<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K/A #1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: SEPTEMBER 30, 1996 Commission File Number: 1-12238
MHM SERVICES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1223048
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
8000 TOWERS CRESCENT DRIVE, SUITE 810, VIENNA, VIRGINIA 22182
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (703) 749-4600
PORTIONS AMENDED
The Company's Annual Report on Form 10-K is amended by the inclusion of the
Part III information set forth on the following pages.
<PAGE> 2
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- -------- --------------------------
<S> <C> <C>
Michael S. Pinkert 55 President, Chief Executive Officer and
Director
Kenneth A. Kessler, M.D. (1)(2) 54 Director
William P. Ferretti (1)(2) 53 Director
H. Scott Miller (1)(4) 47 Director
Michael F. Sandler (1)(2)(4) 51 Director
Abraham D. Gosman (1)(3) 67 Director
Gail L. Warden (8) 58 Director
Bernard J. Korman (1)(2)(7) 64 Director
Carolyn Zimmerman 44 Vice President - Finance and Chief
Financial Officer
Steven H. Wheeler 33 Vice President-Operations
Vicki S. Hammond (5) 42 Senior Vice President, Chief
Financial Officer, Treasurer and Secretary
Eugene N. Langan (6) 53 Vice President - Development
</TABLE>
- -------------------------
(1) Member of Compensation and Stock Option Committee.
(2) Member of Audit Committee.
(3) Resigned August 1996.
(4) Resigned January 10, 1997.
(5) Resigned June 30, 1996.
(6) Resigned December 31, 1996.
(7) Mr. Korman was not nominated for reelection at the Company's June 25,
1996, annual meeting of shareholders.
(8) Resigned October 21, 1995.
Mr. Pinkert has been President, Chief Executive Officer and a Director
of the Company since he founded it in 1981. He was formerly Vice President of
Psychiatric Institutes of America ("PIA") from 1979 to 1981. Prior to joining
PIA, he was Vice President of Charter Medical Corporation from 1976 to 1977
where he was responsible for international marketing. He also worked in
conjunction with Charter and PIA from 1974 to 1975 in establishing a hospital
management company in Iran. Mr. Pinkert has worked in the health care
management and consulting industry for over 30 years. He also serves as a
Director of American Psych Systems.
2
<PAGE> 3
William P. Ferretti has been a Director of the Company since August
1996. Mr. Ferretti has been Chief Executive Office of Medstar Television, Inc.
(producer and syndicator of televised medical news) since 1982 and also is a
Director of U.S. Physicians, Inc. (physician practice management) and Vitas
Healthcare Corp. (provider of hospice services) and a general partner of the
NEPA Venture Fund -II (venture capital firm).
Dr. Kessler has been a Director of the Company since October 1995.
Dr. Kessler was the founder and has served as President of American Psych
Systems since January 1992. Dr. Kessler was the founder and served as
President of American Psych Management, Inc. from September 1983 to December
1989 and served as Chairman of the Board from September 1989 to December 1991.
Dr. Kessler has worked in the health care industry as a physician for over 25
years.
Carolyn Zimmerman has served as Vice President-Finance and Chief
Financial Officer of the Company since July 1, 1996. Previously, Ms. Zimmerman
was Controller of the Company since August 1987. Ms. Zimmerman has over twenty
years of experience in health care financial management.
Steven H. Wheeler is Vice President-Operations and previously served
as Vice President - Integrated Delivery Systems of the Company since May 1994.
Mr. Wheeler was formerly Director of Business Development/Operations, Florida
Psychiatric Group (behavioral health care group practice management) from April
1993 to February 1994, General Manager, Psych Options, Inc. (sub-acute
services) from March 1992 to April 1993, and Regional Director of Operations,
Merit Behavioral Care Corporation (formerly American Biodyne) (managed
behavioral health care) from May 1990 to February 1992. .
Directors are elected annually, and if elected, will serve until the
next annual meeting and until the election and qualification of their
successors. Officers are elected annually by the Board and serve at the
discretion of the Board of Directors.
OTHER KEY EMPLOYEES
<TABLE>
<CAPTION>
Position with the Company and
Name Age Experience during the past five years, other than with the Company
- ---- --- ------------------------------------------------------------------
<S> <C> <C>
Dr. Murray I. Firestone 46 National Practice Director and Chief Operating Officer of the Company's Extended Care Services
Division since July 1995. Since 1994, Dr. Firestone has been President and Chief Executive
Officer of Supportive Counseling Care ("SCC"), a professional corporation, which has a management
contract with the Company. From 1981 to 1995, Dr. Firestone was also clinical director of
Comprehensive Psychological Systems (psychological services). From 1978 to 1985, Dr. Firestone
served as program administrator and director for several other behavioral health care facilities.
</TABLE>
3
<PAGE> 4
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid during each of the last three fiscal years to the Company's
Chief Executive Officer and each of the Company's three other most highly
compensated executive officers whose annual compensation exceeded $100,000 in
fiscal 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term All Other
Name and ------------------- Compensation Compensation
Principal Position Year Salary Bonus ($)(1) Stock Options (#) ($) (2)
- ------------------ ------ ------ ------------ ----------------- -------
<S> <C> <C> <C> <C> <C>
Michael S. Pinkert 1996 $297,000 - - $ 5,237
President & Chief 1995 297,000 - - 5,290
Executive Officer 1994 297,000 - - 6,000
Vicki S. Hammond (3) 1996 $123,750 40,000 - $180,172
Senior Vice President - 1995 165,000 - - 9,530
Finance & Administration 1994 165,000 - - 11,000
Eugene N. Langan (4) 1996 $129,105 20,000 - $ 7,200
Vice President - 1995 47,813 - 10,000 2,700
Development
Bruce Waldo (5) 1996 $100,000 50,000 - $ 4,800
Executive Vice President - 1995 112,500 - 20,000 5,400
Hospital Division
Steven H. Wheeler 1996 $105,000 - - $ 6,588
Vice President-Operations 1995 95,000 - 10,000 5,000
1994 30,000 - - 2,083
</TABLE>
- --------------------------
(1) All bonuses were received in connection with the sale by the Company
of five of its freestanding behavioral health care facilities to
Behavioral Healthcare Corporation on May 31, 1996.
(2) Amounts reported for Mr. Pinkert and Ms. Hammond for 1996 include
approximately 3,465 and $2,572 representing the Company's
contributions to the 401(k) plan accounts, respectively, for each of
such individuals, and $1,772 and $5,400 of automobile expenses,
respectively. Amounts reported for Messrs. Langan and Waldo for 1996
include $7,200 and $4,800 of automobile expenses, respectively.
(3) Under her severance agreement with the Company, Ms. Hammond received a
severance payment of $172,200 and an accelerated vesting of her 21,600
stock options.
(4) Mr. Langan joined the Company in May 1995 and resigned from the
Company on December 31, 1996.
(5) Mr. Waldo joined the Company in December 1994 and resigned from the
Company on May 31, 1996.
4
<PAGE> 5
Compensation of Directors
Directors who are employees of the Company receive no additional
compensation for their service as Directors or as members of committees of the
Board of Directors. Non-employee Directors receive an annual director's fee of
$10,000 for their services in such capacities. In addition, in 1993 the Company
adopted the 1993 Stock Option Plan for Non-Employee Directors pursuant to which
the Company granted options to acquire 12,500 shares of the Company's Common
Stock to each non-employee Director, with an exercise price being the fair
market value on the date of grant, with such options vesting ratably over five
years and expiring after ten years.
Pension Plan
Prior to the distribution of the Company's stock to MEDIQ's stockholders
(the "Distribution"), the employees of the Company, including the executive
officers included in the Summary Compensation Table above, were included in a
noncontributory defined benefit pension plan maintained and administered by
MEDIQ. Benefit accruals for the Company's employees under MEDIQ's pension plan
terminated upon the Distribution. Accrued benefits are to be administered in
accordance with the terms of MEDIQ's pension plan. The current estimated annual
benefits payable upon retirement to Mr. Pinkert and Ms. Hammond under the MEDIQ
Pension Plan, based upon their respective salary levels and six years of
service for each of them, are $21,143 and $10,663, respectively. Estimated
annual benefits are determined in part by the average Social Security wage base
during the 35 years ending in the year of Social Security Normal Retirement
Age. The benefit amounts listed above are not subject to any deduction for
Social Security or other offset amounts.
5
<PAGE> 6
Stock Options
The following table summarizes stock options granted during fiscal 1996 to
Ms. Zimmerman. No options were granted to the other executive officers listed
in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(l)
- --------------------------------------------------------------------------------- ----------------------------
Percent of Total
Options
Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#)(2) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- -------------- -------------- ------------ ----------- ------ -------
<S> <C> <C> <C> <C>
Ms. Zimmerman 3,000 14% $1.50 6/23/2006
</TABLE>
- -------------------
(1) The information in these columns illustrates the value that might be
realized upon exercise of the options assuming the specified compound
rates of appreciation of the Company's Common Stock and/or Preferred
Stock over the term of the options. The potential realizable value
columns are based on the total amount of options granted. However, the
total amount may not become exercisable (see Note 2). In addition, the
amounts reflected do not take into account amounts required to be paid
for federal or state income taxes or option provisions regarding
termination of the option following termination of employment or
nontransferability requirements. These amounts were calculated based
on requirements of the Securities and Exchange Commission and do not
necessarily reflect the Company's estimate of future stock price
growth.
(2) The options indicated become exercisable in 20 % installments over a
five year period commencing on the first anniversary of the grant
date.
The following table provides information relating to the value of
unexercised options held by the above-named executive officers at the end of
fiscal 1996. No options were exercised by the executive officers included in
the Summary Compensation Table in fiscal 1996.
6
<PAGE> 7
UNEXERCISED STOCK OPTIONS AT FISCAL YEAR END
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
TOTAL NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS (#) OPTIONS AT YEAR END
------------------------------ ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael S. Pinkert 72,000 18,000 (1) (1)
Vicki S. Hammond 54,000 - (1) (1)
Eugene N. Langan 2,000 8,000 (1) (1)
Carolyn Zimmerman 2,400 3,800 (1) (1)
Steven Wheeler 2,000 8,000 (1) (1)
</TABLE>
- -----------------------
(1) The exercise prices of the options indicated were greater than the
closing price of the Company's Common Stock at September 30, 1996.
Report of the Compensation and Stock Option Committee of the Board of
Directors on Executive Compensation
In prior years, compensation arrangements for the Company's executive
officers were determined by the Company's Board of Directors by reference to a
survey of compensation trends by position among hospital management companies.
This survey was prepared by an independent management compensation consultant.
The Company's base compensation levels have averaged at the median for the
industry, with incentive compensation, if any, enabling the Company's executive
officers to receive additional compensation if the Company's financial
objectives are attained. The companies surveyed included some of, but are not
limited to, the companies represented in the peer group index in the
performance graph following this report. This survey was used as a basis for
comparison because it included a broad spectrum of hospital management
companies, including the Company. Since August 1993, the Compensation and
Stock Option Committee (the "Committee") has reviewed compensation levels of
the Company's employees and determined guidelines for the future, including
incentive compensation. The Committee is composed entirely of non-employee
directors. The Committee is also authorized to grant stock options to officers
and key employees of the Company pursuant to the Company's 1993 Stock Option
Plan, and to determine the terms of such options.
It is the policy of the Committee, and the Board of Directors, as a
whole, that a significant portion of the annual compensation of the Company's
Chief Executive Officer and other executive officers should be directly linked
to the Company's performance, as well as each individual's contribution. The
Company's compensation programs are designed to provide competitive financial
rewards for successfully meeting the Company's strategic and operating
objectives, with the purposes of retaining personnel and supporting a
performance-oriented environment.
The compensation of the Company's Chief Executive Officer and other
executive officers is comprised of base salary, as well as cash and stock
incentives based on annual and long-term results of the Company. Increases in
base salary, if any, will be based on individual performance, level of
responsibilities and the Company's overall performance.
7
<PAGE> 8
Changes in Mr. Pinkert's compensation, if any, would be determined by
the Committee based upon its subjective analysis of his performance and the
Company's overall performance. Mr. Pinkert's compensation was not changed in
fiscal 1996 as a result of the Company's overall performance.
The Company has an incentive compensation program which rewards the
Company's executive officers based upon the Committee's subjective
determination concerning individual performance and the Company's achievement
of its internal financial objectives. Executive officers become entitled to
receive a percentage of the bonus potential based upon the percentage
achievement of the Company's internal projected operating profit. Bonuses to
be paid, if any, are determined based upon the amount by which the Company
exceeds its projected operating profit and the allocation of a bonus pool among
the plan participants. The bonus pool is based upon the amount by which the
Company exceeds its projected operating profit, and can range from 25% to 100%
of the amount over the Company's projected operating profit. Allocation factors
include salary levels and individual performance evaluations. Through this
plan, a significant portion of each executive officer's annual total
compensation is placed at risk in order to provide an incentive toward
sustained high performance. For fiscal 1996, the Company did not meet its
projected financial goals and, as a result, the Company's executive officers
did not receive any bonus payments under this plan.
In addition, it has been the policy of the Committee to utilize stock
options to provide a link between compensation and the market performance of
the Company's stock, and to focus attention of management on the enhancement of
shareholder value. In this regard, in fiscal 1993, in connection with the
commencement of public trading in the Company's Common Stock, the Company's
executive officers were granted options to acquire shares of common stock, with
a five year vesting schedule. In addition, one employee was granted options to
acquire shares of Common Stock in connection with the commencement of his
employment with the Company during fiscal 1996. If the efforts of the
executive officers create additional value for the Company's shareholders,
evidenced by increases in the Company's stock price, the Company's executive
officers will also benefit through appreciation of the potential value of
outstanding stock options. The Committee believes that the long-term nature of
stock options also encourages executive officers to remain in the employ of the
Company.
8
<PAGE> 9
Compensation and Stock Option Committee
Dr. Kenneth A. Kessler (1)
William P. Ferretti (2)
H. Scott Miller (3)
Michael F. Sandler (3)
- ------------------------
(1) Dr. Kessler became a member of the Compensation and Stock Option
Committee in June 1996, replacing Bernard J. Korman.
(2) Mr. Ferretti became a member of the Compensation and Stock Option
Committee in August 1996, replacing Abraham D. Gosman.
(3) Messrs. Miller and Sandler no longer serve on the Compensation and
Stock Option Committee following their resignations as Directors on
January 10, 1997.
STOCK PERFORMANCE CHART
The following chart compares the cumulative total shareholder return
on the Company's Common Stock for fiscal 1993 (since the Distribution on August
31, 1993), fiscal 1994, fiscal 1995 and fiscal 1996 with the AMEX Market Index
and an index of peer companies selected by the Company, consisting of:
Transitional Hospitals Corporation, Comprehensive Care Corp., Magellan Health
Services, Inc. (formerly Charter Medical Corp.), PMR Corporation and Ramsay
Health Care, Inc.
COMPARISON OF 37 MONTH CUMULATIVE TOTAL RETURN*
AMONG MHM SERVICES, INC., THE AMEX MARKET VALUE INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
Cumulative Total Returns
--------------------------------------
8/31/93 9/93 9/94 9/95 9/96
<S> <C> <C> <C> <C> <C> <C>
MHM SVCS INC. MHM 100 87 59 74 15
PEER GROUP PPEER1 100 109 117 93 91
AMEX MARKET VALUE IAMX 100 100 100 100 125
</TABLE>
* $100 INVESTED ON 8/31/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of January 15, 1997, the beneficial
ownership of shares of the Company's common stock, par value $.001 per share,
by each person known to the Company to be the owner of in excess of five
percent of the Company's outstanding shares of common stock, each director of
the Company, each executive officer named in the Summary Compensation Table
(included elsewhere herein) and by all directors and officers of the Company as
a group.
9
<PAGE> 10
<TABLE>
<CAPTION>
Number of % of Class
Name Shares (1) Outstanding (2)
- ---------------------- ------------- ---------------
<S> <C> <C>
Bessie G. Rotko (3) 956,439 28.9%
Michael S. Pinkert 203,552(4)(5) 6.1%
William P. Ferretti 74,500 2.3%
Carolyn Zimmerman 4,301(4)(5) *
Steven Wheeler 3,219(4)(5) *
Kenneth A. Kessler, M.D. 72,500 2.2%
Bernard J. Korman (6) 251,720(4)(5) 7.6%
Michael F. Sandler (7) 8,583(4) *
Vicki S. Hammond (8) 54,000(4) 1.6%
Eugene N. Langan (9) 5,470(4) *
All directors and officers as a group (5 persons) 358,072(4)(5) 10.8%
</TABLE>
* Represents less than one percent.
(1) Except as otherwise indicated below, all shares are expected to be
beneficially owned, and sole investment and voting power is expected
to be held, by the person named.
(2) All percentages are rounded to the nearest tenth, and are based upon
the number of shares outstanding, including, as appropriate, the
shares referred to in the notes below.
(3) Mrs. Rotko is the lifetime income beneficiary of a trust. The
Trustees, Bessie G. Rotko, Michael J. Rotko, Judith M. Shipon, Lionel
Felzer and Provident National Bank, share voting and investment power
with respect to the shares in the trust. The address of the trustees
is c/o Lionel Felzer, MEDIQ Incorporated, One MEDIQ Plaza, Pennsauken,
NJ 08110.
(4) Includes options exercisable currently or within the next 60 days.
(5) Includes shares held in retirement accounts.
(6) His term on the Company's Board ended June 25, 1996.
(7) Resigned from the Company's Board in January 1997.
(8) Resigned as Senior Vice President-Finance & Administration of the
Company on June 30, 1996.
(9) Resigned as Vice President-Development on December 31, 1996.
10
<PAGE> 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIPS AND TRANSACTIONS WITH MEDIQ
In August 1993, the Company and MEDIQ entered into a Distribution
Agreement which provided for, among other matters, the principal corporate
transactions required to effect the distribution of the shares of the Company's
Common Stock to MEDIQ's shareholders (the "Distribution"), the division between
MEDIQ and the Company of certain liabilities and certain other agreements
governing the relationship between MEDIQ and the Company following the
Distribution. The Distribution Agreement provided for each party to indemnify
the other against claims relating to misstatements or omissions of material
facts provided by such party in an Information Statement or in the Form 10
Registration Statement (relating to the Distribution) of which it is a part. In
addition, the Company agreed to indemnify MEDIQ against claims relating to the
Company or its business. The Distribution Agreement also contains certain
provisions relating to employee compensation and benefits. The Distribution
Agreement further provided that MEDIQ will have access to all books and records
of the Company, and the Company will have access to the books and records of
MEDIQ which relate principally to the Company's business, and are necessary for
the Company to operate such business.
In August 1993, in connection with the Distribution, MEDIQ and the
Company entered into a Tax Indemnification Agreement containing certain tax
related provisions. For Federal income tax purposes, the Company was included
in the consolidated tax return of MEDIQ for all tax periods prior to the
Distribution. The Company files separate Federal income tax returns for all tax
periods since the Distribution. Under the terms of the Tax Indemnification
Agreement, the Company will reimburse MEDIQ for future tax assessments against
MEDIQ resulting from the Company's operations prior to the Distribution and
MEDIQ will reimburse the Company for future tax benefits derived by MEDIQ
resulting from the Company's operations prior to the Distribution.
The Company may, in its discretion, obtain certain legal, tax,
financial and risk management services from MEDIQ pursuant to a Services
Agreement, with a one-year term, renewable for successive one year terms. Under
such agreement, the Company pays MEDIQ fees approximating MEDIQ's cost to
provide such services. For fiscal 1996, the Company incurred expenses of
$38,000 for services provided pursuant to the Services Agreement.
Prior to the Distribution, the Company obtained certain of its
insurance coverages through participation in insurance programs administered by
MEDIQ. As a participant in such insurance programs, premiums were computed and
allocated by MEDIQ through its risk management department. The premiums under
such insurance programs are subject to adjustments based on fluctuations in
revenues and insurance losses. Since May 29, 1993, the Company has obtained
substantially all of its insurance coverages independent of MEDIQ's insurance
programs. MEDIQ and the Company entered into an Insurance Liability Agreement
pursuant to which the Company agreed to reimburse MEDIQ for adjustments in
premiums, if any, for policies in effect during the time period in which the
Company was a participant of such insurance programs. No expenses were incurred
by the Company during fiscal 1996 under the Insurance Liability Agreement.
11
<PAGE> 12
In connection with the Distribution, the Company executed a five-year
note payable to MEDIQ in the principal amount of $11,500,000. The Company is
reviewing with counsel the validity of the MEDIQ Note and its legal rights and
remedies in the event the MEDIQ Note's validity is litigated. The note bears
interest at a rate of prime plus 1 1/2%, with monthly interest payments through
September 1995 and then monthly principal and interest payments for the
following three years, based on a fifteen year amortization period, with the
balance due in August 1998. The note may be prepaid in whole or in part without
penalties, and provides that it may be subordinated to certain other senior
indebtedness of the Company. The Company incurred interest expense of
$1,097,000 relating to the note in fiscal 1996. In addition, the note provides
for certain events of default, including the sale of all or substantially all
of the assets of the Company.
The Company had accrued expenses payable to MEDIQ in the amount of
$321,000 at September 30, 1996, which represents unpaid fees under the Services
Agreement and other expenses incurred by MEDIQ on behalf of the Company.
12
<PAGE> 13
SIGNATURES
Pursuant to 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, "hereunto duly authorized.
Dated: January 28, 1997 MHM SERVICES, Inc.
By: /s/ Carolyn Zimmerman
-------------------------
Carolyn Zimmerman
Vice President - Finance and Chief
Financial Officer
13
<PAGE> 14
SIGNATURES
Pursuant to 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, "hereunto duly authorized.
Dated: January 28, 1997 MHM SERVICES, Inc.
By: /s/ Carolyn Zimmerman
-------------------------
Carolyn Zimmerman
Vice President - Finance and Chief
Financial Officer
14
