PAGE>
(c) The machinery and equipment listed on Schedule 1.1(c) attached
hereto and made a part hereof (collectively the "Equipment").
(d) The supplies and inventory listed on Schedule 1.1(d) attached
hereto and made a part hereof.
(e) The regulatory licenses, approvals and registrations listed on
Schedule 1.1(e) attached hereto and make a part hereof to the extent assignable
by seller.
(f) The contracts listed on Schedule 1.1(f) attached hereto and made a
part hereof (collectively the "Contracts"). Copies of the written contracts
listed on Schedule 1.1(f) are collectively attached hereto as Schedule 1.1(f)(A)
and made a part hereof.
(g) The leases listed on Schedule 1.1(g) attached hereto and made a
part hereof (collectively the "Leases").
(h) The customer lists and vendor lists delivered on the Closing Date
(as hereinafter defined) by SELLER to PURCHASER.
(i) The marketing materials, training materials, office and reference
manuals listed on Schedule 1.1(k) attached hereto and made a part hereof.
(j) All goodwill associated with the Surgery Center.
It is the intention of the parties that all of the assets, properties, and
rights of SELLER used in and reasonably necessary to conduct the Surgery Center
business, as of the Effective Date (as defined herein), be transferred and
conveyed to PURCHASER pursuant to this Agreement. To the extent that any such
asset, property and rights of SELLER are not specifically identified above,
SELLER shall execute and deliver such other documents and instruments and take
such other action as PURCHASER shall reasonably request to transfer and convey
such assets, properties and rights to PURCHASER.
All of the foregoing assets specified in sub-paragraphs 1.1(a) through
1.1(k) inclusive are sometimes collectively referred to as the "Assets".
PURCHASER is not assuming any liability for any obligations of SELLER
except as specifically provided herein.
1.2 Employees. It is understood and agreed that the employees of
the Surgery Center Business will continue as employees of SELLER through the
Effective Date at which time they will be
5
<PAGE>
discharged by SELLER. PURCHASER may hire all or some of such employees following
the Effective Date.
ARTICLE II
PURCHASE PRICE
2.1 Payment of Purchase Price. The total aggregate purchase price
for the Assets to be transferred to PURCHASER shall be $500,000 (the "Purchase
Price") payable as follows:
a. The sum of $50,000 payable in cash in the form of a check at the
Closing.
b. The sum of $50,000 in the form of a promissory note payable to SELLER
included herein as Exhibit A;
c. The sum of $400,000 in the form of a purchase note Payable to SELLER
included herein as Exhibit B;
ARTICLE III
CLOSING
3.1 Closing. The closing (the "Closing" or "Closing Date") of the
purchase and sale of the assets and the transactions contemplated by this
Agreement shall occur on October 23, 1998, at 5:00 p.m. at the Surgery Center or
at such other time and/or place as may be mutually agreed by the parties to this
Agreement. Regardless of when Closing occurs, it shall be effective as of 6:00
a.m. on November 1, 1998 (the "Effective Date") and SELLER and PURCHASER agree
to acknowledge and use the Effective Date for all purposes, including accounting
and federal and state tax reporting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of PURCHASER In addition to any other
representations and warranties of PURCHASER made in this Agreement, PURCHASER
further represents and warrants to SELLER as follows:
(a) Corporate Existence. PURCHASER is presently and will be on the
Closing Date, a limited liability company duly organized,
6
<PAGE>
validly existing and in good standing under the laws of the State of Texas with
full power and authority to purchase the Assets.
(b) Governmental Consents. No consent or approval by any governmental
authority is or will be required in connection with the execution, delivery and
performance of this Agreement by PURCHASER or the consummation by PURCHASER of
the transactions contemplated in this Agreement.
(c) Full Disclosure. No representation or warranty by PURCHASER in this
Agreement or any statement or instrument furnished, or to be furnished, by any
of them to SELLER pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to prevent any
such statement from becoming inaccurate, misleading, erroneous or untrue.
(d) Brokerage. PURCHASER has not entered into any agreement with any
individual or entity for the payment of any commission, brokerage, finders or
other fee in connection with the execution of this Agreement or the transactions
contemplated hereunder.
(e) No Disability. As of the date of this Agreement, PURCHASER is not
and will not be under any legal disability to enter into and perform this
Agreement and, at all times from the date of this Agreement until the Closing,
PURCHASER shall have the full power and authority to perform all of its
respective obligations under this Agreement.
(f) Authority Relative to this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and effectively authorized by PURCHASER and
the members of PURCHASER and this Agreement, together with each schedule
attached hereto, is valid, legally binding and enforceable against PURCHASER in
accordance with its terms and their terms.
(g) No Insolvency. The purchase of the Assets shall not render
PURCHASER insolvent.
All of the representations, warranties, agreements, and obligations of
PURCHASER as set forth in this Agreement and the foregoing paragraphs are deemed
to be continuing and shall survive the Closing of this transaction and shall be
true as of the Closing Date.
4.2 Representations of SELLER. In addition to any other representations
and warranties of SELLER made in this Agreement, as
7
<PAGE>
set forth herein, SELLER further represents and warrants to PURCHASER as
follows:
(a) Assets. To the best of SELLER's knowledge and belief in good operating
condition and in reasonable repair, free and clear from any known defects,
except such minor defects as do not interfere with continued use thereof.
(b) Ownership. Seller is the beneficial owner of the Assets and has good
and marketable title to and the absolute right to sell, assign, and transfer the
Assets to Purchaser, free and clear of any interests, security interest, claims,
liens, pledges, penalties, charges, encumbrances, buy-sell agreements, or other
rights of any party whatsoever of every kind and character by, through, or under
seller. Upon delivery of and payment of the purchase price in accordance with
this Agreement, good and marketable title thereto shall be delivered to
Purchaser, free and clear of any interest, security interest, claims, liens,
pledges, penalties, charges, encumbrances, buy-sell agreements, or other rights
of any party whatsoever claiming by, through, or under seller.
(c) Governmental Consents. No consent or approval by any governmental
authority is or will be required in connection with the execution, delivery and
performance of this Agreement by SELLER or the consummation by SELLER of the
transactions contemplated herein except with respect to the transfer of the
regulatory licenses, approvals and registrations listed on Schedule 4.2(b)
attached hereto.
(d) Full Disclosure. No representation or warranty by SELLER in this
Agreement or any statement of instrument furnished, or to be furnished, by
SELLER to PURCHASER pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact presently known to seller
necessary to prevent any such statement from becoming inaccurate, misleading,
erroneous or untrue.
(e) Existence. SELLER is presently and will be on the Closing Date a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas with full power and authority to own, manage, operate,
encumber, transfer, sell and lease its properties.
(f) Insurance. SELLER shall maintain in full force and effect until
the Closing, at its sole cost and expense, all insurance policies covering the
Assets. SELLER shall also obtain at its expense, "tail" or "previous acts"
malpractice insurance coverage for any potential claims for pre-Effective Date
business conducted by SELLER.
8
<PAGE>
(g) No Disability. As of the date of this Agreement and as of the
Closing Date, SELLER is not and will not be under legal disability to enter into
and perform this Agreement and, at all times from the date of this Agreement
until the Closing, SELLER shall have the full power and authority to perform all
of its respective obligations under this Agreement.
(h) Brokerage. SELLER has not entered into any agreement with any
individual or entity for the payment of any commission, brokerage, finders or
other fee in connection with the execution of this Agreement or the transactions
contemplated hereunder.
(i) Authority Relative to this Agreement. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and effectively authorized by the Board of
Directors of SELLER and the shareholders of SELLER and this Agreement, together
with each schedule attached hereto, is valid, legally binding and enforceable
against SELLER in accordance with its terms and their terms.
(j) Compliance With Law. SELLER believes that it has conducted the
business of the Surgery Center in compliance in all material respects with all
applicable federal, state and local laws, statutes, licensing requirements,
rules and regulations, and judicial or administrative decisions applicable to
the Surgery Center bus iness, including without limitation, all laws, statutes,
licensing requirements, rules and regulations and decisions applicable to the
Surgery Center business (i) regarding the disposal of its medical waste; (ii)
regarding Medicare and Medicaid fraud and abuse. SELLER contracts with
Biomedical Waste Systems for disposal of its medical waste.
No enforcement action, litigation or other proceedings or claims has been
brought or, to the best knowledge of SELLER, threatened against SELLER during
the period that SELLER has owned the property at 4241 Tanglewood, Odessa, Texas
(the "Property") alleging use of any Hazardous Materials on, from or under the
Property. Schedule 4.2(i) sets forth a list of all environmental reports
relating to the Surgery Center Business prepared by, for or on behalf of SELLER,
and SELLER has delivered or made available true and complete copies of all such
reports to PURCHASER.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Hazardous Materials" means any and all flammable, corrosive or
ignitable materials, explosives, petroleum or petroleum by-products,
asbestos, radioactive materials, hazardous waste, toxic substances or
related materials, to the extent those materials and substances are
defined as "hazardous substances," "hazardous materials,"
9
<PAGE>
"hazardous wastes" or "toxic substances" in, or are otherwise governed
by, the Environmental Laws, but shall expressly include those materials
excluded by 42 U.S.C. Section 9601(14).
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq.;
the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.; the Hazardous
Materials Transpor tation Act, 49 U.S.C. Section 1801 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.;
the Federal Clean Water Act, 33 U.S.C. Section 1251 et seq.; the Porter-
Cologne Water Quality Act; including all amendments thereto,
replacements thereof, and regulations and publications promulgated
pursuant thereto and any other federal, state or local law, rule or
regulation relating to the environment (including the work place) or
regulating the use of Hazardous Materials to the extent the same are
applicable to SELLER or the Property.
(k) Medicare and Medicaid. The SELLER is licensed by the Texas Department
of Health to operate the Surgery Center as an ambulatory surgery center, and the
Surgery Center is certified and qualifies for reimbursement under Medicare and
Medicaid as an ambulatory surgery center.
(l) Contracts and Commitments. There are no material contracts,
commitments, leases, permits, and other instruments binding upon SELLER with
respect to the Surgery Center business, including, without limitation, any
agreements or arrangements (written or oral) granting any person the right to
purchase, use or occupy the premises used in connection with the Surgery Center
business, except as set forth in Schedules 1(f), and (g).
To the best of SELLER's knowledge, (i) all of the contracts, and leases
listed on Schedules 1.1(f) and 1.1(g) are in full force and effect and are
valid, binding and enforceable in accordance with their respective provisions;
(ii) SELLER is not in default of any contract or lease listed on Schedule 1.1(f)
and Schedule 1.1(g), nor has there occurred an event or condition which, with
the passage of time or giving of notice (or both), would constitute a default
with respect to the payment or performance of any obligation thereunder; and no
claim of such a default has been asserted and there is no basis upon which such
a claim could validly be made. No notice has been received by SELLER claiming
any such default or indicating the desire or intention of any other party
thereto to amend, modify, rescind or terminate the same.
(m) Financial and Operating Information
(i) To the best of seller's knowledge, based on information and
belief, Schedule 4.2(l) contains a complete
10
<PAGE>
and accurate chart setting forth the physician utilization of the Surgery Center
for 1997 and for the months of January through September of 1998.
(ii) SELLER has heretofore delivered to PURCHASER the following
financial statements: (i) a balance sheet as of September 30, 1998, (ii) an
income statement as of September 30, 1998, and (iii) an income statement for
each month in 1998, (collectively, the "Financial Statements"). The Financial
Statements (i) are in accordance with the books and records of SELLER, (ii) have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby and (iii) fairly and
accurately present the assets, liabilities (including all reserves) and
financial position of SELLER as of the date thereof and the results of
operations for the periods then ended. As of the September 30, 1998 balance
sheet, there were no liabilities of SELLER which, in accordance with generally
accepted accounting principles, should have been shown on such balance sheet.
(n) Absence of Certain Changes and Events. Since September 30, 1998, there
has not been any material adverse change in the financial condition assets,
liabilities, business or prospects of SELLER or any occurrence, circumstance, or
combination thereof which reasonably could be expected to result in any such
adverse change which would directly effect the transactions herein;
(o) Litigation. Except as set forth on Schedule 4.2(n) there is no action,
order, writ, injunction, judgment or decree outstanding or any claim,
litigation, proceeding, labor dispute, arbitral action, governmental audit or
investigation (collectively "Actions") pending or, to the best knowledge of
SELLER, threatened or anticipated (i) against, related to or affecting the
Assets (ii) seeking to delay, limit or enjoin the transactions contemplated by
this Agreement; or (iii) in which SELLER is a plaintiff. SELLER is not subject
to any judgment, order, writ, injunction or decree of any court or governmental
agency, and there is no unsatisfied judgments against the SELLER.
(p) Taxes. All taxes, including, without limitation, income, property,
sales, use, franchise, value added, employees, income withholding, social
security and other employee-related taxes, imposed by the United States, by any
state, municipality, other local government or other subdivision or
instrumentality of the United States, or by any foreign country or any state or
other government thereof, or by any other taxing authority, that are due and
payable by SELLER and all interest and penalties thereon, whether disputed or
not (collectively, "Taxes"), and which would result in the imposition of a lien,
claim, or encumbrance on the Assets, or other than Taxes which are not yet due
and payable, have been paid in full or contested in appropriate proceedings, all
tax returns required to be filed in connection therewith have been accurately
prepared and duly and
11
<PAGE>
timely filed and all deposits required by law to be made by SELLER with respect
to employees' withholding or other Taxes have been duly made. SELLER is not
delinquent in the payment of any Taxes, assessment or governmental charge or
deposits which would result in the imposition of a lien, claim or encumbrance on
the Assets and SELLER has no Taxes, deficiency or claim outstanding, proposed or
assessed against it, and to the best of SELLER's knowledge and belief there is
no basis for any such deficiency or claim, which would result in the imposition
of any lien, claim or encumbrances on the Assets.
(q) Labor Relations. As set Forth in Schedule 4.2(p), attached hereto, is a
complete list of all employees of SELLER and with respect to each such employee,
each employee's: (i) hire date; (ii) current wage or salary; (iii) age; and
(iv) social security number.
(r) Seller's Relationships. To the best of SELLER's knowledge and belief,
neither SELLER nor any person having any direct or indirect equity interest in
SELLER, has any material financial interest or other relationship, direct or
indirect, in any supplier of SELLER, any party to any contract which is material
to the Surgery Center business, or with any employee of the SELLER or any
physician practicing or performing services at the Surgery Center other than
Ralph Cepero, M.D.
(s) No Other Agreements to Sell the Assets. Neither SELLER nor any of its
officers, employers or affiliates have any commitment or obligation, absolute or
contingent, to any other person or firm other than PURCHASER to, directly or
indirectly, sell, assign, transfer, or effect a sale of the Assets, to effect
any liquidation, dissolution or other reorganization of SELLER.
(t) Books and Records. SELLER has made and kept and given PURCHASER, and
PURCHASER's representatives, access to books and records which, in reasonable
detail, accurately and fairly reflect the activities of the Surgery Center.
ARTICLE V
COVENANTS
5.1 COVENANTS OF SELLER. SELLER covenants and agrees that it will comply
with each of the covenants and agreements set forth in paragraph 5.2, the
fulfillment of each of which shall constitute a condition precedent to
PURCHASER'S obligations to purchase the Assets at the Closing.
12
<PAGE>
5.2. EXISTENCE AND RIGHTS. Between the date hereof and the Closing
Date, SELLER will take all necessary actions to keep in full force and effect
its existence. During the period from the date hereof to the Effective Date,
SELLER shall not, without the written consent of the PURCHASER, which consent
shall not be unreasonably withheld;
(a) Enter into any material transaction not in the ordinary course of
business except as contemplated by or provided for in this Agreement or
which would prevent SELLER from fulfilling its obligations under this
Agreement.
(b) Mortgage, pledge or voluntarily subject to lien or other
encumbrance any of the Assets; and SELLER shall promptly notify
PURCHASER in writing of any lien or encumbrance created against any of
the Assets of SELLER of which SELLER becomes aware.
(c) Sell or transfer any of the Assets.
5.1.2 Consents. SELLER shall use its best efforts to procure all
consents, approvals or waivers which must be obtained by SELLER and which are
necessary for completion of the transactions described herein, including using
all reasonable efforts to obtain all required consents of any governmental
agency or body issuing any permits, licenses or other governmental
authorizations affecting SELLER.
5.1.3 Closing Documents. SELLER shall cause the following documents
to be delivered to PURCHASER at or before the Closing:
(a) The Assignment and Bill of Sale, executed by SELLER in
substantially the form of Schedule 5.5(a) attached hereto and made a part
hereof.
(b) The Assignments of Contracts, in substantially the form of
Schedule 5.5(b) attached hereto and made a part hereof.
(c) The Assignments of Leases, in substantially the form of Schedule
5.5(c) attached hereto and made a part hereof.
5.2 COVENANTS AND AGREEMENTS OF PURCHASER. PURCHASER covenants and agrees
that it will comply with each of the covenants and agreements set forth in this
paragraph 5.2, the fulfillment of each of which shall constitute a condition
precedent to SELLER's obligations to sell the Assets at the Closing.
(a) Consents. PURCHASER agrees to use its best efforts to procure
all necessary consents, approvals, or waivers which must be
13
<PAGE>
obtained by PURCHASER or are necessary for completion of the transactions
described herein on or prior to the Closing.
5.3 MUTUAL COVENANTS AND AGREEMENTS. PURCHASER, and SELLER mutually agree
as follows:
(a) Allocation of the Total Aggregate Purchase Price. The parties
shall on or before the Closing Date allocate the Total Aggregate Purchase Price
to the Assets in accordance with Section 1060 of the Internal Revenue Code of
1986, as amended, (the "Code") and the regulations thereunder and each shall
timely file with the Secretary of the Treasury and information required to be
furnished thereunder.
(b) Accounting and Attorneys Fees. PURCHASER, and SELLER shall each
pay their own respective expenses including, but not limited to, appraisal,
legal and accounting fees attendant or incidental to the negotiation,
preparation and Closing of the transactions contemplated by this Agreement.
(c) Computation of Time. Any time period to be computed pursuant to
this Agreement shall be computed by the number of days stipulated, excluding the
first and including the last day of such period.
(d) Retention of Liabilities. SELLER shall retain and be responsible
for (i) any debts, obligations or liabilities whether actual or contingent,
known or unknown arising out of medical malpractice or products liability, and
related claims made by or on behalf of patients of the Surgery Center to the
extent that such claims arise out of actions or omissions occurring prior on or
prior to the Effective Date; (ii) any debts, obligations or liabilities of
SELLER or any person or entity affiliated with SELLER arising as the result of
the termination by SELLER prior to the Effective Date of any contract whether or
not listed in Schedule 1.1(f), nor shall PURCHASER be required to defend any
suit or claim arising out of any act, omission or transaction by SELLER or any
person or entity affiliated with SELLER regardless of whether any such liability
or obligation corresponds to any Assets purchased by PURCHASER under this
Agreement; (iii) termination payments, severance benefits or other amounts
payable (except for vacation and sick leave amounts for employees of SELLER as
are scheduled on Schedule 1.2 hereto which will be borne by PURCHASER) to
employees of SELLER under SELLER's employment contracts, compensation plans or
severance policies or as required by applicable law or regulation; and (iv)
obligations and liabilities relating to the Surgery Center business which were
incurred during the period from the date of the last financial statements
delivered to PURCHASER and the Closing Date outside the ordinary course of the
Surgery Center business (collectively,
14
<PAGE>
"Retained Liabilities"). PURCHASER shall not assume, or otherwise be responsible
for, any Retained Liabilities.
(e) Survival of Warranties and Representations. Unless otherwise
specifically provided to the contrary or unless the text of this Agreement
clearly dictates otherwise, each of the covenants and agreements of the parties
hereto shall survive the Closing of this transaction and delivery of all Closing
documents and shall be fully enforceable against the party or parties sought to
be charged with any breach hereof for a period of forty-eight (48) months from
the Closing.
(f) Taxes. SELLER shall pay when due all ad-valorem property taxes
for the Assets from January 1 to the Effective Date, and for the year 1997 and
prior years. PURCHASER shall pay when due all ad-valorem property taxes from
the Effective Date and all subsequent years.
(g) Time of the Essence. The parties hereto declare that time shall
be of the essence in the performance of this Agreement and the terms and
conditions set forth herein.
(h) Condition of Assets. PURCHASER and SELLER acknowledge the Assets
to be transferred at the Closing are transferred "AS IS" and "WHERE IS", with no
warranties of any kind except for the warranty of title by, through, or under
seller and with a warranty of quantity with respect to and only with respect to
the items set forth on Schedules 1.1(c) and 1.1(d) SELLER DOES HEREBY DISCLAIM
ANY AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
PURCHASER acknowledges that on or prior to the Closing Date it has had an
opportunity to inspect the Assets.
(i) Entire Agreement. This Agreement sets forth the entire
understanding and agreement between the parties pertaining to the sale of the
Assets and shall be binding upon the parties, their subsidiaries, affiliates,
successors and permitted assigns. All prior negotiations, agreements and
understandings as to the transactions contemplated in this Agreement are
superseded hereby. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
(j) Conflict of Interest. This Agreement has been prepared by counsel
representing PURCHASER in the transactions contemplated by this Agreement.
Seller was represented by independent counsel.
5.4 THIS SECTION INTENTIONALLY OMITTED
15
<PAGE>
5.5 Forwarding of Telephone Calls. PURCHASER shall refer to SELLER all
telephone calls pertinent to SELLER received by PURCHASER after the Closing
Date.
5.6 Risk of Loss. The risk of loss of, or damage to, the Assets shall be
upon SELLER until the date and time of the Closing. If any portion of the Assets
with a value in the aggregate of $15,000.00 or less, based on the net book value
of the Assets as reflected on the books of SELLER, are partially or totally
damaged or destroyed prior to the date and time of the Closing, PURCHASER shall
continue under this Agreement and receive the proceeds of any insurance payable
in connection with said damage or destruction. In the event any of the Assets
valued in excess of $15,000.00 shall be damaged or destroyed, SELLER shall
immediately and with forty-eight (48) hours thereafter notify PURCHASER thereof
in writing and PURCHASER shall have the option upon written notice to SELLER to
(i) terminate this Agreement and thereafter the same shall be null and void and
each party released and discharged from any liability hereunder, or (ii)
PURCHASER may elect to continue under this Agreement and receive the proceeds of
any insurance payable in connection with said damage or destruction.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
6.1 Conditions to SELLER's Obligations. The obligations of SELLER to make
the deliveries contemplated at the Closing shall, in addition to conditions set
forth elsewhere herein, be subject to the satisfactory completion on or prior to
the Closing Date of each of the following conditions, any of which may be waived
by SELLER:
(a) Corporate Existence. PURCHASER shall have furnished to SELLER,
on the Closing Date, (i) a Certificate of Corporate Existence issued by the
Office of the Secretary of State of Texas, dated not more than thirty (30) days
prior thereto, setting forth that PURCHASER is duly organized under the laws of
the State of Texas, and (ii) a Certificate of Good Standing issued by the
Office of the Comptroller of the State of Texas, dated not more than sixty (60)
days prior thereto, setting forth that PURCHASER is in good standing under the
laws of the State of Texas.
(b) PURCHASER's Corporate Authority. PURCHASER shall have furnished
to SELLER on or before the Closing Date, a copy of a corporate resolution duly
adopted by the members of PURCHASER, authorizing the purchase of the Assets from
SELLER pursuant to the terms and conditions of this Agreement, including,
without limitation, authorization for the execution and delivery by PURCHASER
16
<PAGE>
to SELLER of this Agreement, which copy shall be duly certified by the Secretary
of the PURCHASER and otherwise be in form and content satisfactory to counsel
for SELLER.
(c) Correctness of Representations and Warranties. All the
representations and warranties of PURCHASER, in this Agreement shall be true and
complete in all respects on the Closing Date as though such representations and
warranties were made on said date.
(f) Performance of Covenants and Agreements. All covenants and
agreements of PURCHASER, contained in this Agreement and required to be
performed by PURCHASER, on or before the Closing Date shall have been performed
in all material respects.
(g) Closing Documents. PURCHASER shall have furnished to SELLER, at
the Closing, all documents required to be furnished to SELLER by PURCHASER,
under the terms of this Agreement.
(h) Additional Closing Documents. PURCHASER shall have delivered to
SELLER at or prior to Closing such documents as SELLER may reasonably request to
enable SELLER to determine whether the conditions to PURCHASER's obligations
under this Agreement have been met and otherwise carry out the provisions of
this Agreement.
(i) No Legal Bar.
(a) There shall not have been instituted or threatened any legal
proceeding seeking to prohibit the consummation of the transactions contemplated
by this Agreement, or to obtain substantial damages with respect thereto.
(b) None of the parties hereto shall be prohibited by any order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this Agreement, and no action
or proceeding shall then be pending which questions the validity of this
Agreement, any of the transactions contemplated hereby or any action which has
been taken by any of the parties in connection herewith or in connection with
any of the transactions contemplated hereby.
(j) Purchase Price Documents. PURCHASER shall have furnished to
SELLER all documents required by Section 2 of this Agreement.
6.2 Conditions to Obligations of PURCHASER The obligations of PURCHASER
to make the deliveries contemplated at the Closing shall, in addition to
conditions set forth elsewhere herein, be subject to the satisfactory completion
on or prior to the Closing Date of each of the following conditions, any of
which may be waived by PURCHASER:
(a) Representations, Warranties and Covenants. All
17
<PAGE>
the SELLER's representations and warranties set forth in Section 4.2 of this
Agreement shall have been true and complete in all respects on the Closing Date
as though such representations and warranties were made on said date.
(b) Consents. All consents and waivers necessary to the consummation
of the transactions contemplated hereby and for the operation of the Surgery
Center business by PURCHASER shall have been obtained.
(c) Government Licenses. Seller will assign any and all regulatory,
administrative or other governmental approvals, licenses, clearances, provider
numbers and certificates which seller has and may properly assign necessary for
the operation of the Surgery Center business, including, without limitation, all
applicable Medicare and Medicaid certifications and all approvals for
participation in the Texas Medicare and Medicaid Program. In addition, SELLER
shall have obtained reasonable assurances from the appropriate governmental
authorities that no material structural alterations to the Surgery Center
facility will be required by such governmental authorities.
(d) No Legal Bar.
(i) There shall not have been instituted or threatened any legal
proceeding seeking to prohibit the consummation of the transactions contemplated
by this Agreement, or to obtain substantial damages with respect thereto.
(ii) None of the parties hereto shall be prohibited by any order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this Agreement, and no action
or proceeding shall then be pending which questions the validity of this
Agreement, any of the transactions contemplated hereby or any action which has
been taken by any of the parties in connection herewith or in connection with
any of the transactions contemplated hereby.
(e) Due Diligence(e) PURCHASER and its representatives shall have
conducted a due diligence review of SELLER's books and records, financial
statements, and other records and accounts, and in the sole discretion of
PURCHASER, PURCHASER shall be satisfied on the basis of such review that there
has been no breach of the representations and warranties or the pre-closing
covenants of SELLER made pursuant to this Agreement. Such review shall have no
effect whatsoever on the liability of SELLER to PURCHASER under this Agreement
or otherwise for breach of any representations, warranties, or covenants of
SELLER hereunder.
(f) Evidence of Title PURCHASER shall have received evidence, at or
prior to the Closing Date, satisfactory to it of
18
<PAGE>
SELLER's title to all of the Assets and right to fully convey all the Surgery
Center Assets and to assign the Facility Lease, in each case, free and clear of
any lien, encumbrances, restrictions on transfer or the like.
(g) Certificates. SELLER shall furnish PURCHASER with such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Section 6.2 as may be reasonably requested by
PURCHASER.
(h) Other Documents. The Noncompetition and Confidentiality Agreement
has been executed and delivered, in each case, by all of the parties thereto.
19
<PAGE>
ARTICLE VII
BULK SALES COMPLIANCE
7.1 Bulk Sales Compliance. PURCHASER hereby waives compliance by SELLER
with the provisions of the Bulk Sales Law of any state. SELLER warrants and
agrees to pay and discharge when due all claims of creditors are asserted
against PURCHASER by reason of such noncompliance. SELLER shall indemnify and
hold PURCHASER harmless from, against and in respect of (and shall on demand
reimburse PURCHASER for) any damages suffered or incurred by PURCHASER by reason
of the failure of SELLER to pay or discharge such claims.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by SELLER SELLER hereby agrees to indemnify,
defend and hold harmless PURCHASER and its successors and permitted assigns at
any time after the Closing from and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and expenses
(including, without limitation, reasonable fees and expenses of counsel)
(collectively, "Damages"), asserted against, resulting to, imposed upon or
incurred by or PURCHASER, directly or indirectly, by reason of or resulting from
(i) a breach of any agreement of SELLER contained in or made pursuant to this
Agreement and (ii) a breach by SELLER of any repre sentation or warranty to
PURCHASER contained in or made pursuant to this Agreement.
8.2 Indemnification by PURCHASER PURCHASER hereby agrees to
indemnify, defend and hold harmless SELLER, its successors and permitted assigns
at any time after the Closing, from and against all Damages asserted against,
resulting to, imposed upon or incurred by SELLER, directly or indirectly, by
reason of or resulting from (i) a breach of any agreement of PURCHASER contained
in or made pursuant to this Agreement and (ii) a breach by PURCHASER of any
representation or warranty to SELLER contained in or made pursuant to this
Agreement.
8.3 Procedure for Indemnification.
(a) In General. If PURCHASER or SELLER determines to seek
indemnification for Damages under this Article VIII (the party seeking such
indemnification hereinafter referred to as the "Indemnified Party," the party
against whom such indemnification is sought is hereinafter referred to as the
"Indemnifying Party" and the claim for which such party is seeking such
indemnification is
20
<PAGE>
hereinafter referred to as the "Indemnifiable Claim") the Indemnified Party
shall give notice (a "Claim Notice") to the Indemnifying Party as promptly as
practicable after becoming aware of any such Indemnifiable Claim or of facts
upon which any such Indemnifiable Claim will be based. The Claim Notice shall
set forth such material information with respect thereto as is then reasonably
available to the Indemnified Party.
(b) Third-Party Claims. If any lawsuit or enforcement action is
filed against any Indemnified Party, a Claim Notice shall be given to the
Indemnifying Party as promptly as practicable; provided, however, the failure of
any Indemnified Party to give timely notice shall not affect rights to
indemnification hereunder, except to the extent that the Indemnifying Party
demonstrates actual damage caused by such failure. After such notice, if the
Indemnifying Party shall acknowledge in writing to the Indemnified Party that
the Indemnifying Party shall be obligated under the terms of its indemnify
hereunder in connection with such lawsuit or action, then the Indemnifying Party
shall be entitled, if it so elects, (i) to take control of the defense and
investigation of such lawsuit or action; (ii) to employ and engage attorneys of
its own choice to handle and defend the same, at the Indemnifying Party's cost,
risk and expense unless the named parties to such action or proceeding includes
both the Indemnifying Party and the Indemnified Party and the Indemnified Party
has been advised in writing by counsel that there may be one or more legal
defenses available to such Indemnified Party that are different from or
additional to those available to the Indemnifying Party, in which case the
Indemnified Party shall also have the right to employ its own counsel in any
such case with the reasonable fees and expenses of such counsel being borne by
the Indemnifying Party; and (iii) to compromise or settle such claim, which
compromise or settlement shall be made only with the written consent of the
Indemnified Party, such consent not to be unreasonably withheld. Notwithstanding
anything in this Article VIII to the contrary, (i) if there is a reasonable
probability than an Indemnifiable Claim may materially and adversely affect the
Indemnified Party, other than as a result of money damages or other money
payments, the Indemnified Party shall have the right to participate in such
defense, compromise or settlement and the Indemnifying Party shall not, without
the Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise or consent
includes as an unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
If the Indemnifying Party fails to assume the defense of such claim within
fifteen (15) calendar days after receipt of the Claim Notice, the Indemnified
Party will (upon delivering such notice to such effect to the Indemnifying
Party) have the right to undertake
21
<PAGE>
the defense, compromise or settlement of such third party claim on behalf of and
for the account and risk of the Indemnifying Party.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to SELLER, addressed to:
Dan Cepero
4241 Tanglewood
Odessa, Texas 79762
Bryan Neil Linch
Todd, Barron & Thomason, P.C.
3800 East 42/nd/ Street, Suite #409
Odessa, TX 79762-5982
If to PURCHASER, addressed to:
Amedisys Surgery Centers, LC
3029 S. Sherwood Forest Boulevard, Suite 300
Baton Rouge, LA 70819
With a copies to:
Ambulatory Systems Development of Texas, Inc.
7617 Arborgate
Dallas, Texas 75231
Attn: Joseph S. Zasa, President
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
9.2 Captions. The Article and Section headings of this Agreement are
inserted for convenience only and shall not constitute a part of this Agreement
in construing or interpreting any provision hereof.
22
<PAGE>
9.3 Waivers. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
9.4 No Third-Party Beneficiaries. Except as otherwise expressly
provided for in this Agreement, nothing herein, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
corporation or legal entity, other than the parties hereto, any rights, remedies
or other benefits under or by reason of this Agreement.
9.5 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
9.6 Severability If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.7 Remedies of PURCHASER. SELLER agree that the Surgery Center
Assets are unique and not otherwise readily available to PURCHASER.
Accordingly, SELLER acknowledges that, in addition to all other remedies to
which PURCHASER is entitled, PURCHASER shall have the right to enforce the terms
of this Agreement by a decree of specific performance; provided, that PURCHASER
is not in material default hereunder.
9.8 Governing Law. This Agreement shall be construed and enforced
pursuant to the laws of the State of Texas, except to the extent preempted or
governed by the laws of the United States of America. In the event of a legal
dispute arising from or pertaining to this Agreement, it is agreed that the
venue shall be Dallas County, Texas.
9.9 Attorneys' Fees If any party to this Agreement brings an action
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by and
through their duly authorized representatives on the date first above written.
23
<PAGE>
"PURCHASER"
AMEDISYS SURGERY CENTERS, LC
A TEXAS LIMITED LIABILITY COMPANY
By: /s/ Melany Pierson
---------------------------------------
Its: President
_______________________________________
"SELLER"
PERMIAN SURGICAL CENTER, INC.
a Texas corporation
/s/ Daniel Cepero, M.D., President
-----------------------------------------------------
Daniel Cepero, M.D., President
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 572,000
<SECURITIES> 0
<RECEIVABLES> 10,551,000
<ALLOWANCES> 3,095,000
<INVENTORY> 1,440,000
<CURRENT-ASSETS> 10,335,000
<PP&E> 11,907,000
<DEPRECIATION> 3,333,000
<TOTAL-ASSETS> 44,428,000
<CURRENT-LIABILITIES> 41,615,000
<BONDS> 14,394,000
0
1,000
<COMMON> 3,000
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<TOTAL-REVENUES> 38,086,000
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<INCOME-PRETAX> (30,568,000)
<INCOME-TAX> (1,374,000)
<INCOME-CONTINUING> (29,194,000)
<DISCONTINUED> 4,314,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,871,000)
<EPS-PRIMARY> (8.12)
<EPS-DILUTED> (8.12)
</TABLE>
