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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[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, 1999
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. [ ]
Issuer's net service revenues for the year ended December 31, 1999 were
$97,410,795.
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 27, 2000 was $8,398,000. As of March 27, 2000 registrant has
3,202,846 shares of Common Stock outstanding.
Documents incorporated by reference: Registrant's definitive Proxy
Statement for its 2000 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 is incorporated herein by
reference into Part III hereof.
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TABLE OF CONTENTS
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Page
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PART I ..................................................................................3
ITEM 1. BUSINESS........................................................3
ITEM 2. PROPERTIES.....................................................14
ITEM 3. LEGAL PROCEEDINGS..............................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............16
PART II...................................................................................16
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS............................................16
ITEM 6. SELECTED FINANCIAL DATA........................................16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS...................................................23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................24
PART III..................................................................................24
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............24
ITEM 11. EXECUTIVE COMPENSATION.........................................24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.....................................................24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................24
PART IV...................................................................................25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K............................................25
SIGNATURES................................................................................27
FINANCIAL STATEMENTS.....................................................................F-1
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PART I
ITEM 1. BUSINESS
GENERAL
Amedisys, Inc., a Delaware corporation ("Amedisys" or "the Company"),
is a leading multi-regional provider of home health care nursing services. The
Company operates 50 home care nursing offices, 3 ambulatory surgery centers, 4
home infusion therapy locations, and 2 corporate offices in the southern and
southeastern United States.
Amedisys was incorporated in Louisiana in 1982. 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".
During 1999, the Company changed its strategy from providing a variety
of alternate site provider health care services to becoming a leader in home
health care nursing services. The Company's change of focus was largely
attributed to its significant investment in this segment as a result of its
acquisition of 83 home care offices from Columbia/HCA Healthcare Corporation
("Columbia/HCA") in late 1998. A second major factor was that the governmental
reimbursement changes in the Medicare system will allow home care the
opportunity to be profitable after the Prospective Payment System ("PPS") is
implemented in October 2000. A third significant factor was the Company's
established reputation and expertise in the field. Amedisys has over a decade of
experience in home care nursing and was an early innovator in bringing
technology, previously used only in acute care settings, to the home, as well as
providing traditional home care services.
Pursuant to this strategy, the Company launched a restructuring plan to
divest its non-home health care nursing divisions. The Company sold three of its
six surgery centers in 1999 and expects to divest of the remaining three surgery
centers and four home infusion therapy locations during 2000. The Company plans
to achieve market dominance in the southern and southeastern United States by
expanding its referral base by utilizing a highly trained sales force, offering
specialized programs such as wound care, and completing selective acquisitions.
The Company is continuing to systematically reduce its operating costs.
Converting its method of nurse pay to a variable or per visit rate rather than
fixed or salary system, utilizing economies of scale, and reducing corporate
overhead are significant cost reduction measures undertaken by the Company.
Business functions which are not considered part of the core business have been
outsourced and management layers have been streamlined.
The Company is also positioning its offices to provide services under
PPS without sacrificing quality of care. To ensure quality and standardized
care, the Company has implemented disease state management programs and clinical
protocols as well as supporting technology to monitor and report outcome data.
Using case managers to assess and track patient progress and highly skilled
nurses to deliver care are also important components of the overall plan.
DEVELOPMENTS
ACQUISITIONS
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, located in
Alabama, Georgia, Louisiana, North Carolina, Oklahoma, and Tennessee. Assets
located in Louisiana and Oklahoma were acquired on November 16, 1998, and the
remaining assets were acquired on December 1, 1998. The Company filed a Current
Report on Form 8-K with the Securities and Exchange Commission ("SEC") on
November 10, 1998 with regard to this transaction. Assuming the Columbia/HCA
acquisition occurred on January 1, 1998, unaudited pro forma information for the
year ended December 31, 1998, which is not necessarily indicative
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of future operating results, is as follows (in 000's, except per share
information).
<TABLE>
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Twelve months ended
December 31, 1998
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Net Service Revenue $ 150,645
Operating (Loss) $ (50,456)
(Loss) before Discontinued Operations $ (43,292)
Net (Loss) $ (41,453)
Net (Loss) per Common Share $ (13.48)
</TABLE>
DISPOSITIONS AND DISCONTINUED OPERATIONS
In the accompanying Statements of Operations for the Years Ended
December 31, 1999 and 1998, the Company has reflected its staffing, management
services, outpatient surgery, and infusion therapy divisions as discontinued
operations.
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 determined using a multiple of earnings before interest, taxes,
depreciation, and amortization (EBITDA). The Company has agreed to a five year
non-competition covenant. At closing, $6,480,000 was paid with the balance of
$720,000 placed in an escrow account for a ninety day period. The escrow balance
plus approximately $16,000 of interest was distributed to the Company
(approximately $365,000) and Nursefinders (approximately $374,000) at December
31, 1999. Of the amount distributed to Nursefinders, approximately $174,000
represented amounts applied to principal and interest payments due Nursefinders
by the Company pursuant to a note payable. The Company recorded a pre-tax
$5,041,000 gain on the sale. The Company filed a Current Report on Form 8-K with
the SEC on October 5, 1998 with regard to this transaction.
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 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, choses in action, rights of recovery
and rights to set-off. The liabilities assumed were those associated with the
assumed contracts. The Company provided limited support services to CPII for a
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. An
affiliate of CPII will utilize the assets to provide certain management services
to the Company's home health agencies. Due to the Company's continuing
involvement with the assets sold, the pre-tax 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 Company filed a Current
Report on Form 8-K with the SEC on November 10, 1998 with regard to this
transaction.
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. ACE acquired substantially all of the assets and liabilities of
ADME. The sales price was $672,385 of which $100,000 was paid at closing;
$418,318 is 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 is payable pursuant to a one year note, payable in four quarterly
payments of principal plus accrued interest at prime plus 2%. Total principal
and interest payments due to the Company as of March 15, 2000 totaled $359,000.
As of March 15, 2000, these payments have not been received by the Company. As a
result, the Company has fully reserved for these past due payments as of
December 31, 1999. The Company expects that this disposition will not have a
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material effect on net revenues or income of the Company.
In August 1999, the Company adopted a formal plan to sell all of its
interests in its outpatient surgery and infusion therapy divisions. The
Company's strategic plan is to become a focused home health nursing company.
Effective September 1, 1999, the Company, by an Asset Purchase
Agreement, sold certain assets, subject to the assumption of certain
liabilities, of its wholly-owned subsidiary, Amedisys Surgery Centers, L.C.
("ASC"), to United Surgical Partners International, Inc. ("USP"). The assets and
liabilities sold related to two free-standing outpatient surgery centers
operated by ASC, Amedisys Surgery Center of Pasadena and Amedisys Surgery Center
of South Houston (the "Surgery Centers"). The assets of the Surgery Centers were
acquired by two Texas Limited Partnerships organized by USP and its wholly-owned
subsidiaries. The Company and its affiliates had no material relationship with
USP prior to this transaction. In consideration for the assets of the Surgery
Centers, ASC received $11,000,000, determined using a multiple of earnings
before interest, taxes, depreciation, and amortization (EBITDA). At closing,
$10,562,000 was paid immediately to the Company with a three-month $300,000 note
receivable due in monthly installments of $100,000 plus interest at an effective
interest rate of 10%. The Company has received payments of $200,000 on this note
receivable, with the remaining balance being held pending the final sale
adjustments. In addition to cash considerations, USP agreed to pay off certain
creditors of ASC for debts related to the Surgery Centers of $1,101,083. The
Company recorded a pre-tax gain of $9,417,000 as a result of this transaction.
The Company filed a Current Report on Form 8-K with the SEC on September 15,
1999 with regard to this transaction.
Effective September 1, 1999, the Company sold 19.02 units of its 42
units (each unit represents a 1% interest) in East Houston Surgery Center Ltd.
and EHSC Management Company, LLC to thirteen physician investors for $180,000
cash. The Company recorded a pre-tax loss of $77,000 relating to the sale.
Effective December 1, 1999, ASC, by a Membership Interest Purchase
Agreement, sold all of its 67% membership interest in West Texas Ambulatory
Surgery Center, L.L.C. to U.S. Orthopedics Texas, L.L.C. ASC also assigned all
of its rights under a certain management agreement to U.S. Orthopedics, Inc. At
closing, ASC received $783,333 representing the purchase price for the
membership interest and ASC's share of the assignment of the management
agreement. ASC has agreed to a five-year non-compete covenant. The Company
recorded a pre-tax gain of $324,000 as a result of this transaction.
On March 27, 2000, the Company's Board of Directors approved the sale
of its 20% interest in Park Place Surgery Center, LLC, and outpatient surgery
center in Lafayette, Louisiana. The Company's interest is being repurchased by
the physician partners of the center. The anticipated closing date is April 17,
2000 with the purchase price of $3,200,000 payable at closing. In addition to
the sale of its interest, the Company will also relinquish its rights under a
long-term management agreement.
Summarized financial information for the discontinued operations is as
follows (in 000's):
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1999 1998 1997 1996 1995
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Staffing Division:
Service Revenue $ -- $ 12,607 $ 17,292 $ 12,538 $ 13,774
Income from Discontinued Operations
before Provision for Income Taxes $ -- $ 1,723 $ 4,139 $ 2,488 $ 2,706
Income from Discontinued Operations
Net of Income Taxes $ -- $ 1,137 $ 2,732 $ 1,642 $ 1,786
Management Services Division:
Service Revenue $ -- $ 890 3,171 $ 1,274 $ 868
Income (loss) from Discontinued
Operations before Provision for Income
Taxes $ (61) $ (616) $ 1,428 $ 549 $ 103
Income (loss) from Discontinued
Operations Net of Income Taxes $ (40) $ (407) $ 943 $ 362 $ 68
</TABLE>
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1999 1998 1997 1996 1995
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Outpatient Surgery Division:
Service Revenue $ 7,076 $ 6,364 $ 6,415 $ 4,626 $ 4,626
Income (loss) from Discontinued
Operations before Provision for
Income Taxes $ 1,421 $ 332 $ (1,503) $ 983 $ 324
Income (loss) from Discontinued
Operations Net of Income Taxes $ 938 $ 219 $ (992) $ 649 $ 214
Infusion Therapy Division:
Service Revenue $ 7,616 $ 5,572 $ 7 $ -- $ --
Income (loss) from Discontinued
Operations before Provision for
Income Taxes $ (1,572) $ (3,469) $ (307) $ -- $ --
Income (loss) from Discontinued
Operations Net of Income Taxes $ (1,037) $ (2,290) $ (203) $ -- $ --
Total Discontinued Operations:
Service Revenue $ 14,691 $ 24,913 $ 26,757 $ 18,439 $ 19,268
Income (loss) from Discontinued
Operations before Provision for
Income Taxes $ (212) $ (2,027) $ 3,503 $ 4,020 $ 3,133
Income (loss) from Discontinued
Operations Net of Income Taxes $ (140) $ (1,338) $ 2,312 $ 2,653 $ 2,068
</TABLE>
Included in the accompanying Consolidated Balance Sheets as of December
31, 1999 and 1998 are the following assets and liabilities relating to the
discontinued operations (in 000's):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
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Cash $ 221 $ 185
Accounts Receivable 555 1,163
Prepaid Expenses 41 99
Inventory 365 658
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Current Assets Held for Sale $1,182 $2,105
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Property $1,711 $4,784
Other Assets 1,813 2,335
Investments 738 689
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Long-term Assets Held for Sale $4,262 $7,808
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<TABLE>
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December 31, 1999 December 31, 1998
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Accounts Payable $ 138 $ 445
Accrued Payroll 44 81
Accrued Insurance -- 35
Accrued Other 38 181
Notes Payable 288 527
Current Portion of Long-term Debt 209 380
Current Portion of Obligations
Under Capital Leases 89 220
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Current Liabilities Held for Sale $ 806 $1,869
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Long-term Debt $1,252 $2,321
Obligations under Capital Leases 23 590
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Long-term Liabilities Held for Sale $1,275 $2,911
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</TABLE>
RECENT REMODIFICATION OF LOAN
Effective September 30, 1999, the Company and Columbia/HCA signed an
agreement to modify the terms of a $14 million note payable to Columbia/HCA
which was a result of the acquisition of home health agencies consummated in
November 1998. The Company will make quarterly principal and accrued interest
payments beginning April 30, 2001, with the balance of the note being due,
subject to certain prepayment provisions in the agreement, on July 31, 2004.
Under the loan modification agreement, the Company may be required to pre-pay
certain amounts depending upon the Company having excess cash flows in the
fiscal year, as defined in the agreement. These amounts if due are payable
within 45 days after the end of each fiscal year ending after October 1, 1999
and prior to July 30, 2004. The balance on this note is presented in the
accompanying financial statements as long-term debt classified as current due to
a material adverse effect clause in the note agreement which provides
Columbia/HCA the ability to require immediate payment of outstanding principal
and accrued interest should the Company experience a material adverse change. A
material adverse change includes, but is not limited to a material and adverse
change in the Company's financial condition, business operations, or the
value of the secured collateral.
SEGMENT INFORMATION
The Company's principal source of revenue is derived from home health
care services. The Company's Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997, attached hereto and referenced in Item 8
herein and the "Dispositions and Discontinued Operations" section stated above,
contains financial information on this segment. The financial information for
the years ended December 31, 1998, 1997, 1996 and 1995 have been restated as a
result of the Company's decision to reflect its staffing, management services,
outpatient surgery, and infusion therapy divisions as discontinued operations.
Financial information on the segments treated as discontinued operations is
stated above.
INDUSTRY OVERVIEW
As national health care spending continues to outpace the rate of
inflation and the population of older Americans increases at a faster rate,
alternatives to costly hospital stays will be in even greater demand. 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 health care has evolved as an acceptable and often
preferred alternative in this continuum. In addition to patient comfort and
convenience, substantial cost savings can usually be realized through treatment
at home as an alternative to traditional institutional settings. The continuing
economic pressures within the health care industry and the reimbursement changes
dictated by the Balanced Budget Act of 1997 ("BBA"), have forced providers of
home health care services to closely examine and modify the manner in which they
provide patient care and services. To survive under the Interim Payment System
("IPS"), companies are challenged with streamlining operations and modifying
staffing models to manage costs and operate successfully.
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Traditionally, the home health care industry has been highly
fragmented, comprised primarily of "mom and pop" local home health agencies
offering limited services. These local providers often do not have the capital
necessary to expand their operations or services and are often not able to
achieve the efficiencies to compete effectively. With the implementation of IPS
and other provisions of the BBA, the home health care industry is experiencing
major consolidation for the first time in its history.
STRATEGY
The Company's business objective is to enhance its position in its
geographic market areas as a leading provider of high quality, low cost home
health nursing services. To accomplish this, it will do the following:
Internal Growth Strategy
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 allows it to attract and retain highly skilled and experienced
people in its markets.
Expand Its Service Base. The Company is targeting selected markets in
the southern and southeastern United States. Through the expansion of
its services and development of niche programs, it plans to dominate
these markets, to increase utilization of its services by payors and
referral sources, and to enhance its overall market position.
Expand Its Referral Base. It is anticipated that revenue growth will be
spurred by the Company's strategy to employ sales account executives
whose sole focus will be to expand its referral base, so the Company is
not dependent on a few physician groups in any given market.
Capitalize on the Closure of Competitive Agencies. Keeping a pulse on
agency closures (as a result of the Balanced Budget Act of 1997) and
understanding referral patterns in each of its markets allows the
Company the opportunity to gain market share with no acquisition costs.
Manage Costs Through Disease State Management. Payors are focusing on
the management of patients who suffer from chronic diseases which
represent substantial long-term costs. In July, 1999 the Company
introduced a wound care disease state management program; in September,
1999 a cardiac disease state management program; and in November, 1999
a disease state management program for diabetics. The Company estimates
that approximately 50% of its patients are represented in these three
groups. In addition, there are a number of other programs which have
been identified for development in 2000 which include ortho/rehab, pain
management, pulmonary/respiratory, pneumonia, cardio vascular accident
(CVA), and cancer. The Company's disease state management programs
include patient and family education and empowerment, frequent
monitoring and coordinated care with other medical professionals
involved in the care of the patient.
Manage Costs Through Technology. The Company utilizes a software system
that it developed internally which reduces its cost to operate its
business and integrates a number of financial and operating functions
into a single entry system. The software system was sold to CPII in
1998. The Company is currently utilizing the software pursuant to a
licensing agreement with CPII which expires in 2003. By enhancing its
operations through the use of information technology and expanded
computer applications, the Company is positioned to not only operate
more efficiently, but to compete in an environment increasingly
influenced by cost containment.
External Growth Strategy
The Company's external growth strategy is to continue expansion through
acquisitions, subject to certain limitations on acquisitions and the
incurrence of additional indebtedness imposed under the credit
agreement executed between the Company and Columbia/HCA. Home health
nursing companies are currently undervalued
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and provide excellent opportunities to gain additional market share.
The Company's acquisition strategy is to:
Focus on Large Hospital Systems with Internal Home Health Agencies.
PPS, which was introduced in October 1999, eliminates the opportunities
for cost-shifting by hospitals. Many hospitals are no longer interested
in participating in the home health business. As a result, many have
made the decision or are in the process of deciding, to sell their
agencies or partner with a reputable company to provide these services.
This not only provides the Company with the opportunity to acquire
quality agencies, but to acquire agencies with strong physician
referral bases.
Target Large, Multi-Site Agencies. By acquiring multi-site agencies and
eliminating their corporate structure, the Company hopes to rapidly
dominate a market by either layering the new business into their
current agencies, enhancing current market share or expanding its
coverage to contiguous markets.
Concentrate on Metropolitan Areas. Metropolitan-based agencies are
principal targets due to the synergies created by large patient
populations located close together.
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.
The Company currently operates 50 home health care nursing offices
consisting of 26 parent offices with Medicare provider numbers, and 24 branch
offices. Serving this market for the past 8 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 health care nursing services
are attractive to payors and physicians. All of its offices are accredited or in
process of seeking 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,
restore range of motion and help patients 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 and patients
who are responsible for co-payments for their procedures. Facility fees are
lower than similar hospital
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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.
During 1999, the Company sold three of its operations, while retaining
ownership interests in three Centers. Each of its Centers are at the forefront
of technology for a variety of outpatient 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 seeking re-accreditation by the
Accreditation Association of Ambulatory Health Care and staffed with talented
and experienced multi-disciplinary teams, allowing them to enjoy an excellent
reputation for delivering outstanding patient care.
The Company's strategy is to divest entirely of this service division
in 2000.
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.
The Company currently operates four offices and offers a large range 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.
Referrals for these and other therapies are received primarily from
managed care organizations and specialty physicians.
The Company's strategy is to divest entirely of this service division
in 2000.
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.
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MEDICARE REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING
The Company derived approximately 90% of its revenues from continuing
operations from the Medicare system for year ended December 31, 1999. In 1997,
Congress approved the BBA, which established IPS that provided for the lowering
of reimbursement limits for home health visits until PPS was implemented. 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
national median costs of freestanding home health agencies, or (iii) a per
beneficiary limit 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 existed for a twelve month cost report period ending in Federal FY 1994.
The Company currently has agencies that qualify as "old" providers and agencies
that qualify as "new" providers under the new guidelines. An old provider per
beneficiary limit was based on 75% of 98% of the 1994 agency cost adjusted for
inflation, plus 25% of 98% of a regional average as determined by Health Care
Financing Administration ("HCFA"). A new provider per beneficiary limit 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 ended on or
after October 1, 1997 was published by HCFA in January, 1998 and the schedule of
per-beneficiary limits for cost reporting periods beginning on or after October
1, 1997 was published in March, 1998, by HCFA. The new IPS cost limits apply to
the Company for the cost reporting periods beginning January 1, 1998 and will
remain in effect until the implementation of PPS, on October 1, 2000.
As a result of these reimbursement changes, a significant
restructuring effort by the Company was completed during 1998, resulting in
office reorganizations, consolidations, and closures as it transitioned to IPS.
After the acquisition of certain home health care agencies from Columbia/HCA in
November and December, 1998, a similar restructuring effort was implemented in
an overall effort to reduce costs and improve efficiencies, while maintaining
the same high quality of patient care.
In October 1999, HCFA issued proposed regulations for PPS which will be
effective for all Medicare-certified home health agencies on October 1, 2000.
The proposed regulations establish payments based on episodes of care. An
episode is defined as a length of care up to sixty days with multiple continuous
episodes allowed under the rule. A standard episode payment has been established
at $2,037 per episode, to be adjusted by a case mix adjuster and the applicable
geographic wage index. Episode payments will be made to providers regardless of
the cost to provide care. Consequently, the Company expects that home health
agencies will have the opportunity to become profitable under this system.
However, there can be no assurances that Medicare reimbursement laws, rules and
regulations will not be interpreted or modified in the future in a manner
adverse to the Company's business and future plans.
As the home care industry faces continued changes in reimbursement
structure, Amedisys is committed to improving and streamlining systems and
taking appropriate actions to offset these changes, creating a company focused
on long-term growth.
DATA PROCESSING
In connection with the acquisition of the home health care 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 of Service Agreement whereby the
Company agreed to act as guarantor for each Agency Service Agreement between
CareSouth and all 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, and collection services for the home
health agencies.
The Company continues to use its internally-developed home health care
software program which was sold in November 1998, in accordance with a license
agreement with CPII, which expires in 2003. 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 nursing services. It also provides
clinical documentation for tracking clinical outcome results.
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<PAGE> 12
The Company has signed an agreement with Focus on Therapeutic Outcomes,
Inc. to perform outcomes analysis and clinical bench marking to comply with
regulatory requirements.
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 and improvement programs, a corporate compliance
program, and 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 JCAHO as well as state and federal guidelines for Medicare and Medicaid
licensure and compliance.
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 the Company's
employees. Additionally, the quality management team works in association with
the corporate compliance officer to perform audits and conduct education to
ensure the field staff's knowledge and compliance with state and federal laws
and regulations.
YEAR 2000 COMPLIANCE ISSUES
The Company has suffered no down time in its computer operations, nor
has it suffered any material business interruptions to date with any of its
significant trading partners as a result of Year 2000 related problems. Costs to
achieve the Company's Year 2000 compliance and monitor the readiness of the
Company's significant trading partners have been minimal. The Company is
continuing to monitor its systems for any problems that may occur, but does not
anticipate any material disruption.
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 401(k) plan, and a cafeteria
plan.
Uniform procedures for screening, testing, and verifying references,
including criminal background checks where appropriate, have been established.
All employees receive a formalized orientation program, including
familiarization with the Company's policies and procedures.
The Company believes that it is in compliance with all Department of
Labor 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. The Company's home health care subsidiaries are certified by HCFA
and are therefore eligible to receive reimbursement for services through the
Medicare system. As a provider under the Medicare and Medicaid systems, 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
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<PAGE> 13
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 designed to obtain the referral of patients to a
particular provider.
Congress adopted legislation in 1989, known as the "Stark" Law, that
generally prohibits a physician from 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 exception is available. Additional legislation
became effective as of January 1, 1993 known 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 but
not limited to 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 designated health 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.
Congress adopted additional legislation in 1996 known as the Health
Insurance Portability and Accountability Act (HIPAA) which requires health care
providers to assure the confidentiality and security of individually
identifiable health care information. Currently, the Secretary of Health and
Human Services has promulgated a proposed rule in this connection, compliance
with which will require significant time and resources of the Company.
Violations of the Final Rule will trigger civil monetary penalties, criminal
fines and/or imprisonment.
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 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
(MCOs) 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 care companies
will only contract with accredited centers. All of the Company's ambulatory
surgery centers have been or are in the process of seeking re-accreditation 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 and fulfill its business
objective 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 levels. Home health care providers compete
for referrals based primarily on scope and quality of services, geographic
coverage, pricing, and outcomes data. The impact of competitors is best
determined on a market-by-market basis.
The Company believes its favorable competitive position is attributable
to its reputation for over a decade of consistent, high quality care; its
comprehensive range of services; its state-of-the-art information management
systems; and its widespread service network.
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<PAGE> 14
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, 1999, the Company had 1,227 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, senior vice presidents and vice presidents); office administrators;
nursing directors; controllers; accountants; sales executives; licensed and
certified professional staff (RNs, LPNs, 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
eligible for bonuses 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 a
re-insurance 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 401(k)
retirement plan, a Cafeteria 125 plan, an Employee Stock Purchase Plan, and an
Employee Stock Option Plan.
The Company believes its employee relations are good. It successfully
recruits employees and some 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. For the years ended December 31, 1995 through
December 31, 1998, the Company was approved through the State of Louisiana to
self-insure its workers' compensation program. All other states were 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.
ITEM 2. PROPERTIES
The Company operates 50 home care nursing offices, 3 ambulatory surgery
centers, 4 home infusion therapy locations, and 2 corporate offices in the
southern and southeastern United States. The Company presently leases
approximately 11,861 square feet located at 3029 South Sherwood Forest
Boulevard, Baton Rouge, Louisiana and 17,981 square feet located at 11100 Mead
Road, Baton Rouge, Louisiana, representing the corporate offices. These leases
provide for a basic annual rental rate of approximately $12 per square foot for
the Sherwood Forest office and $14.50 per square foot for the Mead Road office
through their expiration date on September 30, 2002. The Company has an
aggregate of 326,612 square feet of leased space for regional offices pursuant
to leases which expire between March, 2000 and October, 2011. Rental rates for
these regional offices range from $2 per square foot to $26 per square foot with
an average of $11 per square foot. During 1999, the Company consolidated offices
that covered 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.
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<PAGE> 15
The following is a list of the Company's offices. Unless otherwise
indicated, the Company has one office in each city.
<TABLE>
<S> <C> <C>
Georgia (19) Louisiana (10) Virginia (1)
- ------------ -------------- ------------
Atlanta Alexandria Gate City
Cartersville (2) Baton Rouge (4)
Cedartown Hammond North Carolina (2)
Clayton Lafayette (2) ------------------
Covington Metairie Chapel Hill
Dalton Monroe Raleigh
Decatur
Douglasville Tennessee (13) Oklahoma (6)
Fayetteville -------------- ------------
Forest Park Athens Claremore
Ft. Oglethorpe Bristol Gore
Gainesville Carthage Hominy
Lavonia Chattanooga Stilwell
Lawrenceville Ducktown Tahlequah
Macon Johnson City Tulsa
Rome Kingsport
Summerville Livingston Alabama (4)
Toccoa McMinnville -----------
Nashville Demopolis
Texas (3) Pikeville Huntsville
- --------- Portland Montgomery
Dallas Winchester Selma
Houston
San Antonio Florida (1)
-----------
St. Petersburgh
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are defendants in
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.
The Company has filed separate lawsuits against Mr. James P. Cefaratti,
the Company's former President and Chief Operations Officer and Mr. Stephen L.
Taglianetti, the former President of the Company's alternate site infusion
division alleging various negligent actions which constituted breaches of
fiduciary duty owed to the Company and its stockholders. The lawsuits against
Messrs. Cefaratti and Taglianetti were initially filed in the 19th Judicial
District Court of the Parish of East Baton Rouge, State of Louisiana on November
24, 1998 and November 19, 1998, respectively. The lawsuits have since been
removed and are now pending in the United States District Court for the Middle
District of Louisiana. The Company is seeking damages incurred as a result of
the negligent actions and all other appropriate relief.
On December 7, 1998, Mr. Cefaratti filed a lawsuit naming the Company
as a defendant and claiming that he was terminated in violation of an alleged
employment contract. Mr. Taglianetti has also, on December 11, 1998, sued the
Company claiming that he was terminated in violation of an alleged employment
contract and for reporting alleged illegal billing practices. Other ex-employees
of the Company which have filed lawsuits against the Company claiming breaches
of alleged employment contracts include Ms. Judi M. McQueary, the former
President of the Company's managed care division, (filed on December 11, 1998),
Mr. William G. Hardee, the former Vice-President of the Company's southeastern
alternate site infusion division (filed on December 11, 1998) and Mr. Charles M.
McCall, the former President of the supplemental staffing division of the
Company (filed on December 29, 1998).
With the exception of Mr. McCall's lawsuit which was filed in the 19th
Judicial District Court of the Parish of East Baton Rouge, State of Louisiana,
all of the above mentioned lawsuits filed by the ex-employees of the Company
were initially filed in the United States District Court for the Eastern
District of Louisiana and were consolidated together as one lawsuit. All the
said lawsuits have now been transferred to the United States District Court for
the Middle District of Louisiana and severed to be tried separately. With the
exception of the McCall lawsuit, the Chief Executive Officer of the Company, and
its directors and officers liability insurer have also been named as defendants
in all the abovementioned lawsuits. The relief sought in all these cases are
contract damages, penalty wages, costs, and attorney fees.
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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 1999.
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 27, 2000, there were
approximately 136 holders of record of the Company's Common Stock and the
Company believes there are approximately 845 beneficial holders. The Company has
not paid any dividends on its Common Stock since inception and expects to retain
any future earnings for use in its business development for the foreseeable
future. The Company has contractually agreed that until such time as its
indebtedness to Columbia/HCA of $15,461,000 as of December 31, 1999 is paid in
full, it will not declare nor pay any dividends or purchase, redeem, or
otherwise acquire any of its stock now or hereafter outstanding, nor return any
capital to its stockholders or make any distribution of its assets to its
stockholders. The following table provides the high and low prices of the
Company's Common Stock during 1998, 1999, and the first quarter of 2000 through
March 13 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 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
1st Quarter 1999 $ 2 1/2 $ 2
2nd Quarter 1999 2 5/16 1 1/2
3rd Quarter 1999 1 15/16 1 1/8
4th Quarter 1999 1 3/5 1 5/16
1st Quarter 2000 (through March 27) $ 3 1/8 $ 1 5/16
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below are derived
from audited financial statements for the years ended December 31, 1995 through
December 31, 1999, with the exception of proforma information stated below,
which is unaudited. Selected financial data for the years ended December 31,
1995 through December 31, 1998 have been restated for discontinued operations
(see "Dispositions and Discontinued Operations" section discussed in Item 1).
The financial data for the years ended December 31, 1999 and 1998 should be read
in conjunction with the consolidated financial statements and related notes
attached hereto, the information set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and other financial
information included herein.
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<PAGE> 17
<TABLE>
<CAPTION>
Selected Historical Statement of 1999 1998 (3) 1997 (3) 1996 (3) 1995(2)(3)
Income Data Restated Restated Restated Restated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Net Service Revenue $ 97,411 $ 25,466 $ 25,810 $ 25,500 $ 17,914
Cost of Service Revenue 46,890 17,569 14,567 14,509 10,222
-------- -------- -------- -------- --------
Gross Margin 50,521 7,897 11,243 10,991 7,692
General/Administrative Expenses 53,146 33,510 15,125 12,959 8,982
-------- -------- -------- -------- --------
Operating Income (Loss) (2,625) (25,613) (3,882) (1,968) (1,290)
Other Income and Expense (5,291) (1,196) (720) (1,309) (268)
Income Tax Expense (Benefit) 3,263 99 1,148 642 432
-------- -------- -------- -------- --------
Income (Loss) before Minority Interest,
Cumulative Effect of Change in Accounting
Principle, and Discontinued Operations (4,653) (26,710) (3,454) (2,635) (1,126)
Minority Interest -- -- -- -- --
-------- -------- -------- -------- --------
Income (Loss) before Cumulative Effect of
Change in Account Principle and
Discontinued Operations (4,653) (26,710) (3,454) (2,635) (1,126)
Cumulative Effect of Change in
Accounting Principle -- -- (52) -- --
Discontinued Operations:
Income (Loss) from Discontinued
operations, Net of Income Tax(1) (212) (1,338) 2,312 2,653 2,068
Gain on Dispositions, Net of Income Taxes 6,165 3,177 -- -- --
-------- -------- -------- -------- --------
Net Income (Loss) $ 1,300 $(24,871) $ (1,194) $ 18 $ 942
======== ======== ======== ======== ========
Weighted Avg. Common Shares
Outstanding 3,093 3,061 2,735 2,575 2,570
======== ======== ======== ======== ========
Basic Earning (Loss) per Common Share:
Outstanding
Net (Loss) before Discontinued Operations $ (1.50) $ (8.72) $ (1.26) $ (1.02) $ (0.43)
Cumulative Effect of Change in
Accounting Principle -- -- (0.02) -- --
Income (Loss) from Discontinued
Operations, Net of Income Tax (0.07) (0.44) 0.85 1.03 0.80
Gain on Disposition, Net of Income Tax 1.99 1.04 -- -- --
-------- -------- -------- -------- --------
Net Income (Loss) 0.42 (8.12) (0.43) 0.01 0.37
======== ======== ======== ======== ========
Proforma Information (Unaudited): (2)
Net Income (Loss) (Historical) $ 1,300 $(24,871) $ (1,194) $ 18 $ 942
Proforma adjustments:
Income Taxes on SCC Results -- -- -- -- 191
-------- -------- -------- -------- --------
Proforma Net Income (Loss) $ 1,300 $(24,871) $ (1,194) $ 18 $ 751
-------- -------- -------- -------- --------
Proforma Earnings (Losses) / Common
Share $ 0.42 $ (8.12) $ (0.43) $ 0.01 $ 0.29
======== ======== ======== ======== ========
Balance Sheet Data:
Total Assets $ 42,084 $ 44,428 $ 22,870 $ 16,858 $ 11,537
Total Long-term Obligations $ 10,521 $ 14,394 3,129 $ 3,223 $ 1,490
Total Convertible Preferred Stock $ 1 $ 1 $ 1 $ -- $ --
</TABLE>
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<PAGE> 18
(1) See "Discontinued Operations" discussion in Item 1.
(2) 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.
(3) Selected Financial Data for the years ended December 31, 1995 through
December 31, 1998 have been restated for discontinued operations. See
"Dispositions and Discontinued Operations" section discussed in Item 1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the Consolidated Financial Statements and notes
thereto referenced in Item 8.
GENERAL
Amedisys is a leading multi-regional provider of home health care
nursing services. The Company operates 50 home care nursing offices, 3
ambulatory surgery centers, 4 home infusion therapy locations, and 2 corporate
offices in the southern and southeastern United States.
During 1999, the Company changed its strategy from providing a variety
of alternate site provider health care services to becoming a leader in home
health care nursing services. The Company's change of focus was largely
attributed to its significant investment in this segment as a result of its
acquisition of 83 home care offices from Columbia/HCA Healthcare Corporation
("Columbia/HCA") in late 1998. A second major factor was that the governmental
reimbursement changes in the Medicare system will allow home care the
opportunity to be profitable after the Prospective Payment System ("PPS") is
implemented in October 2000. A third significant factor was the Company's
established reputation and expertise in the field. Amedisys has over a decade of
experience in home care nursing and was an early innovator in bringing
technology, previously used only in acute care settings, to the home as well as
providing traditional home care services. Pursuant to this strategy, the Company
launched a restructuring plan to divest its non-home health care nursing
divisions. The Company sold three of its six surgery centers in 1999 and expects
to divest of the remaining three surgery centers and four infusion locations
during 2000.
The Company is continuing to systematically reduce its operating costs.
Converting its method of nurse pay to a variable or per visit rate rather than
fixed or salary system, utilizing economies of scale, and reducing corporate
overhead are significant cost reduction measures undertaken by the Company.
Business functions which are not considered part of the core business have been
outsourced and management layers have been streamlined.
The Company is also positioning its offices to provide services under
PPS without sacrificing quality of care. To ensure quality and standardized
care, the Company has implemented disease state management programs and clinical
protocols as well as supporting technology to monitor and report outcome data.
Using case managers to assess and track patient progress and highly skilled
nurses to deliver care are also important components of the overall plan.
The Company has experienced significant recurring operational losses and
had negative cash flow from operations for the periods ending December 31, 1999,
1998, and 1997. As indicated above, the Company plans to divest its ownership of
the remaining ambulatory surgery centers and infusion therapy sites to generate
cash to offset part of the operating cash deficits that will be created in the
first three quarters of 2000. See "Liquidity and Capital Resources" section of
this Item for further discussion.
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:
Page 18
<PAGE> 19
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net services revenues 100.00% 100.00% 100.00%
Cost of service revenues 48.14 68.99 56.44
------- ------- -------
Gross margin 51.86 31.01 43.56
General and administrative expenses:
Salaries and benefits 30.89 61.89 35.15
Other 23.67 69.70 23.45
------- ------- -------
Total general and administrative expenses 54.56 131.59 58.60
------- ------- -------
Operating (loss) (2.70) (100.58) (15.04)
Other income and expense (5.43) (4.70) (2.79)
------- ------- -------
Net (loss) before taxes, cumulative effect of change in accounting principle an
discontinued operations (8.13) (105.28) (17.83)
Income tax (benefit) (3.35) (0.39) (4.45)
------- ------- -------
Net (loss) before cumulative effect of change in accounting principle and
discontinued operations (4.78) (104.89) (13.38)
Cumulative effect of change in accounting principle -- -- (0.20)
Discontinued operations:
Income from discontinued operations, net of income tax (0.22) (5.25) 8.96
Gain on disposition, net of income tax 6.33 12.48 --
------- ------- -------
Net Income(loss) 1.33% (97.66% (4.62)%
======= ======= =======
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SERVICE REVENUES
For the year ended December 31, 1999 as compared to the year ended
December 31, 1998, net revenues increased $71,945,000 or 283%. This increase was
attributed to the acquisition of certain Columbia/HCA home health care agencies
in the latter part of 1998.
COST OF SERVICE REVENUES
Cost of revenues increased by 167% in 1999 as compared to 1998. This
increase is primarily attributed to the acquisition of certain Columbia/HCA home
health care agencies. As a percentage of net revenues, cost of revenues
decreased to 48% in 1999 from 69% in 1998. This decrease is attributed to cost
reduction efforts implemented during 1998 and 1999 for all operating locations.
In the home health care nursing division, all nursing employees were converted
to a per-visit payment basis, thereby increasing overall productivity.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by 59% in 1999 as
compared to 1998. This increase is primarily attributed to the acquisition of
certain Columbia/HCA home health care agencies. As a percentage of net revenues,
general and administrative expenses decreased to 55% in 1999 from 132% in 1998.
This decrease is a result of cost reduction efforts implemented during 1999 in
addition to a non-recurring write-down of goodwill in 1998 of $9,522,000 for
acquisitions completed during that year. The cost reduction efforts were for all
operating locations and corporate departments in addition to improvements in
operating efficiencies. The operating efficiencies that were gained through
these efforts helped to offset the additional resources needed following the
Columbia/HCA acquisition, resulting in a minimal increase in administrative
personnel and resources to appropriately manage and support the new home health
care agencies.
Page 19
<PAGE> 20
OPERATING (LOSS)
The Company had an operating loss of $2,625,000 in 1999 as compared to
an operating loss of $25,613,000 in 1998. The reduction in operating losses of
$22,988,000 or 90% is attributed to the restructuring efforts implemented during
1998 and 1999, the economies of scale achieved with the acquisition of certain
Columbia/HCA home health care agencies, and the non-recurring write-down of
goodwill in 1998.
OTHER INCOME/(EXPENSE)
Other income and expenses increased by $4,095,000 due to increased
interest expense of $2.7 million related to the Company's borrowings and a
write-off of goodwill of approximately $1.8 million related to the sale of
certain home health care agencies previously acquired from Columbia/HCA in the
latter part of 1998.
(BENEFIT) FOR ESTIMATED INCOME TAXES
For the year ended December 31, 1999 as compared to December 31, 1998,
income tax expense decreased from $926,000 in 1998 to $383,000 in 1999 (see Note
10 in the Notes to the Consolidated Financial Statements attached hereto). Total
income tax expense (benefit) for 1999 of $383,000 is comprised of income tax
benefit from continuing operations of $3,263,000, offset by income tax expense
from discontinued operations of $3,646,000. For 1998, total income tax expense
of $926,000 is comprised of income tax benefit from continuing operations of
$99,000, offset by income tax expense from discontinued operations of
$1,025,000.
DISCONTINUED OPERATIONS
Losses from discontinued operations, net of income taxes, amounted to
($212,000) for 1999 as compared to losses of ($1,338,000) for 1998. The gain
on disposition of $6,165,000, net of taxes, for 1999 is attributed to the sale
of three surgery centers while the gain on disposition of $3,177,000 for 1998
is attributed to the sale of the staffing division.
NET INCOME/(LOSS)
The Company recorded net income of $1,300,000, or $0.42 per common
share, for 1999 compared with a net loss of $(24,871,000), or $(8.12) per common
share, for 1998.
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 decreased to $25,466,000 from
$25,810,000, a 1% decrease. 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 "Medicare Reimbursement Reductions
and Related Restructuring" section). Visits for 1997 totaled 338,540, while for
the comparable agencies in 1998, visits decreased to 232,849, a decrease of
31.22%. Offsetting this reduction in visits were acquisitions completed in late
1998 which added 184,416 visits, of which 104,398 visits, or 57%, were
attributed to the month of December, 1998.
COST OF SERVICE REVENUES
Cost of revenues increased to $17,569,000 in 1998 from $14,567,000 in
1997, an increase of $3,002,000, or 21%. The increase is attributed to the
increase in visits from 338,540 in 1997 to 417,265 in 1998, an increase of 23%.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $33,511,000 in 1998
compared to $15,125,000 in 1997. This increase is primarily attributed to the
following factors: a write-down of goodwill for acquisitions completed in 1998
of $9,522,000 and additional expenses in the home health care nursing division
incurred as a result of acquisitions completed during the year of $5,710,637.
Page 20
<PAGE> 21
OTHER INCOME/(EXPENSE)
Other income (expense) increased to ($1,196,000) in 1998 from
($720,000) in 1997, a 66% increase. The increase is mainly attributed to
additional interest expense incurred during 1998 in connection with debt
agreements.
(BENEFIT) FOR ESTIMATED INCOME TAXES
For the year ended December 31, 1998 as compared to December 31, 1999,
income tax expense changed from ($473,000) in 1997 to $926,000 in 1998 (see Note
10 in the Notes to the Consolidated Financial Statements attached hereto). Total
income tax expense (benefit) for 1998 of $926,000 is comprised of income tax
benefit from continuing operations of $99,000, offset by income tax expense
from discontinued operations of $1,025,000. For 1997, total income tax benefit
of $473,000 is comprised of income tax benefit from continuing operations of
$1,148,000 and from a cumulative effect of a change in accounting principle of
$20,000 offset by income tax expense from discontinued operations of $695,000.
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of income taxes, amounted to
($1,338,000) for 1998 as compared to income of $2,312,000 for 1997. Gain on
disposition of $3,177,000 net of tax, is attributed to the sale of the staffing
division.
NET (LOSS)
Net (loss) increased to ($24,871,000) or ($8.12) per common share for
1998 from ($1,194,000) or ($.44) per common share in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for additional working
capital to fund current cash requirements of the Company. The Company recorded
operating losses for the years ended December 31, 1999 and 1998 and had negative
cash flow from operations for both years. The negative cash flow from operations
is largely attributable to the changes in Medicare reimbursement which were
effective January 1, 1998 for the Company. The Company has undertaken
significant restructuring efforts to reduce operating costs, but expects to
record a loss from operations through September, 2000 until the implementation
of PPS. The operating losses and negative cash flow from operations have
impacted the availability of the Company's current financing sources and have
decreased the Company's overall liquidity position. The Company expects the
negative cash flow from operations to continue on a short-term basis and has
implemented a plan to divest all non-home health care nursing assets to generate
cash to fund remaining obligations until the implementation of PPS (see below
for certain restrictions on disposition of assets under the Columbia/HCA loan
agreement).
Notes payable consists primarily of an asset-based line of credit with
availability, depending on collateral, of up to $25 million with National
Century Financial Enterprises, Inc. ("NCFE") and borrowings under a revolving
bank line of credit of $750,000. The $25 million asset-based line of credit,
which expires December, 2001, is collateralized by eligible accounts receivable
of the home health care nursing division and as of December 31, 1999, had an
outstanding balance of $4,917,000. Eligible receivables are defined as
receivables, exclusive of workers' compensation and self-pay, that are aged less
than 181 days. The effective interest rate on this line of credit, which expires
on December 31, 2001, was 15.88% for the year ended December 31, 1999. The
revolving bank line of credit of $750,000 bears interest at 9.25%. At December
31,1999, $287,776 was outstanding on the line of credit and no amounts were
available. This line of credit has scheduled monthly principal payments of
$25,000 plus accrued interest, with the balance due June 30, 2000. The line of
credit is collateralized by eligible receivables in outpatient surgery and
physician notes receivable. Eligible receivables are defined principally as
accounts that are aged less than 90 days.
In 1999, Periodic Interim Payments ("PIP") of $8.7 million belonging to
Columbia/HCA were inadvertently forwarded to the Company. These sums have been
determined by the fiscal intermediary as funds due
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<PAGE> 22
Columbia/HCA toward which the Company has made a payment of $4 million during
the third quarter of 1999. Effective September 30, 1999, the Company and
Columbia/HCA signed a note payable for the remaining balance of $4.7 million.
Subsequent to signing the note, Columbia/HCA has determined that certain
separate funds were misdirected to Columbia/HCA and were funds belonging to the
Company. These funds were offset against the note, which was canceled effective
December 31, 1999.
Long-term debt classified as current consists of a $14 million note plus
accrued interest of $1.5 million payable to Columbia/HCA as a result of the
acquisition of home health agencies consummated in November 1998. Effective
September 30, 1999, the Company and Columbia/HCA signed an agreement to modify
the terms of this note. Quarterly principal and accrued interest payments are
due beginning April 30, 2001, with the balance of the note being due, subject to
certain prepayment provisions in the agreement, on July 31, 2004. Under the loan
modification agreement, the Company may be required to pre-pay certain amounts
depending upon the Company having excess cash flows in the fiscal year as
defined in the agreement. These amounts if due are payable 45 days after the end
of each fiscal year ending after October 1, 1999 and prior to July 30, 2004. The
balance on this note is presented in the accompanying financial statements as
long-term debt classified as current due to a material adverse effect clause in
the note agreement which provides Columbia/HCA the ability to require immediate
payment of outstanding principal and accrued interest should the Company
experience a material adverse change. A material adverse change includes, but is
not limited to a material and adverse change in the Company's financial
condition, business operations, or the value of the secured collateral. The
agreement also restricts, amongst other things, the Company's ability, subject
to certain exceptions, to incur additional indebtedness, to acquire other
businesses, or to sell or transfer any of Company's property unless the net cash
proceeds is applied to repay the outstanding principal and accrued interest on
the note. Columbia/HCA has in previous occasions consented to the sale of
certain assets of the Company without requiring the Company to apply the net
cash proceeds from the sales towards the balance of the note. However, there is
no assurance that Columbia/HCA will grant its consent to any future acquisitions
or dispositions and waive the requirement to apply the net cash proceeds of the
sale to reduce the balance on the note.
Long-term debt consists primarily of a $2.6 million note payable to NPX,
Inc., an affiliate of NCFE, a $1.4 million note payable to Merrill Lynch, a
$1.1 million note payable to CareSouth Home Health Services, Inc.
("CareSouth"), and various other capital leases and notes. The $1.1 million
note payable to CareSouth, an affiliate of CPII, is a result of refinancing
amounts due under the Agency Service Agreements executed by CareSouth and the
Company's home health agencies for the provision of certain management
services. The Company makes monthly principal and interest payments of $134,000
on the $2.6 million note to NPX, Inc., which is due December, 2001. The Company
makes monthly principal and interest payments of $25,000 as a result of this
note which is due in July, 2003. The Company makes monthly principal and
interest payments of $27,000 on the $1.4 million note to Merrill Lynch, which
is secured by equipment located at the surgery centers and is due in April,
2002.
The fair value of long-term debt as of December 31, 1999 and 1998,
estimated based on the Company's current borrowing rate of 15% and 10% at
December 31, 1999 and 1998, respectively, was approximately $6,110,000 and
$7,982,000, respectively.
The Company records Medicare revenues at the lower of actual costs, the
per visit cost limit, or a per beneficiary cost limit on a individual provider
basis. Ultimate reimbursement under the Medicare program is determined upon
review of the annual cost reports. As of December 31, 1999, the Company
estimates an aggregate payable to Medicare of $11.3 million, netted against
accounts receivable, resulting from interim cash receipts in excess of expected
reimbursement. For the cost report year ended 1999, the Company has an estimated
payable of $7.3 million of which $4.5 million is payable over a 36 month period,
$1.1 million is payable over a 12 month period, and $1.7 million is expected to
be approved for a 36 month extended repayment schedule. For the cost report year
ended 1998 and prior, the Company has an estimated payable of $4.0 million due
within one year. The Medicare program has committed to the automatic approval of
a 36 month extended repayment schedule for any Medicare-certified home health
agency which submits such a request and has a payment due to Medicare as a
result of IPS, subject to certain exceptions. There can be no assurance that the
requested repayment schedule for the $1.7 million payable will be approved by
Medicare.
The Company's operating activities used $9,177,000 in cash during the
year ended December 31, 1999, whereas such activities used $3,152,000 in cash
during the year ended December 31, 1998. This increase in cash
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<PAGE> 23
used in operating activities is primarily attributable to an increase in
accounts receivable of $8,292,000; a decrease in accounts payable of $981,000,
and deferred revenue of $2,119,000; and an increase in net gain on the sale of
Company operations of $7,764,000. Offsetting this net increase in cash used by
operating activities is net income of $1,300,000, depreciation and amortization
of $3,068,000, provision for bad debts of $1,827,000 and a decrease in inventory
and other current assets of $546,000 and accrued expenses of $2,341,000. The
Company's investing activities used $748,000 for the year ended December 31,
1999, whereas investing activities provided $7,521,000 for the year ended
December 31, 1998. Cash used by investing activities for 1999 is primarily
attributed to purchases of furniture, fixtures, and equipment of $947,000.
Financing activities provided cash during 1999 of $10,963,000, whereas such
activities used $8,052,000 during 1998. This change is primarily due to proceeds
of $12,223,000 received during 1999 from the sale of Company operations offset
by proceeds from issuance of notes payable and capital leases of $2,732,000.
At December 31, 1999, the Company had negative working capital of
$10,985,000 and a stockholders' equity deficit of $26,829,000. 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 1999, 1998 and 1997. These matters, among others, raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
strategy to offset ongoing negative cash flows from continuing operations
includes divesting of its non-core assets, including three ambulatory surgery
centers and four infusion therapy sites. The Company is currently in various
stages of divesting these assets and anticipates, based on current letters of
intent, to generate in excess of $9 million cash, subject to certain
restrictions on indebtedness and dispositions of assets imposed under the credit
agreement executed between the Company and Columbia/HCA. For the 1999
divestitures, Columbia/HCA allowed the sales to occur without requiring the net
cash proceeds from the sales to be applied towards the note payable, however,
there can be no assurances that it will do so in the future. If all applicable
waivers and consent under the Columbia/HCA loan agreement are obtained, the cash
generated from the sales will be used to partially offset the operating cash
deficits which will be created throughout the first three quarters of 2000. The
Company believes that the implementation of PPS on October 1, 2000, will allow
the Company to generate positive cash flow beginning in the fourth quarter of
2000.
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, 1999.
FORWARD LOOKING STATEMENTS
When included in the Annual Report on Form 10-K or in documents
incorporated herein by reference, the words "expects", "intends", "anticipates",
"believes", "estimates", and analogous expressions are intended to identify
forward-looking statements. Such statements inherently are subject to a variety
of risks and uncertainties that could cause actual results to differ materially
from those projected. Such risks and uncertainties include, among others,
general economic and business conditions, current cash flows and operating
deficits, debt service needs, adverse changes in federal and state laws relating
to the health care industry, competition, regulatory initiatives and compliance
with governmental regulations, customer preferences and various other matters,
many of which are beyond the Company's control. These forward-looking statements
speak only as of the date of the Annual Report on Form 10-K. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or any changes in the Company's expectations with regard thereto or any
changes in events, conditions or circumstances on which any statement is based.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company does not engage in derivative financial instruments, other
financial instruments, or derivative commodity instruments for speculative or
trading/non-trading purposes.
Page 23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS
See Consolidated Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 2000 Annual
Meeting of Shareholders to be held June 22, 2000 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 AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors - The information required by this Item is
incorporated by reference to the section entitled "Election of
Directors" in the Proxy Statement.
(b) Executive Officers - The information required by this Item is
incorporated by reference to the section entitled "Executive
Officers" in the Proxy Statement.
(c) Section 16(a) Beneficial Ownership Reporting Compliance -
Section 16(a) of the Securities Exchange Act of 1934 requires
that a change in securities ownership by an officer or
director be reported to the Securities and Exchange Commission
and to the Exchange on which a company's public securities is
traded before the tenth day after the end of the month of such
change. Changes in ownership by officers and directors
occurred in 1999 by virtue of the grant of Company stock
options pursuant to the Employee Stock Option Plan and
purchase of Company stock. Some of the changes in ownership
were not reported within the requisite time period. The
Company has addressed this issue to ensure timely and
appropriate filings in the future. The information required by
this Item pursuant to Item 405 of Regulation S-K is
incorporated herein by reference to 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.
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<PAGE> 25
PART IV.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
Documents to be filed with Form 10-K:
<TABLE>
- Report of Independent Public Accountants
- Audited Consolidated Balance Sheets as of December 31, 1999
and 1998
- Audited Consolidated Statements of Operations
for the Years Ended December 31, 1999, 1998 and 1997
- Audited Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 1998, and 1997
- Audited Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998, and 1997
- Audited Notes to Financial Statements as of December 31, 1999, 1998, and 1997
(a) Exhibits.
Exhibit No. Identification of Exhibit
- ----------- -------------------------
<S> <C>
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, L.C. and Permian Surgical Care
Center, Inc. d/b/a Tanglewood Surgery Center
2.19(15) - Asset Purchase Agreement among Amedisys, Inc., Amedisys Surgery Centers, L.C. and United
</TABLE>
Page 25
<PAGE> 26
<TABLE>
<S> <C>
Surgical Partners International, Inc.
2.20(15) - Promissory Note from United Surgical Partners International, Inc.
2.21(17) - Membership Interest Purchase Agreement by and among U.S. Orthopedics, Texas, L.L.C.,
Amedisys Surgery Centers, L.C., Ambulatory Systems Development of Texas, Inc.,
Ambulatory Systems Development Corporation, and U.S. Orthopedics, Inc.
3.1(4) - Certificate of Incorporation
3.2(4) - Bylaws
4.1(4) - Certificate of Designation for the Series A Preferred Stock
4.2(7) - Common Stock Specimen
4.3(7) - Preferred Stock Specimen
4.4(7) - Form of Placement Agent's Warrant Agreement
4.5(14) - Certificate of Amendment of Certificate of Designation Specimen
4.6(14) - Series A Preferred Stock Conversion Agreement Specimen
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
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
10.7(16) - Loan Modification Agreement by and between Amedisys, Inc. and Columbia/HCA Healthcare
Corporation
18.1(12) - 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(17) - 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) Previously filed as an exhibit to the Annual Report on Form 10-K for
the year ended December 31, 1998.
(14) Previously filed as an exhibit to the Quarterly Report on Form 10-Q/A
for the period ended June 30, 1999.
(15) Previously filed as an exhibit to the Current Report on Form 8-K dated
September 15, 1999.
(16) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for
the period ended September 30, 1999.
(17) Filed herewith.
(b) Report on Form 8-K
None.
Page 26
<PAGE> 27
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 30th day of March,
2000.
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM F. BORNE Chief Executive Officer and Chairman March 30, 2000
- ----------------------- of the Board
WILLIAM F. BORNE
/s/ JOHN M. JOFFRION Principal Financial and Accounting March 30, 2000
- ----------------------- Officer
JOHN M. JOFFRION
/s/ JAKE L. NETTERVILLE Director March 30, 2000
- -----------------------
JAKE L. NETTERVILLE
Director March 30, 2000
- -----------------------
DAVID R. PITTS
/s/ PETER F. RICCHIUTI Director March 30, 2000
- -----------------------
PETER F. RICCHIUTI
/s/ RONALD A. LABORDE Director March 30, 2000
- -----------------------
RONALD A. LABORDE
</TABLE>
Page 27
<PAGE> 28
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE> 29
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, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amedisys, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
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 has experienced significant recurring losses
from operations and has a deficit in stockholders' equity of $10,186,000 at
December 31, 1999. In addition, management's current projections indicate that
continuing operations will generate negative cash flow and that certain asset
sales must take place in order to sustain operations through December 31, 2000.
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.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
March 15, 2000 (except
with respect to the
matter discussed
in Note 17, as to
which the date is
March 27, 2000)
F-2
<PAGE> 30
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(in 000's except share data)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,425 $ 387
Accounts receivable, net of allowance for doubtful accounts
of $1,294 in 1999 and $1,125 in 1998 11,426 6,293
Prepaid expenses 319 505
Inventory and other current assets 487 1,045
Current assets held for sale 1,182 2,105
-------- --------
Total current assets 14,839 10,335
NOTES RECEIVABLE FROM RELATED PARTIES (Note 11) -- 89
PROPERTY AND EQUIPMENT, NET (Notes 3 and 9) 3,439 3,790
OTHER ASSETS, NET (Note 5) 19,544 22,406
LONG-TERM ASSETS HELD FOR SALE (Notes 3, 4, 5 and 9) 4,262 7,808
-------- --------
Total assets $ 42,084 $ 44,428
======== ========
CURRENT LIABILITIES:
Accounts payable $ 4,739 $ 6,850
Accrued expenses-
Payroll and payroll taxes 6,240 5,176
Insurance (Note 13) 660 333
Income taxes 437 --
Other 3,552 4,275
Notes payable (Note 6) 4,917 18,452
Long-term debt classified as current (Note 7) 15,461 --
Notes payable to related parties (Note 11) 10 45
Current portion of long-term debt (Note 8) 2,325 2,253
Current portion of obligations under capital leases (Note 9) 402 243
Deferred revenue, current portion (Note 2) 2,119 2,119
Current liabilities held for sale 806 1,869
-------- --------
Total current liabilities 41,668 41,615
LONG-TERM DEBT (Note 8) 2,206 2,438
DEFERRED REVENUE (Note 2) 6,003 8,121
OBLIGATIONS UNDER CAPITAL LEASES (Note 9) 211 98
OTHER LONG-TERM LIABILITIES 826 826
LONG-TERM LIABILITIES HELD FOR SALE (Notes 8 and 9) 1,275 2,911
-------- --------
Total liabilities 52,189 56,009
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 13) -- --
-------- --------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 81 103
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (Note 12):
Common stock - $.001 par value; 30,000,000 shares authorized; 3,147,514
and 3,064,918 shares outstanding in 1999 and 1998, respectively 3 3
Preferred stock - $.001 par value; 5,000,000 shares authorized; 750,000
shares outstanding in 1999 and 1998 1 1
Additional paid-in capital 12,203 12,005
Treasury stock-4,167 shares at $6.00 per share (25) (25)
Retained earnings (deficit) (22,368) (23,668)
-------- --------
Total stockholders' equity (deficit) (10,186) (11,684)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 42,084 $ 44,428
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 31
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in 000's except share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INCOME:
Net service revenues $ 97,411 $ 25,466 $ 25,810
Cost of service revenues 46,890 17,569 14,567
-------- -------- --------
Operating revenues 50,521 7,897 11,243
-------- -------- --------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and benefits 30,089 15,760 9,072
Other 23,057 17,750 6,053
-------- -------- --------
Total general and administrative expenses 53,146 33,510 15,125
-------- -------- --------
Operating (loss) (2,625) (25,613) (3,882)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (3,625) (887) (592)
Interest income 66 37 28
Miscellaneous (1,732) (346) (156)
-------- -------- --------
Total other expense (5,291) (1,196) (720)
-------- -------- --------
(LOSS) BEFORE INCOME TAXES, CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE, AND
DISCONTINUED OPERATIONS (7,916) (26,809) (4,602)
INCOME TAX (BENEFIT) (Note 10) (3,263) (99) (1,148)
-------- -------- --------
Net (loss) before cumulative effect of change in
accounting principle and discontinued operations (4,653) (26,710) (3,454)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note 1)
-- -- (52)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of income
tax (212) (1,338) 2,312
Gain on dispositions, net of income tax 6,165 3,177 --
-------- -------- --------
Net income (loss) $ 1,300 $(24,871) $ (1,194)
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 3,093 3,061 2,735
-------- -------- --------
BASIC EARNINGS (LOSS) PER COMMON SHARE
(Notes 1 and 2):
(Loss) before cumulative effect of change in accounting
principle and discontinued operations $ (1.50) $ (8.72) $ (1.26)
Cumulative effect of change in accounting principle -- --
(0.02)
Income from discontinued operations, net of income tax (0.07) (0.44) 0.85
Gain on dispositions of discontinued operations, net of
income tax 1.99 1.04 --
-------- -------- --------
Net income (loss) $ 0.42 $ (8.12) $ (0.43)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 32
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in 000's, except share data)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
--------------------- --------------------- Paid-In
Shares Amount Shares Amount Capital
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 2,576,191 2 -- $ -- $ 1,916
Payments received on stock subscriptions -- -- -- -- --
Issuance of stock in connection with private
placement stock offering, acquisition, and
401(k) Plan (Notes 2, 12, and 14) 273,876 1 -- -- 1,596
Cost of private placement -- -- -- -- (110)
Purchase of treasury stock -- -- -- -- --
Issuance of preferred stock (Note 12) -- -- 400,000 1 3,999
Costs of preferred stock issuance (Note 12) -- -- -- -- (309)
Net (loss) -- -- -- -- --
--------- --------- --------- --------- ---------
BALANCE, December 31, 1997 2,850,067 $ 3 400,000 $ 1 $ 7,092
Issuance of stock in connection with
Acquisitions and 401(k) Plan (Notes 2, 12,
and 14) 214,851 -- -- -- 964
Issuance of preferred stock -- -- 350,000 -- 3,500
Costs of preferred stock issuance -- -- -- -- (256)
Issuance of stock for ESOP -- -- -- -- 705
Net (loss) -- -- -- -- --
--------- --------- --------- --------- ---------
BALANCE, December 31, 1998 3,064,918 $ 3 750,000 $ 1 $ 12,005
Issuance of stock for Employee Stock Purchase
Plan 37,701 -- -- -- 69
Issuance of stock in connection with 401(k)
Plan (Notes 2, 12, and 14) 44,895 -- -- -- 129
Net income -- -- -- -- --
--------- --------- --------- --------- ---------
BALANCE, December 31, 1999 3,147,514 $ 3 750,000 $ 1 $ 12,203
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Stock Retained Total
Subscriptions Treasury Earnings Stockholders'
Receivable Stock (Deficit) Equity
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ (1) $ -- $ 2,397 $ 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, 12, and 14) -- -- -- 1,597
Cost of private placement -- -- -- (110)
Purchase of treasury stock -- (25) (25)
Issuance of preferred stock (Note 12) -- -- -- 4,000
Costs of preferred stock issuance (Note 12) -- -- -- (309)
Net (loss) -- -- (1,194) (1,194)
--------- --------- --------- ---------
BALANCE, December 31, 1997 $ -- $ (25) $ 1,203 $ 8,274
Issuance of stock in connection with
Acquisitions and 401(k) Plan (Notes 2, 12,
and 14) -- -- -- 964
Issuance of preferred stock -- -- -- 3,500
Costs of preferred stock issuance -- -- -- (256)
Issuance of stock for ESOP -- -- -- 705
Net (loss) -- -- (24,871) (28,871)
--------- --------- --------- ---------
BALANCE, December 31, 1998 $ -- $ (25) $ (23,668) $ (11,684)
Issuance of stock for Employee Stock Purchase
Plan -- -- -- 69
Issuance of stock in connection with 401(k)
Plan (Notes 2, 12, and 14) -- -- -- 129
Net income -- -- 1,300 1,300
--------- --------- --------- ---------
BALANCE, December 31, 1999 $ -- $ (25) $ (22,368) $ (10,186)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 33
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in 000's)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,300 $(24,871) $ (1,194)
Adjustments to reconcile net income (loss) to net cash (used) provided
by operating activities-
Depreciation and amortization 3,068 1,707 1,240
Provision for bad debts 1,827 1,642 1,427
Write-off of goodwill (Note 2) -- 9,522 1,028
(Gain) loss on disposal of property and equipment (4) 208 (12)
Gain on sale of Company operations (7,764) (3,177) --
Other, net -- 13 37
Deferred income tax (benefit) expense -- 926 (566)
Minority interest 3 (9) (209)
Capitalized interest expense 1,356 -- --
Cumulative effect of change in accounting principle -- -- 326
Changes in assets and liabilities-
(Increase) in cash included in assets held for sale (36) (185)
(Increase) decrease in accounts receivable (8,292) 1,684 (2,549)
(Increase) decrease in inventory and other current assets 546 (1,043) 46
(Increase) decrease in other assets (422) 891 (406)
Increase (decrease) in accounts payable (981) 5,003 (143)
Change in deferred revenue (2,119) (353) --
Increase in accrued expenses 2,341 4,890 834
-------- -------- --------
Net cash (used) by operating activities (9,177) (3,152) (141)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Analytical Medical Systems -- 10,593 --
Increase in notes receivable -- (290) --
Proceeds from sale of property, plant and equipment 118 430 191
Purchase of property, plant and equipment (947) (3,321) (1,456)
Minority interest investment in subsidiary 81 109 24
-------- -------- --------
Net cash provided (used) by investing activities (748) 7,521 (1,241)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in purchase acquisitions -- 125 --
Cash used in purchase acquisitions -- (11,647) (465)
Cash received from sale of Company operations 12,223 -- --
Net borrowings on line of credit agreements 231 (92) 1,428
Proceeds from issuance of notes payable and capital leases 1,152 4,000 992
Payments on notes payable and capital leases (2,732) (3,845) (1,037)
Decrease in notes payable - related parties -- -- (1)
(Increase) decrease in notes receivable - related parties 89 163 (62)
Proceeds from issuance of stock -- 3,244 4,518
Payments received on stock subscriptions receivable -- -- 1
Purchase of treasury stock -- -- (25)
-------- -------- --------
Net cash provided (used) by financing activities 10,963 (8,052) 5,349
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,038 (3,683) 3,967
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 387 4,070 103
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,425 $ 387 $ 4,070
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (See also Note 2):
Cash payments for-
Interest $ 2,573 $ 914 $ 846
======== ======== ========
Income taxes $ -- $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 34
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Organization and Operations
Amedisys, Inc. and subsidiaries (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. Effective September 1,
1999, the Company disposed of two ambulatory surgery centers. Effective December
1, 1999, the Company disposed of their interest in one ambulatory surgery center
(See Note 2).
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced
significant recurring losses from operations and has a deficit in stockholders'
equity of $10,186,000 at December 31, 1999. In addition, management's current
projections indicate that continuing operations will generate negative cash flow
and that certain asset sales must take place in order to sustain operations
through December 31, 2000. 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 discussed below. The financial statements do not
include any adjustments relating to the recoverability of classification or
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 Company's strategy to offset ongoing negative cash flows from continuing
operations includes divesting its non-core assets, including three ambulatory
surgery centers and four infusion therapy sites. The Company is currently in
various stages of divesting these assets and anticipates, based on current
letters of intent, to generate in excess of $9 million cash, subject to certain
releases of indebtedness imposed under the credit agreement executed between the
Company and Columbia/HCA. The cash generated from the sales, net of amount
required to be paid pursuant to debt agreements, if any, will be used to offset
the anticipated operating cash deficits throughout the first three quarters of
2000. The Company believes that the implementation of the Prospective Payment
System ("PPS") on October 1, 2000 will allow the Company to generate positive
cash flow beginning in the fourth quarter of 2000.
Use of Estimates
The accounting and reporting policies of the Company and its subsidiaries
conform with accounting principles generally accepted in the United States. 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.
F-7
<PAGE> 35
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. In October 1999, HCFA issued
proposed regulations for PPS, which will be effective for all Medicare-certified
home health agencies on October 1, 2000. The proposed regulations establish
payments based on episodes of care. An episode is defined as a length of care up
to sixty days with multiple continuous episodes allowed under the rule. A
standard episode payment has been established at $2,037 per episode, to be
adjusted by a case mix adjuster and the applicable geographic wage index.
Episode payments will be made to providers regardless of the cost to provide
care. The final regulations are expected to be released in July 2000.
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 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 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 ($1,718,000 in 1999, $1,376,000 in
1998 and $1,101,000 in 1997) 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>
F-8
<PAGE> 36
Deferred Revenue
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 proprietary software
system and home health care management division to CPII in exchange for
$11,000,000 cash. 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 five-year term of the management services agreement referred
to above. The $8,122,000 and $10,240,000 unamortized gain at December 31, 1999
and 1998, respectively, is reflected as deferred revenue in the accompanying
balance sheets.
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.
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 $52,000 (net
of a $20,000 tax benefit), is shown in the 1997 statement of operations.
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", which was amended by Statement of Financial
Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
133". 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 to have a material effect on its
financial position or results of operations. The effective date for adoption is
for fiscal quarters ending after June 15, 2000.
Earnings Per Share
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 (897,771 common shares) and convertible securities (750,000
preferred shares convertible into 2.5 million common shares) outstanding during
the periods presented (see Note 12) were not dilutive.
F-9
<PAGE> 37
Reclassifications
Certain amounts previously reported in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 presentation.
2. ACQUISITIONS AND DISPOSITIONS:
Acquisitions:
Allgood Medical Services
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 with an initially recorded
excess of the total acquisition cost over the fair value of net assets acquired
(goodwill) of $852,000. 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 in income from
discontinued operations at December 31, 1997 as required under Statement of
Financial Accounting Standard No. 121.
Alliance Home Health
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 recognized revenues totaling
approximately $1.3 million. During 1998, management decided to close
substantially all of the home health agencies acquired from Alliance based on
estimates of certain reimbursement reductions, and, accordingly, goodwill
totaling $7,228,000 recorded in connection with this acquisition was written-off
as other general and administrative expense.
PRN, Inc.
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. At
December 31, 1999, this amount was completely paid.
Infusioncare Solutions, Inc.
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. As of December 31, 1999 and 1998, the
balance outstanding on the promissory note was $11,000 and $74,000,
respectively.
F-10
<PAGE> 38
Precision Health Solutions, LLC
On February 27, 1998, the Company acquired substantially all of the assets of
Precision Health Solutions, LLC ("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. As of December 31, 1999 and 1998, the
balance outstanding on the promissory note was $23,000 and $148,000,
respectively.
Precision Home Health Care, Inc.
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. As of December 31, 1999 and 1998, the balance outstanding
on the $400,000 note payable was $90,000 and $267,000, respectively.
Tanglewood Surgery Center
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. The collateral for the note was the Company's interest in West
Texas Ambulatory Surgery Center, LLC, which was sold in December 1999. As a
result, the outstanding note was repaid.
Columbia/HCA
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 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 Planters
Bank of Louisiana plus 0.75%.
Effective September 30, 1999, the Company and Columbia/HCA signed an agreement
to modify the terms of the note. The Company will make quarterly principal and
interest payments, subject to certain prepayment provisions in the agreement,
beginning April 30, 2001, with the balance of the note being due on July 31,
2004. Under the loan modification agreement, the Company may be required to
pre-pay certain amounts which is dependent upon the Company having excess cash
flows, as defined in the agreement. These amounts may be due within 45 days
after the end of each fiscal year ending after October 1, 1999 and prior to July
30, 2004. 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. This note is classified as a current liability
in the Company's Consolidated Balance Sheets due to a Material Adverse Effect
clause in the note agreement which allows Columbia/HCA the ability to require
immediate payment of principal and accrued interest should the Company
experience a material adverse change (see Note 7). A material adverse change
includes, but is not limited to, a material change in the Company's financial
condition, business operations, or the value of the secured collateral.
F-11
<PAGE> 39
The cash portion of the consideration paid to Columbia/HCA was provided by the
Company's sale of certain assets (see below) in 1998. The assets purchased from
Columbia/HCA consisted primarily of furniture, fixtures, and equipment; prepaid
expenses; advances and deposits; inventory; 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 consisted of 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 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.
Assuming the Columbia/HCA acquisition occurred on January 1, 1998, unaudited pro
forma information for the Company for the year ended December 31, 1998, which is
not necessarily indicative of future operating results, is as follows (in 000's,
except per share information).
<TABLE>
<CAPTION>
Twelve months ended
December 31, 1998
-------------------
<S> <C>
Net Service Revenue $ 150,645
Operating (Loss) $ (50,456)
(Loss) before Discontinued Operations $ (43,292)
Net (Loss) $ (41,453)
Net (Loss) per Common Share $ (13.48)
</TABLE>
Subsequent to the acquisition, several of the home health agencies acquired were
closed or sold and accordingly, goodwill totaling approximately $1.8 million and
$2.3 million which had been recorded for these locations, was written off in
1999 and 1998, respectively. In addition, lease abandonment costs of $307,000
were recorded in 1998 as other general and administrative expense, representing
the Company's estimated cost of remaining lease obligations at these locations.
Each of the above transactions was accounted for as a purchase.
Dispositions:
Staffing Division
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 cash of $6,480,000 payable
immediately upon closing with the balance of $720,000 placed in an escrow
account for a ninety-day period. The escrow balance plus approximately $16,000
of interest was distributed to the Company (approximately $365,000) and
Nursefinders (approximately $374,000) at December 31, 1999. Of the amount
distributed to Nursefinders, approximately $174,000 represented amounts applied
to principle and interest payments due Nursefinders by the Company pursuant to a
note payable. 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 assumed were 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 in 1998.
F-12
<PAGE> 40
Analytical Medical Systems
On November 3, 1998, the Company and CPII Acquisition Corp. ("CPII") entered
into an Asset Purchase Agreement whereby the Company sold certain 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 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 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 five-year term of the management
services agreement referred to above. The $8,122,000 and $10,240,000 unamortized
gain at December 31, 1999 and 1998, respectively, is reflected as deferred
revenue in the accompanying balance sheets.
Amedisys Durable Medical Equipment, Inc
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. ACE
acquired substantially all of the assets and liabilities of ADME. 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, payable in four quarterly payments of principal plus accrued
interest at prime plus 2%. The Company expects that this disposition will not
have a material effect on net revenues or income of the Company. In accordance
with the payment terms of both notes, total principal and interest payments due
to the Company as of March 15, 2000 totaled $359,000. As of March 15, 2000, the
Company has not received these payments. As a result, the Company has fully
reserved for these past due payments as of December 31, 1999.
Amedisys Surgery Centers, LC
Effective September 1, 1999, the Company, by an Asset Purchase Agreement, sold
certain assets, subject to the assumption of certain liabilities, of its
wholly-owned subsidiary, Amedisys Surgery Centers, LC ("ASC"), to United
Surgical Partners International, Inc. ("USP"). The assets and liabilities sold
related to two free-standing outpatient surgery centers operated by ASC,
Amedisys Surgery Center of Pasadena and Amedisys Surgery Center of South Houston
(the "Surgery Centers"). The assets of the Surgery Centers were acquired by two
Texas Limited Partnerships organized by USP and its wholly-owned subsidiaries.
The Company and its affiliates had no material relationship with USP prior to
this transaction. In consideration for the assets of the Surgery Centers, ASC
received $11,000,000. At closing, $10,562,000 was paid in cash to ASC with a
three-month $300,000 note receivable due to ASC payable in monthly installments
of $100,000 plus interest at an effective interest rate of 10%. The Company has
received payments of $200,000 on this note receivable, with the remaining
balance being held pending the final purchase price adjustments. The Company has
fully reserved for this note receivable as of December 31, 1999. In addition to
cash considerations, USP agreed to pay off certain creditors of ASC for debts
related to the Surgery Centers of $1,101,083. Subject to certain exceptions, the
assets sold consisted primarily of $60,000 cash; all accounts and notes
receivable; inventory; prepaid items; land; equipment, surgical instruments,
furniture, fixtures, and leasehold improvements; office supplies; records and
files; transferable governmental licenses, permits, and authorizations; trade
names, goodwill, computer software, and operating rights; and rights in, to and
under specified licenses, contracts, leases, and agreements. The liabilities
assumed by USP include, subject to certain exclusions, the current liabilities
of ASC and the obligations and liabilities under certain leases and contracts
arising on or after September 1, 1999. The Company recorded a pre-tax gain of
$9,417,000 in 1999 as a result of this transaction.
F-13
<PAGE> 41
West Texas Ambulatory Surgery Center, LLC
Effective December 1, 1999, ASC, by a Membership Interest Purchase Agreement,
sold all of its 67% membership interest in West Texas Ambulatory Surgery Center,
LLC to U.S. Orthopedics Texas, LLC. ASC also assigned all of its rights under a
certain management agreement to U.S. Orthopedics, Inc. At closing, ASC received
$783,333 in cash representing the purchase price for the membership interest and
ASC's share of the assignment of the management agreement. ASC has agreed to a
five-year non-compete covenant. The Company recorded a pre-tax gain of $324,000
in 1999 as a result of this transaction.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of (in 000's):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land $ 58 $ 220
Buildings and leasehold improvements 359 1,285
Equipment, furniture and vehicles 7,961 10,172
Computer software 226 230
-------- --------
Total 8,604 11,907
Accumulated depreciation (3,454) (3,333)
-------- --------
Net 5,150 8,574
Net Property and equipment included in Long-term
Assets Held for Sale (1,711) (4,784)
-------- --------
Total property and equipment $ 3,439 $ 3,790
======== ========
</TABLE>
4. OTHER INVESTMENTS:
The Company has a 22.98% interest in a surgery center in Houston, Texas, which
as of December 31, 1999 has a carrying value of $282,000. As of December 31,
1998, the Company had a 42% interest in this facility with a carrying value of
$500,000. The surgery center opened in May 1998 and is managed by the Company
under a long-term management contract. Effective September 1, 1999, the Company
sold 19.02 units of its original 42 unit investment (each unit represents a 1%
interest) to thirteen physician investors for $180,000 cash. The Company
recorded a loss of $77,000 relating to the sale.
The Company developed a surgery center in Lafayette, Louisiana with a group of
physician investors which began operations in March 1999. As of December 31,
1999 and 1998, the Company's investment in the surgery center totaled $457,000
and $189,000, respectively. This investment represents a 20% interest for the
year ended December 31, 1999 and 21% interest for the year ended December 31,
1998. The Company manages the center under a management contract for a fee based
on 4% of collections.
The Company accounts for these investments using the equity method.
These investments are included in the accompanying balance sheets as of December
31, 1999 and 1998 as Long-term Assets Held for Sale.
F-14
<PAGE> 42
5. OTHER ASSETS:
Other assets include the following for the years ended December 31, 1999 and
1998 (in 000's):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Notes Receivable $ 599 $ 699
Goodwill, net of accumulated amortization of
$1,777 and $406 20,530 23,712
Deposits and Other 228 330
------- -------
Sub-total 21,357 24,741
Included in Long-term Assets Held for Sale 1,813 2,335
------- -------
Total Other Assets $19,544 $22,406
======= =======
</TABLE>
Notes receivable at December 31, 1999 and 1998 consist primarily of advances on
operating expenses and management fees for non-consolidated entities. These
reimbursements are typically received within two months.
6. NOTES PAYABLE:
Notes payable consist primarily of an asset-based line of credit with
availability, dependent on collateral, of up to $25 million with National
Century Financial Enterprises, Inc. (NCFE) and borrowings under a revolving bank
line of credit that bears interest at 9.25%. The NCFE 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 effective interest rate on this line of credit, which
had outstanding balances at December 31, 1999 and 1998 of $4,917,000 and
$1,263,000, respectively, was 15.88% for the year ended December 31, 1999.
The bank line of credit is secured by eligible accounts receivable and has
scheduled monthly principal and interest payments of $25,000 with the balance
due June 30, 2000. As of December 31, 1999 and December 31, 1998, the line of
credit had an outstanding balance of $288,000 and $528,000, respectively. The
bank line of credit balances are included in Current Liabilities Held for Sale
in the Consolidated Balance Sheets. No amounts were available at December 31,
1999. Also included in notes payable at December 31, 1998 was a $14,006,000 note
payable to Columbia/HCA which was reclassified to long-term debt classified as
current September 1, 1999 (see Note 7) and a $3,183,000 outstanding balance on
a line of credit with Union Planters Bank, which was paid off in September 1999.
The weighted average interest rate on short-term borrowings was 9.30%, 9.79% and
9.78% in 1999, 1998 and 1997, respectively.
7. LONG-TERM DEBT CLASSIFIED AS CURRENT:
Long-term debt classified as current consists of a $14,006,000 note plus accrued
interest of $1,455,000 payable to Columbia/HCA at Union Planters of Louisiana
prime plus 0.75% (8.5% at December 31, 1999) as a result of the acquisition of
home health agencies consummated in November 1998 (see Note 2).
8. LONG-TERM DEBT:
Long-term debt consists primarily of notes payable to banks and other financial
institutions that are due in monthly installments through 2004 (in 000's):
F-15
<PAGE> 43
<TABLE>
<CAPTION>
Lender: 1999 1998
- ------- -------- --------
<S> <C> <C>
Notes payable to finance and equipment
Companies that accrue interest at 5.50-20.00% $ 5,916 $ 7,301
Notes payable to banks that accrue interest
at 9.00% 76 91
-------- --------
Total 5,992 7,392
Less current portion:
Current portion of long-term debt (2,325) (2,253)
Included in current liabilities held for sale (209) (380)
Included in long-term liabilities held for sale (1,252) (2,321)
-------- --------
Long-term debt $ 2,206 $ 2,438
======== ========
</TABLE>
These borrowings are secured by equipment, vehicles and the personal guarantee
of a stockholder. Maturities of debt as of December 31, 1999 are as follows (in
000's):
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
December 31, 2000 $ 2,534
December 31, 2001 2,699
Thereafter -
</TABLE>
The fair value of long-term debt as of December 31, 1999 and 1998, estimated
based on the Company's current borrowing rate of 15% and 10% at December 31,
1999 and 1998, respectively, was approximately $6,110,000 and $7,982,000,
respectively.
9. 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 (in 000's):
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
December 31, 2000 $ 562
December 31, 2001 219
December 31, 2002 31
-----
Total future minimum lease payments 812
Amount representing interest (87)
-----
Present value of future minimum lease payments 725
-----
Current portion:
Included in current portion of obligations under
capital leases (402)
Included in current liabilities held for sale (89)
Included in long-term liabilities held for sale (23)
-----
Obligations under capital leases $ 211
=====
</TABLE>
F-16
<PAGE> 44
10. INCOME TAXES:
The Company files a consolidated federal income tax return which includes 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 (in
000's):
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Current portion $ 383 $-- $ 93
Deferred portion -- 926 (566)
----- ----- -----
$ 383 $ 926 $(473)
===== ===== =====
</TABLE>
Total income tax expense (benefit) is included in the following financial
statement captions for the years ended December 31, (in 000's):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Continuing operations $(3,263) $ (99) $(1,148)
Discontinued operations:
Income from discontinued operations 88 (839) 695
Gain on disposition of discontinued operations 3,558 1,864 --
Cumulative effect of change in accounting principle -- -- (20)
------- ------- -------
$ 383 $ 926 $ (473)
======= ======= =======
</TABLE>
Net deferred tax assets consist of the following components (in 000's):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <S> <C>
Deferred tax assets:
Receivable allowance $ 199 $ 462
Self-insurance reserves 262 139
Deferred revenue 2,842 3,584
Losses of consolidated subsidiaries not consolidated for
tax purposes, expiring beginning in 2010 297 195
Amortization of intangible assets 1,356 1,164
Expenses not currently deductible for tax purposes 535 177
Other -- 43
Deferred tax liabilities:
Property and equipment (346) (161)
Net liability for cash basis partnership for tax reporting (227) --
purposes
Less: Valuation allowance (4,918) (5,603)
------- -------
$ -- $ --
======= =======
</TABLE>
The valuation allowance was recorded against net deferred tax assets due to the
significant operating losses incurred by the Company during 1999 and 1998.
F-17
<PAGE> 45
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 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes computed on federal
statutory rate 35% 34% 34%
State income taxes 23 -- (5)
Nondeductible goodwill -- (10) --
Valuation allowance (40) (28) --
Nondeductible expenses and other 5 -- (1)
--- --- ---
Total 23% (4%) 28%
=== === ===
</TABLE>
11. RELATED PARTY TRANSACTIONS:
Notes Receivable
Notes receivable from related parties consist primarily of receivables from an
internal medicine clinic totaling approximately $89,000 at December 31, 1998.
The amounts due were collected in 1999.
Notes Payable
Notes payable to related parties at December 31, 1999 and 1998 of $10,000 and
$45,000, respectively, consist 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 $125,000 and $32,000 in 1999
and 1998 and medical directors fees to stockholders of $77,000 and $115,000 in
1999 and 1998, respectively.
Amedisys Surgery Centers, LC (ASC) paid fees to a medical foundation on behalf
of a stockholder of $4,000 and $12,000 in 1999 and 1998, respectively.
In 1999 and 1998, ASC paid $10,800 to a stockholder of the Company for equipment
rental.
12. 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-18
<PAGE> 46
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 network of outpatient health care services, including home
health care offices, infusion therapy sites and outpatient surgery centers.
Under the original placement agreement, these shares were initially 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 were initially 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. Effective February 16, 1999,
the Company amended the conversion terms through Preferred Stock Conversion
Agreements. The conversion rate was reduced to $3.00 per common share in
exchange for an agreement by these shareholders not to sell, transfer or
otherwise dispose of any Company securities until December 31, 1999. Under this
conversion agreement, the 750,000 preferred shares are convertible into
2,500,000 common shares.
Stock Options
The Company's Statutory Stock Option Plan ("the Plan") provides incentive stock
options to key employees. The Plan is administered by a Compensation Committee
(appointed by the Board of Directors) which determines, 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.
F-19
<PAGE> 47
A summary of the Company's stock options as of December 31, 1999, 1998 and 1997
and changes during each of these years follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
Wgtd. Avg. Wgtd. Avg. Wgtd. Avg.
Shares Exer. Price Shares Exer. Price Shares Exer. Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 462,051 $ 6.11 957,065 $ 6.14 288,723 $ 6.66
Granted 866,772 3.43 105,000 5.63 794,422 6.01
Exercised -- -- -- -- -- --
Cancelled/forfeited/
Expired (431,052) (5.50) (600,014) (6.08) (126,080) (6.48)
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at end of year 897,771 $ 3.84 462,051 $ 6.11 957,065 $ 6.14
=========== =========== =========== =========== =========== ===========
Exercisable at end of year 468,521 $ 4.34 273,421 $ 6.34 205,446 $ 6.49
=========== =========== =========== =========== =========== ===========
Weighted average fair value
of options granted during $ 1.34 $ 1.85 $ 1.99
the year =========== =========== ===========
</TABLE>
Of the 897,771 options outstanding at December 31, 1999, 401,750 become
exercisable in 2000 and 27,500 in 2001.
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------
Range of Number Wgtd. Avg. Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices At 12/31/99 Contractual Life Price at 12/31/99 Price
- ---------------- ------------- ------------------ -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$3.00 - $7.00 897,771 7.41 years $3.84 468,521 $4.34
</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. Pro
forma disclosures, as if the Company had adopted the cost recognition
requirements under SFAS 123 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 a
range of 99.8% to 114.4% for options issued in 1999, 53.0% for options issued in
1998, and a range of 51.23% - 53.69% for the options issued in 1997, (iii)
risk-free interest rate of a range of 5.80% - 6.21% in 1999, 5.70% in 1998, and
a range of 5.70% - 6.22% in 1997, respectively, and (iv) expected life of 3 to 9
years.
Had compensation cost for the Company's options awarded in 1995 or later 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 1999, 1998 and 1997 would approximate the pro forma amounts below (in 000's,
except share amounts):
F-20
<PAGE> 48
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ------------------------------ ------------------------------
As As As
Reported Pro forma Reported Pro forma Reported Pro forma
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 1,683 $ 1,265 $ (24,871) $ (25,565) $ (1,194) $ (1,813)
============= ============= ============= ============= ============= =============
Net income (loss) applicable
to common stockholders
$ 1,683 $ 1,265 $ (24,871) $ (25,565) $ (1,194) $ (1,813)
============= ============= ============= ============= ============= =============
Net income (loss) per
Common share $ 0.54 $ 0.41 $ (8.12) $ (8.35) $ (0.43) $ (0.66)
============= ============= ============= ============= ============= =============
</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 made 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 contributions were made for the years
ended December 31, 1999 and 1998.
Stock Purchase Plan
The Company has a plan whereby eligible employees may purchase the Company's
common stock at 85% of the lower of the market price at the time of grant or the
time of purchase. There are 1,000,000 shares reserved for this plan of which
4,489 shares were issued on at $2.44 per share for the period August 1, 1998 to
December 31, 1998, 30,822 shares were issued at $1.70 per share for the period
January 1, 1999 to June 30, 1999, and 53,524 shares were issued at $1.69 per
share for the period July 1, 1999 to December 31, 1999. At December 31, 1999,
there were 911,165 available for future offerings.
13. COMMITMENTS AND CONTINGENCIES:
Legal Proceedings
The Company has filed separate lawsuits against Mr. James P. Cefaratti, the
Company's former President and Chief Operations Officer and Mr. Stephen L.
Taglianetti, the former President of the Company's alternate site infusion
division alleging various negligent actions which constituted breaches of
fiduciary duty owed to the Company and its stockholders. The lawsuits against
Messrs. Cefaratti and Taglianetti were initially filed in the 19th Judicial
District Court of the Parish of East Baton Rouge, State of Louisiana on November
24, 1998 and November 19, 1998, respectively. The lawsuits have since been
removed and are now pending in the United States District Court for the Middle
District of Louisiana. The Company is seeking damages incurred as a result of
the negligent actions and all other appropriate relief.
F-21
<PAGE> 49
On December 7, 1998, Mr. Cefaratti filed a lawsuit naming the Company as a
defendant and claiming that he was terminated in violation of an alleged
employment contract. Mr. Taglianetti has also, on December 11, 1998, sued the
Company claiming that he was terminated in violation of an alleged employment
contract and for reporting alleged illegal billing practices. Other ex-employees
of the Company which have filed lawsuits against the Company claiming breaches
of alleged employment contracts include Ms. Judi M. McQueary, the former
President of the Company's managed care division, (filed on December 11, 1998),
Mr. William G. Hardee, the former Vice-President of the Company's southeastern
alternate site infusion division (filed on December 11, 1998) and Mr. Charles M.
McCall, the former President of the supplemental staffing division of the
Company (filed on December 29, 1998).
With the exception of Mr. McCall's lawsuit which was filed in the 19th Judicial
District Court of the Parish of East Baton Rouge, State of Louisiana, all of the
above mentioned lawsuits filed by the ex-employees of the Company were initially
filed in the United States District Court for the Eastern District of Louisiana
and were consolidated together as one lawsuit. All the said lawsuits have now
been transferred to the United States District Court for the Middle District of
Louisiana and severed to be tried separately. With the exception of the McCall
lawsuit, the Chief Executive Officer of the Company, and its directors and
officers liability insurer have also been named as defendants in all the
abovementioned lawsuits. The relief sought in all these cases are contract
damages, penalty wages, costs, and attorney fees.
Leases
The Company and its subsidiaries have leased office space at various locations
under noncancelable agreements which expire between March 31, 2000 and October
31, 2011, and require various minimum annual rentals. Total minimum rental
commitments at December 31, 1999 are due as follows (in 000's):
<TABLE>
<S> <C>
2000 $3,437
2001 2,111
2002 1,276
2003 636
2004 329
Due thereafter 2,173
</TABLE>
Rent expense for all non-cancelable operating leases was $4,860,000, $3,255,000,
and $1,706,000 for the years ended December 31, 1999, 1998 and 1997,
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 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. Effective September 1, 1999, the management agreement
was amended to exclude cost reporting services and software maintenance and
support for a corresponding decrease in fee structure. The Company pays
CareSouth $475,000 per month up to 1,760,000 visits per year after which the
Company will pay CareSouth $3.50 per visit in excess of 1,760,000 per year for
management fees under this agreement which expires in November 2, 2003.
F-22
<PAGE> 50
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. 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 $100,000 per incident are insured by third
party reinsurers. The Company has accrued a liability of approximately $644,000
and $589,000 at December 31, 1999 and 1998, 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
senior executives. Such contracts generally commit the Company to pay bonuses on
the attainment of certain operating goals and severance benefits under certain
circumstances.
Other
The Company is subject to various other types of claims and disputes arising in
the course of its business. 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.
14. 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 deductions. A matching contribution of $71,000 was made for
1997 in 1998, a matching contribution of $129,000 was made for 1998 in 1999, and
a matching contribution of approximately $612,000 will be made for 1999 in 2000.
Such contributions were made in the form of common stock of the Company, valued
based upon the fair market value of the stock as of December 31 of the
applicable year.
15. AMOUNTS DUE TO AND DUE FROM MEDICARE:
The Company records Medicare revenues at the lower of actual costs, the per
visit cost limit, or a per beneficiary cost limit on a individual provider
basis. Ultimate reimbursement under the Medicare program is determined upon
review of the annual cost reports. As of December 31, 1999, the Company
estimates an aggregate payable to Medicare of $11.3 million, netted against
accounts receivable, resulting from interim cash receipts in excess of expected
reimbursement. For the cost report year ended 1999, the Company has an estimated
payable of $7.3 million of which $4.5 million is payable over a 36-month period,
$1.1 million is payable over a 12-month period, and $1.7 million is expected to
be approved for a 36-month extended repayment schedule. For the cost report year
ended 1998 and prior, the Company has an estimated payable of $4.0 million due
within one year. The Medicare program has committed to the automatic approval of
a 36-month extended repayment schedule for any Medicare-certified home health
agency that submits such a request and has a payment due to Medicare as a result
of IPS, subject to certain exceptions. There can be no assurance that the
requested repayment schedule for the $1.7 million payable will be approved by
Medicare.
F-23
<PAGE> 51
16. UNAUDITED FINANCIAL INFORMATION:
The following table reflects the restatement of the Company's quarterly results
of operations for 1999. During the fourth quarter of 1999, the Company
reclassified program fees related to the NCFE line of credit from other general
and administrative expenses to interest expense (in 000's):
<TABLE>
<CAPTION>
Quarter Ended (Unaudited)
March 31, 1999 June 30, 1999 September 30, 1999
------------------------ -------------------------- ------------------------- December 31,
As Reported Restated As Reported Restated As Reported Restated 1999
------------- ---------- ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Expense $ (580) $ (777) $ (1,147) $ (1,916) $ (1,187) $ (2,562) $ (3,625)
Other General and
Administrative
Expense $ (7,522) $ (7,325) $(15,682) $(14,913) $(19,459) $(18,084) $(23,056)
</TABLE>
17. SUBSEQUENT EVENT (UNAUDITED):
On March 27, 2000, the Company finalized the terms for the sale of its 20%
interest in Park Place Surgery Center, LLC, an outpatient surgery center in
Lafayette, Louisiana. The Company's interest is being repurchased by the
physician investors of the center. The anticipated closing date is April 17,
2000 with the purchase price of $3,200,000 payable at the time of closing. In
addition to the sale of its interest, the Company will also relinquish its
rights under a long-term management agreement.
F-24
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.21 - Membership Interest Purchase Agreement by and among U.S. Orthopedics, Texas, L.L.C.,
Amedisys Surgery Centers, L.C., Ambulatory Systems Development of Texas, Inc.,
Ambulatory Systems Development Corporation, and U.S. Orthopedics, Inc.
27.1 - Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.21
MEMBERSHIP INTEREST PURCHASE AGREEMENT
This MEMBERSHIP INTEREST PURCHASE AGREEMENT is made and entered into as
of December 10, 1999, by and among U.S. ORTHOPEDICS TEXAS, LLC, a Texas limited
liability company ("USO"), AMEDISYS SURGERY CENTERS, L.C., a Texas limited
liability company ("ASC"), AMBULATORY SYSTEMS DEVELOPMENT OF TEXAS, INC., a
Texas corporation ("ASDT"), AMBULATORY SYSTEMS DEVELOPMENT CORPORATION, a
California corporation ("ASDC," and collectively with ASDT and ASC, the
"Members"), and for purposes of the transfer of the Management Agreement, U.S.
Orthopedics, Inc., a North Carolina corporation ("USO, Inc."). USO and the
Members are sometimes collectively referred to as the "Parties" and are
sometimes referred to herein separately as a "Party."
RECITALS
A. ASC owns sixty-seven percent (67%) of the membership interests of
West Texas Ambulatory Surgery Center, L.L.C., a Texas limited liability company
(the "LLC").
B. The LLC operates an ambulatory surgery center located in Odessa,
Texas (the "Center") which is a multi-specialty surgery center providing
orthopedic surgery, ophthalmology, otolaryngology, gynecological surgery,
urological surgery, general surgery pain management and endoscopic services.
C. The other membership interests of the LLC are owned ten percent
(10%) by ASDT, ten percent (10%) by ASDC and thirteen percent (13%) by certain
physician.
D. The Members desires to sell to USO, and USO desires to purchase from
the Members, their Interests in the LLC on the terms and subject to the
conditions hereinafter set forth.
E. ASC manages the Center pursuant to a Management Agreement (the
"Management Agreement"), a copy of which is attached hereto as Exhibit A, and
ASC will transfer to USO Inc. all of its rights under the Management Agreement
and USO, Inc. desires to assume the obligations of ASC under the Management
Agreement.
F. USO and recipients of the sums to be paid by USO hereunder, desire
to enter into a noncompete covenant for the purpose of protecting the value of
the Interests purchased by USO from the Members.
THEREFORE, the parties agree as follows:
<PAGE> 2
SECTION 1. DEFINITIONS.
1.1. DEFINITIONS. As used herein, the following terms have the
respective meanings set forth below or set forth in the Section of the Agreement
following such term:
ASC -- Introductory paragraph.
ASDC -- Introductory paragraph.
ASDT -- Introductory paragraph.
AGREEMENT -- means this Membership Interest Purchase Agreement, as
amended from time to time by the parties hereto, together with all Schedules and
Exhibits hereto.
CENTER -- Recitals.
CLOSING -- means the transfer by USO to the Members of the
consideration set forth herein, the transfer by the Members to USO of the
Membership Interest, and the consummation of the other transactions contemplated
by this Agreement to occur on the Closing Date.
CLOSING DATE -- Section 5.1.
CONTRACTS AND OTHER AGREEMENTS -- Section 6.10.
DAMAGES -- Section 10.1.
EFFECTIVE TIME -- Section 5.1.
ENVIRONMENTAL PROTECTION LAW -- means any environmental laws or
regulations of the United States, the State of Texas, and the ordinances of any
applicable county or municipality, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1981, and the Superfund Amendments
and Reauthorization Act of 1986, each as amended, and all rules and regulations
promulgated in connection therewith.
GAAP -- means generally accepted accounting principles as set forth in
the opinions, statements and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, the Financial
Accounting Standards Board and such other Persons who shall be approved by a
significant segment of the accounting profession, as in effect on the date of
any statement, report or determination that purports to be, or is required to
be, prepared or made in accordance with GAAP.
GOVERNMENTAL AUTHORITY -- Section 6.12.
INTANGIBLE PROPERTY -- Section 6.9.
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<PAGE> 3
INTEREST(S) -- means with respect to ASC, sixty-seven percent (67%),
with respect to ASDT, ten percent (10%), and with respect to ASDC, ten percent
(10%), the membership interests of the LLC.
LLC -- Recitals.
LICENSES -- Section 6.12.
LIEN -- means any lien, pledge, claim, charge, security interest or
encumbrance of any nature whatsoever.
USO -- Introductory paragraph.
MA PURCHASE PRICE -- Section 3.3.
MANAGEMENT AGREEMENT -- Recitals.
MEDICARE/MEDICAID ACCOUNTS RECEIVABLE -- means those Accounts
Receivable which are obligations of the Medicare or Medicaid programs.
NONCOMPETE PAYMENTS -- Section 12.1.
PARTY/PARTIES -- Introductory paragraph.
PERMITTED LIENS -- Section 4.1(d).
PERSON -- means an individual, sole proprietorship, partnership,
corporation, limited liability company, trust, joint venture, unincorporated
organization, or a government or agency or political subdivision thereof.
PURCHASE PRICE -- Section 3.1.
TANGIBLE PERSONAL PROPERTY -- Section 6.8.
1.2. GAAP. Where the character or amount of any asset or liability or
item of income or expense, or any other accounting computation is required to be
made hereunder, it shall be done in accordance with GAAP, consistently applied
from period to period.
SECTION 2. PURCHASE AND SALE OF INTEREST; ASSIGNMENT AND ASSUMPTION OF
MANAGEMENT AGREEMENT
2.1. SALE OF THE INTEREST. Subject to the terms and conditions of this
Agreement, at the Closing, the Members shall validly sell, assign, transfer and
convey to USO free and clear of all Liens, and USO shall purchase and accept,
the Interests.
2.2. ASSIGNMENT AND ASSUMPTION OF MANAGEMENT AGREEMENT. ASC and USO,
Inc. have agreed that ASC shall assign to USO, Inc. its rights under the
Management Agreement and
3
<PAGE> 4
USO, Inc. shall assume, perform and discharge those obligations of ASC under the
Management Agreement, but only to the extent performance or discharge of such
obligations relates to the period subsequent to the Effective Time.
SECTION 3. PURCHASE PRICE.
3.1 PURCHASE PRICE. The purchase price for the Interests shall be the
sum of $696,000 (such sum being referred to herein as the "Purchase Price"), to
be allocated to the Members as set forth on Schedule 3.1.
3.2. MANAGEMENT AGREEMENT. The purchase price for the Management
Agreement to be paid to the Members shall be $288,478 (the "MA Purchase Price"),
to be allocated to the Members as set forth on Schedule 3.2.
SECTION 4. PRE-CLOSING OBLIGATIONS.
4.1. THE MEMBER'S COVENANTS. The Members covenant and agree that during
the period from the date of this Agreement to the Closing Date, the Members
shall carry out the obligations set forth in this Section, unless USO shall have
otherwise given its prior written consent:
(a) CONDUCT OF BUSINESS. The LLC shall carry on its business
and activities diligently and in substantially the same manner as previously
carried out, without any significant reduction or change of service, and shall
not take actions outside of the ordinary course of its business.
(b) EXCLUSIVE DEALING. The Members shall not, directly or
indirectly, encourage, initiate or engage in discussions or negotiations with,
or provide any information to any Person, other than USO, concerning any merger,
consolidation or sale of substantial assets of the LLC, or the purchase or sale
of the Members' Interest in the LLC; and each shall promptly communicate to USO
any inquiries or communications concerning any such transaction which it may
receive or of which it may become aware.
(c) REVIEW OF LLC. USO may, prior to the Closing Date, through
its representatives, review the properties, books and records of LLC and its
financial and legal condition as USO deems necessary or advisable to familiarize
itself with such properties and other matters; such review shall not, however,
affect the representations and warranties made by the Members hereunder. The
Members shall permit USO and its representatives to have, after the date of
execution hereof, full access to all properties of LLC and to all the books and
records of LLC and cause the officers of LLC to furnish USO with such financial
and operating data and other information with respect to the business and
properties of LLC as USO shall from time to time reasonably request.
(d) GOVERNMENTAL FILINGS. The Members shall assist in the
making of any filings required as a condition to the consummation of the
transactions contemplated in this Agreement.
4
<PAGE> 5
4.2. EMPLOYEES. Prior to the Closing Date, ASC shall transfer to the
LLC all employment, nondisclosure, noncompetition and nonsolicitation agreements
and contracts between ASC and its employees at the Center and all rights
thereunder and copies of all information for each employee of ASC involved
directly or indirectly in Center.
SECTION 5. CLOSING.
5.1. CLOSING DATE. The Closing shall take place on December 8, 1999
("Closing Date") at the offices of Wright, Lindsey & Jennings LLP, or at such
other date or place as the parties hereto shall agree in writing. The
transactions contemplated by this Agreement shall be effective for accounting
purposes as of 12:01 A.M. (CST) on December 1, 1999.
5.2. TRANSFER OF INTEREST. At the Closing, the Members shall sell,
transfer, assign, grant, deliver and convey to USO all of the Members' Interest
in the LLC, free and clear of any and all Liens, and ASC shall transfer and
assign all of its rights under the Management Agreement to USO and USO shall
assume the obligations of ASC under the Management Agreement. The transactions
contemplated by this Agreement shall be evidenced by delivery by the Members, to
USO of certificates representing the Interest in the LLC endorsed in blank or
accompanied by duly executed assignment documents and other documents of
transfer acceptable in form and substance to USO in its judgment reasonably
exercised.
5.3. TRANSFER OF MANAGEMENT AGREEMENT. At the Closing, ASC shall sell,
transfer, assign, grant, deliver and convey to USO, Inc. all of ASC' right,
title and interest in and to the Management Agreement and USO, Inc. shall assume
all obligations under the Management Agreement pursuant to an Assignment and
Assumption Agreement.
5.4. EVIDENCE OF TRANSFER. At the Closing and thereafter, as USO may
from time to time request, the Members shall execute and deliver to USO, Inc.
such documents and instruments of conveyance as may be appropriate and shall
take or cause to be taken such actions as USO, Inc. may request in order to
accomplish the transfer of the Interest and the consummation of the matters
contemplated by this Agreement. At the Closing and thereafter, as USO may from
time to time request, the Members shall execute and deliver to USO such
documents and instruments of conveyance as may be appropriate and shall take or
cause to be taken such actions as USO may request in order to accomplish the
transfer of the Management Agreement and the consummation of the matters
contemplated by this Agreement. All such documents shall be in form and
substance reasonably satisfactory to USO. Without limiting the foregoing, the
Members agree to take all steps necessary and execute all documents necessary to
transfer all of its interest in the Medicare/Medicaid Accounts Receivable to USO
and to ensure that USO receives all proceeds from the Medicare/Medicaid Accounts
Receivable.
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MEMBERS
The Members, jointly and severally, hereby represent and warrant to USO
and agree, as of the Closing Date, as follows (when a representation or warranty
is made "to the best of the Members' knowledge" such phrase shall mean the
actual knowledge of the Members after reasonable investigation):
5
<PAGE> 6
6.1. CORPORATE. The LLC is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of Texas. The
Members have delivered to USO complete and correct copies of the LLC's Articles
or Organization and the Operating Agreement as currently in effect. The LLC has
the power and authority to own and hold its properties and to carry on its
business as now conducted, including the right to use the name, "West Texas
Ambulatory Surgery Center." The LLC does not currently use any fictitious names.
6.2. AUTHORIZATION. This Agreement and all other agreements,
certificates and instruments contemplated hereby to be executed and delivered by
the Members have been duly authorized by all necessary action of each Member.
This Agreement and each other agreement or instrument contemplated hereby to be
executed and delivered by the Members has been duly executed and delivered by
the Members, and constitutes a legal, valid and binding obligation of the
Members enforceable against the Members in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by general
principles of equity (regardless of whether such principles are considered in a
proceeding at law or in equity).
6.3. OWNERSHIP OF THE INTEREST/MANAGEMENT AGREEMENT RIGHTS. The Members
represent and warrant that it each owns that percentage of the outstanding
Interests of the LLC on Schedule 6.3 and that the only other Interests of the
LLC are listed on Schedule 6.3.1 and that there are no other Interests of the
LLC issued and outstanding. Each Members represents and warrants that he/it owns
his/its Interest free and clear of all pledges, security interests, liens,
charges, encumbrances, equities, claims, options or limitations of every kind
and has the full power to sell and transfer its Interest to USO without
obtaining the consent or approval of any other Person or Governmental Authority.
ASC has good and marketable title to its rights, title and interest in the
Management Agreement and as of the Closing Date, USO will acquire good and
marketable title to ASC's right, title and interest in the Management Agreement.
6.4. TAXES. The LLC has paid, or will pay on or prior to any applicable
due date, all income, employment, property and other taxes and duties accrued or
owed by LLC in connection with the operation of the LLC.
6.5. INSURANCE. Since its existence and through the Closing Date, LLC
has maintained, in full force and effect, (i) professional liability and
comprehensive general liability and property damage insurance coverage in the
minimum amounts and of the type set forth on Schedule 6.5, and (ii) all
necessary insurance for the protection of LLC's employees as required of
employers by the State of Texas and otherwise, including, unemployment and
worker's compensation coverage. The Members shall provide USO with certificates
issued by LLC's insurance carrier (or its agent) evidencing that the insurance
coverages described above are and have during such five-year period been in full
force and effect.
6.6. LITIGATION. The Members have set forth on Schedule 6.6 any and all
claims for professional liability or otherwise currently pending or, to the best
of the Members' knowledge, threatened against LLC, together with a description
of each such claim which either individually or in the aggregate could or will
have a material adverse affect on LLC or the Interest and LLC has been advised
by its professional liability insurance carrier that all professional liability
claims known to such insurance carrier are included on Schedule 6.6. Except as
set forth on Schedule 6.6,
6
<PAGE> 7
there are no judgments unsatisfied against LLC or consent decrees or injunctions
to which LLC is subject. LLC is not a party to any pending or, to the best of
the Members' knowledge, threatened action, suit, proceeding or investigation, at
law or in equity, or otherwise in, for or by any court or governmental board,
commission, agency, department or officer arising from the acts or omissions of
LLC or initiated thereof by such parties. To the best of any Members' knowledge,
is not subject to any claim, order, judgment, decree or governmental restriction
which adversely affects the Interest or which would prevent the consummation of
the transactions contemplated by this Agreement. There is no claim, action or
proceeding now pending or, to the best of any Members' knowledge, threatened
against LLC which will, or could (i) prevent or delay consummation of the
transactions contemplated by this Agreement, or (ii) either individually or in
the aggregate have a material adverse affect on LLC or the Interest.
6.7. REAL ESTATE. The Center (including any improvements thereto) is
sufficient and adequate to permit LLC to conduct the business of the Center as
it is presently being conducted, are in good operating condition and repair and
comply in all material respects with existing laws, including, without
limitation, all Environmental Protection Laws and all building, zoning, health,
safety or other ordinances, codes or regulations. No hazardous substances or
materials are maintained, stored or have been disposed of on any of the property
of the Center, except in compliance with Environmental Protection Laws, and
there are no underground storage tanks or asbestos-containing materials on any
of the property of the Center, except as set forth in Schedule 6.7 hereto.
6.8. TANGIBLE PERSONAL PROPERTY. Schedule 6.8 -- Tangible Personal
Property is a true and correct list of the furniture, fixtures and equipment,
useable inventories of medical and office supplies, and all other furniture,
fixtures, equipment, machinery, office supplies, warranty rights, supplies,
medical and other records, and other tangible personal property owned, leased or
used by LLC in the operation of the Center (the "Tangible Personal Property").
The Tangible Personal Property is sufficient and adequate to permit LLC to
conduct the business of the Center as it is presently being conducted, each item
of Tangible Personal Property that is material to the Center is in good
operating condition and repair, and neither LLC nor any LLC Physician has
received notice that any item of Tangible Personal Property or the use thereof
is in violation of any existing law or any building, zoning, health, safety or
other ordinance, code or regulation. LLC is not in default with respect to any
item of Tangible Personal Property purported to be leased by it, and no event
has occurred which constitutes, or with due notice or lapse of time or both may
constitute, a default under any such lease. Neither LLC nor any LLC Physician
holds any Tangible Personal Property of any other person, firm or corporation
pursuant to any consignment or similar arrangement.
6.9. INTANGIBLE PROPERTY. Schedule 6.9 -- Intangible Property is a true
and correct list of all United States and state trademarks, service marks, trade
names, patents, copyrights, trade secrets, technical data and proprietary
know-how (either registered or applied for) owned by, registered in the name of,
licensed to, or used in the business of LLC (the "Intangible Property"). Such
list includes a summary description of each such item and specifies, where
applicable, the date the license or registration was granted or applied for, the
expiration date and the current status thereof. To the best of and Members'
knowledge, there is no restriction affecting the use of any of the Intangible
Property by LLC, and no license has been granted with respect thereto. To the
best of any Members' knowledge, each item of Intangible Property is valid and in
good standing, is not currently being challenged or infringed, is not involved
in any pending or threatened administrative or judicial proceeding, and does not
conflict with any rights of any other person, firm or
7
<PAGE> 8
corporation. LLC has only operated or transacted business under its own name or
the fictitious names set forth in Schedule 6.9 -- Intangible Property.
6.10. CONTRACTS AND OTHER AGREEMENTS. The Members has described on
Schedule 6.10 -- Contracts all contracts, agreements, leases, subleases,
franchises and licenses of LLC (the "Contracts and Other Agreements") and has
furnished to USO copies and/or descriptions of all Contracts and Other
Agreements affecting the Interest being purchased, sold, or leased hereunder,
excluding Contracts and Other Agreements which are not material and which in the
aggregate provide for the expenditure of less than $2,500. All Contracts and
Other Agreements are in full force and effect, and LLC has performed all
obligations required with respect to, and neither LLC nor any LLC Physician is
in material default under, any such Contracts and Other Agreements. Neither the
execution or delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (a) conflict with, constitute a material breach,
material violation or termination of any provision of any Contracts and Other
Agreements to which LLC and/or any LLC Physician is a party or by which such
parties are bound; (b) result in the creation or imposition of any Lien against
any of the Interests; or (c) violate any law, regulation, judgment, rule, order
or any other restriction of any kind or character applicable to LLC, any LLC
Physician, or the Interest.
6.11. PERSONNEL. Schedule 6.11 is a list of all employees of ASC and/or
LLC (in relation to the Center only), the method of payment (i.e., hourly,
salaried), date of hire, the current rate of earnings of each employee, and all
written agreements with respect thereto. There has not been any (i) termination
of any "defined benefit plan" within the meaning of the Employee Retirement
Income Security Act of 1974 ("ERISA") maintained by ASC or any person, firm or
corporation ("Affiliate") which is under "common control" (within the meaning of
Section 4001(b) of ERISA) with ASC, or (ii) commencement of any proceeding to
terminate any such plan pursuant to ERISA, or otherwise or (iii) written notice
given to LLC or any Affiliate of the intention to commence or seek the
commencement of any such proceeding.
6.12. LICENSES. Schedule 6.12 is a list of all licenses, permits,
authorizations, approvals and consents (collectively, the "Licenses") ASC, LLC
and/or any LLC Physician has obtained in connection with the Center, including,
without limitation, any License required to be held or obtained in connection
with the purchase, storage or dispensing of scheduled narcotics or other
prescription drugs. To the best of any Members' knowledge, there are no other
licenses, permits, authorizations, approvals or consents required by any
federal, state, or local government or government department, agency, board,
commission, bureau or instrumentality (collectively, "Governmental Authority")
to properly operate or conduct the business of the Center. To the best of any
Members' knowledge, each License has been duly obtained, is valid and in full
force and effect, and is not subject to any pending or threatened administrative
or judicial proceeding to revoke, cancel or declare such License invalid in any
respect. To the best of any Members' knowledge, neither any Member or LLC is in
material default or in violation with respect to any of the Licenses, and no
event has occurred which constitutes, or with due notice or lapse of time or
both may constitute, a default by any Member of LLC under, or violation of, any
License. To the best of any Members' knowledge, the Members and/or LLC has
completed and submitted, on a timely basis, all reports and filings associated
with the Center as are required by any Governmental Authority. The Members
and/or LLC will take all necessary actions to transfer, or assist USO in
transferring, the Licenses to USO or its designee.
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<PAGE> 9
6.13. ADVERSE EVENTS. For the twelve (12) month period prior to the
Closing Date, there has not been any damage, destruction or loss, whether or not
covered by insurance, which materially adversely affected the Interest or any
event or series of events that has resulted in, or is reasonably likely to
result in, a material diminution in the revenues generated by the Center.
6.14. CREDITORS. The Members have provided USO with a list of the name,
nature of business, address and telephone number of each person or business
organization which is known to the Members to be a creditor of LLC on the date
hereof and a statement of the amount owed such creditor as of the date hereof.
The creditor list includes persons and business organizations who have asserted
claims against LLC or the Interest, even though such claims are disputed. The
transfer of the Interest to USO does not and will not constitute a fraudulent
transfer or fraudulent conveyance under any applicable state or federal law or
regulation or under any similar laws relating to creditors' rights generally and
the Purchase Price constitutes fair and adequate consideration for the Interest.
The Members have not entered into this Agreement or made any transfer or
incurred any obligations hereunder or in connection herewith, with the actual
intent to disturb, hinder, delay or defraud LLC's present or future creditors or
other persons.
6.15. ACCOUNTS RECEIVABLE. All accounts receivable of LLC existing as
of the Effective Time (the "Accounts Receivable") related to the provision of
services by LLC which are payable to or for the benefit of LLC are reflected on
Schedule 6.15 hereof, which Schedule shall be prepared by LLC as of the
Effective Time and attached to this Agreement as soon as practicable following
the Closing Date. To the best of any Members' knowledge, the Accounts Receivable
are (or will be) collectible in amounts not less than the aggregate amount
reflected on Schedule 6.15 and are subject to no existing or pending
counterclaims or setoffs.
6.16. COMPLIANCE WITH LAWS. LLC is not in violation of, nor has either
received notice of a potential violation of, any law, order, writ, injunction or
decree of any court, governmental department or instrumentality (including any
Environmental Protection Law), which violation could reasonably be expected to
materially and adversely affect any Asset or the use of any Asset for its
intended purpose.
6.17. ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the LLC's Balance Sheet dated October 31, 1999
as set forth on Schedule 6.17 or except as otherwise set forth on Schedule
6.17.1, the LLC has no liabilities, except for liabilities incurred since the
date thereof in the ordinary course of business.
(b) The LLC is not bound by any agreement, or subject to any
charter or other corporate restriction or any unusual legal requirement, which
has, or in the future can reasonably be expected to have, a material adverse
effect on the LLC.
6.18. ACCURACY AND MATERIALITY. No representation or warranty of any
Member contained in this Agreement or any other document prepared by any Member
and delivered to USO incident to this Agreement contains any untrue statements
of a material fact, or, to the best of any Members' knowledge, fails to state a
material fact necessary in order to make the statements made in this Agreement
or such document not misleading. The Schedules and Exhibits to this Agreement
correctly and completely set forth the information called for in such Schedules
and Exhibits.
9
<PAGE> 10
Each of the representations, warranties and covenants contained in this
Section 6 shall be deemed to be material to and have been relied upon by USO and
shall be binding and enforceable against the Members notwithstanding any
independent investigation made by USO.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF USO.
USO represents and warrants to ASC, as of the Closing Date, as follows:
7.1. CORPORATE. USO is a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Texas. USO has all
requisite power and authority to enter into and perform its obligations under
this Agreement and to consummate the transactions set forth in this Agreement.
7.2. AUTHORIZATION. This Agreement and all other agreements,
certificates and instruments contemplated hereby to be executed and delivered by
USO have been duly authorized by all necessary corporate action. This Agreement
and each other agreement or instrument contemplated hereby to be executed by USO
has been duly executed and delivered by USO and constitutes a legal, valid and
binding obligation of USO enforceable against USO in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity (regardless of whether such principles are
considered in a proceeding at law or in equity).
7.3. OTHER CONTRACTS. Neither the execution nor delivery of this
Agreement nor the consummation of the transactions contemplated herein will
conflict with, or constitute a breach, violation or termination of, any
provision of any agreement to which USO is a party or by which it is bound.
SECTION 8. CONDITIONS AND ADDITIONAL AGREEMENTS.
8.1. USO'S CONDITIONS TO CLOSE. The Closing and all obligations of USO
pursuant to this Agreement shall be conditioned upon the following:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Members contained in this Agreement or in any Schedule or
Exhibit delivered pursuant hereto shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, and (if the Closing Date shall occur on a
date other than the date of this Agreement) the Members shall have delivered to
USO on the Closing Date a certificate, dated the Closing Date and signed by an
authorized officer of each Member, to such effect;
(b) NO ADVERSE CHANGE. There shall not have been any material
adverse change in the LLC or the Management Agreement (either individually or in
the aggregate) from the date of USO's execution of this Agreement through the
Closing Date if the date of execution of this Agreement and the Closing Date are
not one and the same;
10
<PAGE> 11
(c) INSOLVENCY. There shall not have been any insolvency
(whether voluntary or involuntary) of LLC from the date of USO's execution of
this Agreement through the Closing Date if the date of execution of this
Agreement and the Closing Date are not one and the same;
(d) SCHEDULED NARCOTICS. All scheduled narcotics used in the
Center shall have been transferred to USO or otherwise disposed of, all in
accordance with applicable federal, state and local law;
(e) LICENSES. All Licenses shall have been properly
transferred to USO or with respect to Licenses which cannot be transferred, USO
shall have obtained the necessary licenses and permits;
(f) OBLIGATIONS PERFORMED. The Members shall have performed
all of their obligations under this Agreement required to be performed as of the
Closing Date;
(g) MANAGEMENT AGREEMENT. USO, Inc. shall have received
executed originals of the Assignment of Management Agreement from ASC;
(h) CONSENTS. The transactions contemplated hereby shall not
(i) require the consent, waiver, authorization or approval of any Governmental
Authority, domestic or foreign, or of any other Person, except such consents,
waivers, authorizations or approvals as have been obtained and are in full force
and effect, or (ii) conflict with or result in any breach or violation of the
terms and conditions of, or constitute (or with notice or lapse of time, or
both, constitute) a default under applicable federal, state, local or foreign
statute, regulation, order, judgment or decree;
(i) DUE DILIGENCE. USO shall have been satisfied with its "due
diligence" examinations of the LLC and the Center and shall not have discovered
any conditions or set of facts which in USO's sole determination, individually
or in the aggregate, would have a material adverse effect on the LLC or the
Center;
(j) NO INJUNCTION. At the Closing Date, there shall not be (i)
any effective injunction, writ, or temporary restraining order or any other
order of any nature issued by a court or governmental agency of competent
jurisdiction directing that the proposed transfer of the Interest not be
consummated or (ii) any action, suit, or proceeding pending or threatened by or
before any court or governmental body in which it is or may be sought to
prohibit, substantially delay, or rescind the transfer of the Interest, or limit
in any way USO's rights as contemplated herein, or obtain an award of damages in
connection with the transfer of the Interest;
(k) LEGAL OPINION. The Members shall have furnished USO with a
favorable opinion, dated the Closing Date, of the Members' counsel, in form and
substance satisfactory to USO and its counsel, to the effect set forth in
Exhibit B-1 hereto; and
(l) PROCEEDINGS. All proceedings to be taken in connection
with the transactions contemplated by this Agreement and all documents incident
thereto shall be satisfactory in form and substance to USO and its counsel, and
USO shall have received copies of all such documents and other evidences as it
or its counsel may reasonably request in order to
11
<PAGE> 12
establish the consummation of such transaction and the taking of all proceedings
in connection therewith.
In the event that any of the foregoing conditions is not satisfied, then USO
may, at its option, terminate this Agreement in which event USO shall be
relieved of all obligations hereunder and this Agreement shall be deemed null,
void and of no force or effect.
8.2. USO'S DELIVERIES. At or prior to the Closing, USO shall deliver to
the Members, as appropriate:
(a) PURCHASE PRICE.
i. By check or wire transfer (at USO's option), cash in
an amount equal to ASC's portion of the Purchase
Price and MA Purchase Price as set forth on Schedule
3.1 and any portion of the Noncompete Payments due at
Closing pursuant to Section 12.1;
ii. By check or wire transfer (at USO's option) cash in
an amount equal to one-half of the ASDT portion of
the Purchase Price and MA Purchase Price as set forth
on Schedule 3.1 and delivery of a promissory note for
the remainder; and
iii. By check or wire transfer (at USO's option) cash in
an amount equal to one-half of the ASDC portion of
the Purchase Price as set forth on Schedule 3.1 and
the Noncompete Payment and delivery of a promissory
note for the remainder.
(b) ASSUMPTION OF MANAGEMENT AGREEMENT. An agreement by which
USO, Inc. assumes the obligations under the Management Agreement in
substantially the form of Exhibit C hereto (the "Assignment and Assumption
Agreement").
8.3. THE MEMBER'S CONDITIONS TO CLOSE. The Closing and all obligations
of the Members pursuant to this Agreement shall be conditioned upon the
following:
(a) REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in Section 7 shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date;
(b) OBLIGATIONS PERFORMED. USO shall have performed all of its
obligations under this Agreement required to be performed as of the Closing
Date, including, without limitation, the assumption of the Assumed Obligations;
(c) LEGAL OPINION. USO shall have furnished the Members with a
favorable opinion, dated the Closing Date, of USO's counsel, in form and
substance satisfactory to the Members and their counsel, to the effect set forth
in Exhibit B-2 hereto; and
(d) CONSENTS. The transactions contemplated hereby shall not
(i) require the consent, waiver, authorization or approval of any Governmental
Authority, domestic or foreign, or of any other Person, except such consents,
waivers, authorizations or approvals as have been
12
<PAGE> 13
obtained and are in full force and effect, or (ii) conflict with or result in
any breach or violation of the terms and conditions of, or constitute (or with
notice or lapse of time, or both, constitute) a default under applicable
federal, state, local or foreign statute, regulation, order, judgment or decree.
In the event that any of the foregoing conditions is not satisfied, then the
Members may, at their option, terminate this Agreement in which event the
Members shall be relieved of all obligations hereunder and this Agreement shall
be deemed null, void and of no force or effect.
8.4. THE MEMBER'S DELIVERIES. At or prior to the Closing, the Members
shall deliver, or cause to be delivered, to USO the following documents:
(a) CORPORATE RESOLUTIONS. Copies of members' resolutions of
ASC and the other Members, certified by the Members' corporate secretary or
assistant secretary as having been duly and validly adopted and as being in full
force and effect on the Closing Date, authorizing the execution and delivery by
each Members of this Agreement, the other agreements and instruments to be
executed and delivered by each Member as provided herein, and the performance by
each Member of the transactions contemplated hereby;
(b) CONSENT OF LLC. Consent of the members of LLC pursuant to
the Regulations of LLC authorizing the Members to sell their Interests in LLC to
USO;
(c) MEMBERSHIP CERTIFICATES. Certificates representing the
Interests in the LLC endorsed in blank or accompanied by duly executed
assignment documents and other documents of transfer acceptable in form and
substance to USO in its judgment reasonably exercised;
(d) CERTIFICATE OF GOOD STANDING. Certificate of Good Standing
by the Secretary of State of Texas as to the good standing of each Member, dated
as of a date not more than ten days prior to the Closing Date;
(e) INCUMBENCY CERTIFICATE. An incumbency and signature
certificate for the officers of each Member, certified by the secretary or
assistant secretary of each Member;
(f) DRUG SCHEDULE. A listing of the controlled substances
located at the Center together with a certification that all such controlled
substances have been ordered and maintained in compliance with applicable laws
and regulations;
(g) CERTIFIED COPIES OF LEASES. Certified copies of any and
all real estate and/or equipment leases pertaining to the Center, certified by
an officer of each Member;
(h) ASSIGNMENT OF MANAGEMENT AGREEMENT. An assignment of the
Management Agreement by ASC to USO, Inc. in substantially the form of Exhibit C
hereto (the "Assignment and Assumption Agreement"); and
(i) OTHER PURCHASE DOCUMENTS. All such documents and
instruments USO and its counsel may reasonably request in connection with the
consummation of the transactions contemplated by this Agreement.
13
<PAGE> 14
8.5. POST-CLOSING COVENANTS.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
the Members and/or its members will take such further action (including the
execution and delivery of such further instruments and documents) as any other
party may request, all at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor).
SECTION 9. TERMINATION AND ABANDONMENT
9.1. METHODS OF TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) By the written consent of the Members and USO;
(b) By USO, if all of the conditions set forth in Section 8.1
of this Agreement shall not have been satisfied or waived on or prior to the
Closing Date; or
(c) By the Members, if all of the conditions set forth in
Section 8.3 of this Agreement shall not have been satisfied or waived on or
prior to the Closing Date.
If this Agreement is terminated pursuant to this Section 9.1, it shall become
null and void and of no further force or effect, except as provided in Section
9.2.
9.2. PROCEDURE UPON TERMINATION. In the event of termination and
abandonment of this Agreement by the Members or USO pursuant to Section 9.1
hereof, written notice thereof shall forthwith be given to the other party or
parties as provided herein and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
the Members or USO, and the Members and USO shall each return to the other party
any documents or copies thereof in possession of such party furnished by such
other party in connection with the transactions contemplated by this Agreement;
provided, however, that the obligations set forth in Sections 10.1, 10.2 and
11.8 shall survive any termination. No termination of this Agreement pursuant to
the provisions of this Section 9 shall relieve any party of liability for a
breach of any provision of this Agreement occurring prior to such termination.
SECTION 10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE MEMBERS. The Members shall indemnify,
defend and hold USO and its officers, directors, members, agents, employees,
representatives, successors and assigns (collectively, "USO Indemnified
Parties"), harmless from and against any and all damage, loss, cost, obligation,
claims, demands, assessments, judgments or liability (whether based on contract,
tort, product liability, strict liability or otherwise), including taxes, and
all expenses (including interest, penalties and reasonable attorneys' and
accountants' fees and disbursements) incurred by any of the USO Indemnified
Parties (collectively, "Damages"), resulting from or in connection with any one
or more of the following:
14
<PAGE> 15
(a) Any misrepresentation, breach of warranty or failure to
perform any covenant or agreement made or undertaken by the Members in this
Agreement or in any other agreement delivered to USO pursuant to this Agreement;
(b) Any and all commitments, agreements, debts, liabilities
and obligations of the Members or ASC debts related to the LLC, other than the
Assumed Obligations, which are accrued, absolute, contingent or otherwise,
whether known or unknown, and whether or not disclosed in this Agreement;
(c) Any transaction, event, act or omission, which occurred on
or prior to the Closing Date which relates to the LLC or the operation of the
Center;
(d) Any failure of LLC to pay all of its liabilities or other
failure of LLC to take appropriate action which would make the transfers
contemplated herein ineffective as against creditors of LLC; and
(e) Any and all claims, actions, suits or proceedings brought
or commenced by any former employee, contractor, consultant or principal of ASC
or LLC or any action, suit, proceeding or claim incident to any of the
foregoing.
10.2. INDEMNIFICATION BY USO. USO shall indemnify, defend and hold the
Members, their officers, directors, shareholders, agents, employees,
representatives, successors and assigns, ("Member Indemnified Parties"),
harmless from and against any and all damage, loss, cost, obligation, claims,
demands, assessments, judgments or liability (whether based on contract, tort,
product liability, strict liability or otherwise), including taxes, and all
expenses (including interest, penalties and reasonable attorneys' and
accountants' fees and disbursements) incurred by any of the Member Indemnified
Parties, resulting from or in connection with any one or more of the following:
(a) Any misrepresentation, breach of warranty or failure to
perform any covenant or agreement made or undertaken by USO in this Agreement or
in any other agreement delivered to the Members pursuant to this Agreement;
(b) Any transaction, event, act or omission of USO which
occurs after the Closing Date which relates to the LLC or the operation by USO
of the Center; and
(c) Any action, suit, proceeding or claim incident to any of
the foregoing.
SECTION 11. GENERAL PROVISIONS.
11.1. PARTIES IN INTEREST AND ASSIGNMENT.
(a) This Agreement is binding upon and is for the benefit of
the parties hereto and their respective successors and assigns and is expressly
not for the benefit of any person other than USO and the Members.
15
<PAGE> 16
(b) Neither this Agreement nor any of the rights or duties of
any party hereto may be transferred or assigned to any person except by a
written agreement executed by each of the parties.
11.2. CHOICE OF LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Texas,
without regard to the conflicts of law principles of such State.
11.3. ENTIRE AGREEMENT. This Agreement shall embody the entire
agreement between the parties hereto with respect to acquisition of the Interest
and cancels and supersedes all other previous agreements and understandings
relating to the subject matter of this Agreement, written or oral, between the
parties hereto. There are no agreements, representations or warranties between
the parties other than those set forth or provided herein. All Exhibits and
Schedules called for by this Agreement and delivered to the parties shall be
considered a part hereof with the same force and effect as if the same had been
specifically set forth in this Agreement.
11.4. AMENDMENT. This Agreement may not be amended or modified except
by a writing signed by an authorized representative of the party against whom
enforcement of the change is sought.
11.5. NO WAIVER. Each party hereto may, by written notice to the other
parties hereto: (a) extend the time for the performance of any of the
obligations or other actions of such party under this Agreement; (b) waive any
inaccuracies in the representations, warranties, conditions or covenants of such
other party contained in this Agreement; or (c) waive or modify performance of
any of the obligations of such other party under this Agreement. Except as
provided in the foregoing sentence, no waiver of the performance or breach of,
or default under, any condition or obligation hereof shall be deemed to be a
waiver of any other performance, or breach of, or default under the same or any
other condition or obligation of this Agreement.
11.6. SURVIVAL. The covenants, representations and warranties contained
in this Agreement shall survive the Closing.
11.7. SECTION HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.8. CONFIDENTIALITY. The parties agree to maintain confidential the
terms and conditions of this Agreement and not to disclose any of such terms and
conditions to any third-party without the prior written consent of the other
party.
11.9. PREVAILING PARTY. The parties agree that if any party should
institute litigation against any of the other parties to enforce any provisions
of this Agreement, the prevailing party in such litigation shall be entitled to
receive, in addition to any other relief awarded such party, reasonable
attorneys' fees and expenses for the prosecution or defense of such litigation.
11.10. USE OF MARKS. As of the Closing Date, ASC shall cease to use any
of the Intangible Property comprising a portion of the LLC without the express
prior consent of USO.
16
<PAGE> 17
11.11. EXPENSES. Except as otherwise provided in this Agreement, the
parties hereto shall bear their respective expenses incurred in connection with
the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of agents,
representatives, counsel and accountants.
11.12. NOTICES. Any notices or other communications required or
contemplated under this Agreement shall be in writing and personally delivered,
evidenced by a signed receipt, or mailed by certified mail, return receipt
requested, postage prepaid, to the addresses indicated below on the signature
page or to such other person or address as the parties may provide by notice to
the other. The date of notice shall be the date of delivery of the notice if
personally delivered or the date of mailing if the notice is mailed by certified
mail.
11.13. EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached
hereto are a part of this Agreement as if fully set forth herein.
11.14. COUNTERPARTS. This Agreement may be executed in counterpart each
of which shall be deemed an original and all of which together shall be
considered one and the same agreement. The parties agree that a facsimile may be
executed as an original.
11.15. REVIEW AND CONSULTATION. The Members has had access to and
reviewed such information and have consulted with all legal counsel, tax
counsel, accountants and other experts and advisors deemed necessary by the
Members in connection with the transactions contemplated herein. USO has had
access to and reviewed such information and have consulted with all legal
counsel, tax counsel, accountants and other experts and advisors deemed
necessary by USO in connection with the transactions contemplated herein.
11.16. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement or any application thereof shall be found by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions of
this Agreement and any other application thereof shall not in any way be
affected or impaired thereby; provided, however, that to the extent permitted by
applicable law, any invalid, illegal or unenforceable provision may be
considered for the purpose of determining the intent of the parties in
connection with the other provisions of this Agreement.
11.17. TELECOPY EXECUTION AND DELIVERY. A facsimile telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more Parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for
all purposes. At the request of any party hereto, all parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction thereof.
SECTION 12. NONCOMPETE COVENANT.
12.1. COVENANT NOT TO COMPETE. In consideration of the Purchase Price
and the MA Purchase Price, each of the Members hereby agree that, for the period
of five (5) years immediately following the Closing, such Members will not in
any manner directly or indirectly:
17
<PAGE> 18
(a) Disclose or divulge to any other persons, partnership,
corporation, business organization, firm, or other entity whatsoever, or use for
such Member's own benefit or for the benefit of any other person, partnership,
corporation, business organization, firm, or other entity directly or indirectly
in competition with USO, any knowledge, information, business methods,
techniques, or patient lists, letters, files, records, or other information, of
the LLC other than as may be required by a court with jurisdiction over such
Members and USO.
(b) Solicit, divert, or otherwise interfere with the LLC's
former patients, patronage, employees, or agents, not to include a patient's
choice to follow.
(c) Own, operate, manage, participate in, or provide services
to any person or entity operating an ambulatory surgery center within fifteen
(15) miles of Odessa, Texas; provided, however, that treating of patients in
other centers/hospitals within such fifteen (15) mile radius or hospital
ownership by a Member physicians shall not be a violation of this clause.
12.2. REMEDIES. Each Member represents and acknowledges that the
covenants contained in this Section 12 have been given in connection with a sale
of a business interest. In addition to any other remedies available to USO, each
Member further acknowledges that the provisions of this Section 12 may be
enforced to: (i) restrain violation thereof by such Member; (ii) compel specific
performance of the terms and conditions of this Section 12; and (iii) by suit to
recover damages from such Member for his or her violation of any of the terms of
this Section 12. In this regard, each Member also acknowledges that any
violation of this Section 12 will result in substantial and continuing damages
to USO, including, but not limited to, direct loss of revenue, interference with
USO's business relationships, and disruptions to the operation of USO's
business.
12.3. REASONABLE RESTRICTIONS. Each Member acknowledges that the
restrictions set forth in this Section 12 are reasonable in scope, and essential
to USO's legitimate business interest, including, without limitation, protection
of the value of Interest purchased from the Members.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the date and year first above written.
AMEDISYS SURGERY CENTERS, L.C.
Amedisys Surgery Centers, L.C.
3029 South Sherwood Forest Blvd., Suite 300
Baton Rouge, Louisiana 70816
By its Manager
AMEDISYS, INC.
By: /s/ MICHAEL D. LUTGRING
-----------------------
Name: Michael D. Lutgring
Title: Secretary
AMBULATORY SYSTEMS DEVELOPMENT OF TEXAS, INC.
Ambulatory Systems Development of Texas, Inc.
7617 Arborgate Drive
Dallas, Texas 75231
By: /s/ JOSEPH ZASA, President
-------------------------
Name: Joseph Zasa
Title: President
AMBULATORY SYSTEMS DEVELOPMENT CORPORATION
Ambulatory Systems Development Corporation
315 Bellefontaine
Pasadena, California 91105
By: /s/ ROBERT J. ZASA
-----------------------
Name: Robert J. Zasa
Title: President
U.S. ORTHOPEDICS TEXAS, LLC:
U.S. Orthopedics Texas, LLC
11500 Fairview Road, Suite 150
Little Rock, Arkansas 72212
By its Manager
U.S. ORTHOPEDICS, INC.
By: /s/ DANIEL CALDWELL
---------------------------
Daniel Caldwell, President
U.S. ORTHOPEDICS, INC.
11500 Fairview Road, Suite 150
Little Rock, Arkansas 72212
By: /s/ DAN CALDWELL
---------------------------
Dan Caldwell, President
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET, INCOME STATEMENT & STATEMENT OF CASH FLOWS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,425,000
<SECURITIES> 0
<RECEIVABLES> 12,720,000
<ALLOWANCES> 1,294,000
<INVENTORY> 447,000
<CURRENT-ASSETS> 40,000
<PP&E> 3,439,000
<DEPRECIATION> 1,697,000
<TOTAL-ASSETS> 42,084,000
<CURRENT-LIABILITIES> 41,668,000
<BONDS> 2,206,000
0
1,000
<COMMON> 3,000
<OTHER-SE> (10,186,000)
<TOTAL-LIABILITY-AND-EQUITY> 42,084,000
<SALES> 97,411,000
<TOTAL-REVENUES> 97,411,000
<CGS> 46,890,000
<TOTAL-COSTS> 46,890,000
<OTHER-EXPENSES> 33,820,000
<LOSS-PROVISION> 1,827,000
<INTEREST-EXPENSE> 3,625,000
<INCOME-PRETAX> (7,916,000)
<INCOME-TAX> 3,263,000
<INCOME-CONTINUING> (4,653,000)
<DISCONTINUED> 5,953,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,300,000
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.42
</TABLE>
